Handbook of International Investment Law and Policy 2021

Julien Chaisse
Leïla Choukroune
Sufian Jusoh
Editors
Handbook of
International
Investment Law
and Policy
Handbook of International Investment Law
and Policy
Julien Chaisse • Leı̈la Choukroune •
Sufian Jusoh
Editors
Handbook of International
Investment Law and Policy
With 17 Figures and 23 Tables

Editors
Julien Chaisse Leïla Choukroune
School of Law School of Business and Law
City University of Hong Kong University of Portsmouth
Kowloon, Hong Kong SAR Portsmouth, UK
Hong Kong Commercial and
Maritime Law Centre
Kowloon, Hong Kong SAR
Sufian Jusoh
Institute of Malaysian and
International Studies
National University of Malaysia
Bangi, Selangor, Malaysia
ISBN 978-981-13-3614-0 ISBN 978-981-13-3615-7 (eBook)

ISBN 978-981-13-3616-4 (print and electronic bundle)
https://doi.org/10.1007/978-981-13-3615-7
© Springer Nature Singapore Pte Ltd. 2021
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Foreword
The origins of the law governing private foreign investment and the means of
settlement of disputes arising therefrom go back to the second half of the nineteenth
century, particularly, though not exclusively, to the dialectics between the newly
rising Western Power, the USA, and its southern neighbors, the newly independent
Latin American Republics that constituted the Third World of the nineteenth century.
The latter insisted on the national standard of treatment and national jurisdiction and
defended them through legal devices such as the Calvo clause and the Drago
Doctrine, while the former insisted on an international standard of treatment as
applicable law and practiced self-help as redress, if need be through forcible
intervention. These dialectics reached their apogee at the beginning of the twentieth
century with the siege and bombardment of the ports of Venezuela that had defaulted
on its public debt, until it accepted to go to arbitration. An equilibrium was thought
to have been reached in the Drago-Porter Convention, adopted during the second
International Peace Conference held at the Hague in 1907, which prohibited the use
of force for the collection of debt, if the debtor country accepted to go to arbitration.
That which led no lesser authority than Professor and later Judge Philip Jessup to
write in the early 1950s that “the history of the development of the international law
on the responsibility of State for injuries to aliens is thus an aspect of the history of
imperialism or dollar diplomacy” (A Modern Law of Nation, 1952, p. 96).
Coincidently, during that same period of early to mid-1950s that saw the publi-
cation of Jessup’s book, this apparent equilibrium was perturbed by serious efforts of
some developing countries to recover control over their national resources, through a
series of spectacular nationalizations in Guatemala, Iran, and Egypt. Nationaliza-
tions that met by vigorous responses in the form of covert intervention leading to
regime change in the first two instances, and an overt military invasion that failed to
achieve the same result in the third, the economic dispute over compensation being
settled later on through the intermediation of the World Bank in the last instance.
And it was within that same World Bank that germinated the idea of the Washington
Convention adopted in the mid-1960s, establishing the “International Center for the
Settlement of Investment Disputes” (ICSID) between government and private for-
eign investors, avowedly for the purpose of “depoliticizing” such disputes. A Center
v
vi Foreword
which remained somnolent for its first quarter of a century until it was frenetically
awakened by the fall of the Berlin Wall, the end of the Cold War, and what some
thought was “the end history,” with the final triumph of neoliberalism and “market
democracy.” This led to a prodigious proliferation of Bilateral Invest Treaties (BITs),
interpreted as automatically referring disputes mainly to ICSID, or to other arbitral
mechanisms, and triggering a huge amount of practice as well as great professional
interest and enthusiasm for the subject.
However, what was initially thought to be a final station turned out to be a brief
historical lull abruptly brought to an end politically and economically by two violent
chocks at the beginning and the end of the first decade of the twenty-first century:
politically, by the 9/11 (2001) terrorist attacks and economically by the financial
(sub-prime) crisis of 2008. This crisis marked the turn of the tide as far as the frenetic
enthusiasm for this new mode of settlement of disputes, not so much in practice
which continued to flow on the basis of the thousands of investment treaties already
in existence (and even some newly concluded ones), but in the mood that changed
radically from blindfolded adherence to widespread critical questioning, both among
its supporters, to make up for its revealed inadequacies and ensure its durability, and
among its opponents who are intent to change it radically, or even replace or dispose
of it entirely.
It is against this background of generalized critical reconsideration and ebullient
confrontation of ideas that the present Handbook of International Investment Law
and Practice (which I have the pleasure and privilege to preface) endeavors to chart
the entire field of private foreign investment law as it developed historically, as it
stands today and as it may evolve in the future. It is an excellent substantial volume
of more than a hundred essays that stands out by its comprehensive coverage,
thorough analysis, and multiplicity of perspectives, leading paradoxically to an
integrated and dynamic view of a whole field of international law in the throes of
laborious mutations. The comprehensive sweep of the Handbook, both ratione
materiae and ratione personae, is indeed impressive. As concerns subject-matter,
the essays canvass in detail the substantive rules that constitute the applicable law in
the field; the interaction of this law as lex specialis or special regime with general
international law as well as with other special regimes such as environmental law
and human right; the institutional setup of investor-State dispute settlement (ISDS)
and the procedural rules that govern it; and last but not least, the “contemporary
developments and new trends,” including the criticisms of the system, largely
emanating from the Global South, as well as the different reform or replacement
plans, whether on the universal (UNCITRAL, ICSID), regional (EU, ASEAN),
bilateral, or national policy level, but also interesting development that are taking
place simultaneously in practice, which are particularly perceptible in the Global
South, which is embracing and questioning international investment law at the same
time. The Handbook is also comprehensive ratione personae. For while it includes
many Western contributors and well-established figures in the field, it allows a large
space to younger scholars and those from the Global South where practice is actually
relaboring the field and reshaping its landscape.
Foreword vii
We owe a great debt to Professors Julien Chaise, Leïla Choukroune, and Sufian
Jusoh, the General Editors, for having devised and brought to fruition this impressive
and highly useful Handbook which I am confident will prove to be an indispensable
guide to anyone who is interested in this highly important and rapidly changing field
of international law.
Geneva Georges Abi-Saab

August 2021 Honorary Professor of International
Law at Graduate Institute of
International and Development Studies
Preface
International Investment Law has never been so popular. From Yukos to Vattenfall,
Phillip Morris or Vodafone, investor-state dispute settlement (ISDS) cases have
made the global headlines and generated unprecedented interest from a large audi-
ence. Yet, the technicalities of this rather complex field of international law are
largely ignored by the same well-intentioned civil society which passionately chal-
lenges the merits of a system perceived as oppressive for the State and its people.
Naming and shaming, but why and what for? This sharp contrast between a general
appetite for the field and the limited specialized yet readable tools available to
comprehend it has inspired our project. Our aim was to deliver a scholarly reference
of genuine global nature accessible to a large audience. The fast-changing pace and
still poorly documented nature of international investment law and policy as a field
of international economic law and general international law inspired us to embark
upon these fascinating projects.
This handbook is the first modern comprehensive instrument on international
investment law and policy. It brings together more than a hundred contributions by
leading scholars and practitioners. It is truly global in its vision and outreach. It can
be used as a one-stop reference, but also on a more specialized basis as each chapter
is available online for single purchase. This handbook is a technical yet accessible
tool. It is extremely comprehensive in that it covers all aspects of international
investment law and policy at a great level of details and yet it is readable by
nonspecialists. We have also made sure that all the issues addressed are seen in a
more general context, that of international law and global economic relations. Our
introductions to each part of the handbook provide a useful preliminary discussion
replacing the questions at stake in a particular context. Our approach is also both
longitudinal and political in that it integrates on a long-term and critical vision.
A lot is yet to happen in this field, with new global players from the South, the
impact of the COVID-19 pandemic, or the complexification of dispute settlement
with numerous fora and techniques. International investment law can be seen as the
most dynamic field of international law and, to some extent, the most challenging
both for its technical and eminently political nature.
ix
x Preface
Our ambition is to update this handbook regularly to ensure a timely and agile
intellectual response to one of the most fascinating disciplines of our times. Hence,
we hope to contribute to a universal, interdisciplinary, and dynamic approach of
international law and politics.
Kowloon, Hong Kong SAR Julien Chaisse

Portsmouth, UK Leïla Choukroune
Bangi, Malaysia Sufian Jusoh
August 2021
Contents
Volume 1
Part I Definitions, Standards of Treatment, Promotion and

Protection of International Investments . . . . . . . . . . . . . . . . . . . . . . . 1
1 Definitions, Standards of Treatment, Promotion and Protection

of International Investments: An Introduction . . . . . . . . . . . . . . . 3
Julien Chaisse, Leïla Choukroune, and Sufian Jusoh
Part II Definitions and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2 The Concept of “Investment”: Treaty Definitions and

Arbitration Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Wenhua Shan and Lu Wang
3 The Definition of Investor in Investment Treaty Arbitration . . . . 45

Domenico Di Pietro and Kevin Cheung
4 Specific Approval Requirement in Investment Treaties:

A Pursuit of Legitimate Policy Objectives . . . . . . . . . . . . . . . . . . 71
Teerawat Wongkaew
5 Legitimate Expectations in Investment Treaty Law:

Concept and Scope of Application . . . . . . . . . . . . . . . . . . . . . . . . 97
Emmanuel T. Laryea
6 Good Faith in International Investment Law and Policy . . . . . . . 121

Sanja Djajić
7 Investment Promotion Agencies: Investment Attraction,

Policy Role, and Response to Crises . . . . . . . . . . . . . . . . . . . . . . . 155
Carlos Portales Undurraga and Cristián Rodríguez Chiffelle
8 Effects of BITs on FDI: The Role of Publication Bias ......... 181

Lorenz Reiter and Christian Bellak
xi
xii Contents
9 Protection of Cross-Border Data Flows Under

International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Sheng Zhang
Part III Standards of Treatment, Promotion, and Protection .... 233
10 The National Treatment Obligation: Law and Practice of

Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Manini Brar
11 The Standard of Most-Favored-Nation Treatment in
Investor-State Dispute Settlement Practice . . . . . . . . . . . . . . . . . . 271
James M. Claxton
12 The MFN Clause in Investment Law and Arbitration:
A Developing Countries Perspective . . . . . . . . . . . . . . . . . . . . . . . 303
Tanjina Sharmin
13 Full Protection and Security and Its Overlap with Fair
and Equitable Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
Romesh Weeramantry
14 Performance Requirement Prohibitions in International
Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357
David Collins
15 Local Content Policies and Their Implications for International
Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
Damilola S. Olawuyi
16 The Umbrella Revolution: State Contracts and Umbrella
Clauses in Contemporary Investment Law . . . . . . . . . . . . . . . . . . 399
Olga Boltenko
17 Standard of Compensation for Expropriation of Foreign
Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
R. Rajesh Babu
18 Judicial Expropriations: Difficulties in Drawing the Line
Between Adjudication and Expropriation . . . . . . . . . . . . . . . . . . 437
Sara Mansour Fallah
19 Inclusion of Investor Obligations and Corporate
Accountability Provisions in Investment Agreements . . . . . . . . . . 463
Nathalie Bernasconi-Osterwalder
20 Non-precluded Measures Clauses: Regime, Trends,
and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483
Dilini Pathirana and Mark McLaughlin
Contents xiii
21 National Security: The Role of Investment Screening

Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507
Georgios Dimitropoulos
22 National Security Exception in an Era of Hegemonic Rivalry:

Emerging Impacts on Trade and Investment . . . . . . . . . . . . . . . . 545
Joel Slawotsky
23 Essential Security Interests in International Investment Law:

A Tale of Two ISDS Claims Against India . . . . . . . . . . . . . . . . . . 579
Prabhash Ranjan
Volume 2
Part IV Investor-State Dispute Settlement (ISDS): Procedural

and Substantial Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603
24 Investor-State Dispute Settlement (ISDS): An Introduction . . . . . 605

Part V ISDS Policy in Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . 623
25 Prevention of ISDS Disputes: From Early Resolution to Limited

Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625
Yulia Levashova
26 The Politics of Investor-State Dispute Settlement:

How Strategic Firms Evaluate Investment Arbitration . . . . . . . . 647
Srividya Jandhyala
27 Investor State Dispute Settlement and Host Country Regulation:

Insights from Economic Theory . . . . . . . . . . . . . . . . . . . . . . . . . . 665
Eckhard Janeba
28 Model Instrument for Management of Investment Disputes . . . . 681

Alejandro Carballo Leyda
29 Investor-State Conflict Management Mechanisms (CMMs)

in International Investment Law: A Preliminary Sketch
of Model Treaty Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 709
Roberto Echandi
30 Mediation as an Alternative Method to Settle Investor-State

Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 759
Herman Verbist
xiv Contents
31 Past and Future of Mediation for Investment Disputes:

The Case for the Asia-Pacific Regional Mediation
Organization (ARMO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 787
Chang-fa Lo
32 International Investment Issues Examined in Other International
Adjudicatory Bodies: Guidance from ICJ’s Observation? . . . . . . 807
Jaemin Lee
33 “One-Stop” Commercial Dispute Resolution Services:
Implications for International Investment Law . . . . . . . . . . . . . . 825
Mark Feldman
34 The ICS and MIC Projects: A Critical Reviewof the Issues
of Arbitrator Selection, Control Mechanisms, and Recognition
and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841
Nikos Lavranos
35 Corruption in Investor-State Arbitration: Balancing the Scale
of Culpability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 865
Ayodeji Akindeire
36 Crime in International Investment Arbitration . . . . . . . . . . . . . . 881
Krista Nadakavukaren Schefer
Part VI Procedural and Substantial Issues ................... 917
37 Arbitral Procedure: Case Management and Selecting the

Place of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 919
Chiann Bao
38 Tribunal Jurisdiction and the Relationship of Investment
Arbitration with Municipal Courts and Tribunals . . . . . . . . . . . . 943
Catherine Amirfar and Nelson Goh
39 Jurisdictional Objections and Defenses (Ratione Personae,
Ratione Materiae, and Ratione Temporis) . . . . . . . . . . . . . . . . . . . 983
Sungjin Kang
40 Denial of Benefits in Investment Arbitration: Genesis,
Trends, and Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1013
Intan Murnira Ramli
41 Toward Higher Coherence in Shareholder Claims for
Reflective Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1033
Benny Wuenschmann
42 Anti-arbitration Injunctions in Investor-State Arbitration:
Instruments of “Abuse of Process” . . . . . . . . . . . . . . . . . . . . . . . . 1063
Sai Ramani Garimella and Wasiq Abass Dar
Contents xv
43 Emerging Practice on Investor Diligence: Jurisdiction,

Admissibility, and Merits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1079
Matthew A. J. Levine
44 Relevance of Domestic Court Decisions to the Merits in

Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1103
Trisha Mitra
45 Applicable Law in Investment Arbitration . . . . . . . . . . . . . . . . . . 1123

Benedetta Cappiello
46 Selection, Bias, and Ethics of Arbitrators in Investor-State

Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1149
Mariel Dimsey and Sanjna Pramod
47 Managing Conflict of Interest in International Arbitration:

The Role of the IBA Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . 1189
Ricardo Dalmaso Marques and Fernanda Marques Dal Mas
48 Drafting a Twenty-First-Century Code of Conduct for

International Investment Adjudicators . . . . . . . . . . . . . . . . . . . . . 1197
Katia Fach Gómez
49 Arbitration Clauses Limited to Compensation due to

Expropriation: Relevant Case Law, Interpretive Trends,
and the Case of China’s Treaty Policy and Practice . . . . . . . . . . . 1223
G. Matteo Vaccaro-Incisa
50 Bilcon v. Canada: A New Paradigm for Causation in

Investor-State Arbitration? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1261
George J. Somi
51 Counterclaims Admissibility in Investment Arbitration . . . . . . . . 1277

Molly Anning
52 Evidence in International Investment Arbitration . . . . . . . . . . . . 1327

Mark W. Friedman and Guilherme Recena Costa
53 Public Participation: Amicus Curiae in International Investment

Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1371
Fernando Dias Simões
54 Third-Party Funding in Investment Arbitration . . . . . . . . . . . . . 1397

Stavros Brekoulakis and Catherine A. Rogers
55 Damages and Valuation in International Investment

Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1423
Christina L. Beharry and Elisa Méndez Bräutigam
xvi Contents
56 The Issue of Costs: How much does ISDS Cost and Who
Bears the Cost? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1455
Noam Zamir
57 Enforcement of Investment Arbitration Awards . . . . . . . . . . . . . 1475

Leonardo Borlini and Stefano Silingardi
58 State Immunity in the Context of Enforcement of

Investment Arbitration Awards . . . . . . . . . . . . . . . . . . . . . . . . . . 1499
Adrian Lai
59 ISDS Control Mechanisms (Annulment and Setting Aside) . . . . . 1533

Lin Jacobsen
60 The Importance of Transparency for Legitimizing

Investor-State Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . 1563
Flavia Marisi
Volume 3
Part VII Regimes Interactions: International Investment

Law and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1583
61 Regimes Interactions: International Law Investment and . . . – An

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1585
Part VIII General International Law and International

Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1601
62 General International Law and International Investment

Law: A Systematic Analysis of Interactions in Arbitral
Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1603
D. Mejía-Lemos
63 International Investment Law: A Self-Proclaimed Ally in

Commission’s Rule of Law Endeavors . . . . . . . . . . . . . . . . . . . . . 1653
Bartosz Soloch
64 The Notion and Development of International Investment

Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1685
Yuwen Li
Contents xvii
Part IX Human Rights, Sustainable Development, and

International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1705
65 Human Rights in International Investment Law and

Adjudication: Legal Methodology Questions . . . . . . . . . . . . . . . . 1707
Ernst-Ulrich Petersmann
66 International Investment Agreements and Human Rights:
Assessing the Role of the UN’s Business and Human
Rights Regulatory Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1733
Surya Deva
67 Business and Human Rights in International Investment
Law: Empirical Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1759
Isabella Seif
68 Multinational Enterprises and the Global Investment
Regime: Toward Balancing Rights and Responsibilities . . . . . . . 1783
Karl P. Sauvant
69 Human Rights and Environmental Counterclaims in
Investment Treaty Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 1831
James J. Nedumpara and Aditya Laddha
70 Public Health in International Investment Law and
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1851
Elizabeth Sheargold and Andrew D. Mitchell
71 Protecting Cultural Heritage in International Investment
Law: Tracing the Evolution and Treatment of Cultural
Considerations in Recent FTAs and Investor-State
Jurisprudence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1877
Elsa Sardinha
72 The Environment, Human Rights, and Investment
Treaties in Africa: A Constitutional Perspective . . . . . . . . . . . . . . 1903
Dominic Npoanlari Dagbanja
73 Achieving Sustainable Development Objectives in
International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1933
Gudrun Monika Zagel
Part X International Economic Law and International

Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1987
74 Intellectual Property Rights in International Investment

Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1989
Lukas Vanhonnaeker
xviii Contents
75 Tax Incentives: From an Investment, Tax, and Sustainable

Development Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013
Irma Johanna Mosquera Valderrama
76 Interactions Between Taxation Measures and International

Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2035
Vatsal Vasudev
77 The Interactions of Competition Law and Investment Law:

The Case of Chinese State-Owned Enterprises and EU
Merger Control Regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2055
Alexandr Svetlicinii
78 The Role of Competition Law in the Investment Policy

in ASEAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2077
Haniff Ahamat
79 Incorporating Investment in Services into the World

Trade Organization Framework . . . . . . . . . . . . . . . . . . . . . . . . . . 2099
Tomohiko Kobayashi
80 Multilateral and Bilateral Energy Investment Treaties . . . . . . . . 2115

R. Leal-Arcas and V. Nalule
Volume 4
Part XI Contemporary Developments and New Trends in

International Investment Rulemaking and Investor-State
Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2129
81 Contemporary Developments and New Trends in International

Investment Rulemaking and Investor-State Dispute Settlement:
An Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2131
Part XII Critical Perspectives: Looking Back and Beyond ....... 2143
82 Resistance to Dominance in International Investment Law . . . . . 2145

Muthucumaraswamy Sornarajah
83 Critical Perspectives on International Investment Law . . . . . . . . 2161

Thamil Venthan Ananthavinayagan
84 Public Interest and International Investment Law:

A Critical Perspective on Three Mainstream Narratives . . . . . . . 2185
Alessandra Arcuri and Federica Violi
Contents xix
Part XIII National and Regional Approaches ................. 2211
85 Investment in the European Union: Competences, Structures,

Responsibility and Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2213
Christoph Herrmann and Mareike Hoffmann
86 EU Investment Agreements: A New Model for the Future . . . . . 2263
Angelos Dimopoulos
87 From Arbitral Tribunals to a Multilateral Investment
Court: The European Union Approach . . . . . . . . . . . . . . . . . . . . 2285
Marc Bungenberg and August Reinisch
88 A Study in Gold: Gabriel Resources v Romania. Qui Prodest?
The NeoLiberal Rhetoric and the Multifaceted Impact of
the Investment Agreement in Ros‚ ia Montană . . . . . . . . . . . . . . . . 2321
Cătălin-Gabriel Stănescu
89 From Arbitration to the Investment Court System (ICS):
Comparing CETA, EVIPA, and TTIP . . . . . . . . . . . . . . . . . . . . . 2349
Vanina Sucharitkul
90 China’s Bilateral Investment Treaties . . . . . . . . . . . . . . . . . . . . . . 2375
Heng Wang and Lu Wang
91 From SEZ to FTZ: An Evolutionary Change Toward FDI
in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2395
Jiaxiang Hu
92 Resolving the Tension Between State Sovereignty and
Liberalizing Investor-State Disputes: China’s Dilemma . . . . . . . . 2417
Leon Trakman
93 Which Way Huawei? ISDS Options for Chinese Investors . . . . . 2451
Ioannis Glinavos
94 The Future of Investor-State Dispute Settlement:
Exploring China’s Changing Attitude . . . . . . . . . . . . . . . . . . . . . 2483
Ming Du and Wei Shen
95 Chinese Investment in Africa: An Empirical Investigation
of Trends, Dynamics, and Regulatory Challenges . . . . . . . . . . . . 2507
Ying Xia
96 ICS from South East Asia Perspective . . . . . . . . . . . . . . . . . . . . . 2539
Wenny Setiawati
97 International Investment Agreements and Investor-State
Arbitration in Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2561
Vivienne Bath and Luke Nottage
xx Contents
98 Evolution of International Investment Agreements

in Africa: Features and Challenges of Investment Law
“Africanization” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2597
Makane Moïse Mbengue and Stefanie Schacherer
99 Walking the SADC Protocol on Finance and Investment
Protocol Route: Of the Fork in the Road and Exhausting
Domestic Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2619
Samamba Lennox Trivedi
100 The Evolution of the System of Foreign Investment Protection
in Ecuador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2645
Sebastian Espinosa
101 Intra-Latin America Investor-State Dispute Settlement . . . . . . . . 2677
Rodrigo Polanco Lazo and Anqi Wang
102 Mapping the Investor State Dispute Settlement (ISDS)
Regime of Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2709
Rumana Islam
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2757
About the Editors
Dr. Julien Chaisse is Professor at the City University

of Hong Kong, School of Law. He is a globally recog-
nized authority on the intersection between international
economic law (trade, investment, and tax), international
dispute resolution, and the transnational law of globali-
zation. His scholarship, which includes a dozen books
and over 60 articles and book chapters, has created an
enduring presence in the academic space and has even
been cited by international courts/tribunals as well as US
courts. In 2021, he was awarded the prestigious Smit-
Lowenfeld Prize of the International Arbitration Club of
New York for the best article published in the field of
international arbitration. As a leading scholar in the field
of international economic law, he sits on the editorial
board of several high-impact international journals, and
he is currently joint editor-in-chief of the Asia Pacific
Law Review. Teaching in Europe and Asia-Pacific for
almost 20 years, he has advised and mentored three
dozen students and has lectured in more than a dozen
graduate and undergraduate courses. He is an experi-
enced arbitrator and he adjudicated on more than
20 cases (some of which have been cited and discussed
in the international press). He is also frequently called
upon to appear as an expert witness on arbitration law
issues in international arbitration proceedings or
enforcement actions before domestic courts. He is a
sought-after consultant/expert to international organiza-
tions, governments, law firms, and private investors. He
has advised international organizations and govern-
ments on private and public international law issues
(including concessions contracts, special economic
xxi
xxii About the Editors
zones, investment structuring, State and international

organization immunities, and WTO accession) and
assisted with the drafting of legislation in Austria,
Azerbaijan, Canada, Ivory Coast, France, Georgia,
Mongolia, Morocco, Pakistan, and Vietnam. Prior to
joining City University School of Law, Dr. Chaisse
taught at the Chinese University of Hong Kong (2009–
2019) where he served as research center director and
Ph.D. and M.Phil. program director. He earlier worked
as deputy head of the team analyzing the rules for
multilateral trade and investment agreements at the
World Trade Institute (Switzerland, 2006–2009), lec-
turer at elite school Sciences Po Aix (France, 2004–
2006), and as junior lawyer for the French Ministry of
Foreign Affairs in New Delhi (Embassy of France in
India, 2001–2004).
Leïla Choukroune is Professor of international law

and Director of the University of Portsmouth Thematic
Area in Democratic Citizenship.
Her research focuses on the interactions between
international trade and investment law, human rights,
development studies, jurisprudence, and social theory.
For the past 20 years, it has been applied to the Global
South in India, South Asia, China, and East Africa, in
particular.
She has published about 100 scientific articles, book
chapters, and journal special issues in English, French,
Spanish, and Chinese. She also has authored more than
10 books, including Judging the State in International
Trade and Investment Law (2016), Exploring Indian
Modernities (2018), Adjudicating Businesses in India
(2021), and International Economic Law (2021).
She is editor of the Springer book series International
Law and the Global South (https://www.springer.com/
series/13447?detailsPage¼titles-) and the Routledge
book series Human Rights, Citizenship and the Law
(https://www.routledge.com/Studies-in-Citizenship-
Human-Rights-and-the-Law/book-series/HRLCITIZE
NSHIP). She is also associate editor of the Manchester
Journal of International Economic Law (https://www.
electronicpublications.org/catalogue.php?id¼48#board)
About the Editors xxiii
and member of the editorial boards of the leading peer-

reviewed journals China Perspectives and Perspectives
Chinoises. She is working on the creation of a new
journal in international law and development with a
Global South orientation. She regularly publishes in
the global media and has given a large number of inter-
views about her research and its impact.
Together with Professor James Nedumpara, she is
cochair of the South Asia International Economic Law
Network (SAIELN), a learned society that endeavors to
foster research and publication in international
economic law.
She has taught all disciplines of international law to
graduate and postgraduate students as well as special-
ized executive courses and programs in Europe, Asia,
and Africa. She has also supervised and mentored a very
large number of students at master’s and PhD levels.
Professor Choukroune is regularly solicited as an
independent expert on international economic law and
business and human rights issues. She has been an
independent adviser to the International Federation of
Human Rights (FIDH) and a member of the French
National Books Commission (CNL).
She is officer of “l’Ordre du mérité” (Knight of the
Order of Merit – conferred by the French government).
Before joining the University of Portsmouth, she was
director of the Centre for Social Sciences and Humani-
ties (CSH), a research unit of the CNRS based in New
Delhi (India); associate professor in the Law Faculty at
Maastricht University (Netherlands); deputy director of
the Institute for Globalization and International Regula-
tion (IGIR); director of the advanced master’s in inter-
national economic law (Maastricht University); assistant
professor at HEC Paris; consultant for the OECD; lec-
turer at Paris I Panthéon-Sorbonne; and researcher at the
French Centre for Research on Contemporary China
(CEFC), a unit of the CNRS in Hong Kong.
Professor Choukroune holds a doctorate in interna-
tional law (summa cum laude – highest honor) from the
University Paris I Panthéon Sorbonne and is a qualified
lawyer to the Paris Bar. She is fluent in French, English,
and Spanish; speaks Chinese and German; and learns
Hindi.
xxiv About the Editors
Sufian Jusoh is Director and Professor of international

trade and investment at the Institute of Malaysia and
International Studies, Universiti Kebangsaan Malaysia.
Sufian is chair of the ASEAN Integration Grand Chal-
lenge for Universiti Kebangsaan Malaysia.
Sufian is also an external fellow at the World Trade
Institute, University of Bern, Switzerland, and a distin-
guished fellow at the Institute of Diplomacy and Foreign
Relations, Ministry of Foreign Affairs, Malaysia. He is
now an international investment law expert with the
World Bank Group. Sufian is cofounder of the
ASEAN Economic Integration Forum and member of
the Pacific Economic Cooperation Council Malaysian
Chapter. He also plays a key role in the reform of
investment laws in Myanmar, Timor Leste, Laos, and
the Federated States of Micronesia.
Sufian has been a consultant to many countries and
international organizations such as the World Bank, the
Asian Development Bank, ASEAN, the World Trade
Organization, the World Intellectual Property Organiza-
tion, the United Nations’ Conference on Trade and
Development, and the United Nations’ Economic Com-
mission for Asia and the Pacific.
Sufian is a barrister-at-law (England and Wales) at
Lincoln’s Inn, London. He holds an LLB from Cardiff
Law School, an LLM (Merit) from the University Col-
lege London, and a Doctor of Law (summa cum laude)
from the University of Bern, Switzerland.
Contributors
Haniff Ahamat Faculty of Law, National University of Malaysia, Bangi, Malaysia

Ayodeji Akindeire American University Washington College of Law, Washington,
DC, USA
Catherine Amirfar Debevoise & Plimpton LLP, New York, NY, USA
Thamil Venthan Ananthavinayagan Griffith College Dublin, Dublin, Ireland
Molly Anning Victoria University of Wellington, Wellington, New Zealand
Alessandra Arcuri Erasmus School of Law, Erasmus Initiative Dynamics of
Inclusive Prosperity, Erasmus University, Rotterdam, The Netherlands
R. Rajesh Babu Indian Institute of Management Calcutta, Kolkata, West Bengal,
India
Chiann Bao Arbitration Chambers, Hong Kong, China
Vivienne Bath Sydney Law School, The University of Sydney, Sydney, NSW,
Australia
Christina L. Beharry Foley Hoag LLP, Washington, DC, USA
Christian Bellak Vienna University of Economics and Business, Vienna, Austria
Nathalie Bernasconi-Osterwalder International Institute for Sustainable Development,
Geneva, Switzerland
Olga Boltenko Fangda Partners Hong Kong, The University of Hong Kong, Hong
Kong, Hong Kong SAR PRC
Leonardo Borlini Department of Legal Studies, Bocconi University, Milano, Italy
Manini Brar Advocate, Delhi, India
Tribunal Secretary, Singapore, Singapore
Stavros Brekoulakis Queen Mary University of London, London, UK
Marc Bungenberg Faculty of Law, Saarland University, Saarbrücken, Germany
xxv
xxvi Contributors
Benedetta Cappiello Faculty of Law, Università degli Studi di Milano, Milan, Italy
Department of Italian and Supranational Public Law, University of Milan, Milan,
Italy
Alejandro Carballo Leyda General Counsel and head of the Conflict Resolution
Centre, Energy Charter Secretariat, Brussels, Belgium
Julien Chaisse School of Law, City University of Hong Kong, Kowloon, Hong
Kong SAR
Hong Kong Commercial and Maritime Law Centre, Kowloon, Hong Kong SAR
Kevin Cheung Bryan Cave Leighton Paisner LLP, London, UK
Leïla Choukroune School of Business and Law, University of Portsmouth,
Portsmouth, UK
James M. Claxton Rikkyo University, Tokyo, Japan
David Collins International Economic Law, City, University of London, London,
UK
Dominic Npoanlari Dagbanja Law School, The University of Western Australia,
Perth, WA, Australia
Ricardo Dalmaso Marques University of São Paulo (USP), São Paulo, Brazil
Wasiq Abass Dar Jindal Global Law School, O.P. Jindal Global University,
Sonipat, India
Surya Deva City University of Hong Kong, Hong Kong, China
Fernando Dias Simões Faculty of Law of the Chinese University of Hong Kong,
Hong Kong, China
Georgios Dimitropoulos Hamad Bin Khalifa University (HBKU) College of Law,
Doha, Qatar
University College London (UCL) Centre for Law, Economics and Society, London,
UK
Angelos Dimopoulos Queen Mary University of London, London, UK
Domenico Di Pietro International Arbitration Professional, Bryan Cave Leighton
Paisner LLP, Miami, FL, USA
Mariel Dimsey CMS Law Firm, Hong Kong, Hong Kong
Sanja Djajić Department for International Law, School of Law, University of Novi
Sad, Novi Sad, Serbia
Ming Du Durham Law School, Durham, UK
Roberto Echandi Trade and Regional Integration Unit, World Bank Group,
Washington DC, USA
Contributors xxvii
Sebastian Espinosa Secretariat for Legal Affairs, Presidency of the Republic,

Ecuador, Quito, Ecuador
Katia Fach Gómez Zaragoza University, Zaragoza, Spain
Mark Feldman School of Transnational Law, Peking University, Shenzhen, China
Mark W. Friedman Debevoise & Plimpton LLP, New York, NY, USA
Sai Ramani Garimella Faculty of Legal Studies, South Asian University, New
Delhi, India
Research Centre on Private International Law in Emerging Countries, University of
Johannesburg, Johannesburg, South Africa
Ioannis Glinavos School of Law, University of Westminster, London, UK
Nelson Goh Debevoise & Plimpton LLP, London, UK
Christoph Herrmann Passau University, Passau, Germany
Mareike Hoffmann Department for Public Law, European Law, European and
International Economic Law, Faculty of Law, University of Passau, Passau,
Germany
Jiaxiang Hu KoGuan Law School, Shanghai Jiao Tong University, Shanghai,
China
Rumana Islam University of Dhaka, Dhaka, Bangladesh
Lin Jacobsen Ogier Law Firm, Hong Kong, People’s Republic of China
Srividya Jandhyala ESSEC Business School, Singapore, Singapore
Eckhard Janeba Department of Economics, University of Mannheim, Mannheim,
Germany
Sufian Jusoh Institute of Malaysian and International Studies, National University
of Malaysia, Bangi, Selangor, Malaysia
Sungjin Kang Kim & Chang, Seoul, South Korea
Tomohiko Kobayashi Department of Law, Otaru University of Commerce, Otaru,
Hokkaido, Japan
Aditya Laddha LLM Candidate at Masters in International Dispute Settlement
(MIDS), Geneva, Switzerland
Adrian Lai Asian Academy of International Law, Hong Kong, China
Emmanuel T. Laryea Faculty of Law, Monash University, Melbourne, VIC,
Australia
Nikos Lavranos Free University Brussels, Brussels, Belgium
xxviii Contributors
R. Leal-Arcas Centre for Commercial Law Studies, Queen Mary University,

London, UK
Yale Law School, New Haven, CT, USA
Jaemin Lee School of Law, Seoul National University, Seoul, South Korea
Yulia Levashova Nyenrode Business University, Breukelen, Netherlands
Utrecht University, Utrecht, Netherlands
Matthew A. J. Levine Barrister & Solicitor (Law Society of Ontario), Toronto,
ON, Canada
Yuwen Li Law School of Erasmus University Rotterdam, Rotterdam,
The Netherlands
Chang-fa Lo National Taiwan University College of Law, Constitutional Court
Justice, Taipei, Taiwan
Sara Mansour Fallah Department of European, International and Comparative
Law, University of Vienna, Vienna, Austria
Flavia Marisi Faculty of Law and Criminology, Ghent University, Ghent, Belgium
Fernanda Marques Dal Mas Pinheiro Neto Advogados, São Paulo, Brazil
Mark McLaughlin Faculty of International Law, China University of Political
Science and Law, Beijing, China
D. Mejía-Lemos National University of Singapore, Singapore, Singapore
Xi’an Jiaotong University, Xi’an, China
Elisa Méndez Bräutigam Foley Hoag LLP, Washington, DC, USA
Andrew D. Mitchell Melbourne Law School, University of Melbourne, Melbourne,
VIC, Australia
Trisha Mitra Shearman & Sterling LLP, Paris, France
Makane Moïse Mbengue University of Geneva, Geneva, Switzerland
Irma Johanna Mosquera Valderrama Faculty of Law, Institute of Tax Law and
Economics, Leiden University, Leiden, The Netherlands
Krista Nadakavukaren Schefer Swiss Institute of Comparative Law, Lausanne,
Switzerland
V. Nalule University of Dundee, Dundee, Scotland, UK
James J. Nedumpara Centre for Trade and Investment Law, Indian Institute of
Foreign Trade, New Delhi, India
Contributors xxix
Luke Nottage Sydney Law School, The University of Sydney, Sydney, NSW,
Australia
Damilola S. Olawuyi College of Law, Hamad Bin Khalifa University, Doha, Qatar
Dilini Pathirana Faculty of Law, University of Colombo, Colombo, Sri Lanka
Ernst-Ulrich Petersmann European University Institute, Florence, Italy
Rodrigo Polanco Lazo World Trade Institute – University of Bern, Bern,
Switzerland
Swiss Institute of Comparative Law, Lausanne, Switzerland
Carlos Portales Undurraga Heidelberg University and University of Chile, Pro-
videncia, Chile
Sanjna Pramod Hong Kong, Hong Kong
Intan Murnira Ramli Policy Design Department, Economic Research Institute for
ASEAN and East Asia (ERIA), Jakarta, Indonesia
Prabhash Ranjan South Asian University, New Delhi, India
Guilherme Recena Costa Debevoise & Plimpton LLP, New York, NY, USA
August Reinisch Faculty of Law, University of Vienna, Vienna, Austria
Lorenz Reiter Vienna University of Economics and Business, Vienna, Austria
Cristián Rodríguez Chiffelle David Rockefeller Center for Latin American
Studies (DRCLAS) at Harvard University, Luksic Visiting Scholar, Cambridge,
MA, USA
Catherine A. Rogers Penn State Law School, University Park, PA, USA
Elsa Sardinha Faculty of Law, McGill University, Montreal, QC, Canada
Karl P. Sauvant CCSI, Columbia University, New York, NY, USA
Stefanie Schacherer University of Geneva, Geneva, Switzerland
Isabella Seif Université de Paris 1 (Panthéon-Sorbonne), Hong Kong, Hong Kong
Wenny Setiawati Faculty of Law, Universitas Indonesia, Depok, Indonesia
Wenhua Shan Xi’an Jiaotong University School of Law, Xi’an, China
Tanjina Sharmin Faculty of Law, Monash University, Monash, VIC, Australia
Elizabeth Sheargold School of Law, University of Wollongong, Wollongong,
NSW, Australia
Wei Shen Shanghai Jiaotong University Law School, Shanghai, China
xxx Contributors
Stefano Silingardi Department of Legal Studies, University of Modena, Modena,

Italy
Joel Slawotsky IDC Law and Business Schools, Herzliya, Israel
Bartosz Soloch Department for International and European Law, University of
Łódź, General Counsel to Republic of Poland, Warsaw, Poland
George J. Somi Worcester, MA, USA
Muthucumaraswamy Sornarajah Emeritus Professor of Law, National University
of Singapore, Singapore, Singapore
Cătălin-Gabriel Stănescu Centre for Market and Economic Law, University of
Copenhagen, Copenhagen, Denmark
Vanina Sucharitkul Université Paris Descartes, Paris, France
Alexandr Svetlicinii Faculty of Law, University of Macau, Macao SAR, China
Leon Trakman Faculty of Law, University of New South Wales, Sydney, NSW,
Australia
Samamba Lennox Trivedi School of PostGraduate Studies, University of Lusaka,
Lusaka, Zambia
G. Matteo Vaccaro-Incisa European University Institute (EUI), Florence, Italy
Lukas Vanhonnaeker Faculty of Law, McGill University, Montréal, QC, Canada
Vatsal Vasudev Dispute Settlement Lawyer, World Trade Organization (Present),
Geneva, Switzerland
Herman Verbist Everest Attorneys, Ghent and Brussels, Belgium
Federica Violi Erasmus School of Law, Erasmus University, Rotterdam,
The Netherlands
Anqi Wang World Trade Institute – University of Bern, Bern, Switzerland
Heng Wang Herbert Smith Freehills China International Business and Economic
Law (CIBEL) Centre, Faculty of Law, the University of New South Wales, Sydney,
NSW, Australia
Lu Wang Herbert Smith Freehills China International Business and Economic Law
(CIBEL) Centre, Faculty of Law, the University of New South Wales, Sydney, NSW,
Australia
Romesh Weeramantry Clifford Chance, Singapore, Singapore
Teerawat Wongkaew Ministry of Foreign Affairs, Thailand, Bangkok, Thailand
Benny Wuenschmann Dispute Resolution and Corporate/M&A/VC, Flick Gocke
Schaumburg, Germany, Berlin
Contributors xxxi
Ying Xia Harvard Law School, Harvard University, Cambridge, MA, USA
Gudrun Monika Zagel Department of Public, International and European Law,
University of Salzburg School of Law, Salzburg, Austria
Noam Zamir Faculty of Law, Lyon Catholic University, Lyon, France
Sheng Zhang School of Law, Xi’an Jiaotong University, Xi’an, China
Part I
Definitions, Standards of Treatment,
Promotion and Protection of International
Investments
Definitions, Standards of Treatment,
Promotion and Protection of International 1
Investments: An Introduction
Julien Chaisse, Leı̈la Choukroune, and Sufian Jusoh
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Foreign Investments Promotion and Protection Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Expansion of Foreign Direct Investments and the Challenge of the Covid-19
Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Increasing Complexity of Investment-Related Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
International Investment Agreements’ Core Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
International Investments Standards of Treatment, Promotion, and Protection . . . . . . . . . . . . . 12
Demystifying Investor-State Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Multilateral and Regional Approach Towards Investment Facilitation Frameworks . . . . . . . . 14
Rethinking IIAs and ISDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Contemporary Evolution of International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Modernizing Existing (Old-Generation) Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Different Contemporary Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Challenges Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
J. Chaisse (*)
School of Law, City University of Hong Kong, Kowloon, Hong Kong SAR
e-mail: julien.chaisse@cityu.edu.hk
L. Choukroune
School of Business and Law, University of Portsmouth, Portsmouth, UK
e-mail: leila.choukroune@port.ac.uk; leila.choukroune@csh-delhi.com
S. Jusoh
Institute of Malaysian and International Studies, National University of Malaysia, Bangi, Selangor,
Malaysia
© Springer Nature Singapore Pte Ltd. 2021 3

J. Chaisse et al. (eds.), Handbook of International Investment Law and Policy,
https://doi.org/10.1007/978-981-13-3615-7_48
4 J. Chaisse et al.
Abstract
The fact that foreign investments can be beneficial to growth and development is
now generally accepted. However, opening up to Foreign Direct Investment has not
always been governments’ priority. Not to mention that international investments can
also challenge States’ sovereignty. This pendulum swing between liberalization and
restriction has called for regulation. The regulatory effort takes place on three
different, yet interrelated plans: domestic legislation, State contracts, and interna-
tional investment law. The latest has greatly evolved from the early Treaties of
Friendship and Navigation to today’s mega regional deals offering a complex set
of trade rules. In spite of its extreme variety, international investment law finds a form
of regulatory coherence around the definition of standards of treatment, protection,
and promotion of the investment and investor. These standards are critically
addressed in the “Definitions, Standards of Treatment, Promotion and Protection of
International Investments” part of our Handbook, which provides the reader with a
very accurate and insightful overview of a fast-changing field firmly grounded in
public international law and yet touching upon a large variety of other legal domains.
Keywords
United nations · World bank · APEC · ASEAN · Global investment
competitiveness report · Group of 20 · Friends of investment facilitation for
development · Reform package for the international investment regime
Introduction
The fact that foreign investments can be beneficial to growth and development is
now generally accepted. However, opening up to Foreign Direct Investment (FDI)
has not always been governments’ priority. Not to mention that international invest-
ments can also challenge States’ sovereignty in many ways from access to resource
to the treatment of labor. As reminded by Muthucumaraswamy Sornarajah, interna-
tional investment law was originally designed in the context of the gunboat diplo-
macy and has managed to reinvent itself numerous times hence framing dissent, but
not necessarily questioning its very foundations.1 This pendulum swing between
liberalization and restriction has called for regulation. The regulatory effort takes
place on three different, yet interrelated plans: domestic legislation, State contracts,
and international investment law. Initial attempts were clearly made to protect and
promote investments and investors against the instability of national regulation in the
context of power domination and later decolonization2.
1
See Muthucumaraswamy Sornarajah, ▶ Chap. 82, “Resistance to Dominance in International
Investment Law.”
2
For a historical and international economic law perspective on the evolution of FDIs, see
Choukroune L, Nedumpara J (2021) International economic law. CUP.
1 Definitions, Standards of Treatment, Promotion and Protection of. . . 5
If considered essential to the economy, FDIs are not alien to the various risks
involved with international deals, which necessitate the existence of investment protec-
tion mechanisms including for redress against the possible wrongs engaging the State’s
responsibility. This apparent unbalance in favor of the foreign investor has only recently
captured the attention of a larger community of international law scholars while
triggering great interest in civil society and student audiences alike. This new interest
is commensurable and parallel to the significant increase of FDI in the past two decades.
Yet international investment law has greatly evolved from the early Treaties of
Friendship and Navigation to today’s mega regional deals offering a complex set of
trade rules with, for instance, the Transatlantic Trade and Investment Partnership
(TTIP) various negotiation projects, the concluded Trans-Pacific Partnership (TPP)
which later became the Comprehensive and Progressive Agreement for Trans-pacific
Partnership (CPTPP) and African Continental Free Trade Area (AfCFTA), or the
Regional Comprehensive Economic Partnership (RCEP). With around 3000 Inter-
national Investment Agreements (IIAs) including 2340 Bilateral Investment Treaties
(BITs) in force and 319 Treaties with Investment Provisions (TIIPs) in force too, the
scope of international investment law is simply immense3.
In spite of its extreme variety, international investment law finds a form of
regulatory coherence around the definition of standards of treatment, promotion,
and protection of international investments and investors. These standards are
critically addressed in the “Definitions, Standards of Treatment, Promotion and
Protection of International Investments” part of our Handbook, which provides the
reader with a very accurate and insightful overview of a fast-changing field of public
international law touching upon a large variety of other legal domains.
Foreign Investments Promotion and Protection Agreements
What is there in common between the first original Bilateral Investment Treaty (BIT)
between Germany and Pakistan, today’s mega trade deals, and the new generations of
BITs? The first ever BIT was to protect Pakistan’s investments in Wes Germany rather
than the other way around. This is contrary to the majority view that the BIT was to
protect the West German’s investment in Pakistan. However, since then, many BITs
were signed between investing developed nations to protect the developed nations
investors and their investments in the developing nations. Over time, with more outward
FDIs between developing countries, there are more BITs signed between these coun-
tries, such as those taking place in ASEAN and many other developing economies.
Times have changed: from a general reluctance to open up too much to FDI, the
world has now embraced liberalization policies, while, at the same time, these
political choices are under the scrutiny of a global civil society wary of the human
and environmental risks generated by international investments. New players have
3
See UNCTAD for the latest data on IIAs at: https://investmentpolicy.unctad.org/international-
investment-agreements
6 J. Chaisse et al.
emerged with the much greater role of developing economies and their firms in not
only receiving but also generating FDI. As observed by Karl P. Sauvant, while the
“activities of Multinational Enterprises have grown substantially over the past three
decades,” “many of the shortcomings” of the international investment regime “are
the result of its expansion during a period when the focus was almost exclusively on
the responsibility of host countries.”4 This complexity needs to be better understood
and calls for profound changes.
The Expansion of Foreign Direct Investments and the Challenge of

the Covid-19 Pandemic
The last three decades have seen the global amplification of international financial
flows in the form of foreign direct investments notably. Recent trends are illustrative
of the constant state of flux of these FDI. According to the 2019 UNCTAD World
Investment Report, Global FDI flows continued to fall in 2018 by 13% to $1.3 tril-
lion. FDI flows to developed economies reached the lowest point since 2004,
declining by 27%5. However, flows to developing countries remained stable, rising
by 2%. As a result, the share of developing countries in global FDI increased to 54%,
a record high which produces a number of policy implications of importance for the
development of international investment law. Developing Asia is particularly well
placed as the largest recipient of FDI in the developing world. Despite a decline of
6%, flows to developing Asia continued to account for one-third of global FDI in
2019. Looking ahead, the UNCTAD expected FDI flows to rise marginally in 2020
but with the Covid-19 pandemic crisis, trends are fast changing.
On 26 March 2020, UNCTAD estimated future decline in global FDI in 2020
caused by Covid-19 will range from 30% to 40%.6 The highly impacted sectors cover
basic materials; consumer cyclicals (including airlines ( 116%), hotels, restaurants,
and leisure); energy (-208%); and industrials (including automotive ( 47%) and
electronics).7 The world’s largest MNCs in the automotive, airlines, and tourism
sectors have reduced their 2020 earnings estimates by 44%, 42%, and 21%, respec-
tively, on average.8 Major hotel companies are expecting to reduce 70% of hourly
4
See Karl P. Sauvant, ▶ Chap. 68, “Multinational Enterprises and the Global Investment Regime:
Toward Balancing Rights and Responsibilities.”
5
For updates, see the UNCTAD World Investment Reports at: https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/World_Investment_Report.aspx
6
UNCTAD, Global Investment Trend Monitor No.35, Impact of the Covid-19 Pandemic on Global
FDI and GVC, March 2020,
7
FDI and GVC, March 2020, The World Bank Group, Supporting Businesses and Investors
Investment Climate Policy Responses to Covid-19, 2020.
8
FDI and GVC, March 2020.
hotel employees, and airlines will cut their employees’ pay by 25–50%.9 As a result of
Covid-19, more than two-thirds of multinational investors in developing countries are
reporting disruptions in supply chains, declines in revenues, and falls in production.
The World Bank’s survey on the impact of the Covid-19 pandemic shows projects a
worsening investment scenario in the next coming months.10
According to the WTO, Covid-19 poses the most daunting challenges to the trade
of least developed countries.11 This is mainly due to the LDC’s lack of resources to
support economic rebound and the limited number of product ranges exported to few
markets. The downward trend trade in products like textiles and clothing and in
services mainly in tourism revenues have increased pressure on the LDCs. LDCs are
also facing reduced remittances, increasing the needs for FDIs. The WTO states that
as migrant workers from LDCs return from host countries affected by the pandemic,
flows of remittances, a critical source of foreign exchange for many countries, has
also reduced. The reduced remittances may affect these countries in the short term
and medium term.12
In the era of the Covid-19 pandemic, investment promotion and investment
facilitation are becoming more important. In investment promotion, economies are
paying attention to several new growth area. They include digital technology,
communication technology, and e-commerce related services, which see the upward
trend potential. The shifts in habits and the way to do things leads to a substantial
shift toward reliance on e-commerce of goods and services and increasing the
importance of digital technology. In addition, economies may also look at improving
its agriculture sector as a new potential growth and export potential due to the
disruption in the global food supply chain.
Further, the Covid-19 pandemic requires a new approach towards conducting
businesses and investments. Moving forward, international organizations like the
United Nations, the FAO, the OECD, and the World Bank and regional organizations
like APEC and ASEAN encourage businesses to adopt the Inclusive and Responsi-
ble Business Investment principles. These principles will address the environmental,
sustainability, and governance (ESG) issues facing the world. Among issues requir-
ing urgent attention are climate change, labor standards, and ensuring the economic
development are shared equitably across the different levels of the society. For
example, of late, products from ASEAN Member States, such as rubber gloves
and palm oil, face export restrictions by several ASEAN Dialogue Partners. The
Dialogue Partners argue that these businesses engaged practices that go against the
labor and environmental standards.
9
OECD (2020) OECD interim economic assessment, Coronavirus: the world economy at risk.
10
World Bank Group (2020) Global investment competitiveness report 2019/2020: rebuilding
investor confidence in time of uncertainty. World Bank Group, Washington, DC. https://doi.org/
10.1596/978-1-4648-1536-2.
11
World Trade Organisation (2020) The Covid-19 pandemic and trade-related developments in
LDCs, Information Note.
12
World Trade Organisation (2020) The Covid-19 pandemic and trade-related developments in
LDCs, Information Note.
8 J. Chaisse et al.
Members of the public are becoming more conscious of the impact that busi-
nesses and investment have on the environment and the society. This necessitates a
reflection of how today’s businesses are conducted as well as how investments
decisions are made. Investors are encouraged to look into investing in circular
economy, green technology, green finance, and green procurement, while embracing
the digital technology, promotion of good governance, transparency, and responsive
regulations. Businesses are also encouraged to implement the Principles for Respon-
sible Investment in Agriculture under the FOA, and adopt the concept of responsible
production and responsible consumption.
Further, economies will start focusing on investment retention and investment
facilitation. According to the World Bank’s latest Global Investment Competitive-
ness Report 2019/2020, based on a survey of 2,400 global business executives in 10
large middle-income economies, government policies can influence FDI location
decisions.13 Examples of measures that can rebuild investor confidence include
reducing investor risk and increasing policy predictability.
Hence, investment promotion agencies (IPA) can boost their countries’ invest-
ment competitiveness by better aligning their FDI attraction and retention efforts
with market signals and changing investor preferences. Governments can leverage
FDI for robust economic recovery from Covid-19 by avoiding protectionist policies,
seizing new opportunities from changing FDI and supply chain trends, and fostering
global cooperation. To ensure investors’ retention, countries may increase coordi-
nation between central and subcentral agencies, and sectoral agencies. Investment
facilitation tools such the One Stop Center (OSC) and investor-aftercare services
need improvements. Some countries are also having a relook at the fiscal and non-
fiscal incentive schemes. The best practice is for the incentive schemes to be more
targeted towards achieving high quality investments. Some countries are adopting
the cost benefit analysis to ascertain that the selected sectors are capable of contrib-
uting into economic development and transformation.
FDI as well as international investment law are in a perpetual movement of
evolution calling for equally great reforms. States with effective economic liberal-
ization policies have progressively welcomed foreign investment. This evolution has
been particularly significant for developing economies and emerging markets
where companies need funding to expand their international sales. FDIs are pivotal
for the economic development of a nation as the capital inflow of foreign investors
permit strengthening infrastructure, increasing productivity, and creating employ-
ment opportunities in a given country. While FDIs constitute investment in produc-
tion facilities, their significance for developing countries is much greater.
FDIs’ contribution is not only restricted to investible resources and capital forma-
tion, but, perhaps more importantly, it also masquerades as a means of transferring
13
World Bank Group (2020) Global investment competitiveness report 2019/2020: rebuilding
investor confidence in time of uncertainty. World Bank Group, Washington, DC. https://doi.org/
10.1596/978-1-4648-1536-2.
production technology, skills, innovative capacity, and organizational and manage-

rial practices between locations, as well as of accessing international marketing
networks.14 In light of such a desired stature of FDI, 2017 appeared as a milestone
for developing countries, which received $671 billion, or 47% of total global FDI.
Investments rose by 9% in developing Asia, which received $476 billion15.
However, as a consequence, FDIs do carry with them major financial risks for
which investors usually need protection against their contribution. They seek reas-
surance that the contractual protections on the basis of which they have invested will
maintain its status quo for the life of their investment and such growing investment
flows into emerging markets increasing the need for sophisticated risk management
based on strong investment protection. The international protection of investment
seeks to safeguard foreign investments against interference by host State. Once the
investor has sunk in his resources, it becomes vulnerable to the changes
implemented in the host State. Here, the risk of policy changes in the host States
could be higher in the lesser developed economies looking to accept FDIs. Many of
these economies are still developing various policies that may change from time to
time. These economies require a lot more flexibility in policy making. However,
these may not sit well with foreign investors seeking policy stability. Hence, there
will be tensions between maintaining national policy flexibility and the need to
maintain stability sought by investors.
The Covid-19 pandemic can longer assure the policy stability even in the more
developed economies. With the Covid-19 pandemic, more economies are looking at
some forms of protectionism. Developed economies like the European Union and
the United States are becoming more vigilant against what is categorized as “pred-
atory” takeover of strategic assets like biotechnology working on vaccines and
digital technology corporations.16 These economies are undertaking screening of
FDIs, instead of allowing total liberalization. On the other hand, developing econ-
omies, in the quest to retain and attract FDIs, introduced more facilitative measures.
China, India, Indonesia, and Vietnam have introduced new measures to attract,
promote, or facilitate investments. China introduced two direct measures to assist
investors facing Covid-19, i.e., the “Circular Responding to Novel Coronavirus”
which provides for paperless management of foreign investment records and issu-
ance for foreign companies failing to execute contracts during the Covid-19 crisis;
and measures to enhance government assistance to foreign-invested projects and
enterprises in resuming business and production post-Covid-19. Malaysia has also
announced several post-Covid-19 investment climate policies as part of the recovery
and reform plans for the Malaysian economy. The measures include special invest-
ment promotion fund for Malaysian Investment Development Authority (MIDA)
14
Padma M, Sauvant KP (1999) Foreign direct investment in developing countries. F&D 36(1): 34.
15
United Nations Conference on Trade and Development (2018) World investment report 2018:
investment and new industrial policies. UNCTAD WIR, ch 1.
16
See, for example, UNCTAD, Investment Policy Monitor, Issue 23, April 2020.
10 J. Chaisse et al.
amounting to almost USD 12 million and a special project implementation unit to

assist existing investors to implement their investment projects.
Investment protection seeks to mitigate the risks involved under FDIs and aims to
make sure that the investors will be treated fairly when they invest abroad.17 The
desire to draw foreign investment has led most countries to adopt policies that are
designed to create a favorable investment climate, sometimes without thinking about
long-term consequences as far as sovereignty and regulatory independence are
concerned. As a result, realizing that IIAs, especially of the older generation, provide
restrictions on the national policy space, more economies are introducing general
exceptions and security exceptions in the IIAs and domestic investment laws. These
exceptions seek to allow parties’ IIAs flexibility to change national policies as and
when necessary. The required policy space or flexibility has to be balanced with the
protections offered to foreign (and domestic) investors.
There are broadly three investment protection mechanisms offered by the States:
investment national legislation, investment contracts, and investment treaties.
Firstly, a State may enact investment legislation to ensure certain treatment for
investors which may guarantee tax exemption or provide an industry-specific fiscal
regime for investors. However, a major concern for investors still remains that any
protections contained in national legislation may be subject to revocation by a
subsequent government. Sensing this, States are slowly enacting Investment laws
at the national level and in some cases even at subnational levels. These investment
laws adopt internationally acceptable standards of protections, with modifications to
suit national sociopolitical and economic development objectives. Indonesia, Lao
PDR, Myanmar, and Vietnam are among the ASEAN Member States having enacted
Investment Laws. The investment laws provide basic guarantees like non-
discrimination, protection against unlawful expropriation, access to lands, access
to free transfer of funds, and the redefined, often a narrow version of the fair and
equitable equipment. The Investment Laws also provide a broad scope of exceptions
allowing policy space for the Governments.
Secondly, an investor may enter into an investment contract with a host State
such as concession agreements and production sharing contracts in the extractive
industries, under which investors receive protection against their investment in
the exploitation of a State's natural resources. The investment contract may
provide protection as against the amendments in law or regulation adversely
affecting their interests; however, the effectiveness of such provisions in the
face of government action can be variable. The agreement normally includes
specific dispute settlement clauses. It is not unusual for these concession agree-
ments to provide for access to international arbitration or referral to third country
courts, normally from a more legally developed economies like Singapore or the
High Court of England. Thirdly, one of the preferred modes to perforate into FDI
17
EU (2014) Investment Protection and Investor-to-State Dispute Settlement (ISDS) in EU agree-
ments. European Union. https://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152290.pdf
is to enter into investment treaties with host States, a method that has gained rapid
momentum in from the 1990s and with China’s emergence as a global economic
leader in particular18. Investment treaties can be bilateral, i.e., between two
States, or multilateral, i.e., between multiple States, and they are known as
bilateral investment treaties and multilateral investment treaties, respectively
(hereinafter, “BITs” or “MITs”). These treaties commonly include provisions
establishing specific protections for investors from the respective States to
encourage foreign investment. With the advent of time, investment treaties are
often become embedded in the free trade agreement in the form of an investment
chapter. The more recent agreement not only cover investment protections but
also include at least two other pillars, namely investment liberalization and
investment facilitation. Protection and investment dispute provisions are nor-
mally linked with other chapters like services, government procurement, and
State-owned enterprises.
Increasing Complexity of Investment-Related Agreements
International investment treaties, also known as International Investment Agree-

ments (IIAs), constitute one of the most essential instruments to amplify stability
and certainty in investor-State relations.19 BITs are the classical facet of the inter-
national investment regime while Free Trade Agreements (hereinafter, “FTAs”)
including an investment chapter proliferate, 20 with, for example, the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP), one of the largest
trade agreements created after the landmark North American Free Trade Agreement
(hereinafter, “NAFTA”), or the Transatlantic Trade and Investment Partnership
between the EU and the US, whereas the Energy Charter Treaty (hereinafter,
“ECT”) is unique in being an industry-specific trade agreement that is not limited
by geography. There are currently over 2,300 BITs in force, and although there is no
standard form for BITs, many are broadly a collection of similar protections. Several
States having “model” BITs exert them as the basis for negotiation of new treaties.
Arguably, one of the major benefits of investment treaties and investment treaty
arbitration is the creation of a stable legal framework for investment relations based
on general international law which domestic regulation on several occasions lacks
of. Investment treaties can help create the legal and institutional infrastructure
18
See Chaisse J (ed) (2019) China’s international investment strategy, bilateral, regional and global
law and policy. OUP.
19
Schill SW (2015) International investment law and the rule of law. In: Lowell J, Thomas JC, van
Zyl Smit J (eds) Rule of law symposium 2014: the importance of the rule of law in promoting
development. Academy Publishing, Singapore, pp 81–102.
20
Chaisse J (2016) Conceptual paper on the impact of BITs and FTAs on FDI. ARIC. https://aric.
adb.org/pdf/events/aced2016/paper_julienchaisse.pdf
essential for attracting foreign investment into industries and projects that further
host State development especially in countries with weak domestic legal regimes and
dispute settlement mechanisms,21 as stated, for example, in the Agenda 21 of the UN
Conference on Environment and Development.22 In the event of disputes, BITs and
FTAs may provide with a successful recourse to Investor State Dispute Settlement
(ISDS), which may be effective in removing significant disputes between foreign
investors and Government agencies from the purview of local courts and tribunals
since they may be slow, capricious, corrupt, xenophobic, lack of legal professional
capacity or ill-equipped to resolve advanced disputes. However, it is pertinent to note
that such also relegate locals, including domestic businesses to the mercies of these
inadequate institutions.23
International Investment Agreements’ Core Elements
As mentioned above, while extremely diverse in their geographical scope, the

existing International Investment Agreements (IIAs) share a number of common
substantial features. As surprisingly as it might seem, they are not fundamentally
different from the first-ever BIT signed between Germany and Pakistan on 25
November 1959. There are a number of reasons to explain these similarities. Not
only is it because the system has not been deeply questioned by the different
conceptual and political visions on the detriments/benefits of FDIs but also because
IIAs are firmly grounded in general international law and the theory of State
responsibility. Hence, the core elements, and specifically, the standards of treatment,
promotion, and protection found in today’s IIAs share similar features. The devil – or
maybe the willingness to evolve – being in the details, it is, however, important to
study these standards at length and with a historical and political perspective in
mind.
International Investments Standards of Treatment, Promotion, and

Protection
Governments enter into several bilateral and multilateral agreements on investment

protection. These instruments, on the one hand, provide a set of standards that
governments consent to abide by with respect to investors from the country with
which they signed the agreement and, on the other hand, provide mechanisms
21
22
United Nations Conference on Environment and Development (UNCED) (1992) Agenda 21:
programme of action for sustainable development (UN Doc A/Conf.151/6/Rev. 1) at para 2.23.
23
UNDP (2005) Investment provisions in free trade agreements and investment treaties: opportu-
nities and threats for developing countries, 5.
through which investors can seek redressal in the form of damages for the breach of
these terms. Although, there exists disparity in textual form, governments usually
seek to incorporate similar standards in all the agreements of which the most
important provisions to protect foreign investors are national treatment, most-
favored-nation treatment, fair and equitable treatment along with full protection
and security, the ability to repatriate capital and profits in the form of free transfer of
funds24, as well as the guarantees of investors’ property rights. The latest often takes
the forms of compensation provisions to be invoked should an investment be
expropriated by the host State as well as an obligation to provide for free transfer,
which guarantees that investors, directly or indirectly, will be allowed to withdraw
the dividends obtained from their investments and send them back to their country of
origin. These are “absolute” and “non-contingent” obligations as they limit a State’s
ability to impose measures on foreign investors even if these measures are applied
equally to the investors of the State itself.25 Additionally, some other common
protections found in these instruments include the freedom to invest through admis-
sion and establishment of investments to the nationals of contracting States.
All these standards have naturally been addressed in great details in the often
technical literature available on IIAs and in international investment law textbooks.
However, what matters is to approach these common features with a double lens: that
of the international investment technician and that of the international economic
lawyer, that is one able to create bridges between the disciplines of international,
comparative and national law, as proposed in the different chapters composing this
Handbook’s “Definitions, Standards of Treatment, Promotion and Protection of
International Investments” part.
Demystifying Investor-State Dispute Settlement
Investor-State Dispute Settlement (hereinafter, “ISDS”) is a mechanism embodied in

investment and trade agreements, which allows investors to enter into different
forms of settlement with States over treaty breaches. It is a procedural mechanism
authorizing an investor from one country or territory to bring different proceedings,
including arbitral proceedings, directly against the country or the territory in which
the investment was made. The presence of ISDS provisions can be seen in many
international agreements including free trade agreements, bilateral investment
treaties, multilateral investment agreements, national investment laws, and invest-
ment contracts. If an investor from one country or the “home State” invests in
another country or the “host State,” both of which have agreed to ISDS, and
24
In addition, the Myanmar Investment Law 2016 even addressed the free transfer of funds from
abroad to domestic and foreign investors. This is because of historical restrictions of capital inflow
into the country and domestic investors needs to access to the cheaper foreign capital to support
their businesses.
25
Houde M-F (2006) Novel features in recent OECD bilateral investment treaties. In: International
investment perspectives. OECD.
subsequently, the host State violates the rights granted to the investor under public
international law, then that investor may sue the host State in neutral arbitration as a
recourse to the domestic courts of the host State approach. Although ISDS is invoked
as a catch-all term, there exists a wide variety of divergence in scope and process.
ISDS provisions are intended to avoid State-to-State conflict, protect citizens abroad,
and signal to potential investors that their rights will be enforced. Without ISDS
provisions, an investor would normally need to seek the intervention of the govern-
ment of its home State to enforce its rights through the diplomatic or administrative
channels. Treaty-based investment protection represents a major advance in the fair
treatment of the concerned parties and the peaceful resolution of disputes. However,
of late, ISDS has been under major scrutiny from academia, civil society, and later
governments hence leading to the formulation of reform proposals. These different
options for reforms are addressed in great details in one dedicated part of our
Handbook, but it is already important to allude to them while approaching the
international investment standards as disputes are indeed settled on the basis of
specific standards provided for in IIAs. Interactions are as great as the reform
challenges. Reforming ISDS without deeply transforming IIAs drafting and sub-
stance reveals a delicate if not impossible or illogical enterprise.
Multilateral and Regional Approach Towards Investment Facilitation

Frameworks
Since the last few years, the concept of investment facilitation has found its way onto
the agenda of academic discussions and policy debates on global investment gover-
nance.26 In 2016, UNCTAD released the “Global Action Menu for Investment Facil-
itation,” consisting of 10 Action Plans.27 The 10 Action Plans are to promote
accessibility and transparency in the formulation of investment policies and regulations
and procedures relevant to investors; to enhance predictability and consistency in the
application of investment policies; to improve the efficiency of investment administra-
tive procedures; to build constructive stakeholder relationships in investment policy
practice; to designate a lead agency, focal point or investment facilitator with specific
mandates; to establish monitoring and review mechanisms for investment facilitation;
to enhance international cooperation on investment facilitation; to strengthen invest-
ment facilitation efforts in developing-country partners, through support and technical
assistance; to enhance investment policy and proactive investment attraction in devel-
oping country partners, through capacity-building; and to complement investment
facilitation by enhancing international cooperation for investment promotion for devel-
opment, including through provisions in international investment agreements.
26
Berger et al (2019) Investment facilitation for development: a new route to global investment
governance, DIE Briefing Paper No 5.
27
UNCTAD (2016) Trade and development board sixty-third session Geneva, TD/B/63/CRP.2.
In the same year, the Group of 20 (G20) trade ministers agreed on the nonbinding
“Guiding Principles for Global Investment Policymaking,” which were formally
adopted later that year at the G20 Hangzhou Summit. Other international organiza-
tions, such as the Organization for Economic Cooperation and Development
(OECD), have worked on the issue of investment facilitation as well, which resulted
in Policy Framework for Investment;28 and the Asia-Pacific Economic Cooperation
(APEC) also adopted an Investment Facilitation Action Plan in 2008.29 Furthermore,
The World Bank also launched Investment Policy and Promotion (IPP) Logical
Framework and refers to investment facilitation as “the most basic and cost-effective
activity to support foreign investment promotion”.30
Recent discussions in the WTO, however, driven by emerging countries, have
taken a new route.31 The adoption of the Trade Facilitation in 2017 has given the right
momentum for investment facilitation discussions. The initiatives for the investment
facilitation multilateral framework started by the Friends of Investment Facilitation for
Development (FIFD), who launched an open-ended Informal Dialogue on Investment
Facilitation for Development in the WTO.32 It continues as an Informal Dialogue,
which was developed to a Joint Ministerial Statement (JMS), co-sponsored by 70
Members at the 11th WTO Ministerial Conference in December 2017.33 The JMS
aimed to form structured discussions to develop a multilateral framework on invest-
ment facilitation.34 The Structured Discussion is expected to improve the transparency
and predictability of investment measures, streamline and speed up administrative
procedures and requirements, enhance international cooperation, information sharing,
the exchange of best practices, and relations with relevant stakeholders, including
dispute prevention, and facilitate greater developing and least-developed Member
participation in global investment flows.35 However, the discussions shall not address
market access, investment protection, and Investor-State Dispute Settlement.36
Rethinking IIAs and ISDS
The regime of IIAs is hence undergoing a thorough revaluation to align with the
global trend of adopting sustainable development goals. The United Nations
28
OECD (2015) Policy framework for investment 2015. OECD.
29
APEC (2019) Investment facilitation action plan. APEC.
30
Novik A, Crombrugghe (2018) Towards an international framework for investment facilitation.
OECD.
31
Berger, Investment facilitation for development: a new route to global investment governance,
Op.Cit.
32
WTO, Trade Dialogues: Investment Facilitation for Development.
33
Ibid.
34
Ibid.
35
Ibid.
36
Ibid.
Conference on Trade and Development (UNCTAD) is playing a key part in this

endeavor and in the formulation of ISDS alternatives in particular37. The United
Nations Commission on International Trade Law (UNCITRAL), Working Group III
(ISDS reform) has also taken the lead, together with the UNCTAD, to rethink
ISDS38. Improving ISDS is indeed one of the areas at the heart of the IIAs reform
debate aimed at overcoming what has been defined as “a legitimacy crisis.”39 The
rationale behind the introduction of IIAs was that of supporting and enhancing FDI,
however, even after decades of such consideration, no conclusive proof of increased
flow of such investment has been furnished. The proponent of IIAs’ sole focus on
FDI flows is misguided as the complete image would require to measure the
contribution of IIAs to sustainable development and the costs, for example, in
terms of compromising national policy space. IIAs remain inadequate in serving
its purpose as various provisions under it which seek to explicitly protect and
promote social and environmental goals have proven to be ineffective and significant
decisions by international investment tribunals do not appropriately balance investor
rights with the broader sustainable development objectives.40 Furthermore, IIAs
have been criticized owing to their limitation to only treaty claims, for instance, a
variation of dispute settlement clauses limited to treaty claims, explicitly referring to
“obligations of host States,” has recently been interpreted as excluding counter-
claims before an ICSID tribunal, some IIAs require lapse of waiting period to solve
dispute amicably, only then can investors institute arbitration, at times, they combine
waiting periods with the obligation to litigate in a domestic forum requiring exhaus-
tion of local remedies first, for instance, Calvo Doctrine – inspired preference for
domestic remedies would deny a foreign investor access to international arbitration
at all and some even carve out certain areas from their scope of application, including
dispute settlement thereby leading to subject-matter restrictions.41 Comprehensively,
the existence of such complications calls for a need to reorient the international
investment law as often demonstrated by the different chapters of this “Definitions,
Standards of Treatment, Promotion and Protection of International Investments”
part.
37
See generally the UNCTAD dedicated pages at: https://unctad.org/en/pages/DIAE/DIAE.aspx
See as well, the UNCTAD reform package for IIAs at: https://investmentpolicy.unctad.org/
uploaded-files/document/UNCTAD_Reform_Package_2018.pdf
38
See the different related work sessions and working papers at: https://uncitral.un.org/en/working_
groups/3/investor-state
39
United Nations Conference on Trade and Development (2018) World investment report 2018:
investment and new industrial policies. UNCTAD WIR, p 128.
40
Garcia FJ, Aisbett E, Choudhury B, de Schutter O, Harrison J, Hong S, Johnson L, Kane M, Peña
S, Porterfield M, Sell S, Shay SE, Wells LT (2018) Rethinking international investment governance:
principles for the 21st century. Columbia Center on Sustainable Investment Books 1.
41
Bernardini P (2017) Reforming investor–state dispute settlement: the need to balance both parties’
interests. ICSID Rev 32(1): 38–57.
Contemporary Evolution of International Investment Law
While some change seems underway, it is yet difficult to gauge treaties drafters’ real
ambition. IIAs reform too often appears as cosmetic, as a form of modernization, yet
without the will to truly respond to the most pressing challenges of our times. There
are nevertheless certain contemporary evolutions, which deserve our attention.
These are reflected in the drafting of the core IIAs standards as demonstrated in
the following chapters.
Modernizing Existing (Old-Generation) Treaties
As alluded to above, over the last decade, investment arbitration has experienced
significant criticism culminating into a debate around the investment treaty design,42
which may be triggered to keep in pace with the evolving international law of foreign
investment. International organizations such as UNCTAD, UNCITRAL, or even the
Organization for Economic Cooperation and Development (OECD) are now advocat-
ing IIAs reform packages. Numerous actors from India to Canada to the European
Commission are contemplating investment treaty policies. This reorientation has
manifested itself empirically. States are adding new obligations to their treaties, includ-
ing in relation to investor conduct. Clarifications of existing disciplines and procedures
for solving treaty-related disputes are on the rise. Moreover, there is now more
conscientiousness around the importance of policy space under investment treaties.
Part of the trigger for this change can be attributed to the wave of arbitration claims that
succeeded the 1990s’ boom in investment treaty signing. There is little knowledge
about whether there exists a link between treaty design and the risk of attracting claims
for arbitration or to what extent new treaty clauses such as general public policy
exception clauses matter in litigation. On the issue, UNCTAD recommends that States
consider omitting or reformulating provisions in their future investment treaties to
increase clarity and predictability. Some States, such as Canada and the United States,
took early measures to this effect by including more explicit and explanatory language
in their 2004 model investment treaties. Other like India, Indonesia, and the Nether-
lands have publicly stated that many of the investment treaties they signed in the past
are too vague and insensitive to the balance between investor rights and obligations.
Cumulatively, whether we are in a time of productive reform and evolution remains to
be seen, however, many a times, evolution does not necessarily result in survival.43
42
Laudal Berge A, Alschner W (2018) Reforming investment treaties: does treaty design matter?.
Investment Treaty New. https://cf.iisd.net/itn/2018/10/17/reforming-investment-treaties-does-
treaty-design-matter-tarald-laudal-berge-wolfgang-alschner/
43
Pearsall PW (2018) The role of the state and the ISDS trinity. AJIL 112: 249–254.
Different Contemporary Approaches
Despite the myriad reformation under international investment treaties, the element
of uniformity is amiss. The aim of new treaties to improve balance and flexibility
comes at the price of IIA regime being less homogenous. Since the launch of
UNCTAD’s options for Phase 2 of IIA Reform (“WIR17”), multifarious States
have queued to initiate steps to modernize their old-generation treaties. However,
an effective approach to harness international investment relations for the pursuit of
sustainable development requires holistic and synchronized reform through an
inclusive and transparent process, an area where UNCTAD can play an important
facilitating role. The reform of investment dispute settlement, for example, lacks
synchronization with the reform of the substantive rules embodied in IIAs. However,
reorienting the investment policy regime towards sustainable development requires
reforming both the rules on dispute settlement and the treaties’ substantive rules. The
extent of reformation under each case may also vary (significantly) from treaty to
treaty, for instance, “limited ISDS” covers a plethora of options which may range
from a treaty that requires exhaustion of local remedies to a treaty that sets a 3-year
time limit for submitting claims. Approaches of various States can also contrast each
other and act as driving forces, for instance, Brazil opting for the “no ISDS”
approach, India for “limited ISDS,” and the EU for the “standing ISDS tribunal.”
Reform actions have permeated all levels, be it national, bilateral, regional, or
multilateral, covering all five areas of reform set out under UNCTAD’s Reform
Package for the International Investment Regime. Following the gradual changes in
investment treaty making practices over the past 15 years, today’s IIAs regime is
characterized by a number of distinctive features44 and although such reformation is
aimed at an advanced mechanism, the necessity for a holistic and uniform approach
cannot be ignored.
Challenges Ahead
Challenges to international investments are manifold.45 Firstly, investment treaties

implement an asymmetric legal regime by aiming to protect foreign investors
without expressly considering the competing rights and interests that are protected
under national or international law. The interaction of investment treaties with
human rights, public health, environmental law, labor rights, or indigenous rights,
and more generally the question of how much space they give to host governments to
regulate in the public interest is majorly a concern that must be addressed in order to
44
United Nations Conference on Trade and Development (2019) Taking stock of IIA reform: recent
developments (Issue 3).
45
assess what kind of legal regime investment treaties further. Secondly, inconsis-
tencies in arbitral awards constitute a problem for legal certainty and predictability
and hence for a form of global rule of law. Thirdly, concerns over the issue of
accountability of arbitrators in the way they develop the law as there are no
supervisory mechanisms that are comparable to the ones at the domestic level,
namely a supreme or constitutional court at the apex of the court system and the
existence of a legislature that can act against judicial decisions that it considers
undesirable by modifying law to be applied by the courts. Fourthly, the concern
regarding the presence of bias, the question of an alleged pro-investment bias in their
jurisprudence, and lack of independence and impartiality of arbitrators, what is often
called a “double-hat problem,” i.e., the fact that one and the same person can act as
arbitrator in one proceedings and simultaneously as counsel in another case, are valid
notions to be addressed. Finally, the provisions dealing with transparency and third-
party participation are to be addressed. Reducing uncertainty through express
detailed provisions would deter investors from bringing hopeless claims and States
from raising indefensible jurisdictional objections.46 All of enumerated concerns
need further deliberation so as to tackle the challenges in the field of FDIs.
Conclusion
FDIs carries with them various risk factors giving room for investment protection
mechanisms to kick in. These mechanisms in the form of treaties and other instru-
mentalities aim to mitigate potential threats; however, much like any other instrument
of law, they are exposed to inadequacy and ineffectiveness, more so than in others.
Such deficiencies may include but are not limited to existence of bias, ineffectiveness
to increase FDI, limited claim remedy available, ambiguity, extended waiting period,
no alternative remedy other than the one mentioned, restriction upon the subject
matter, lack of transparency, among several others. These shortcomings are not limited
in their operation, rather, they may extend to several spheres of a legal relationship.
As it would logically follow, to overcome such limitations, reformation of the
instruments was seen as the preferred mode to resolve the concerns; however, such
reformation needs to be uniform and holistic which is lacking. Although reform efforts
converge in their objective to make the IIAs regime into a more sustainable develop-
ment-oriented agreement, they are implemented only intermittently by countries and
they focus on specific aspects of the regime that are often addressed in isolation. Such
divergence and disparity from one instrument to another under the purview of interna-
tional law is bound to create a debacle as was also contemplated above. Many variations
in domestic legislations and treaties and agreements may clash with other international
treaties and agreements, therefore, to keep a structured and uniform system of law
governing FDIs, a holistic approach is a prerequisite which is presently ignored.
46
Reinisch A (2013) The scope of investor-state dispute settlement in international investment
agreements. APLR 21(1): 3–26.
As noted throughout the different chapters composing the “Definitions, Standards

of Treatment, Promotion and Protection of International Investments” part of our
Handbook on standards, the need for such reformation and subsequent disparity may
possibly emerge through the ever evolving international law of foreign investment.
As more players enter into the investment market, the structure is bound to be more
complicated. The need for such reconsiderations and debates may also point to the
fact that, with time, more and more investors are preferring the mode of FDIs.
Reformation and reconsideration are apparent, although it is to be supplemented
with mutual cooperation and collaboration to create and value the investment
standards created internationally. With the growing economic development world-
wide, it will be interesting to see how international investment law transcends its
own complications paving a way to a more friendly system of law.
Cross-References
▶ Legitimate Expectations in Investment Treaty Law: Concept and Scope of

Application
▶ Local Content Policies and Their Implications for International Investment Law
▶ National Security: The Role of Investment Screening Mechanisms
▶ Non-precluded Measures Clauses: Regime, Trends, and Practice
▶ Standard of Compensation for Expropriation of Foreign Investment
▶ The National Treatment Obligation: Law and Practice of Investment Treaties
▶ The Standard of Most-Favored-Nation Treatment in Investor-State Dispute
Settlement Practice
Part II
Definitions and Concepts
The Concept of “Investment”: Treaty
Definitions and Arbitration Interpretations 2
Wenhua Shan and Lu Wang
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Definition of “Investment” in Treaty Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Diversity in Investment Definition Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Salient Features in Newer Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Interpretation of “Investment” in Arbitration Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Divergent Interpretations in ICSID Arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Salini Test: “Jurisdictional requirement” or “Characteristics/Indicia”? . . . . . . . . . . . . . . . . . . . . . . 37
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Abstract
The concept of “investment” as a prerequisite for investor-State arbitration has
caused many difficulties and controversies in ISDS practice. In particular, the silence
on the term “investment” under the ICSID Convention has given rise to divided
interpretations in arbitral decisions on whether the tribunal should appreciate and
apply the “ordinary, objective or inherent” meaning of the term “investment” to
establish the ICSID jurisdiction. In response to such controversy and uncertainty,
many States have used various approaches to narrow and clarify the scope of
investment for the avoidance of exposure to ISDS claims, such as the inclusion of
the characteristics of investment, the explicit exclusion of certain assets, and the
requirement of in accordance with host State’s laws. Nonetheless, the effect of such
newer investment treaties remains to be tested in arbitral cases. It is submitted that a
W. Shan
Xi’an Jiaotong University School of Law, Xi’an, China
e-mail: shan@xjtu.edu.cn
L. Wang (*)
Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre, Faculty
of Law, the University of New SouthWales, Sydney, NSW, Australia
e-mail: lu.wang10@unsw.edu.au

https://doi.org/10.1007/978-981-13-3615-7_125
24 W. Shan and L. Wang
“double door” theory may be useful to address the relationship between the Article
25 of the ICSID Convention and the definition of “investment” clause under
applicable investment treaties. For the ICSID jurisdiction, the “objective and inher-
ent meaning” of the term “investment” should be appreciated and applied in
accordance with Article 31 (1) of the VCLT, which include only the minimum
core of the concept. The same ordinary meaning might also be applied in non-ICSID
arbitrations only if the governing substantive treaty does not clearly define what
constitutes an “investment”. In this regard, the definition of investment clause under
investment treaties is likely to subject to greater scrutiny when tribunals apply the
“ordinary meaning” of investment in case the substantive investment treaty failed to
provide a “special meaning” under Article 31(4) of the VCLT.
Keywords
Definition of investment · International investment treaties · Investor-State
arbitration · ICSID Convention · “Salini” test
Introduction
The concept of “investment” is of great importance in both investment treaties and

arbitral practice. It determines not only the subject matter coverage of investment
treaties that enjoy substantive and procedural rights enshrined in international
agreements, but also the jurisdiction ratione materiae for arbitration under Article
25 of the Convention Establishing the International Centre for the Settlement of
Investment Disputes (ICSID Convention).
In practice, however, the interpretation of the concept of investment has not been
an easy task but subject to intense debates. This is because the ICSID Convention
does not define the concept, whilst most investment treaties adopt a broad definition
of investment, literally including every kind of assets. As a result, arbitral tribunals
have been widely divided particularly on whether the concept of investment in the
ICSID Convention and investment treaties should appreciate certain objective
criteria or requirements inherent in the term.
Amidst the ongoing reforms of international investment regime, many newer
treaties have taken different approaches to minimise State’s exposure to investment
arbitration through narrowing the scope of investor-State dispute settlement (ISDS)
subject matter and clarifying the definition of investment. Such newer treaty formu-
lations, however, remain to be tested, as the divergence in interpretation of invest-
ment carries on in recent arbitral cases.
It is against this backdrop that this chapter evaluates the concept of investment in
both investment treaties and investor-State arbitration. Section II reviews the treaty
practice on the definition of “investment” highlighting the salient features found in
some newer investment treaties. Section III critically evaluates the divergent
approaches adopted by arbitral tribunals in the interpretation of the notion of invest-
ment in both ICSID and non-ICSID arbitrations. Section IV concludes the chapter.
2 The Concept of “Investment”: Treaty Definitions and Arbitration Interpretations 25
The Definition of “Investment” in Treaty Practice
Diversity in Investment Definition Clauses
In general, most (if not all) investment treaties provide a definition of “investment”,
but the diversity exists in both the types of definition and specific language used in
different treaties.
There are two main types of definition of “investment” in the over 3000 invest-
ment treaties. Most investment treaties adopt an “asset-based” approach to define
“investment” as “every kind of assets”, which is often followed with an illustrative
list of protected assets.1 Since the categories of assets are provided as examples, any
unlisted assets or interests may also be considered as covered investment. The
coverage of investment under a traditional asset-based definition can be very
broad. Such an open-ended approach to define investment may aim at attracting
and promoting inward foreign investment, but it also can expand the covered
investment to uncontemplated assets and expose States to investment arbitration
beyond expectations.2
By contrast, some investment treaties use an “enterprise-based” approach to
define “investment” as assets and interests related to an “enterprise”.3 Despite of
the narrower coverage, the enterprise-based definition of investment implies to
1
UNCTAD, Scope and Definition: UNCTAD Series on Issues in International Investment Agree-
ment II. (UN 2011) p. 24. See, for example, Art 1 of the UK-Singapore BIT (1975).
2
UNCTAD’s Reform Package for International Investment Regime (2018 Edition), p 42.
3
A typical example is the North American Free Trade Agreement (NAFTA). Article 1139 provides
that investment means:
(a) an enterprise;
(b) an equity security of an enterprise;
(c) a debt security of an enterprise;
(i) where the enterprise is an affiliate of the investor, or
(ii) where the original maturity of the debt security is at least 3 years, but does not include a
debt security, regardless of original maturity, of a state enterprise;
(d) a loan to an enterprise
(ii) where the original maturity of the loan is at least 3 years, but does not include a loan,
regardless of original maturity, to a state enterprise;
(e) an interest in an enterprise that entitles the owner to share in income or profits of the enterprise;
(f) an interest in an enterprise that entitles the owner to share in the assets of that enterprise on
dissolution, other than a debt security or a loan excluded from subparagraph (c) or (d);
(g) real estate or other property, tangible or intangible, acquired in the expectation or used for the
purpose of economic benefit or other business purposes; and
(h) interests arising from the commitment of capital or other resources in the territory of a Party to
economic activity in such territory, such as under
(i) contracts involving the presence of an investor’s property in the territory of the Party,
including turnkey or construction contracts, or concessions, or
(ii) contracts where remuneration depends substantially on the production, revenues or profits
of an enterprise;
protect the affiliation or subsidiary of an enterprise established in accordance with

the host State’s laws as an independent investment. Additionally, under such a
definition, foreign investor can bring claims not only on his own behalf but also
on behalf of the enterprise.4
Salient Features in Newer Investment Treaties
With the rise of ISDS cases, an increasing number of States are aware of the
importance of clarifying the scope of covered investment for minimizing the expo-
sure to investment arbitration and preserving regulatory space. Consequently, States
have used different techniques, as detailed below, to refine the definition of invest-
ment in newer investment treaties.
Characteristics of Investment
Requiring investment to fulfill specific characteristics has become a prominent
feature in many newer investment treaties and a common approach for States to
clarify the concept of covered investment. For example, the Switzerland-Egypt BIT
(2010) provides that “[t]he term ‘investment’ shall include every kind of assets that
has the characteristics of an investment, such as the commitment of capital or other
resources, the expectation of gain or profit, or the assumption of risk”.5 Similarly, the
Austria-Kazakhstan BIT (2010) provide that “. . .[i]nvestment are understood to
have specific characteristics such as the commitment of capital of other resources,
or the expectation of gain or profit, or the assumption of risk”.6 The Singapore-
Myanmar BIT emphasizes, though in a footnote, that “[w]here an asset lacks the
characteristics of an investment, that asset is not an investment regardless of the form
it may take”.7
The specific characteristics of qualified investment may vary in different treaties.
The Colombia-UK BIT (2010), for instance, provides that “to qualify as an invest-
ment under this Agreement, an asset must have the minimum characteristics as
investment, which are the commitment of capital or other resources and the assump-
tion of risk”.8 The China-Japan-Korea investment agreement (2012) provides the
characteristics of an investment to include “the commitment of capital of other
resources, the expectation of gain or profit, or the assumption of risk”.9 Similar
provisions are found in the Comprehensive and Progressive Agreement for Trans-
4
UNCTAD, Scope and Definition: UNCTAD Series on Issues in International Investment Agree-
ment II. (UN 2011) pp. 22–23.
5
Article 1 (1) of the Switzerland-Egypt BIT (2010).
6
Article 1 (2) of the Austria-Kazakhstan BIT (2012).
7
Article 1 of the Singapore-Myanmar BIT under footnote 1.
8
Article I (2) (d) of the Colombia-UK (2010).
9
Article 1 (1) of the China-Japan-Korea Trilateral Investment Agreement (2012).
Pacific Partnership Agreement (CPTPP) and the new United States-Mexico-Canada

Agreement (USMCA).10
Notably, some recent treaties expressly include a certain “duration” as a charac-
teristic of investment. The Morocco-Japan BIT, for instance, provides investment as
every kind of asset that “has the characteristics of an investment, such as the
commitment or capital or other resources, the expectation of gain or profit, the
assumption of risk or certain duration. . .”11 Likewise, the Morocco-Nigeria BIT
provides that the characteristics of investment involves “a commitment of capital or
other similar resources, pending profit, risk-taking and certain duration”.12 In the
Iran-Slovakia BIT, the characteristics of investment include “a reasonable dura-
tion”.13 By contract, the Brazil-India BIT includes “the objective of establishing a
lasting interest” in the characteristics of investment, rather than referring to the
duration.14
Under the EU-Canada Comprehensive Economic and Trade Agreement (CETA),
the characteristics of an covered investment include “a certain duration and other
characteristics such as the commitment of capital or other resources, the expectation
of gain or profit, or the assumption of risk”.15 In March 2020, the European Union
(EU) proposed a draft on the modernization of the Energy Charter Treaty (ECT)
where it provided that an asset must have “the characteristics of an investment,
including such characteristics as a certain duration, the commitment of capital of
other resources, the assumption of risk, or the expectation of gain and profit”.16 One
month later, however, the EU released a revised draft proposal following comments
by the EU Member States, in which the EU clarified that “the criteria describing the
characteristics of an investment should not all be presented in a facultative manner –
as ‘a certain duration’ is indeed mandatory whereas other elements are not and
therefore the ‘or’ needs to be replaced by ‘and’”. The changed provision is in line
with the CETA text and the EU-Viet Nam Investment Protection Agreement.17
Another noteworthy development regarding the characteristics of investment is
the requirement for an investment to contribute to the (sustainable) development of
the host State. For example, the Egypt-Mauritius BIT and the 2015 Indian Model
BIT expressly provide the contribution to (sustainable) development as
10
Article 9.1. of the CPTPP and Article 14.1 of the USMCA.
11
Article 1 (a) of the Morocco-Japan BIT (2020)
12
Article 1 of the Morocco-Nigeria BIT (2016).
13
Article 1 (2) of the Iran-Slovakia BIT (2016).
14
Article 2.4 of the India-Brazil BIT (2020).
15
Article 8.1 of the CETA (2016).
16
See Council of the European Union, ‘Energy Charter Treaty Modernisation: Draft EU proposal’ 2430/
2020 INIT, Brussels, 02 March 2020 https://www.politico.eu/wp-content/uploads/2020/03/Proposal_
Treaty.pdf?utm_source¼POLITICO.EU&utm_campaign¼75bec6754f-EMAIL_CAMPAIGN_2020_
03_25_06_46&utm_medium¼email&utm_term¼0_10959edeb5-75bec6754f-189693589. Switzer-
land, Albania, Azerbaijan and Georgia have made similar proposals.
17
See Article 1.2 (h) of the EU-Viet Nam Investment Protection Agreement (2019).
characteristics of investment.18 Likewise, the India-Kyrgyz BIT provides that the

characteristics of an investment include “a significance for the development of the
Party in whose territory the investment is made”.19 The Iran-Slovakia BIT requires
the investment to make “an effective contribute to the Host State’s economy”.20
A few recent treaties also refer to the contribution to sustainable development in
the definition of investment, though not specify it as a characteristic of investment.
For example, the Morocco-Nigeria BIT provides that investment means “an
enterprise. . . together with the asset of the enterprise which contribute sustainable
development of that Party and has the characteristics of an investment. . .”21 Notably,
the 2019 Morocco Model BIT not only provides that investment means “an asset that
over a certain duration, contributes to the sustainable development of the host party”,
but also proposes non-exhaustive indictors for measuring the contribution to sus-
tainable development, including: increased production capacity, economic growth,
quality of jobs created, duration of the investment, technology transfer, and reduc-
tion of poverty.22
Explicit Exclusion of Certain Investment

Another prominent development and common approach in newer investment treaties
is to expressly exclude certain assets from the definition of investment for greater
certainty and to avoid extending treaty protections to uncontemplated investments.
For example, the USMCA provides that “investment means every asset. . . that has
the characteristics of an investment. . . but investment does not mean: (i) an order or
judgement entered in a judicial or administrative action; (j) claims to money that
arise solely from: (i) commercial contracts for the sale of goods or services by a
natural person or enterprise in the territory of a Party to an enterprise in the territory
of another Party, or (ii) the extension of credit in connection with a commercial
contract referred to in subparagraph (j)(i)”.23 The Canada-Kuwait BIT contains
similar exclusions.24
The CETA provides that forms of investment include “claims to money” exclud-
ing: (a) claims to money that arise solely from commercial contracts for the sale of
goods or services by a natural person or enterprise in the territory of a Party to a
18
Article 1 (1) of the Egypt-Mauritius BIT (2014) and Article 1.4 of the 2015 Indian Model BIT.
19
Article 1.4 of the India-Kyrgyz BIT (2019). Similar provision is also found in paragraph 4.3 of the
India’s Consolidated Interpretive Statements for BITs with 25 countries.
20
Article 1 (2) of the Iran-Slovakia BIT (2016).
21
Article 1 of the Morocco-Nigeria BIT. Furthermore, Article 24 provides that “investors and their
investments should strive to make the maximum feasible contributions to the sustainable develop-
ment of the Host State and local community through high levels of socially responsible practices”.
22
See Article 3.3 of the 2019 Morocco Model BIT, cited in Hamed El-Kady, ‘Morocco’s New Model
BIT: Innovative features and policy considerations”, Investment Treaty News, May 14, 2020 https://
iisd.org/itn/2020/05/14/moroccos-new-model-bit-innovative-features-and-policy-considerations/
23
Article 14.1 of the USMCA.
24
Article 1 of the Canada-Kuwait BIT.
natural person or enterprise in the territory of the other Party. (b) the domestic
financing of such contracts; or (c) any order, judgment, or arbitral award related to
sub-subparagraph (a) or (b)” from the definition of investment.25 The EU-Singapore
BIT specifies that “an order or judgement entered in a judicial or administrative
action shall not constitute in itself an investment”.26 The CPTPP also expressly
excludes order and judgement from the covered investment.27
In a draft proposal for the modernisation of the ECT, the EU specified “claims to
money” in line with the CETA text and also proposed to exclude “an order or
judgement entered in a judicial or administrative action or an arbitral award” from
the definition of investment.28 In a revised proposal, the EU further added clarifying
that “a simple loan or financial contribution does not constitute an investment” and
“commercial creditors, including lenders or any other third parties to the investment
are not protected under the ECT”.29
A few recent treaties have further narrowed the coverage of investment with a
more extensive “negative list”. For example, the Kyrgyz-India BIT provides that
“investment does not include the following assets of an enterprise: (i) portfolio
investments of the enterprise or in another enterprise; (ii) debt securities issued by
a government or government-owned or controlled enterprise, or loans to a govern-
ment or government-owned or controlled enterprise; (iii) any pre-operational expen-
diture relating to admission, establishment, acquisition or expansion of the enterprise
incurred before the commencement of substantial business operations of the enter-
prise in the territory of the Party where the investment is made; (iv) claims to money
that arise solely from commercial contracts for the sale of goods or services by a
national or enterprise in the territory of a Party to an enterprise in the territory of
another Party; (v) goodwill, brand value, market share or similar intangible rights;
(vi) claims to money that arise solely from the extension of credit in connection with
any commercial transaction; (vii) an order or judgment sought or entered in any
judicial, administrative or arbitral proceeding; (viii) any other claims to money that
do not involve the kind of interests or operations set out in the definition of
25
Article 8.1 of CETA.
26
Article 1.2.1 of the EU-Singapore BIT, footnote 2.
27
Article 9.1 of CPTPP.
28
Council of the European Union, Brussels, 02 March 2020 WK 2430/2020 INIT, ‘Energy Charter
Treaty Modernisation: Draft EU proposal”. https://www.politico.eu/wp-content/uploads/2020/03/Pro
posal_Treaty.pdf?utm_source¼POLITICO.EU&utm_campaign¼75bec6754f-EMAIL_CAMPAIGN_
2020_03_25_06_46&utm_medium¼email&utm_term¼0_10959edeb5-75bec6754f-189693589
29
Council of the European Union, Brussels, 20 April 2020 WK 3937/2020 INIT, ‘ECT Moderni-
sation: Revised Draft EU proposal”, https://www.euractiv.com/wp-content/uploads/sites/2/2020/
04/EU-Proposal-for-ECT-Modernisation-V2.pdf
investment in this Treaty.”30 The Brazil-India BIT contains a similar “negative list”
to further qualify the coverage of investment.31
Likewise, for the avoidance of doubt, the Iran-Slovakia BIT expressly provides
that the term “investment” shall not include:
a) goodwill or market share;

b) portfolio investment, which is 10% or less shareholding;
c) claims to money deriving solely from commercial contracts for the sale of goods or
services to or from the territory of a Contracting Party to the territory of another country,
or to a State enterprise;
d) futures, swaps, forwards, options, and other derivatives;
e) assets used for non-business purposes, other than assets of research and development of
non-profit organizations;
f) funds;
g) the following loans and debt securities:
i. debt securities and loans with the original maturity of less than 3 years;
ii. a loan to or debt security issued by a financial institution, which is not treated as
regulatory capital by the Contracting Party in whose territory the financial institution
is located;
iii. The extension of credit in connection with a commercial transaction, such as trade
financing.32
Notably, some treaties exclude certain assets from the definition of “investment”
on the ground of the lack of characteristics of investment. The USMCA, for instance,
provides that “[s]ome forms of debt, such as bonds, debentures, and long-term notes
or load, are more likely to have the characteristics of an investment, while other
forms of debt, such as claims to payment that are immediately due, are less likely to
have these characteristics”.33 The Japan-Colombia BIT provides a note for the
characteristics of investment, specifying that “[e]ach Contracting Party recognizes
that some claims to money that (i) are immediately due and result solely from export
and import contracts for the sale of goods or services other than such contracts based
on orders habitually secured; or (ii) resulted from credit granted in relation with the
30
Article 1.4 of the Kyrgyz-India BIT.
31
Article 2.4.1 of the India-Brazil BIT provides that investment does not include: “i) an order or
judgment sought or entered in any judicial, administrative or arbitral proceeding; ii) debt securities
issued by a Party or loans granted from a Party to the other Party, bonds, detentures, loans or other
debt instruments of-a State-owned enterprise of a Party that is considered to be public debt under the
law of that Party; iii) any expenditure incurred prior to the obtainment of all necessary licenses,
permissions, clearances and permits required under the law of a Party; iv) portfolio investments of
the enterprise or in another enterprise; v) claims to money that arise solely from commercial
contracts for the sale of goods or services by a national or an enterprise in the territory of a Party
to an enterprise in the territory of another Party; vi) goodwill, brand value, market share or similar
intangible rights; vii) claims to money that arise solely from the extension of credit in connection
with any commercial transaction; and viii) any other claims to money that do not involve the kind of
interests or operations as set out in the definition of investment in this Treaty”.
32
Article 1.2 of the Slovak Republic-the BIT (2016).
33
Article 14.1 of the USMCA, footnote 1.
contracts referred to in subparagraph (i), maturity date of which is less than twelve
(12) months; do not have the characteristics of an investment”.34
In Accordance with Local Laws

Although the legality requirement is not a new feature in the definition of invest-
ment,35 many recent investment treaties tend to emphasis this requirement as an
important method to balance the obligations between host States and investors. For
example, the Argentina-Qatar BIT stipulates that the term “investment” means “any
kind of asset invested by an investor of one Contracting Party in the territory of the
other Contracting Party in accordance with the laws and regulations of the latter
Contracting Party, which involves commitment of resources into the territory of the
host Contracting Party”.36
The Slovak-Iran BIT provides that “the investment is made and maintained in
accordance with the laws of the Host State and in good faith”.37 Similarly, the
Kyrgyz-India BIT provides that investments means “an enterprise constituted,
organized and operated in good faith by an investor in accordance with the law of
the Party in whose territory the investment is made. . .”.38
In the modernization of ECT, the EU also calls for the legality requirement,
though the CETA does not provide for such a requirement in the definition of
investment. As suggested by several Member States, the EU proposed that “Invest-
ment” shall “includes all investments made in accordance with the applicable law
and the domestic law of the host Contracting Party. . .”39 In particular, the EU
emphasized that this requirement is “indeed necessary to ensure that there is a
requirement that the investment is also legal under domestic law at the time of
(especially as there is little international law applicable at the time of establishment).
The inclusion of a reference to domestic law however requires that “CETA lan-
guage” is added, which clarifies that domestic law can only be taken into consider-
ation as a matter of fact”.40
Clearly, both developing and developed countries have taken various approaches
to clarify and limit the definition of “investment” in newer investment treaties. The
34
Article 1 (a) of the Japan-Colombia BIT.
35
For example, most Chinese BITs typically include the legality requirement in their definitions of
“investment”, see Gallagher N, Shan W. Chinese investment treaties. Oxford University Press, p 55.
36
Article 1 (2) of the Argentina-Qatar BIT (2016). Similar provisions are included in Article 1 (1) of
the Egypt-Mauritius BIT (2014) and Article 1 (1) of the Algeria-Serbia BIT (2012).
37
Article 1.2 of the Slovak-Iran BIT.
38
Article 1.4 of the Kyrgyz-India BIT.
39
Council of the European Union, Brussels, 02 March 2020 WK 2430/2020 INIT, ‘Energy Charter
Treaty Modernisation: Draft EU proposal”. https://www.politico.eu/wp-content/uploads/2020/03/Pro
posal_Treaty.pdf?utm_source¼POLITICO.EU&utm_campaign¼75bec6754f-EMAIL_CAMPAIGN_
2020_03_25_06_46&utm_medium¼email&utm_term¼0_10959edeb5-75bec6754f-189693589
40
Council of the European Union, Brussels, 20 April 2020 WK 3937/2020 INIT, ‘ECT Moderni-
sation: Revised Draft EU proposal”, https://www.euractiv.com/wp-content/uploads/sites/2/2020/
04/EU-Proposal-for-ECT-Modernisation-V2.pdf
above-mentioned developments are prominent in recent treaty practice, and the

measures taken by developing States tend to be more drastic and restrictive than
developed States. Such changes are prompted by the increasing ISDS cases, for the
avoidance of doubts on the interpretation of “open-ended” definitions and for the
limitation of States’ exposure to international arbitration, but the effect of these
provisions remains to be tested in future cases.
The Interpretation of “Investment” in Arbitration Practice
The notion of “investment” has caused many controversies in investment arbitration

and the interpretation has appeared more complicated in the ICSID arbitration.
Article 25 (1) of the ICSID Convention stipulates that the Centre’s jurisdiction
“shall extend to any legal dispute arising directly out of relation to an investment,
between a Contracting State and a national of another Contracting State, which the
Parties to the dispute consent in writing to submit to the Centre”. However, the
ICSID Convention does not further define what constitutes an “investment”.41
Consequently, arbitral tribunals have adopted divergent approaches of interpreta-
tions on the term.
Divergent Interpretations in ICSID Arbitrations
Starting with the Fedax case,42 many tribunals appear to have applied “objective”
criteria or elements in assessing the existence of an investment under the ICSID
Convention.43 In the landmark Salini v Morroco, the tribunal confirmed that its
jurisdiction depended on “the existence of an investment within the meaning of both
the Bilateral Treaty as well as that of the Convention”, namely, a “dual test”.44 More
importantly, the tribunal held that “it would be inaccurate to consider that the
41
Article 25 (1) of the ICSID Convention.
42
The Tribunal relied on Schreuer’s writing and identified five “basic features” of an investment
under the ICSID Convention, including “a certain duration, a certain regularity of profit and return,
assumption of risk, a substantial commitment and a significance for the host State’s development”.
Fedax N.V. v. The Republic of Venezuela (ICSID Case No. ARB/96/3), Decision on Jurisdiction (11
July 1997), para. 43 at p. 1387.
43
See Schreuer CH et al. (2009) The ICSID convention: a commentary, 2nd edn. CUP, pp 129–133.
Rubins N. The notion of ‘investment’ in international investment arbitration, fn. 46 above, pp 297–
300.
44
Salini v. Morocco (ICSID Case No. ARB/00/4), Decision on Jurisdiction (23 July 2001) para. 44,
published in 42 International Legal Materials 621 (2003) p. 620. See also Dolzer R, Schreuer C
(2012) Principles of international investment law, 2nd edn. OUP, p 61. This dual test has at times
been referred to as the “double keyhole” approach or the “double barreled” test, see e.g., Aguas del
Tunari, S.A. v. Republic of Bolivia (ICSID Case No. ARB/02/3), Decision on Jurisdiction (21
October 2005) para. 278; Malaysian Historical Salvors, SDN. BHD v. The Government of Malaysia
(ICSID Case No. ARB/05/10), Award on Jurisdiction (17 May 2007) para. 55.
requirement that a dispute be ‘in direct relation to an investment’ is diluted by the

consent of the Contracting Parties. To the contrary, ICSID case law and scholarly
writings agree that the “investment” requirement must be respected as an objective
condition of the jurisdiction of the Centre”.45 Accordingly, the requirements ratione
materiae in the ICSID Convention must be satisfied for the purpose of ICSID
jurisdiction, even though the dispute falls within the scope of the consent to
arbitration by parties in investment treaties. Ultimately, the Salini tribunal set out
four objective “elements” of investment for the purpose of ICSID jurisdiction,
including the contribution, a certain duration, a participation in the risks, and the
contribution to the economic development of the host State, which later became the
famous “Salini test”.46
Subsequently, many tribunals have adopted the Salini approach to articulate
objective criteria for the notion of “investment” under the ICSID Convention and
concluded that such elements should not be set aside by a consent of parties in
investment treaties.47 In the Patrick Michell v Congo annulment, for example, the ad
hoc Committee held that:
The parties to an agreement and the States which conclude an investment treaty cannot open
the jurisdiction of the Centre to any operation they might arbitrarily qualify as an investment.
It is thus repeated that, before ICSID arbitral tribunals, the Washington Convention has
supremacy over an agreement between the parties or a BIT.48
Similarly, the Phoenix tribunal affirmed that:
“At the outset, it should be noted that BITs. . . cannot contradict the definition of the ICSID
Convention. In other words, they can confirm the ICSID notion or restrict it, but they cannot
expand it in order to have access to ICSID. A definition includes in a BIT being based on a
45
Salini v. Morocco (ICSID Case No. ARB/00/4), Decision on Jurisdiction (23 July 2001), para 52
at p. 622.
46
Salini v. Morocco (ICSID Case No. ARB/00/4), Decision on Jurisdiction (23 July 2001), para 52
at p. 622.
47
See e.g., Joy Mining Machinery Limited v. Arab Republic of Egypt (ICSID Case No. ARB/03/
11), Award on Jurisdiction (6 August 2004) para. 53; SGS Société Générale de Surveillance S.A. v.
Islamic Republic of Pakistan (ICSID Case No. ARB/01/13), Decision on Jurisdiction (6 August
2003) para.133, footnote 153: Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of
Pakistan (ICSID Case No. ARB/03/29), Decision on Jurisdiction (14 November 2005) para. 130;
Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt (ICSID Case No. ARB/
04/13), Decision on Jurisdiction (16 June 2006) paras. 91–96; Saipem S.p.A. v. The People’s
Republic of Bangladesh (ICSID Case No. ARB/05/07), Decision on Jurisdiction (21 March 2007)
paras. 99–111; Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia (ICSID
Case No. ARB/05/10), Award on Jurisdiction (17 May 2007) paras. 108–145.
48
Patrick Mitchell v. Democratic Republic of Congo, ICSID Case No. ARB/99/7, Decision on the
Application for Annulment of the Award, 1 November 2006, para. 31.
test agreed between two States cannot set aside the definition of the ICSD Convention,
which is a multilateral agreement. As long as it fits within the ICSID notion, the BIT
definition is acceptable, it is not if it falls outside of such definition”.49
Contrary to the Salini approach, some tribunals have advocated an “subjective” or

the so-called “party autonomy” approach to understand the notion of “investment”
under the ICSID Convention. In Biwater Gauff v Tanzania, the tribunal held that the
Salini criteria were “not fixed or mandatory as a matter of law”, and that according to
the travaux préparatoires of the Convention, “the term was left intentionally
undefined, with the expectation (inter alia) that a definition could be the subject of
agreement as between Contracting States”.50 According to the tribunal, the Salini
test itself is “problematic” if the identified “typical characteristics” of an investment
were elevated into “a fixed and inflexible test” which would result in “arbitrary
exclusion of certain types of transaction” and contradictory definition to investment
agreements.51 Ultimately, the tribunal held that “a more flexible and pragmatic
approach to the meaning of ‘investment’ is appropriate, which takes into account
the features identified in Salini, but along with all the circumstances of the case,
including the nature of the instrument containing the relevant consent to ICSID”.52
In the MHS v Malaysia Annulment decision, the ad hoc committee pointed out
that “it is important to note that the travaux préparatoires do not support the
imposition of ‘outer limits’ such as those imposed by the Sole Arbitrator in this
case”.53 Furthermore, the annulment committee highlighted the importance of the
2800 investment treaties signed after the adoption of the ICSID Convention)and held
that: “[i]t is those bilateral and multilateral treaties which today are the engine of
ICSID’s effective jurisdiction. To ignore or depreciate the importance of the juris-
diction they bestow upon ICSID, and rather to embroider upon questionable inter-
pretations of the term ‘investment’ as found in Article 25(1) of the Convention, risks
crippling the institution”.54
Furthermore, the Inmaris tribunal pointed out that:
. . .it will be appropriate to defer to the State’s parties’ articulation in the instrument of
consent (e.g. the BIT) of what constitutes an investment. The State parties to a BIT agree to
protect certain kinds of economic activity, and when they provide that disputes between
49
Phoenix Action Ltd. v. Czech Republic (ICSID Case No. ARB/06/5), Award (15 April 2009), para
96. For further analysis on this case, see Chaisse J (2015) The issue of treaty shopping in
international law of foreign investment– structuring (and restructuring) of investments to gain
access to investment agreements. Hastings Bus Law Rev 11(2):225, at 249–250.
50
Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania (ICSID Case No. ARB/05/22),
Award (24 July 2008), para. 312.
51
52
53
MHS v. Malaysia, Decision on Annulment (16 April 2000), para 69.
54
MHS v. Malaysia, Decision on Annulment (16 April 2000), para. 73.
investors and States relating to that activity may be resolved through, inter alia, ICSID
arbitration, that means that they believe that that activity constitutes an ‘investment’ within
the meaning of the ICSID Convention as well. That judgment, by States that are both Parties
to the BIT and Contracting States to the ICSID Convention, should be given considerable
weight and deference. A tribunal would have to have compelling reasons to disregard such a
mutually agreed definition of investment.55
As outlined above, a major difference between the “Salini approach” and the
“party autonomy” approach to interpret Article 25 of the ICSID Convention is
whether the term “investment” under Article 25 contains objective/inherent meaning
that places a limit on State parties’ definition of “investment” in other legal instru-
ments such as BITs for the purpose of ICSID jurisdiction. Such a divergence carries
on in recent arbitral decisions.
In Vestey v. Venezuela, the majority of the tribunal generally followed the Salini
approach and held that “the term ‘investment’ in Article 25 of the ICSID Convention
has an independent meaning. . . [and] comprises three components: a commitment or
allocation of resources, risk and duration”.56
In Quiborax v Bolivia, the tribunal held that “the ICSID Convention contains an
objective definition of ‘investment’, which must be met regardless of whether that
same test is also inherent to the term ‘investment’ used in the BIT or whether it is
additional to the BIT definition”.57 In the tribunal’s view, “the Contracting States to
the ICSID Convention intended to give the term ‘investment’ an ‘ordinary meaning’
as opposed to a ‘special meaning’.58 The tribunal further pointed out that “investor-
State cases indeed given substance and content to an objective meaning of ‘invest-
ment’.59 Therefore, “[w]hether the objective test under the ICSID Convention is
55
Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine (ICSID Case No.
ARB/08/8), Decision on Jurisdiction (8 March 2010) para. 130.
56
Vestey Group Ltd. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/06/4), Award (15
April 2016) para. 187, see also LESI, S.p.A. and Astaldi, S.p.A. v. People’s Democratic Republic of
Algeria (ICSID Case No. ARB/05/3), Decision on Jurisdiction (12 July 2006) para. 72; Saba Fakes
v. Turkey, Award, para. 102.
57
Quiborax S.A. and Non-Metallic Minerals S.A. v. Plurinational State of Bolivia (ICSID Case No.
ARB/06/2), Decision on Jurisdiction (27 December 2012), para. 211.
58
ARB/06/2), Decision on Jurisdiction (27 December 2012), 212.
59
ARB/06/2), Decision on Jurisdiction (27 December 2012), para. 214: for example, the Global
Trading tribunal held that “it is now beyond argument that there are two independent parameters
that must both be satisfied [to establish that there is an investment]”, see Global Trading Resource
Corp. and Globex International, Inc. v. Ukraine (ICSID Case No. ARB/09/11), Award (1 December
2010) para. 43; the GEA tribunal considered that the objective meaning was inherent regardless of
whether it is mentioned in the ICSID Convention or in the BIT, see GEA Group Aktiengesellschaft
v. Ukraine (ICSID Case No. ARB/08/16), Award (31 March 2011) para. 141; the Romak tribunal
conducted arbitration under the UNCITRAL Rule also held that “the term ‘investment’ under the
BIT has an inherent meaning entailing a contribution that extends over a certain period of time and
that involves some risk. . .”, see Romak S.A. (Switzerland) v. The Republic of Uzbekistan
(UNCITRAL, PCA Case No. AA280) Award (26 November 2009) para. 207.
independent from and additional to the definition found in the BIT, or whether the
same objective test is inherent to the term investment used in the BIT, the Tribunal
must in any event review the elements of the objective definition to ascertain the
existence of an investment”.60
In Philip Morris v Uruguay, the tribunal held that the concept of “investment” is
“central to the Centre’s jurisdiction and the Tribunal’s competence ‘ratione
materiae’”.61 More importantly, the tribunal pointed out that the consent of the
Contracting Parties under the BIT to the scope of “investment” is of relevance
when establishing the meaning of the term under Article 25(1) of the ICSID
Convention, though such Parties do not have an unfettered discretion to go beyond
what have been called the “outer limits” set by the ICSID Convention), the estab-
lishment of which be based on “the ordinary meaning to be given to the terms of the
treaty in their context and in the light of its object and purpose”.62
In Orascom v. Algeria, the tribunal considered that the meaning of “investment”
under the ICSID Convention was an objective one, which included elements of (a) a
contribution or allocation of resources; (ii) a duration; and (iii) risk, which included
the expectation (albeit not necessarily fulfilled) of a commercial return.63 The
tribunal agreed with the Saba Fakes award that these requirements “are both
necessary and sufficient to define an investment” under the ICSID Convention.64
In contrast, in OIEG v Venezuela, the tribunal held that:
States enjoy wide discretion to define which investments they wish to protect through a BIT
and that Article 25 (1) of the ICSID Convention should not be subject to a restrictive
interpretation. If two States have included a certain asset within a list of investments, a
tribunal should only exclude it if it fails to meet the requirements of the objective and
inherent concept of investment, if there is a compelling reason to do so.65
60
ARB/06/2), Decision on Jurisdiction (27 December 2012), para. 217.
61
Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental
Republic of Uruguay (ICSID Case No. ARB/10/7), Decision on Jurisdiction (2 July 2013) para.
193.
62
Republic of Uruguay (ICSID Case No. ARB/10/7), Decision on Jurisdiction (2 July 2013), paras.
199–200.
63
Orascom TMT Investments S.à r.l. v. People’s Democratic Republic of Algeria (ICSID Case No.
ARB/12/35), Final Award (31May 2017) para. 370.
64
ARB/12/35), Final Award (31May 2017), quoting Saba Fakes v. Turkey, Award, para. 110.
65
OI European Group B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/25),
Award (10 March 2015), para. 219. See also Ambiente Ufficio S.p.A. and others v. Argentine
Republic (ICSID Case No. ARB/08/9), Decision on Jurisdiction and Admissibility (8 February
2013) para. 470; Inmaris Perestroika Sailing Maritime Services GmbH and others v. Ukraine
(ICSID Case No. ARB/08/8), Decision on Jurisdiction (8 March 2010) para. 130.
Likewise, the Kim and others v. Uzbekistan tribunal held that to establish jurisdiction,
“the claim must pass both through the institutional jurisdictional keyhole set forth in
Article 25 as well as the specific jurisdictional keyhole defined in the BIT”; and the
requirements of the ICSID Convention “were cognizant that the parties to a particular
BIT may construct a more specific jurisdictional keyhole in their instrument”.66
Salini Test: “Jurisdictional requirement” or “Characteristics/Indicia”?
The features or elements of “investment”, known as “Salini test”, has long been
contested by investment arbitration community in the appreciation and application of
the term. Despite of the divergence, most tribunals seems to accept that the term
“investment” under the ICSID Convention contains certain features or inherent elements
that can provide guidelines for identifying investment. As stated by Schreuer, “[it]
would not be realistic to attempt yet another definition of ‘investment’ on the basis of
ICSID’s experience. But it seems possible to identify certain features that are typical to
most of the operations in question. . . These features should not necessarily be under-
stood as jurisdictional requirements but merely as typical characteristics of investments
under the Convention.”67
In fact, what many tribunals have rejected seems to be rigid application of Salini test/
criteria as jurisdictional requirements. In Phillip Morris v Uruguay, for instance, the
tribunal opined that “there is no such a ‘jurisprudence constante’ with respect to
acceptance of the Salini test”.68 In the tribunal’s view, the four constitutive elements
of the Salini test were merely “typical feature of investments under the ICSID” which
might “assist in identifying or excluding in extreme cases the presence of an invest-
ment”, but they were not “a set of mandatory legal requirements” and could not “defeat
the broad and flexible concept of investment under the ICSID Convention to the extent it
is not limited by the relevant treaty”.69
Indeed, the success of “Salini test” relies on that it “substantiated” the “ordinary
meaning” of the term “investment” under the ICSID Convention by identifying
certain constitutive elements. But its failure to receive wider acceptance was pre-
cisely due to the imposition of an extra-textual elements into the list of the consti-
tutive elements, such as the contribution to the host States’ development.
66
Pavel Borissov, Aibar Burkitbayev, Almas Chukin and others v. Republic of Uzbekistan (ICSID
Case No. ARB/13/6), Decision on Jurisdiction (8 March 2017) para. 242.
67
Schreuer C (1996) Commentary on the ICSID convention. ICSID Rev – For Invest Law J 11:2
para. 122 at pp 372–373. This paragraph is substantively identical with Schreuer CH et al. (2009)
The ICSID convention: a commentary, 2nd edn. CUP, para. 153 at p. 128.
68
Republic of Uruguay (ICSID Case No. ARB/10/7), Decision on Jurisdiction (2 July 2013), para
204.
69
Republic of Uruguay (ICSID Case No. ARB/10/7), Decision on Jurisdiction (2 July 2013), paras.
204 & 206.
In KT Asia v Kazakhstan, the tribunal held that “. . .[t]he absence of a definition of

‘investment’ under the ICSID Convention implies that the Contracting States
intended to give to the term its ordinary meaning under Article 31 (1) of the
VCLT as opposed to a special meaning under Article 31 (4) of the same treaty”.70
In this connection, the constitutive elements of the “ordinary meaning” of “invest-
ment” need to be clarified and concentrated on the inherent hardcore aspects of the
term, such as contribution, duration, risk and return expectations, as identified in
arbitral decisions, but without further qualifications on other aspects such as “sub-
stantial contribution” or “regular return” or imposition of any extra-textual require-
ments such as legality, good faith or contribution to the host state’s development.
In Romak v. Uzbekistan, the tribunal resorted to the Black’s Law Dictionary that
identified the “ordinary/inherent meaning” of the term “investment” to include “the
commitment of funds or other assets with the purpose to receive a profit, or ‘return’,
from that commitment of capital”.71 In Alpha v Ukraine, the tribunal was reluctant
“to apply a test that seek to assess an investment’s contribution to a country’s
economic development” that would “impose additional requirements beyond those
expressed on the face of Article 25 (1) of the ICSID Convention”.72 The tribunal
held that:
Should a tribunal find it necessary to check whether a transaction falls outside any reasonable
understanding of ‘investment’, the criteria of resources, duration, and risk would seem fully
to serve that objective. The contribution-to-development criterion, on the other hand, would
appear instead to reflect the consequences of the other criteria and brings little independent
content to the inquiry. At the same time, the criterion invites a tribunal to engage in a post
hoc evaluable of the business, economic, financial and/or policy assessment that prompted
the claimant’s activities. It would not be appropriate for such a form of second-guessing to
drive a tribunal’s jurisdictional analysis.73
The above conforms with the “ordinary” meaning of the term “investment” as for
example defined in the Oxford English Dictionary (OED), namely, “the act of
investing money in something”, and “invest” is defined as “to buy property, shares
in a company, etc., in the hope of making a profit”. Clearly, the most fundamental
elements involved under the OED definition of “investment” are “contribution” (i.e.,
money or other resources “to buy property, shares in company etc.”) and “return
70
Article 31 of the VCLT provides as follows:
“1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given
to the terms of the treaty in their context and in the light of its object and purpose.
...
4. A special meaning shall be given to a term if it is it established that the parties so intended”.
71
Romak S.A. (Switzerland) v. The Republic of Uzbekistan, UNCITRAL, PCA Case No. AA280
para. 177, footnote 152.
72
Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, 8 Nov 2010, paras
311–312.
73
Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, 8 Nov 2010, para
312.
expectation” (i.e., “hope of making a profit”). And from the “return expectation”
(i.e., “hope of making a profit”), the “risk” and “duration” elements can also
deduced. Notably, the “ordinary” meaning of “investment” illustrated in the defini-
tion under OED does not require the contribution to be “substantial”, or the expected
profit or return to be “regular”, let alone any reference to extra-textual aspects such as
legality, good faith or (significant) contribution to the host state’s development.
Indeed, if the constitutive elements of the “investment” were to be so clarified to
include only the minimum, inherent core aspects of the term, there should be little
hesitance for tribunals to apply such “ordinary meaning” and its constitutive ele-
ments as jurisdictional requirements, as there should be little difference in the result
adopting either of the “jurisdictional requirement” or “characteristics/indicia”
approach. The GEA tribunal seems to accept this position by noting that whatever
test was applied, each lead to the same conclusion.74
A “Double Door” Theory

The “dual test” or “double keyhole” theory has been generally accepted in case of ICSID
arbitration, requiring the “investment” in question to meet both the requirement under
Article 25 of the ICSID Convention and definition of “investment” under the applicable
investment treaties. With respect to the ICSID requirement, it is necessary to recall the
Report of the World Bank’s Executive Directors on the ICSID Convention:
While consent of the parties is an essential prerequisite for the jurisdiction of the Centre,
consent alone will not suffice to bring a dispute within its jurisdiction. In keeping with the
purpose of the Convention, the jurisdiction of the Centre is further limited by reference to the
nature of the dispute and the parties thereto.. . .
No attempt was made to define the term ‘investment’ given the essential requirement of
consent by the parties, and the mechanism through which Contracting States can make
known in advance, if they so desire, the classes of disputes which they would or would not
consider submitting to the Centre.75
According to the first paragraph, it is important to note that jurisdictional require-

ments under the ICSID Convention are independent from the jurisdictional require-
ments under the applicable investment treaties providing the consent to ICSID
arbitration. While the parties’ consent is critical for ISDS, it alone does not neces-
sarily fulfil jurisdictional requirements for ICSID arbitration, as certain “outer/
further limits” are imposed by the ICSID Convention.
Therefore, a “double door” theory might be more accurate than the “dual test” or
“double keyhole” theory as the claim has to pass two “doors” to fulfil the ICSID
74
GEA Group Aktiengesellschaft v. Ukraine (ICSID Case No. ARB/08/16), Award (31 March
2011), para. 143.
75
International Bank for Reconstruction and Development, Report of the Executive Directors on the
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States,
March 18, 1965 (“Report of the Executive Directors”), paras. 25 & 27.
jurisdictional requirements: the first door refers to the jurisdictional threshold set by the
applicable investment treaty in terms of investor-state dispute settlement; and the second
door refers to the jurisdictional threshold set by Article 25 of the ICSID Convention
only in the case of ICSID arbitration. This has been confirmed by numerous investment
arbitration decisions as well as rejections by the ICSID Secretary General to register
certain disputes (such as pure commercial sales disputes) for ICSID arbitrations.
In this connection, the “ordinary meaning” of investment should apply in the
interpretation of Article 25 of the ICSID Convention in accordance with Article 31
(1) of the VCLT. In fact, even tribunals that rejected the “Salini approach” had
accepted that “Salini test” could assist in including or excluding certain extreme
transaction. In Alpha v Ukraine, while the tribunal ultimately deferred to the BIT
definition, it also clarified that not “any definition of ‘investment’ that might be
agreed by States in a BIT. . . must constitute an ‘investment’ for purpose of Article
25 (1). To cite the classic example, a simple contract for the sale of goods, without
more, would not constitute an investment within the meaning of Article 25(1), even
if a BIT or a contract defined it as one”.76 Hence, “elements discussed in the Salini
test might be of some use if a tribunal were concerned that a BIT or contract
definition of ‘investment’ was overreaching and captured transactions that mani-
festly were not investment under any acceptable definition”.77
The second paragraph of the Report of the Bank’s Executive Directors on the
ICSID may support the above understanding. As noted by many tribunals and
commentators, the undefined “investment” under Article 25 exhibits a balance
achieved between capital exporting and importing States in the process of negotiat-
ing the Convention, as the former succeeded in securing a “no definition” of
“investment” in the Convention imposing no extra qualifications on the term (such
as a minimum amount of asset invested, or a debt of at least certain years as
originally proposed), whilst the latter were satisfied by the possibility of excluding
classes of disputes that they would not want to be submitted to the Centre.78
Nonetheless, it was not really a “balance”, since whilst the former’s success was
substantial and substantiated as demonstrated in numerous arbitration cases, the
latter’s satisfaction was illusionary, as the said declarations turned out to be of
merely declaratory value and could not amount to jurisdictional exclusions.79 Such
factual imbalance certainly enhances the justification for the application of the
“ordinary meaning” of “investment” as a jurisdictional requirement for ICSID
arbitrations. In this regard, the ordinary meaning constitutes implied terms of the
relevant treaties, which shall apply unless it has been overridden by explicit treaty
provisions conferring it another “special meaning”, as stipulated under Article 31 (4)
of the VCLT.
76
Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, 8 Nov 2010, para 314.
77
Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, 8 Nov 2010, para 313.
78
See e.g., MHS Annulment, paras. 63–68.
79
See e.g., Dolzer R, Schreuer C. Principles of international investment law, fn. 51 above, p. 78.
“Inherent Meaning” of Investment in BITs

Another related questionable issue is whether or not the same “ordinary meaning”
and accordingly its constitutive elements apply to the applicable investment treaties.
According to some recent tribunals, the term “investment” per se contained an
objective meaning, whether it is mentioned in the ICSID Convention or in a
BIT.80 In the Romak v Uzbekistan, the non-ICSID tribunal observed that “[t]he
term ‘investment’ has a meaning in itself that cannot be ignored” when considering
the definition clause under the BIT.81 The tribunal therefore held that:
. . .the term ‘investment’ under the BIT has an inherent meaning (irrespective of whether the
investor resorts to ICSID or UNCITRAL arbitral proceedings) entailing a contribution that
extends over a certain period of time and that involves some risk. . . By their nature, asset
types enumerated in the BIT’s non-exhaustive list may exhibit these hallmarks. But if an
asset does not correspond to the inherent definition of ‘investment’, the fact that it falls
within one of the categories listed in Article 1 does not transform it into an ‘investment’.82
In KT Asia v Kazakhstan, the tribunal held that an objective meaning not only
existed under Article 25 of the ICSID Convention, but also within the definition of
“investment” under the applicable BIT. As the tribunal noted, the absence of
definition under the ICSID Convention implied to give the term “investment”
ordinary meaning under Article 31 (1) of the VCLT as opposed to a special meaning
under Article 31 (4) of the same treaty.83 The objective meaning is inherent to the
word “investment”, regardless of the application of the ICSID Convention.84
Likewise, Orascom v Algeria tribunal considered that “objective” or “inherent”
meaning was also present in a BIT’s definition of investment.85 The use of the term
“investment” in both the ICSID Convention and the BIT “imports the same basic
economic attributes of an investment derived from the ordinary meaning of that
80
GEA Group Aktiengesellschaft v. Ukraine (ICSID Case No. ARB/08/16), Award (31 March
2011) para 141.
81
Romak S.A. v. The Republic of Uzbekistan (PCA Case No. AA280), Award, 26 November 2009,
para 180.
82
Romak S.A. v. The Republic of Uzbekistan (PCA Case No. AA280), Award, 26 November 2009,
para 207.
83
Article 31 of the VCLT provides as follows:
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be
given to the terms of the treaty in their context and in the light of its object and purpose.
...
4. A special meaning shall be given to a term if it is it established that the parties so
intended.
84
KT Asia Investment Group B.V. v. Republic of Kazakhstan (ICSID Case No. ARB/09/8), Award
(17 October 2013) para. 165.
85
ARB/12/35), Final Award (31May 2017) para. 370, quoting KT Asia v. Kazakhstan, Award, paras.
165–166.
term, which comprises a contribution or allocation of resources, duration, and

risk”.86
The Isolux tribunal adopted a similar position. The tribunal pointed out that the
list of assets in the ECT definition “provides examples of investment but does not
define the concept. . .”87 The tribunal considered that the absence of a definition of
investment was the common feature of bilateral and multilateral treaties which
justified a definition of the concept of investment.88 According to the evolution of
arbitral jurisprudence, the tribunal noted that the objective definition of investment
included a contribution, the receipt of returns and the assumption of risks.89
In Masdar v Spain, the tribunal acknowledged that “a substantial number of
recent investor-State awards have considered that the term ‘investment’ has an
inherent meaning, which an alleged investment must meet in addition to falling
into one of the categories of assets generally mentioned in BITs. Importantly, these
awards have applied this so-called inherent, or objective, definition not only when
applying the ICSID Convention, but also when interpreting BITs”.90 In the tribunal’s
view, “elucidating the meaning of the term ‘investment’ in Article 1 (6) of the ECT is
part of the interpretation of that provision”.91
However, some tribunals adopted different views. The SGS tribunal suggested
that “it would go too far to suggest that any definition of investment agreed by states
in a BIT (or by a state and an investor in a contract) must constitute an ‘investment’
for purpose of Article 25(1)”.92 In A11Y v Czech, the non-ICSID tribunal noted that
there were no definition or limitation in Art 1(a) of the BIT of the term which only
refers to “every kind of asset belonging” to the investor without any further quali-
fication.93 Accordingly, the tribunal considered that “[t]he Contracting Parties to the
Treaty could have qualified the definition of investment but they chose not to do so.
It is [therefore] not the task of this Tribunal to add words to the broad definition
agreed by the Contracting Parties”.94
86
ARB/12/35), Final Award (31 May 2017), para. 372.
87
Isolux Infrastructure Netherlands, BV v. Kingdom of Spain, SCC Case V2013/153, Award, 12
July 2016, para. 683.
88
July 2016, para. 684.
89
July 2016, para. 685.
90
Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award,
16 May 2018, para. 196.
91
Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award,
16 May 2018, para 197.
92
SGS Société Générale de Surveillance S.A. v. Republic of Paraguay (ICSID Case No. ARB/07/
29), Decision on Jurisdiction (12 February 2010) para. 93.
93
A11Y LTD. v. Czech Republic, ICSID Case No. UNCT/15/1, Award, 29 June 2018, para. 137.
94
A11Y LTD. v. Czech Republic, ICSID Case No. UNCT/15/1, Award, 29 June 2018, para 138.
In this connection, whether or not the constitutive elements of objective/ordinary

meaning of investment applies to the applicable investment treaties should depend on
the wording of the relevant provisions. To be specific, if the governing treaty does not
actually “define” the term “investment” or otherwise conferring a “special meaning”
onto “investment”, but merely provides some illustrations (or indicia) of what should
or should not be included under the term (even if it is placed in the “definition”
provision), it would be appropriate and indeed necessary to import and apply the
“ordinary meaning” and its constitutive elements to help out in treaty interpretation.
However, if the governing treaty has clearly “defined” the term “investment” to the
extent that a “special meaning” under Article 31 (4) of the VCLT can be established as
having been conferred onto the term, e.g., in the formula of “investment means. . .”, it
would be inappropriate to impose the said “ordinary meaning” and elements to qualify
such clear, explicit treaty definition, even if the treaty definition manifestly deviates
from the “ordinary meaning”. In Yukos case, the tribunal recalled again that “according
to Article 31 of the VCLT, a treaty is to be interpreted in good faith in accordance with
the ordinary meaning of its terms” and thus read Article 1(6) of the ECT as containing
the “widest possible definition”.95 In Energoalians v Moldova, the tribunal accepted
the point of view that “the ECT in its nature is a document that differs from other
investment treaties and its rather extensive wording and a detailed list of what
constitutes an investment does not allow to change or narrow down such a broad
definition through an abstract and conceptual approach”.96 In A11Y v Czech, the
tribunal also held that the contracting parties “could have qualified the definition of
investment but they chose not to do so”. Hence, the tribunal should not “add words to
the broad definition agreed by the Contracting parties”.97
Conclusion
To conclude, the concept of “investment” as a key term and prerequisite for investor-
State arbitration has caused many difficulties and controversies in ISDS practice. In
particular, the silence on the term “investment” under the ICSID Convention has
given rise to divided interpretations in arbitral decisions on whether the tribunal
should appreciate and apply the “ordinary, objective or inherent’ meaning of the term
“investment” to establish the ICSID jurisdiction. Many tribunals adhered to an
“objective” approach or the so-call “Salini test” to identify several constitutive
elements of “investment”, such as recourses commitment, certain duration, assump-
tion of risk, and contribution to the development of the host State. However, other
tribunals advocated a “subjective” or “party autonomy” approach to defer to the
95
Yukos Universal Limited (Isle of Man) v. Russian Federation, UNCITRAL Arbitration Rules, PCA
Case No. AA227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 430
96
Energoalians TOB v. Republic of Moldova, UNCITRAL, Award (Unofficial English Translation),
23 Oct 2013, para. 234.
97
A11Y LTD. v. Czech Republic, ICSID Case No. UNCT/15/1, Award, 29 June 2018, para. 138.
definition under the applicable substantive investment treaties. In recent arbitral

cases, some tribunals have gone further to apply the “Salini test” to non-ICSID
arbitration, which was rejected by other tribunals.
In response to the controversy and uncertainty in arbitral practice with respect to the
broad asset-based definition of investment, many States have used various approaches
to narrow and clarify the scope of investment for the avoidance of exposure to ISDS
claims. Three features are prominent in recent investment practice, namely, the
inclusion of the characteristics of investment, the explicit exclusion of certain assets,
and the requirement of in accordance with host state’s laws. The development in
investment treaties on the definition of investment reflects States’ efforts to strike a
balance between attracting and protecting foreign investment and safeguarding state’s
right to regulate for legitimate public policy objectives. Nonetheless, the effect of these
newer investment treaties remains to be tested in arbitral cases.
For future ISDS interpretations of the concept of “investment”, a “double door”
theory may be useful to address the relationship between the Article 25 of the ICSID
Convention and the definition of “investment” clause under application investment
treaties. For the ICSID jurisdiction, the “objective and inherent meaning” of the term
“investment” should be appreciated and applied in accordance with Article 31(1) of
the VCLT, which include only the minimum hardcore of the concept. The same
ordinary meaning might also be applied in non-ICSID arbitrations only if the
governing substantive treaty does not clearly define what constitutes an “invest-
ment”. In this regard, the definition of investment clause under investment treaties is
likely to subject to greater scrutiny when tribunals apply the “ordinary meaning” of
investment in case the substantive investment treaty failed to provide a “special
meaning” under Article 31(4) of the VCLT.
Cross-References
▶ Jurisdictional Objections and Defenses (Ratione Personae, Ratione Materiae, and

Ratione Temporis)
▶ Protection of Cross-Border Data Flows Under International Investment Law
▶ The Definition of Investor in Investment Treaty Arbitration
Acknowledgments This chapter is written on the basis of a paper presented at the 24th ICCA
Congress held at Sydney in 2018, which was published in Jean Kalicki and Mohamed Abdel Raouf
eds., Evolution and Adaption: The Future of International Arbitration (ICCA Congress Series
No. 20), Wolters Kluwer 2020.
The Definition of Investor in Investment
Treaty Arbitration 3
Overview of Common Issues in the Context of the ICSID
Convention
Domenico Di Pietro and Kevin Cheung
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Investor in Investment Treaty Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
“Investor” Under the ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
“Investor” in Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
The Expressions of “Investor” Under Investment Treaties, the ICSID Convention and
Domestic Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Basic “Investor” Requirements and Common “Investor” Issues in Investment Treaty
Arbitration under Article 25 of the ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Natural Person Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Juridical Person Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Abstract
This chapter introduces the concept of “investor” and sets out an overview of basic
“investor” requirements in investment treaty arbitration in the context of the
Convention on the Settlement of Investment Disputes between States and Nationals
of Other States of 1965 (the “ICSID Convention”). Specifically, this chapter
reviews the investment treaty arbitration jurisprudence with respect to Article 25
of the ICSID Convention, and in particular, the positive and negative requirements
with respect to natural person investors, the incorporation requirement with respect
The authors are grateful for the assistance of Christian Bentley, also of Bryan Cave Leighton Paisner
LLP, London
D. Di Pietro
International Arbitration Professional, Bryan Cave Leighton Paisner LLP, Miami, FL, USA
e-mail: domenico.dipietro@bclplaw.com
K. Cheung (*)
Bryan Cave Leighton Paisner LLP, London, UK
e-mail: kevin.cheung@bclplaw.com

https://doi.org/10.1007/978-981-13-3615-7_124
46 D. Di Pietro and K. Cheung
to juridical person investors, and the piercing of the corporate veil with respect to
foreign-controlled corporate entities.
Keywords
Investor · Juridical person investor · Natural person investor · Corporate veil ·
Foreign-controlled Corporate Entities · ICSID · Requirement ratione personae
Introduction
Whether a foreign investor falls within the relevant definition of “investor” for the
purposes of protection under an investment treaty is one of the key gateway issues to
jurisdiction in investment treaty arbitration.
Foreign investors would be well advised to consider and review their position as
“investors” in the applicable legal framework at the time when they are making their
investment, in addition to the time when they are contemplating an investment treaty
claim against the State where the investment was made (i.e., “host State”).
Understandably, respondent host States investigate the identity of claimants to
establish their actual standing as “investors” as well as the existence of any circum-
stances affecting that status and, consequently, the jurisdiction of the arbitral tribunal
in that respect. The universe of substantive and procedural rules governing the status
as foreign investor is often referred to as requirement ratione personae.1
Like other jurisdictional gateways, unique issues may arise depending on the
applicable legal framework and the factual circumstances in a particular investment
treaty arbitration.
This chapter addresses the concept of investor within the context of the ICSID
Convention.
Investor in Investment Treaty Arbitration
The legal basis of investment treaty arbitration and, in particular, the concept of
investor can be traced back to the right to “diplomatic protection” in public interna-
tional law.2 In summary, under public international law, a State can espouse claims
between one of its subjects and another State under the right of diplomatic protection.
1
Schreuer C et al (2009) The ICSID Convention: a commentary, 2nd edn. Cambridge, p 82. See
Kang S (2020) Jurisdictional objections and defenses (ratione personae, ratione materiae, and
ratione temporis). In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international investment
law and policy. Springer, Singapore.
2
Diplomatic protection is a right of States in customary international law to take up claims on behalf
of their nationals against another State for violations of international law, either in diplomatic action
or international judicial proceedings. Historically, this was the only avenue of recourse for foreign
investors against illegal acts of the host State. See Blackaby N, Partasides C et al (2015) Redfern
and hunter on international arbitration, 6th edn. Oxford University Press, Oxford §§ 8.01–06.
3 The Definition of Investor in Investment Treaty Arbitration 47
With the increase of international investments and the development of interna-

tional policies for the preservation of peaceful relationships between States after
WWII, States increasingly looked for alternative avenues for the protection of
foreign investments. States adopted a system shifting the burden of protection
from States to foreign investors.3 This major change entailed accepting that private
parties would have access to claims under public international law against a sover-
eign State. Given the magnitude of this development, and in order to prevent its
unbridled application, States identified a number of limitations to a private party’s
right to sue. States codify some of those strictures in the definition of “investor”
contained in the ICSID Convention and virtually every bilateral or multilateral
investment protection treaty.
Despite the conclusion of thousands of bilateral investment treaties and the
harmonization effect generated by the ICSID Convention, there is not a single
universal definition of investor that applies to all investment treaty arbitrations.
The identification of the rules defining the status as protected investor may be
daunting at times. In some cases, the applicable definition of investor would depend
on (1) whether the ICSID Convention is applicable; (2) whether the underlying
investment treaty or agreement sets out a definition of investor and the scope of any
such definition; (3) how the two definitions of investor set out in (1) and (2) interact
with one another; and (4) the effect of any relevant provisions of domestic law.
“Investor” Under the ICSID Convention
The ICSID Convention sets out a definition of investor in Article 25. In the relevant
part, Article 25 reads:
(1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an
investment, between a Contracting State. . . and a national of another Contracting
State, which the parties to the dispute consent in writing to submit to the Centre. . ..
(2) “National of another Contracting State” means:
(a) any natural person who had the nationality of a Contracting State other than
the State party to the dispute on the date on which the parties consented to submit
such dispute to conciliation or arbitration as well as on the date on which the request
was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36,
but does not include any person who on either date also had the nationality of
the Contracting State party to the dispute; and,
(b) any juridical person which had the nationality of a Contracting State other
than the State party to the dispute on the date on which the parties consented to
submit such dispute to conciliation or arbitration and any juridical person which had
the nationality of the Contracting State party to the dispute on that date and which,
because of foreign control, the parties have agreed should be treated as a national of
another Contracting State for the purposes of this Convention.
(Emphasis added.)
3
Astorga R (2007) The nationality of juridical persons in the ICSID convention in light of its
jurisprudence. Max Planck UNYB 11:417–472, 421
As readily apparent from Article 25(2), the ICSID definition of investor stems
from the public international law restriction on the right of diplomatic protection
discussed above. Fundamentally, this definition of investor is developed around the
nationality of the investor barring access to protection to claimants with nationality
of both the host State and the other contracting State. As we will see below, dual
nationals still may be entitled to bring claims against one of the two states of their
nationality outside the ICSID system.
Despite its status as the foundational international convention for the settlement
of investment disputes, the ICSID Convention and its definition of investor are not
universally applicable to all investment treaty arbitrations. Not all States have signed
and ratified the ICSID Convention4; any investment treaty disputes involving those
States would not fall under the framework set out in the ICSID Convention.5 Many
investment treaties and agreements provide prospective claimants with an option to
settle their disputes outside of the ICSID system and particularly under the aegis of
other established arbitral institutions or on the basis of ad hoc arbitration.6
“Investor” in Investment Treaties
Regardless of whether or not the ICSID Convention applies in a particular case, a

tribunal always will consider and apply the definition of “investor” set out in the
relevant investment treaty. This is because the relevant investment treaty is the basis
of the contracting States’ consent to arbitration in investment treaty arbitration. If an
investment is made or a claim is brought by an individual or company not falling
within the definition of investor in the investment treaty, the prospective claimant
may be unable to establish the respondent host state’s consent to arbitration. As such,
it is imperative for parties looking to invest or claim under an investment treaty to
consider carefully whether they fall within the definition of “investor” under the
applicable investment treaty. That is the starting point.
There are many variations of the definition of investor in investment treaties.
A few examples are set out below.
4
Only 163 States have ratified the ICSID Convention. For a complete list of the States, see: World
Bank (2019) Database of ICSID Member States. https://icsid.worldbank.org/en/Pages/about/Data
base-of-Member-States.aspx
5
As the tribunal in Venezuela US, S.R.L. v Bolivarian Republic of Venezuela, PCA Case No. 2013–
34, Interim Award on Jurisdiction on the Respondent Objection to Jurisdiction Ratione Voluntatis
(26 July 2016) stated: “75. For the Centre to have jurisdiction under Article 25 of the ISCID
Convention, the State which is a party to the dispute and the State whose national is a party to the
dispute, must both be Contracting State to the ICSID Convention. As long as this condition is not
fulfilled, the Centre has no jurisdiction, even if the applicable BIT in force provides for resolution of
investment disputes before a Tribunal to be constituted under the ICSID Convention.”
6
See, for example: Article 8(2) of the Egypt Model BIT; Article 8(2) of the 2008 UK Model BIT;
Article 24(3) of the 2012 US Model BIT; and Article 17(1) of the 2016 Slovakia Model BIT.
A sizeable number of investment treaties adopt a broad definition of investor in

line with the ICSID Convention’s expression as discussed above. The early bilateral
investment treaties (each a “BIT”) entered by the United Kingdom are a good
example. Article 1 of the 1989 Russia-UK BIT, in the relevant part, provides as
follows:
Definitions
...
(d) the term “investor” shall comprise with regard to either Contracting Party:
(i) natural persons having the citizenship or nationality of that Contracting Party in
accordance with its laws;
(ii) any corporations, companies, firms, enterprises, organisations and associations
incorporated or constituted under the law in force in the territory of that Contracting
Party;
A number of investment treaties adopted a more restrictive definition of investor.

The restrictions can relate to any aspect of the identity or activity of an investor. Most
of these more restricted definitions of investor require actual residency or business
activities in a contracting State, or the lack thereof in the host State.7 For example,
the 2010 Colombia-UK BIT reads8:
The term “investor” means:

In respect of Colombia: Natural persons of Colombia who, according to the law of
Colombia, are considered to be its nationals; and legal entities including companies,
corporations, commercial associations and other organisations, constituted or otherwise
organised according to the law of Colombia which have their seat, as well as substantial
business activities, in the territory of Colombia.
Conversely, there are investment treaties adopting expansive definitions of inves-

tor. These expansive definitions may include: (a) natural persons who are not citizens
but permanent residents in a contracting state9; (b) natural persons with multiple
nationalities, including the nationality of the host State; (c) juridical persons incor-
porated in the host State or a third State but are owned or controlled by natural
persons from a contracting State10; or (d) organizational investors which do not have
independent legal personality,11 etc.
7
See, for example: Article 1(2) of the 1990 Argentina-Italy BIT and Paragraph 1 of the Additional
Protocol thereto.
8
Article 1.1 of the 2010 Colombia-UK BIT.
9
For example, Article 1(c)(i)(B) of the 2017 Israel-Japan BIT, Article 1(e)(i) of the 2010 Canada-
Slovakia BIT and Article 1(1)(c)(ii) of the 1998 Australia-Pakistan BIT.
10
For example, Article 10(28) of the Dominican Republic – Central America – United States Free
Trade Agreement (“CAFTA-DR”), Article 1 of the 2015 Burkina Faso-Canada BIT and Article 1(2)
of the 2011 Czech Republic-Sri Lanka BIT.
11
For example, Article 1(2)–(3) of the 2016 Iran-Japan BIT, Article 1(3)(b) of the 2014 Greece-
United Arab Emirates BIT and Article 1(3) of the 2012 Austria-Guatemala BIT.
For example, the definition of investor adopted under the Energy Charter Treaty
provides12:
(7) “Investor” means:

(a) with respect to a Contracting Party:
(i) a natural person having the citizenship or nationality of or who is permanently
residing in that Contracting Party in accordance with its applicable law;
(ii) a company or other organisation organised in accordance with the law applicable
in that Contracting Party;
(Emphasis added).
The Expressions of “Investor” Under Investment Treaties, the ICSID

Convention and Domestic Law
When addressing the ratione personae requirement, tribunals may be faced with the
application of more than one set of applicable rules and provisions including the
applicable investment treaty, the ICSID Convention and domestic law.
As mentioned in the preceding subsection, tribunals must apply the definition of
investor in the relevant investment treaties. In some cases, the investment treaty may
be the sole source of legal principles relevant to the ratione personae requirement
(i.e., in ad hoc investment treaty arbitrations under the UNCITRAL Arbitration
Rules). However, in other cases, more than one set of rules may apply.
The Investment Treaty and the ICSID Convention

Any claims brought pursuant to the ICSID Convention for the alleged breach of an
investment treaty must comply with the ratione personae requirements under both
the relevant investment treaty and the ICSID Convention.13 As the tribunal in
Vacuum Salt Products Ltd v Republic of Ghana held14:
12
Article 1(7) of the Energy Charter Treaty. See also, Article 10.28 of the Colombia-US Trade
Promotion Agreement.
13
Vacuum Salt Products Ltd v Republic of Ghana, ICSID Case No. ARB/92/1, Award (16 February
1994), [36] (“Vacuum Salt Products”); TSA Spectrum v The Republic of Argentine, ICSID Case No.
ARB/05/5, Award (19 December 2008), [157]; Saba Fakes v Republic of Turkey, ICSID Case No.
ARB/07/20, Award (14 July 2010) [57] (“Fakes v Turkey”); Abaclat and others v. Argentine
Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (4 August
2011), [280]–[287] (“Abaclat”); Orascom TMT Investments S.à r.l. v People’s Democratic Republic
of Algeria, ICSID Case No. ARB/12/35, Award (31 May 2017) [257]; CMC v Republic of
Mozambique, ICSID Case No. ARB/17/23, Award (24 October 2019) [168]–[170] and [200]–
[201]; Romanetti A (2012) Defining investors: who is eligible to claim? J Int’l Arb 29(3):231–254.
14
Vacuum Salt Products (n 14) [36]. This view is also echoed by the tribunal in National Gas S.A.E.
v Arab Republic of Egypt, ICSID Case No. ARB/11/7, Award (3 April 2014), [122]: “the plain
meaning of this text precludes any consent by parties to ICSID jurisdiction where the claimant party
has the nationality of the respondent Contracting State.”
[T]he parties’ agreement to treat Claimant as a foreign national “because of foreign control”
does not ipso jure confer jurisdiction. The reference in Article 25(2)(b) to “foreign control”
necessarily sets an objection Convention limit beyond which ICSID jurisdiction cannot exist
and parties therefore lack power to invoke same no matter how devoutly they may have
desired to do so.
As such, if the ICSID Convention applies, an expansive definition of investor

under the relevant investment treaty as discussed in the subsection above may not
have the effect intended by the contracting States.
Domestic Law in Investment Treaty Arbitration

As mentioned above, the provisions of domestic law with respect to the ratione
personae requirement might also be relevant with respect to issues of citizenship and
incorporation of companies.15 However, subject to the contracting States’ agreement
in the investment treaty,16 tribunals are not bound by domestic laws and regulations
nor any decisions or determinations made by the States on a national level.
Nationality is not a concept defined under public international law.17 Therefore, in
determining a claimant’s nationality, tribunals look to and place great weight on
domestic citizenship laws and regulations,18 with some tribunals placing a presump-
tion of validity with respect to a state’s conferment of nationality.19
Again, tribunals are not bound by any decision or judgment of the relevant State
with respect to the nationality/citizenship of a claimant in investment treaty
15
Anglo-Adriatic Group Limited v. Republic of Albania, ICSID Case No. ARB/17/6, Award, (7
February 2019) [207] and [218]–[221].
16
See for example Tokios Tokeles v Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction
(29 April 2004), [25] & [38] where the tribunal acknowledged that it “owes [deference] to the
definition of corporate nationality contained in the agreement between the Contracting Parties”.
17
Purice M (2016) Chapter 4: Natural persons as claimants under the ICSID convention. In: Baltag
C (ed) ICSID convention after 50 years: unsettled issues. Kluwer, Alphen aan den Rijn, p 132 (fn 2);
Chaisse J, Can E (2020) The monetization of investment claims: promises and pitfalls of third-party
funding in investor-state arbitration. Del J Corp Law 44(2):463–509, 26. Please note that the term
“nationality” is used on the plane of international law, and the term “citizenship” is used on the
plane of national/domestic law, with respect to the concept of ‘state membership’. See Marvin Roy
Feldman Karpa v United Mexican States, ICSID Case No. ARB(AF)/99/1, Interim Decision on
Preliminary Jurisdictional Issues (6 December 2000), [31].
Also see Abaclat (n 14) [257], where the tribunal held: “[t]he fulfilment of the nationality
requirement set forth in Article 25 is considered an objective condition to the Convention’s
application, which is not subject to the Contracting Parties’ arrangement. Article 25(2) however,
does not provide for a definition of the concept of nationality, which is according to general
principles of international law left to the law of the State of which nationality is claimed.”
18
See Brosseau J (2018) The legal basis for the application of domestic law in investment
arbitration. Am Rev Int’l Arb 29(4) and Hepburn J (2017) Domestic law in international investment
arbitration. Oxford University Press, Oxford for discussion on the interpretation and application by
tribunals in international investment arbitration.
19
See, for example: Ioan Micula and others v Romania, ICSID Case No. ARB/05/20, Decision on
Jurisdiction and Admissibility (24 September 2008), [87] (“Micula v Romania”).
arbitration.20 As the tribunal in Hussein Nuaman Soufraki v The United Arab

Emirates held21:
55. It is accepted in international law that nationality is within the domestic jurisdiction of
the State, which settles, by its own legislation, the rules relating to the acquisition (and loss)
of its nationality. Article 1(3) of the BIT reflects this rule. But it is no less accepted that when,
in international arbitral or judicial proceedings, the nationality of a person is challenged, the
international tribunal is competent to pass upon that challenge. It will accord great weight to
the nationality law of the State in question and to the interpretation and application of that
law by its authorities. But it will in the end decide for itself whether, on the facts and law
before it, the person whose nationality is at issue was or was not a national of the State in
question and when, and what follows from that finding. Where, as in the instant case, the
jurisdiction of an international tribunal turns on an issue of nationality, the international
tribunal is empowered, indeed bound, to decide that issue.
Ultimately, the question of nationality in the context of jurisdiction ratione

peronae is for the tribunal to consider and adjudicate. As the tribunal in Siag &
Vecchi v Egypt stated22:
153. The Tribunal must determine the nationality of the Claimants. Application of interna-
tional law principles requires an application of the Egyptian nationality laws with reference
to international law as may be appropriate in the circumstances. Both Egyptian law and the
practice of international tribunals is that the documents referred to by the Respondent
evidencing the nationality of the Claimants are prima facie evidence only. While such
documents are relevant they do not alleviate the requirement on the Tribunal to apply the
Egyptian nationality law, which is the only means of determining Egyptian nationality.
Basic “Investor” Requirements and Common “Investor” Issues in

Investment Treaty Arbitration under Article 25 of the ICSID
Convention
As discussed above, the applicable requirements and potential issues surrounding a

particular investment treaty dispute will depend on the relevant normative
framework.
This Section will discuss the basic requirements and common issues surrounding
(1) natural person investors; and (2) juridical person investors under the ICSID
Convention generally.
20
Romanetti A (2012) Defining investors: who is eligible to claim? J Int’l Arb 29(3):231–254, 238–
239.
21
Hussein Nuaman Soufraki v The United Arab Emirates, ICSID Case No. ARB/02/7, Award
(7 July 2004), [55].
22
Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No.
ARB/05/15, Decision on Jurisdiction (11 April 2007).
Natural Person Investors
The common requirements for a natural person to qualify as an investor in invest-

ment treaty arbitration are the so-called positive and negative requirements, as set out
in Article 25 of the ICSID Convention. Some investment treaties set out the same
“positive” and “negative” requirements23; though most of those treaties only require
the “positive” element or set out a variation of the requirements. This Section will
discuss the “positive” and “negative” requirements as set out in Article 25 of the
ICSID Convention.
The Positive and Negative Requirements

First, a natural person investor is required to be a national of a contracting State to the
investment treaty (the “positive” requirement). Second, an investor must not be a
national of the respondent host State (the “negative” requirement).
Burden of Proof. Tribunals have held that the positive requirement is for the
claimants to prove, while the burden of proving the absence of the negative require-
ment rests with the respondent host States.24 This is in line with the general approach
to allocating the burden of proof in international law.
In Ambiente Ufficio v Argentina,25 the tribunal followed the approach taken by
the International Court of Justice in the Avena case,26 and stated:
309. The ICSID Convention or Arbitration Rules do not contain specific provisions on the
allocation of burden of proof. ICSID tribunals have applied several rules regarding the
burden of proof concerning facts upon which the parties rely. These notably include rules
that are well established in international adjudication, e.g. the general rule that the burden of
proof is with the claimant and that the burden of proof lies with the party asserting a fact,
whether it being the claimant or the respondent.
310. Against this background, it appears reasonable to adopt the view that the legal
regime of the ICSID Convention follows general international law in this regard. The
23
For example the 2014 Mauritius-Egypt BIT which defines an “investor” in Article 1(3) as follows:
“‘investor’ means, with regard to either Contracting Party, any natural person or any legal entity,
that has made an investment in the territory of the other Contracting Party, provided that: (a) the
natural person derives his or her nationality in virtue of the laws of one of the Contracting Parties
and is not simultaneously a national of the other Contracting Party.”
24
Ambiente Ufficio S.p.A. v Argentine Republic, ICSID Case No. ARB/08/9, Decision on Jurisdic-
tion and Admissibility (8 February 2013), [309]–[312] (“Ambiente Ufficio v Argentina”); Spence
International Investments, LLC, Berkowitz, et al. v Republic of Costa Rica, ICSID Case No. UNCT/
13/2, Interim Award (Corrected) (30 May 2017), [29]; Pac Rim Cayman LLC v Republic of El
Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections (1
June 2012), [2.15]; Chevron v Ecuador, UNCITRAL, PCA Case No. 34877, Interim Award (1
December 2008), [138]. Michael Ballantine and Lisa Ballantine v The Dominican Republic, PCA
Case No. 2016–17, Final Award (3 September 2019), [506]–[510] (“Ballantine v The Dominican
Republic”).
25
Ambiente Ufficio v Argentina (n 25).
26
Avena and Other Mexican Nationals (Mexico v. USA), Judgment (31 March 2004), ICJ Reports
2004, 12.
Tribunal would consider that it can usefully draw in this respect upon the finding of the
International Court of Justice in the Avena case, since the Court had a situation before it
which is largely comparable to that in the present case.
311. In that case, Mexico and the United States disagreed on what each Party had to show
as regards nationality in connection with Art. 36 para. 1 of the Vienna Convention on
Consular Relations. Mexico accepted that it had to prove that the persons in question were
Mexican nationals, but it contended that the burden of proof would lie with the United States
should the Respondent in that case wish to contend that particular persons of Mexican
nationality were also US nationals. The International Court of Justice emphasized “the well-
settled principle in international law that a litigant seeking to establish the existence of a fact
bears the burden of proving it”. On that basis, the Court endorsed Mexico’s position
inasmuch as it took “the view that it was for the United States to demonstrate that this was
so [i.e. that the persons in question were US nationals] and to furnish the Court with all
information on the matter in its possession”.
312. In the light of this, the present Tribunal concludes that the burden of proof that the
Claimants are Italian nationals falls on the Claimants themselves, while the burden to
disprove the negative elements – i.e. of not being Argentine (or, for that matter, dual)
nationals and of not having been domiciled in Argentina for more than 2 years – would
fall on the Respondent’s side.
(Original footnotes omitted.)
Temporal Requirements. Article 25(2)(a) of the ICSID Convention requires that

the “positive” and “negative” requirements be fulfilled at two points in time. The first
is when the contracting States to the investment treaty consented to arbitration. The
second is when the request for arbitration is registered with ICSID.27
Some respondent host States have argued that this temporal requirement is
continuous. In other words, according to that view, the requirement expands beyond
the plain words as set out in Article 25(2)(a) of the ICSID Convention, and requires
the investor to maintain compliance with the nationality requirement until the
issuance of the award.
The tribunal in Loewen v US considered this argument. The tribunal stated in that
respect28:
228. In sum, neither the language of the Treaty, nor any of the cases decided under it answers
the question as to whether continuous nationality is required until the resolution of the claim.
Respondent correctly contends that Article 1131 requires the Tribunal to decide the issues in
dispute in accordance with “applicable rules of international law”.
229. There is only limited dispute as to the history of the requirement of continuous
nationality to the end of any international proceeding. When investment claims were
negotiated and resolved only at a governmental level, any change in nationality of the
claimant defeated the only reason for the negotiations to continue. The claiming government
no longer had a citizen to protect. This history has changed as the nature of the claim process
has changed. As claimants have been allowed to prosecute claims in their own right more
often, provision has been made for amelioration of the strict requirement of continuous
27
United Nations Conference on Trade and Development (2013) Dispute settlement: requirements
ratione personae, pp 13–15. https://unctad.org/en/Docs/edmmisc232add3_en.pdf
28
Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB
(AF)/98/3, Award (26 June 2003), (“Loewen v US”).
nationality. But those provisions have been specifically spelled out in the various treaties that
TLGI cites as proof that international law has changed. Thus, in the claims settlement
agreement between Iran and the United States arising out of the hostage crisis, the require-
ment of continuous nationality was specifically altered in the agreement. Many of the
bilateral investment treaties, the so-called “BITs”, contain specific modifications of the
requirement. But such specific provisions in other treaties and agreements only hinder
TLGI’s contentions, since NAFTA has no such specific provision.
230. As with most hoary international rules of law, the requirement of continuous
nationality was grounded in comity. It was not normally the business of one nation to be
interfering into the manner in which another nation handled its internal commerce. Such
interference would be justified only to protect the interests of one of its own nationals. If that
tie were ended, so was the justification. As international law relaxed to allow aggrieved
parties to pursue remedies directly, rather than through diplomatic channels, the need for a
rigid rule of dies ad quem also was relaxed. But as was previously noted, such relaxations
came about specifically in the language of the treaties. There is no such language in the
NAFTA document and there are substantial reasons why the Tribunal should not stretch the
existing language to affect such a change.
The tribunal in Loewen v US therefore considered that the continuous nationality

rule was part of customary international law and held that the reorganization of the
claimant into an American corporate structure during the arbitration had resulted in
the loss of jurisdiction.29
However, more recent cases and commentaries seem to opine that the continuous
nationality requirement does not apply to investment treaty arbitration.30 In addition
to that, as far as ICSID disputes are concerned, only the two instances in time as
expressly set out in Article 25(2)(a) of the ICSID Convention are relevant. This view
has been endorsed by the tribunal in Siag & Vecchi v Egypt which held that31:
498. The Loewen decision has been the subject of intense scrutiny and criticism by
international law scholars and investment arbitration practitioners. In particular, criticism
has been levelled at the Loewen Tribunal’s cursory treatment of customary international law
on a subject where prior influential decisions have held that “it may well be doubted that the
alleged rule [of continuous nationality] has received such universal recognition as to justify
the broad suggestion that it is an established rule of international law.” Commentators have
also stigmatised the Tribunal’s application of a rule developed in one particular context
(diplomatic protection) to another area (investment treaty claims). It is indeed telling that the
Loewen Tribunal did not cite a single authority in support of any of its propositions with
regard to continuous nationality. Finally, academics and practitioners have questioned the
relevance of the Loewen Tribunal’s conclusions in light of the International Law Commis-
sion’s (ILC) subsequent explicit admission that it “was not prepared to follow the Loewen
Tribunal in adopting a blanket rule that nationality must be maintained to the date of
resolution of the claim” and its preference for the “the date of official presentation of the
claim as the dies ad quem.”
29
Loewen v US (n 28) [230]–[240].
30
See for example, Schreuer C et al (2009) The ICSID Convention: a commentary, 2nd edn.
Cambridge University Press, Cambridge, p 356.
31
Waguih Elie George Siag and Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No.
ARB/05/15, Award (1 June 2009), paras 491 to 499.
499. The Tribunal will not repeat the authorities cited by the Claimants, which further
support the critiques mentioned above, but will add its view that the ICSID Convention does
not require a party to hold constant nationality until the date an award is rendered. The only
dates of relevance to Article 25 of the ICSID Convention are those of consent and registra-
tion. In addition, Dolzer and Schreuer note that, in its 2006 Draft Articles on Diplomatic
Protection, the International Law Commission considered that the doctrine of continuous
nationality was inappropriate in the case of an individual claim.
Application of the Requirements. In practice, the positive and negative require-

ments, as set out in the ICSID Convention and/or in the relevant investment treaty,
are interpreted and applied in accordance with the customary international law
principles on interpretation as set out in Articles 31 to 33 of the Vienna Convention
on the Law of Treaties (“VCLT”).
In particular, the VCLT provides that:
Article 31
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be
given to the terms of the treaty in their context and in the light of its object and purpose.
...
Article 32
Recourse may be had to supplementary means of interpretation, including the preparatory

work of the treaty and the circumstances of its conclusion, in order to confirm the meaning
resulting from the application of article 31, or to determine the meaning when the interpre-
tation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.
One issue addressed in a number of investment disputes is the existence of an

implicit “effective nationality test” in the operation of Article 25 of the ICSID
Convention.32
The object of discussion is whether the “effective nationality test,” which is part
of the customary international law stemming from the findings of the Nottebohm
case33 with respect to diplomatic protection, should be applied by analogy in the
investment treaty arbitration context.
For claimant investors, such a test would mitigate the “negative” requirement’s
effect on investors holding dual nationality in both the respondent host State and the
other contracting State. For respondent host States, such a test would increase the
32
Haeri H, Walker D (2016) “And you are. . .?” – dual nationals in investment treaty. In: Ziade N
(ed) BCDR international arbitration review. Kluwer, Alphen aan den Rijn, pp 161–171
33
Nottebohm (Liechtenstein v. Guatemala), Judgment of 6 April 1955 (“Nottebohm”). See also
Nasser Esphahanian v Bank Tejarat, IUSCT Case No. 157 (31–157-2), Award (29 March 1983);
and Attaollah Golpira v The Government of the Islamic Republic of Iran, IUSCT Case No. 211,
Award No. 32–211-2 (March 1983).
efficacy of the “positive” requirement in cases where the arbitration is brought by

investors with multiple nationalities.
The Nottebohm case concerned the question of whether Liechtenstein could
exercise diplomatic protection on behalf of Mr. Nottebohm.34 Mr. Nottebohm was
born in Germany and was a German citizen. He moved to Guatemala in 1905 and
had lived there ever since. However, he had never become a Guatemalan national.
He obtained the nationality of Liechtenstein in October 1939, having applied during
one of his brief visits there. In October 1943, the Guatemalan authorities arrested Mr.
Nottebohm. Then he was deported to the United States. After his deportation, in
1944, Guatemala commenced legal proceedings to expropriate without compensa-
tion all of Mr. Nottebohm’s properties in Guatemala. Mr. Nottebohm was not
allowed back to Guatemala and in 1946 he acquired residence in Liechtenstein
where he was accorded diplomatic protection.
The ICJ held that Mr. Nottebohm’s ties with Liechtenstein during the taking of his
properties in Guatemala were not of such a nature as to allow Liechtenstein to
exercise diplomatic protection before the ICJ. In particular, the ICJ held that35:
According to the practice of States, to arbitral and judicial decisions and to the opinions of
writers, nationality is a legal bond having as its basis a social fact of attachment, a genuine
connection of existence, interests and sentiments, together with the existence of reciprocal
rights and duties. It may be said to constitute the juridical expression of the fact that the
individual upon whom it is conferred, either directly by the law or as the result of an act of
the authorities, is in fact more closely connected with the population of the State conferring
nationality than with that of any other State. Conferred by a State, it only entitles that State to
exercise protection vis-à-vis another State, if it constitutes a translation into juridical terms of
the individual’s connection with the State which has made him its national.
The Iran-United States Claims Tribunal in Case No. A/18 further applied the
above Nottebohm principle and held that36:
While Nottebohm itself did not involve a claim against the State of which Nottebohm was a
national, it demonstrated the acceptance and the approval by the International Court of
Justice of the search for the real and effective nationality based on facts of a case, instead of
an approach relying on more formalistic criteria. The effects of the Nottebohm decision have
radiated throughout the international law of nationality
[. . .]
In view of the pervasive effect of this rule since the Nottebohm decision, the Tribunal
concludes that references to “national” and “nationals” in the [Declaration of the Govern-
ment of the Democratic Popular Republic of Algeria concerning the Settlement of Claims by
the Government of the United States of America and the Government of the Islamic
34
A summary of Nottebohm case is succinctly set out in Champion Trading Company, Ameritrade
International, Inc. v Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction
(21 October 2003), pp. 14–15 (“Champion Trading v Egypt”). This summary is adopted.
35
Nottebohm (n 33) p. 23.
36
Iran-United States Claims Tribunal, Case No. A/18 of 6 April 1984, 5 Iran-U.S.C.T.R.-251, pp.
263 & 265.
Republic of Iran (the Algiers Declaration)] must be understood as consistent with that rule
unless an exception is clearly stated. As stated above, the Tribunal does not find that the text
of the Algiers Declarations provides such a clear exception.
In the context of Article 25 of the ICSID Convention, tribunals have denied the
existence and application of an implicit “effective nationality test.”37
In Champion Trading v Egypt,38 all three natural person claimants were born of
an Egyptian father and, according to Egyptian citizenship laws, acquired Egyptian
nationality automatically at birth. Naturally, the claimants argued that the tribunal
must look to their “real and effective nationality” in applying Article 25 of the ICSID
Convention, which would be that of the United States.
The claimants argued that “[t]he principles of law generally recognised with
regard to nationality include the rule of effective nationality according to which a
nationality conferred by a State cannot produce effects unless it is effective and
corresponds to a genuine link between the State and the individual.”39 It was argued
that the three natural person claimants’ Egyptian nationality did not correspond with
the prevailing definition of nationality in international law, as the status was con-
ferred on the claimants at birth and the claimants did not have any other ties or
relations with Egypt. Such involuntary nationality cannot therefore be taken into
account when interpreting and applying the ICSID Convention.40
The tribunal, however, held41:
The Nottebohm and A/18 decisions, in the opinion of the Tribunal, find no application in the
present case. The Convention in Article 25 (2)(a) contains a clear and specific rule regarding
dual nationals. The Tribunal notes that the above cited A/18 decision contained an important
reservation that the real and effective nationality was indeed relevant “unless an exception is
clearly stated”. The Tribunal is faced here with such a clear exception.
According to Article 31 of the Vienna Convention of 23 May 1969, a treaty shall be
interpreted in good faith in accordance with the ordinary meaning to be given to the terms of
the treaties in their context and in the light of their object and purpose.
According to the ordinary meaning of the terms of the Convention (Article 25 (2)(a))
dual nationals are excluded from invoking the protection under the Convention against the
host country of the investment of which they are also a national.
Despite holding that the Nottebohm principle is not part of Article 25 of the
ICSID Convention, the tribunal recognized that there may be situations where the
exclusion of dual nationals could lead to a result that is “manifestly absurd or
37
Champion Trading v Egypt (n 34); Fakes v Turkey (n 14) [67]–[79]; Micula v Romania (n 20)
[98]–[103]; Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL,
Decision on Jurisdiction (30 April 2010), [122]–[132].
38
Champion Trading v Egypt (n 34).
39
Id, p. 13.
40
Id, p. 16.
41
Id, pp. 16 & 17.
unreasonable,” leading to a consideration of supplementary means of interpretation

pursuant to Article 32(b) of the VCLT:
This Tribunal does not rule out that situations might arise where the exclusion of dual
nationals could lead to a result which was manifestly absurd or unreasonable (Vienna
Convention, Article (32)(b)). One could envisage a situation where a country continues to
apply the jus sanguinis over many generations. It might for instance be questionable if the
third or fourth foreign born generation, which has no ties whatsoever with the country of its
forefathers, could still be considered to have, for the purpose of the Convention, the
nationality of this state.
In the present case, this situation does not arise and the question need not be answered.
Similarly, in Fakes v Turkey, the claimant held Dutch and Jordanian nationalities.
Turkey attempted to argue that the claimant’s effective nationality was Jordanian and
therefore it was not an investor for the purposes of Article 25 of the ICSID
Convention and the Netherlands-Turkey BIT.
The Fakes v Turkey tribunal followed the decision in Champion Trading v Egypt
and held that the bar to jurisdiction set out in Article 25 of the ICSID Convention “is
not subject to the test of the effectiveness of the host State’s nationality.” The
Tribunal stated that42:
63. It is of particular importance that, as regards dual nationals who do not hold the
nationality of the host State (for example, a dual national who holds the nationality of two
Contracting States other than the host State, or the nationality of a Contracting State other
than the host State and a non-Contracting State), the ICSID drafters did not subject their
access to ICSID jurisdiction to the effective nationality test.
...
76. . . The language of Article 25(2)(a) of the ICSID Convention is clear and does not
require any further clarification. Pursuant to the generally accepted rules of treaty interpreta-
tion, as codified in Article 31 of the Vienna Convention on the Law of Treaties, the Tribunal is
precluded from elaborating any interpretation that would run counter to this clear language, in
particular any interpretation that would result in establishing additional limitations to the
Centre’s jurisdiction where no such limitations were provided by the Contracting Parties.
The tribunal further considered whether the “effective nationality test” extended
to the operation of the Netherlands-Turkey BIT. In so doing, the tribunal relied on the
Micula v Romania award43:
64. Similarly, the text of the BIT leaves no room as to the question of whether the
Contracting Parties intended such effectiveness test to be applied in the context of the
BIT. Pursuant to Article 1(a)(i) of the Netherlands-Turkey BIT, for the purposes of this
BIT “‘investor’ means: (i) a natural person who is a national of a Contracting Party under
its applicable law.” It clearly results from this definition that the Netherlands-Turkey BIT
does not require an investor’s nationality to be effective for him or her to bring a claim
against the host State on the basis of the BIT. The Tribunal concurs with the Micula Tribunal,
42
Fakes v Turkey (n 37), [61]–[63].
43
Micula v Romania (n 20).
which ruled on a similar issue in relation to the Sweden-Romania BIT, that “the clear
definition and the specific regime established by the terms of the BIT should prevail and that
to hold otherwise would result in an illegitimate revision of the BIT.” On that basis, the
Micula Tribunal rejected the respondent State’s argument that “the Swedish nationality of
[the claimants could] not be opposed to Romania because of purported tenuous links with
Sweden”
Like the tribunal in Champion Trading v Egypt, the tribunal in Fakes v Turkey
also commented that the “effective nationality test” may have some bearing in
exceptional cases44:
77. This is not to say that the effective nationality test never has any bearing in the context of
ICSID arbitration. One might envisage several instances when its application could be
justified in light of the particular circumstances of a given case. Broches observed that
“there was a general recognition that in the course of ruling on their competence Commis-
sions and Tribunals might have to decide whether a nationality of convenience, or a
nationality acquired involuntarily by an investor could or should be disregarded.”45
78. Thus, one might argue that a nationality of convenience, acquired “in exceptional
circumstances of speed and accommodation”, for the purposes of bringing a claim before the
Centre should not be considered to satisfy the nationality requirements of a BIT and Article
25(2)(a) of the Convention.46 Likewise, the question may arise whether a person deemed to
have a nationality merely because such nationality has passed over several generations, with
“the third or fourth foreign born generation [having] no ties whatsoever with the country of
its forefathers, could still be considered to have, for the purposes of the Convention, the
nationality of [that] state.”47 Neither of these situations is found in the present case. Mr.
Fakes acquired his Dutch nationality as a youngster, while living in the Netherlands with his
parents, and there is certainly nothing exceptional in such acquisition. His nationality is not
one of convenience, obtained for the purposes of bringing his claim against the Respondent.
Of course, where an investment treaty adopts the “effective nationality standard,”

the tribunal will be tasked with the application of the standard as set out in the
investment treaty and developed by the relevant case law. The CAFTA-DR, for
example, defines “investor” as follows48:
investor of a Party means a Party or state enterprise thereof, or a national or an enterprise of

a Party, that attempts to make, is making, or has made an investment in the territory of
another Party; provided, however, that a natural person who is a dual national shall be
deemed to be exclusively a national of the State of his or her dominant and effective
nationality.
(Emphasis added.)
44
Fakes v Turkey (n 37), [77]–[78].
45
Broches A (1995) Selected essays: World Bank, ICSID, and other subjects of public and private
international law. Martinus Nijhoff Publishers, Dordrecht pp 204–205.
46
See, for example, Sinclair A (2008) ICSID’s nationality requirement. In: Grierson Weiler TJ (ed)
Investment treaty arbitration and international law. p 101.
47
Champion Trading v Egypt (n 34), pp. 16–17.
48
Article 10(28) CAFTA-DR.
This “dominant and effective nationality” test is not particularly relevant within
the ICSID system because of the express strictures contained in the ICSID Conven-
tion. Outside of the ICSID system, the dominant and effective nationality test in the
context of the CAFTA-DR was addressed by the tribunals in Aven v Costa Rica49 and
Ballantine v The Dominican Republic.50
Aven v Costa Rica was a case under the UNCITRAL Rules administered by
ICSID. In that case Mr. Aven, an American investor in Costa Rica, held American
and Italian nationalities. Costa Rica argued that Mr. Aven’s dominant and effective
nationality was Italian and therefore his claims were barred. The tribunal rejected
Costa Rica’s objection and held that it had jurisdiction over the claims.51 In partic-
ular, the tribunal took a policy-driven approach and held:
215. The Tribunal agrees with Claimants’ reasoning with respect to the customary interna-
tional law rules regarding dual nationals. Through reference to the dominant and effective
party language, DR-CAFTA seeks to provide protections for foreign investors who are
characterized by their lack of proximity and experience with the host country. As a result,
dual nationality becomes relevant where an investor seeks to take advantage of the substan-
tive protections contained within Chap. 10, while possessing a legal right to citizenship in
the host country. The dominant and effective test would then determine whether the investor
is truly a foreigner or the investor enjoys the same degree of personal connection to the host
State that any other of its nationals enjoys. In this sense, Article 10.28 provides a mechanism
to avoid punishment of legitimate investors deserving of protection in spite of the fact that
they might possess the legal right to nationality of the host State. Thus, the Tribunal believes
that the fact that Mr. Aven is a national of both the United States of America and Italy, whose
investment lies in Costa Rica, does not trigger Article 10.28’s mechanism for dealing with
dual nationals.
Ballantine v The Dominican Republic was an arbitration under the UNCITRAL

Rules administered by the Permanent Court of Arbitration. The claimants possessed
nationality of the United States and the Dominican Republic. The tribunal held that
the claimants’ dominant and effective nationality was that of the Dominican Repub-
lic and, therefore, the claimants did not qualify as foreign investors under the DR-
CAFTA.52 The tribunal interpreted the “dominant and effective” nationality test as
follows:
538. The Tribunal agrees that the word “dominant” conveys the notion of strength and
precedence of one thing over another and that closeness between an individual and a State
can indicate such attributes. . .
539. The word “effective” on the other hand seems to refer to something that produces a
specific effect, something that is actually operative or functioning. We understand this
49
David R. Aven and Others v. Republic of Costa Rica, ICSID Case No. UNCT/15/3, Award (18
September 2018).
50
See n 25.
51
Id, [202]–[247].
52
Michael Ballantine and Lisa Ballantine v The Dominican Republic, PCA Case No. 2016–17,
Final Award (3 September 2019).
concept as requiring this nationality bond to go beyond a formality with no apparent further
effect, to be of substance rather than merely declaratory. . .
540. This does not necessarily imply that the legal standard to assess dominance and
effectiveness should be different or that criteria used to determine if nationality is dominant
would be useless to determine effectiveness. According to the text, the standard is one:
“dominant and effective nationality” and in order to comply with it those two elements must
be met.
Juridical Person Investors
Article 25(2)(b) of the ICSID Convention defines “national of another Contracting

State” in the context of a juridical person as follows:
any juridical person which had the nationality of a Contracting State other than the State
party to the dispute on the date on which the parties consented to submit such dispute to
conciliation or arbitration and any juridical person which had the nationality of the
Contracting State party to the dispute on that date and which, because of foreign control,
the parties have agreed should be treated as a national of another Contracting State for the
purposes of this Convention.
Of course, as discussed above, the relevant investment treaty will also contain a
definition of a juridical person investor, which the claimant must also satisfy.
This Section discusses (1) the requirement of separate legal personality; (2) the
issue with shell companies; and (3) the requirement of foreign control for company
investors incorporated in the respondent host State, under the ICSID Convention.
Separate Legal Personality

The ICSID Convention does not define “juridical person.” This raises an issue of
whether an unincorporated juridical person investors could fall within the definition
set out in Article 25(2)(b) of the ICSID Convention.53
This issue matters because unincorporated joint ventures remain popular in a
number of industries.
This issue of separate legal personality was considered by the tribunal in L.E.S.I. v
Algeria.54 L.E.S.I., the claimant, was a consortium, an unincorporated joint venture
under Italian law, composed of two Italian construction companies. Under Italian
law, L.E.S.I. did not have separate legal personality and this was further evidenced
by the fact that the underlying construction contract with Algeria was signed by the
two Italian construction companies themselves, and not on behalf of the joint
venture.
53
It should be noted that most investment treaties define juridical person investors as incorporated
companies.
54
LESI, S.p.A. and Astaldi, S.p.A. v. People’s Democratic Republic of Algeria, ICSID Case No.
ARB/05/3, Award (10 January 2005) (“L.E.S.I. v Algeria”). This award is in French with no official
English translation. See also Romanetti A (2012) Defining investors: who is eligible to claim? J Int’l
Arb 29(3):231–254, 244–245.
The tribunal in L.E.S.I. v Algeria held that L.E.S.I. was not eligible to bring a
claim under Article 25 of the ICSID Convention because it was not the holder of the
actual rights and obligations under the construction contract with Algeria.55
The two joint venture partners who were also Italian nationals filed another claim
in their own names, which cured the jurisdictional defect.
However, in the case of unincorporated joint ventures composed of partners with
different nationalities, a requirement of separate legal personality may provide
access to jurisdiction only to the joint venture partners actually fulfilling the ratione
personae requirement.
In Impregilo v Pakistan,56 the claimant, a company incorporated under the laws
of Italy, was part of an unincorporated joint venture called GBC organized under the
laws of Switzerland. GBC was composed of Impregilo, a German company, a
French company and two Pakistani companies.
Impregilo sought to claim for damages for the loss suffered by GBC as a whole
under the Italian-Pakistan BIT.
The tribunal held that the Italian-Pakistan BIT “[did] not cover claims by GBC,
since GBC is not a ‘juridical person’ for the purposes of the ICSID Convention.”57 It
further held that, despite the contractual entitlement in the GBC joint venture
agreement for Impregilo to bring claims on behalf of GBC, the claims as brought
by Impregilo remained outside of the tribunal’s jurisdiction:
135. The Tribunal considers that the position is no different if Impregilo pursues a claim “on
behalf of GBC”. The claim remains that of GBC, albeit advanced by Impregilo in some form
of representative capacity. If this were permissible, it would constitute a simple and effective
means of evading the limitations in Article 25 of the Convention, and expanding the scope of
the BIT. Indeed, on this basis, any party could bring itself within the ambit of the Convention
and the BIT by simply appointing a representative. This cannot have been intended by the
careful delimitation of both the Convention’s and the BIT’s scope.
136. In the Tribunal’s view, the fact that Impregilo is empowered to represent GBC by
virtue of the provisions of the JVA does not change this analysis. This must be so, since it
remains a fundamental proposition that the scope of the BIT cannot be expanded by a
municipal law contract to which Pakistan is not a party. To this end, none of the arbitral
awards relied upon by Impregilo appears to address this situation.
137. In so far as this is a claim in respect of GBC’s alleged losses, it remains a claim by an
unincorporated grouping that fails to meet the requirements of the BIT and the ICSID
Convention, and lies beyond the scope of Pakistan’s consent to arbitration. Indeed, each of
the contractual factors upon which Impregilo relies simply reinforces the representative
nature of its position in these proceedings. As “Leader” of GBC, Impregilo is entrusted with
a wide range of duties that are to be performed on behalf of the joint venture, including
matters of management. However, these are internal GBC management issues. Ultimately,
GBC cannot be identified exclusively with Impregilo, nor characterised as “Impregilo’s joint
venture” (as Impregilo has at times sought to do).
55
L.E.S.I. v Algeria (n 54), [37]–[41].
56
Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on
Jurisdiction (22 April 2005) (“Impregilo v Pakistan”).
57
Id, [134].
The tribunal also dismissed the claimant’s argument that the claims were brought
by Impregilo on behalf of the other joint venture partners, in accordance with the
joint venture agreement. The tribunal stated, in particular:
151. The fact that Impregilo may be empowered to advance claims on behalf of its partners is
an internal contractual matter between the participants of the Joint Venture. It cannot, of
itself, impact upon the scope of Pakistan’s consent as expressed in the BIT. Equally, the fact
that Impregilo may be obliged to account to its partners in respect of any damages obtained
in these proceedings is also an internal GBC matter, which has no bearing on Pakistan’s
agreed exposure under the BIT. If this were not so, any party would be at liberty to conclude
a variety of private contracts with third parties, and thereby unilaterally expand the ambit of a
BIT.
Shell Companies
It is common practice for businesses to acquire different nationalities by incorporat-
ing a subsidiary or a holding company under the laws of another jurisdiction. This is
usually done for tax or other regulatory purposes and generally involves the estab-
lishment of shell companies in foreign jurisdictions to serve as investment vehicles.
As discussed above, some investment treaties’ definitions of investor require
juridical persons to have actual business activities in the other contracting State. In
these cases, the tribunals would interpret and apply the requirement as set out in the
relevant investment treaty.58
In cases where the investment treaties do not contain such a requirement, respon-
dent host States have attempted to argue that there is an implied exception against
claims by shell companies and that tribunals should look beyond the corporate veil
of these shell companies to the nationalities of their beneficial owners.
In Tokios Tokeles v Ukraine,59 the claimant was a Lithuanian holding company
principally owned by Ukrainian nationals. The Lithuania-Ukraine BIT simply
defined investor as “any entity established in the territory of the Republic of
Lithuania in conformity with its laws and regulations.”60 The majority of the tribunal
interpreted this requirement of the BIT and Article 25 of the ICSID Convention with
reference to Article 31 of the VCLT and applied a formal corporate nationality test.61
They found that neither the BIT nor Article 25 of the ICSID Convention required a
consideration of business activities or control of the company.
58
For example, Limited Liability Company Amto v Ukraine, SCC Arbitration No. 080/2005, Final
Award (26 March 2008) [68]–[70], relating to Article 17(1) of the Energy Charter Treaty; and
Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc. v Republic of Panama, ICSID
Case No. ARB/16/34, Decision on Expedited Objections (13 December 2017) [302], relating to
Article 10.12.2 of the US-Panama Trade Promotion Agreement.
59
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction (29 April 2004).
60
Article 1(2)(a) of the 1994 Lithuania-Ukraine BIT.
61
Tokios Tokelés v. Ukraine (n 59) [27]–[52]. See Chaisse J (2015) The issue of treaty shopping in
international law of foreign investment – structuring (and restructuring) of investments to gain
access to investment agreements’. Hastings Bus Law Rev 11(2):225–30, 251 and 295.
Further, the majority of the tribunal found that the equitable international law
doctrine of “veil piercing”62 was not applicable in the circumstances of the case. The
majority stated:
55. The Respondent has not made a prima facie case, much less demonstrated, that the
Claimant has engaged in any of the types of conduct described in Barcelona Traction that
might support a piercing of the Claimant’s corporate veil. The Respondent has not shown or
even suggested that the Claimant has used its status as a juridical entity of Lithuania to
perpetrate fraud or engage in malfeasance. The Respondent has made no claim that the
Claimant’s veil must be pierced and jurisdiction denied in order to protect third persons, nor
has the Respondent shown that the Claimant used its corporate nationality to evade appli-
cable legal requirements or obligations.
56. The ICJ did not attempt to define in Barcelona Traction the precise scope of conduct
that might prompt a tribunal to pierce the corporate veil. We are satisfied, however, that none
of the Claimant’s conduct with respect to its status as an entity of Lithuania constitutes an
abuse of legal personality. The Claimant made no attempt whatever to conceal its national
identity from the Respondent. To the contrary, the Claimant’s status as a juridical entity of
Lithuania is well established under the laws of both Lithuania and Ukraine and well known
by the Respondent. The Claimant manifestly did not create Tokios Tokelės for the purpose of
gaining access to ICSID arbitration under the BIT against Ukraine, as the enterprise was
founded 6 years before the BIT between Ukraine and Lithuania entered into force. Indeed,
there is no evidence in the record that the Claimant used its formal legal nationality for any
improper purpose.
It should be noted that in Tokios Tokelés v Ukraine the chairman of the tribunal,
Professor Prosper Weil, strongly dissented from the majority. Professor Weil
contended that the “control-test,” as set out in the latter part of Article 25(2)(b) of
the ICSID Convention, should have been applied,63 and stated that:
19. This raises the single most important issue which lies at the heart of my dissent. As
observed earlier, the silence of the Convention on the criterion of corporate nationality does
not leave the matter to the discretion of the Parties. According to Article 31 of the Vienna
Convention on the Law of Treaties, which the International Court of Justice has repeatedly
described as the expression of customary international law, “[a] treaty shall be interpreted. . .
in accordance with the ordinary meaning to be given to its terms in their context and in the
light of its object and purpose”. It is indisputable, and indeed undisputed, that the object and
purpose of the ICSID Convention and, by the same token, of the procedures therein provided
for are not the settlement of investment disputes between a State and its own nationals. It is
only the international investment that the Convention governs, that is to say, an investment
implying a transborder flux of capital. This appears from the Convention itself, in particular
from its Preamble which refers to “the role of private international investment” and, of
course, from its Article 25. . .
62
As set out in the ICJ decision of Barcelona Traction, Light and Power Co., Ltd (Belg v Spain),
1970 I.C.J. 3.
63
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Dissenting Opinion (Chairman Prosper
Weil) (29 April 2004), [22]–[27]; see also Astorga R (2007) The nationality of juridical persons in
the ICSID convention in light of its jurisprudence. Max Planck UNYB 11:417–472 pp. 463–468.
The ICSID mechanism and remedy are not meant for investments made in a State by its
own citizens with domestic capital through the channel of a foreign entity, whether preex-
istent or created for that purpose. To maintain, as the Decision does, that “the origin of the
capital is not relevant” and that “the only relevant consideration is whether the Claimant is
established under the laws of Lithuania” runs counter to the object and purpose of the whole
ICSID system.
In Romeptrol v Romania,64 the tribunal followed the majority in Tokios Tokelés v

Ukraine and held that the Dutch holding company was eligible as an investor under
the Dutch-Romanian BIT and the ICSID Convention. The tribunal stated that:
81. In the Tribunal’s view, the latitude granted to define nationality for purposes of Article 25
[of the ICSID Convention] must be at its greatest in the context of corporate nationality
under a BIT, where, by definition, it is the Contracting Parties to the BIT themselves, having
under international law the sole power to determine national status under their own law, who
decide by mutual and reciprocal agreement which persons or entities will be treated as their
“nationals” for the purposes of enjoying the benefits the BIT is intended to confer. Drawing
on concepts of private international law, the Respondent says that there is no such thing as a
“nationality” of corporate entities in the same sense as for physical persons. To the extent
that that were so, it would reinforce the point: not only does each Contracting Party have the
sole authority to determine the status of juridical entities under its own law, but the
Contracting Parties jointly have the sole authority to determine the criteria by which juridical
persons with a defined status under each other’s law may enjoy the protections of their BIT.
82. To determine the criteria by which the Contracting Parties to a BIT have agreed that
nationality would be determined for its purposes, we must look, of course, to the BIT itself.
The Tribunal does not therefore share Professor Weil’s methodological critique, in his
dissenting Opinion in the Tokios Tokelés case, of the majority decision in that case, which
the Respondent invokes. Given the latitude granted to States under the ICSID Convention to
settle the applicable nationality criteria, there is nothing illogical in looking first of all to
whether the nationality criteria set forth in the BIT are satisfied before going on to examine
whether there is anything in Article 25 of the Convention which stands in the way of giving
effect to that [. . .].
83. It does not, in the Tribunal’s view, require any extended discussion to conclude that,
within the framework of Article 25(2)(b) of the Convention, it is open to the Contracting
Parties to a BIT to adopt incorporation under their own law as a necessary and also sufficient
criterion of nationality for purposes of ICSID jurisdiction, without requiring in addition an
examination of ownership and control, of the source of investment funds, or of the corporate
body’s effective seat. Incorporation in a given jurisdiction is a widely used criterion
internationally for determining the nationality of corporate bodies, and States determine
corporate nationality by a wide variety of criteria in a wide variety of contexts, as indeed the
Respondent acknowledged at the oral hearing. This is a matter of free choice between the
pair of States Parties to the BIT under consideration. Hence the question becomes simply,
what did these two States themselves agree to of their own free will in concluding the BIT?
The Tribunal therefore holds that the definition of national status given in The Netherlands-
Romania BIT is decisive for the purpose of establishing its jurisdiction.
64
The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision on Respondent’s
Preliminary Objections on Jurisdiction and Admissibility (18 April 2008).
A similar approach was taken by the tribunal in RREEF v Spain:65
145. The term “shell company” is often used as a short-hand reference to a commercial entity
that has little or no activity apart from owning or controlling directly or indirectly assets.
Unless there is a reason under the relevant municipal law or investment treaty to conclude
otherwise, there is no basis under international law to accord such a commercial entity any
less entitlement to the protections afforded under an investment treaty than any other
commercial entity.
The tribunal in TSA v Argentina66 seems to favor a different approach to this

issue. This case will be discussed below.
Foreign Control of Domestic Companies

Article 25(2)(b) of the ICSID Convention sets out two definitions of investors in
relation to juridical persons. The first definition is a straightforward implementation
of the main purpose of investment treaty arbitration, providing a dispute resolution
mechanism between foreign investors and host States to promote foreign direct
investment.67 The second definition provides that “any juridical person which had
the nationality of the Contracting State party to the dispute on that date and which,
because of foreign control, the parties have agreed should be treated as a national of
another Contracting State for the purposes of this Convention.”68
In TSA v Argentina, the claimant sought to rely upon the second limb in Article 25
(2)(b) of the ICSID Convention. In that case, the relevant investment treaty was the
Argentinean-Dutch BIT, in which the State parties consented to treat locally incor-
porated companies as foreign investors because of foreign control.69
The claimant in TSA was an Argentinean subsidiary of a Dutch holding company.
The ultimate beneficial owner of the corporate group was an Argentinean national.
Article 1(b)(ii) of the Argentinean-Dutch BIT required that a juridical person
65
RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v
Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction (6 June 2016) (“RREEF
v Spain”).
66
TSA Spectrum de Argentina S.A. v Argentine Republic, ICSID Case No. ARB/05/5, Award (19
December 2008), [145]–[146] (“TSA v Argentina”).
67
Schreuer C et al (2009) The ICSID Convention: a commentary, 2nd edn. Cambridge University
Press, Cambridge, p277; see also Asouzu A (2002) A review and critique of arbitral awards on
article 25(2)(b) of the ICSID convention. J World Invest 3(3):397–454, 398–399.
68
See United Nations Conference on Trade and Development (2013) Dispute settlement: require-
ments ratione personae, pp. 19–25. https://unctad.org/en/Docs/edmmisc232add3_en.pdf; Astorga R
(2007) The nationality of juridical persons in the ICSID convention in light of its jurisprudence.
Max Planck UNYB 11:417–472, 443–445; and Asouzu A (2002) A review and critique of arbitral
awards on article 25(2)(b) of the ICSID convention. J World Invest 3(3):397–454, 398–399.
69
Article 10(6) of the 1992 Argentinean-Dutch BIT.
investor have “a place of effective management” in the other contracting State. The
Dutch holding company therefore did not file a claim itself, as it was not managed in
the Netherlands.70
The tribunal in TSA recognized that the second limb of Article 25(2)(b) of the
ICSID Convention tasked tribunals to look beyond the separate legal personality of
the locally incorporated companies in determining whether such companies are
under “foreign control”; piercing the corporate veil so to speak. It took an expan-
sive view that this extended beyond the corporate veil of the locally incorporated
companies and held that the claimant in TSA was not under foreign control. The
tribunal stated:
147. . . the text itself allows the parties to agree to lift the corporate veil, but only “because of
foreign control”, which justifies, but at the same time conditions, this exception. Although
the text refers to juridical persons holding the nationality of the host State that the parties
have agreed should be treated as nationals of another contracting State “because of foreign
control”, the existence and materiality of this foreign control have to be objectively proven in
order for them to establish ICSID jurisdiction by their agreement. It would not be consistent
with the text, if the tribunal, when establishing whether there is foreign control, would be
directed to pierce the veil of the corporate entity national of the host State and to stop short at
the second corporate layer it meets, rather than pursuing its objective identification of foreign
control up to its real source, using the same criterion with which it started.
Of course, there are earlier cases which stopped at just piercing the first veil of
locally incorporated companies, and the tribunal in TSA recognized this.71 At the
same time, there are also cases which went beyond the first corporate veil, as the
tribunal in TSA did.72
An unpublished ICSID ad hoc committee decision provides further guidance to
this issue. The ICSID ad hoc committee has limited appellate jurisdiction with
respect to ICSID awards and, in this case, an African State sought to annul an
existing award and in particular the finding that the claimant was a foreign investor
under the second limb of Article 25(2)(b). The African State was in fact indirectly the
majority owner of the claimant and held more than 41% of the stakes in the claimant.
70
250
71
TSA v Argentina (n 66) [148]. The cases are: Amco Asia Corporation and others v. Republic of
Indonesia, ICSID Case No. ARB/81/1; Autopista Concesionada de Venezuela, C.A. v. Bolivarian
Republic of Venezuela, ICSID Case No. ARB/00/5; and Aguas del Tunari, S.A. v. Republic of
Bolivia, ICSID Case No. ARB/02/3.
72
Société Ouest Africaine des Bétons Industriels v. Senegal, ICSID Case No. ARB/82/1; African
Holding Company of America, Inc. and Société Africaine de Construction au Congo S.A.R.L. v. La
République démocratique du Congo, ICSID Case No. ARB/05/21; and Vacuum Salt Products (n 14).
This case was reported in an article by Antoine Romanetti and he reported that the
ICSID ad hoc committee had dismissed the state’s arguments and refused to annul
the award73:
The ad hoc Committee dismissed all the arguments put forward by the African State and
refused to annul the award. It was found that the Tribunal was not under an obligation to
determine the “effective” nationality of the locally incorporated company. The Tribunal was
neither under an obligation to determine the ultimate effective controller of the local
company nor the dominant nationality of the “foreign interests.” For the purposes of Article
25(2)(b), it was sufficient that the Tribunal had found that “foreign interests” controlled more
than 50% of the capital of the locally incorporated companies, that a Belgian company
brought its technical expertise in the venture, that ten foreigners were members of the board
of the holding company, and that it was not seriously contested by the State that the “foreign
interests” were not acting in an inconsistent manner. It is striking that it found that the
exclusivity of control is not a prerequisite condition in the determination of control within
the meaning of Article 25(2)(b) of the ICSID Convention.
Conclusion
Sovereign States have created a dense web of bilateral and multilateral treaties for
the protection of foreign investors and foreign investments. There is general agree-
ment that the first model of such modern bilateral treaties was entered into by
Germany and Pakistan in 1959. Since then sovereign States have entered into over
3,000 BITs and treaties with investment protections.
There are many reasons for this remarkable development. Most probably, the
increase in number and magnitudes of foreign investments worldwide has ren-
dered unviable the use of traditional forms of protection such as diplomatic
protection. By creating this foreign investment protection system, States have
attained the goal of minimizing the occurrence of political frictions. Foreign
investors now are responsible for the protection of their own investments abroad
and States are insulated from disputes that foreign investors may have with the
host States.
This is a positive development for foreign investors, not just for States. Foreign
investors are in full control of their investments and the disputes that might arise in
that respect. Foreign investors have the ability to bring a direct claim against a
sovereign State before a neutral tribunal under international law. However, this
possibility is not unfettered. Only investors falling within certain categories created
under the applicable treaties are entitled bring such claims.
The requirement ratione personae as set out in the ICSID Convention and in most
treaties seem uncontroversial at first sight. However, case law demonstrates that
73
253. See generally Jacobsen L (2020) ISDS Control Mechanisms (Annulment and Setting Aside).
In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international investment law and policy.
Springer, Singapore.
addressing the ratione personae requirement is not always straightforward. Indeed,

concepts such as nationality and control are not developed fully under public
international law. The result is that investment arbitration tribunals often are faced
with the assessment of legal theories and practices developed under domestic laws
and jurisprudence.
This chapter has addressed the basic structure of the requirement ratione perso-
nae with respect to the application of Article 25 of the ICSID Convention. However,
as mentioned, unique issues may arise depending on the applicable legal framework
and the factual circumstances with respect to a particular proposed investment or a
particular investment treaty dispute. Private investors and practitioners would be
well advised to consider in full (1) the applicable legal principles from the relevant
international investment treaties and domestic laws; and (2) the particular circum-
stances surrounding their proposed investments or disputes.
Specific Approval Requirement in
Investment Treaties: A Pursuit of Legitimate 4
Policy Objectives
Teerawat Wongkaew
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Investment Treaty Practice on Specific Approval Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Overview of Investment Treaty Practice in Southeast Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Specific Case Study of Thailand: Evolution of Specific Approval Regime . . . . . . . . . . . . . . . . . 78
Jurisprudence on Specific Approval Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Yaung Chi Oo Trading v Myanmar: Failure to Obtain Specific Approval for
Investments Subsequent to the Entry into Force of the Investment Agreement . . . . . . . . . . . . . 84
Philippe Gruslin v Malaysia: Exclusion of Portfolio Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Desert Line Projects LLC v Yemen: Rejection of a Merely Formalistic Certificate
Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Walter Bau v Thailand: A “Two-Step” Approach to Investment Protection Rejected . . . . . . 88
Rafat v Indonesia: Specific Approval for Admission of Investment Under a Specific
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
H&H Enterprises v Egypt: Rejection of Implied Specific Approval Requirement . . . . . . . . . . 92
Bernhard von Pezold v Zimbabwe: Giving Legal Effect to Subsequent Amendment
of Specific Approval Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Conclusions: Guiding Principles and Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Guiding Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
The views expressed here are the author’s personal views and do not represent the view of the
Ministry or the Government of the Kingdom of Thailand.
The author would like to thank Ms. Sukanya Wisedsri for her research assistance.
T. Wongkaew (*)
Ministry of Foreign Affairs, Thailand, Bangkok, Thailand
e-mail: te.wongkaew@mfa.mail.go.th

https://doi.org/10.1007/978-981-13-3615-7_50
72 T. Wongkaew
Abstract
This paper examines a specific approval and registration requirement that is
incorporated in some investment treaties as a technique to restrict the scope of
application of treaties. It discusses the policy rationale behind this requirement
and analyzes some treaty practice regarding the specific approval requirement as
well as the arbitral decisions which deal with the issue. Though such requirement
is only prevalent in investment treaties of certain countries, especially ASEAN
countries, it represents one of the several legitimate policy tools employed by
contracting States to investment treaties to impose a qualitative control on the
types of investments to be protected thereunder. Nevertheless, such requirement
may pose some challenges for both States and investors. Besides ensuring
compliance with relevant admission laws and regulations, investors may bear
additional burden to comply with another specific procedure in order to be
entitled to treaty protection. Furthermore, such specific approval requirement
may provide States with another defense tool in raising a jurisdictional objection
to an investor’s claim. For States, implementation of this requirement entails
administrative burden and costs, the failure of which will deprive States of the
ability to choose the types of investments to be protected. The ambiguity in treaty
provision regarding the specific approval requirement as well as the lack of a
transparent and clearly defined mechanism for implementing such requirement
may strip the provision of its intended legal effect.
Keywords
Approval requirement for investment treaty protection · Jurisdictional
requirement
Introduction
Most investment treaties have a broad scope of application covering all types of
assets and economic activities.1 However, there are different techniques for limiting
the scope of the treaty, such as the requirement for characteristics of investments,2
the requirement that the investment is made in accordance with host State laws and
1
Bernasconi-Osterwalder N, Malik M (2012) Registration and approval requirements in investment
treaties. The International Institute for Sustainable Development
2
Ranjan P, Anand P (2017) The 2016 model Indian bilateral investment treaty: a critical decon-
struction. Northwest J Int Law Bus 38
4 Specific Approval Requirement in Investment Treaties: A Pursuit of. . . 73
regulations,3 and the exclusion of certain types of measures or sectors from the scope
of application.4 The less common practice is the requirement that investments have
to be registered or specifically approved for the purpose of treaty protection. All of
these techniques are based on the fundamental rationale that States have a sovereign
right to determine policy choices on what types of investments deserve treaty
protection and to impose specific conditions as well as procedures to be followed.
Compliance with these requirements is important as they will determine the entitle-
ment of investors to treaty protection.
The paper focuses on the specific approval and registration requirements and
analyzes the practice and legal issues concerning such requirement. The “specific
approval” requirement is to be distinguished from the so-called legality provisions.
The former requires that investments follow specific procedures or fulfill certain
conditions in order to be protected under investment treaty, in addition to compliance
with laws and regulations of the host State. However, the paper will also discuss the
“specific approval” requirement regarding compliance with a specific piece of
legislation.
The paper aims to provide a systematic analysis on the issue, based on treaty
practice as well as jurisprudence, including illustration from Thailand’s investment
treaty regime which predominantly adopts the specific approval requirement and put
in place the domestic mechanism for such requirement as well as the recent juris-
prudence which specifically addresses this issue. This paper aims to contribute to the
discussions on how States can employ different techniques to limit the scope of
application to serve country investment policies by drawing key lessons, from the
administrative practice and jurisprudence, for future policy recommendations, and
drawing guiding principles therefrom.
The main argument of the paper is that while the approval requirement may serve
as an important policy tool for States in selecting beneficial investments, the lack of
clarity in treaty language as well as evidence in administrative process as well as
other policy considerations may undermine effectiveness of such tool.
The paper has three main parts. The first part examines some treaty practice, both
bilateral and regional investment treaties which incorporate specific approval and
registration requirement. The second part appraises the investment arbitration juris-
prudence which deals with such requirement. The third part draws conclusions about
the relevance and usefulness of the requirement as a technique employed by
contracting States in terms of policy recommendations and a set of guiding
principles.
3
Knahr C (2007) ‘Investments “in accordance with host state law”’. 5 TDM; Kriebaum U (2010)
‘Illegal investments’. Aust YBIL 307; Chaisse J (2015) The shifting tectonics of international
investment law – structure and dynamics of rules and arbitration on foreign investment in the Asia-
Pacific Region. George Washington Int Law Rev. 47(3):563–638
4
For instance, taxation measures are partially excluded from the scope of ASEAN investment
treaties. Sector exclusion can also be found, for instance, in Article VI (3) of the 1998 Canadian-
Thailand BIT excluding investments in cultural industries as defined in the treaty.
74 T. Wongkaew
Investment Treaty Practice on Specific Approval Requirement
Overview of Investment Treaty Practice in Southeast Asia
Policy Rationale and Sample Treaty Practice

Investment treaties in Southeast Asia, in particular Thailand, Malaysia, Indonesia,
and Singapore, predominantly adopt some kind of specific approval requirement for
the scope of treaty application.
The adoption of this requirement aligns with the investment promotion policies of
the countries. For instance, the first Germany–Thailand BIT in 1961 was concluded
amidst the government’s policy in promoting the industrial investments in projects,
hence the limitation of scope to that particular type of investment.5 Similarly, in
Malaysia, the evolution of Malaysia’s investment treaty practice regarding the
requirement can be explained by Malaysia’s development goals and policy in
attracting foreign direct investment and long-term capital investments in manufactur-
ing and infrastructure.6 Indonesia’s earlier investment treaties seek to protect invest-
ments admitted in accordance with a specific law, namely, the Law of 1967
concerning foreign direct investments.
There is a variety of specific approval requirements. First, the treaty stipulates that
specific approval for treaty protection is required in lieu of admission procedure
(Thailand). Some of Thailand’s investment treaties make it more explicit that
admission of investment is distinct from specific approval of investment for protec-
tion under the treaty. Second, the treaty only applies to “specifically approved
investments” for the admission stage (Singapore). Third, treaty protection is only
granted to investments in “approved projects” (Malaysia), and there is no additional
approval for protection. Forth, treaty will stipulate a specific admission procedure by
reference to a specific piece of legislation (Indonesia). Below are samples of some
treaty practices with regard to the requirement.
Article X of the Singapore-Indonesian BIT (in force on 26 June 2006)7states that
the Agreement shall only apply:
a. in respect of investments in the territory of the Republic of Singapore, to all investments

made by investors of the Republic of Indonesia, which are specifically approved in
5
The administrative practice confirmed that a certificate of promotion granted by the Board of
Promotion of Industrial Investment under the Promotion of Industrial Investment Act will be
deemed as “a certificate of admission” within the meaning of paragraph b of the Protocol to Article
1 of the treaty. For overview of the policy in Thailand, see Nottage L, Thanitcul S (2016) The past,
present and future of international investment arbitration in Thailand. Sydney Law School research
paper no. 16/31, and Nottage L, Thanitcul S (2017) International investment arbitration in Thailand:
limiting contract-based claims while maintaining treaty-based ISDS. JWIT 18(5–6):793–835.
6
Reed L, Wong K (2016) Evolution of the formal requirements for investment treaty protection of
“investments” in Malaysia. Conventus Law
7
This treaty is now terminated. It is nevertheless useful for our discussion.
writing by the competent authority designated by the Government of the Republic of

Singapore.
b. in respect of investments in the territory of the Republic of Indonesia, to all investments
made by investors of the Republic of Singapore, which have been admitted in accordance
with its laws and regulations concerning foreign investment and any laws and regula-
tions amending or replacing it.
Similarly, Article 2 of the Singapore-Ukraine BIT (in force on 14 July 2007) does
not make it clear that this specific approval in writing is for admission or protection:
This Agreement shall only apply in respect of investments, made by the investors of one
State in the territory of the other, which are specifically approved in writing by the competent
authority of the latter State and upon such conditions, if any, as it shall deem fit.8
For Malaysia, the earlier BITs concluded with 13 countries, such as Germany,9
BLEU (Belgium-Luxembourg Economic Union),10 and United Kingdom,11 which
limit the scope of treaty protection to investments made in projects classified as an
“approved project.”
Article 2 of Sri Lanka-Malaysia BIT (in force on 31 October 1995) states that the
term “investment” shall refer:
(a) In respect of investments in the territory of Malaysia, to all investments made by Sri
Lankan nationals or companies in projects classified by the appropriate Ministry of
Malaysia in accordance with its legislation and administrative practice as an “approved
project.”
(b) In respect of investments in the territory of Sri Lanka, to all investments made by
nationals and companies of Malaysia which are specifically approved in writing by the
Government of Sri Lanka or by any of its designated agencies, and upon such condi-
tions, if any, as shall be deemed fit.12
However, the recent treaty practice of Malaysia seems to abandon such require-
ment and only States that protected investments are those made in accordance with
the laws, regulations, and national policies of the Parties.13
8
Most BITs concluded by Singapore contain the specific approval requirement stipulated in the
scope of application provision.
9
Germany–Malaysia BIT (in force on 6 July 1963)
10
BLEU (Belgium-Luxembourg Economic Union)–Malaysia (in force on 8 February 1982)
11
Article 1(b) of the UK–Malaysia BIT (in force on 21 October 1988)
12
Denmark-Malaysia BIT (in force on 18 September 1992) contains similar wording
13
Article 12 of Syria–Malaysia (in force on 3 May 2009): “This Agreement shall apply to all
investments made by investors of either Party in the territory of the other Party in accordance with
its laws, regulations or national policies, whether made before or after the entry into force of this
Agreement, but shall not apply to any dispute concerning an investment that arose or any claims that
was settled before its entry into force.” Article 11 of UAE–Malaysia (in force on 22 May 1992) only
requires compliance with relevant laws and regulations.
76 T. Wongkaew
For the Indonesian practice, a specific approval requirement in investment treaties

refers to an admission of investment in accordance with a specific piece of legisla-
tion. For instance, Article XI of the Mozambique-Indonesia BIT (in force on 25 July
2000) refers to the Law No. 1 of 1967 concerning Foreign Investment in the case of
Indonesia and the specific laws of Mozambique as stated in the treaty.14 Similarly,
the Indonesian-Denmark BIT (in force on 2 July 1968)15 contained a specific
approval requirement. For Indonesia, it referred to approval in accordance with the
foreign investment legislation currently in force (Law No. 1 of the year 1967),
whereas for Denmark, it referred to investments made consistent with the Danish
exchange regulations currently in force (Order No. 199 of June 20, 1961) and
declared by the Danish Ministry of Foreign Affairs.16
In contrast to the treaties that have been analyzed above, the wording of some
BITs concluded by Thailand makes it clear that the specific approval for treaty
protection is distinct from admission of investments.
Article 2 (2) Switzerland-Thailand BIT (in force on 21 July 1999) states that:
. . .each Contracting Party may with respect to investments in its territory of investors of the
other Contracting Party make dependent the right of any such investor to raise a claim under
the present Agreement on the condition that the investment concerned has been approved by
its authorities.
(2) With regard to Article 2 paragraph (2) it is understood that for the time being foreign
investments in the territory of the Kingdom of Thailand have to be specifically approved in
writing by the competent authority in order for the investors to be able to raise a claim under
an investment protection agreement. Such approval, which may be dependent on the
fulfilment of certain conditions, may be applied for by Swiss investors at any time in respect
of any investment whether made before or after the entry into force of this Agreement.
Protocol of Slovenia-Thailand BIT (in force on 20 October 2002) states that “with
regard to Article 2 it is understood that for the time being, foreign investments in
Thailand and their alteration of forms thereafter have to be specifically approved in
writing by the competent authorities of Thailand in order for the investors to be able
to raise a claim under an investment protection agreement.”
14
More examples include the following: Article X of the Indonesia–Mongolia BIT (in force on 13
April 1999) also makes reference to the Law No. 1 of 1967 for Indonesia. Article X of the
Indonesia–Lao BIT (in force on 14 October 1995) refers to the Law No. I of 1967 concerning
Foreign Investment and any law amending or replacing it for Indonesia and the Law No. 01 of 14
March 1994 on the Promotion and Management of Foreign Investment in the Lao People’s
Democratic Republic and other relevant regulations.
15
This treaty is terminated and replaced with the new treaty in force on 15 October 2009, which does
not contain the reference to a specific piece of legislation.
16
Such requirement is not contained in Denmark–Indonesia BIT 2009.
Specific Approval Requirements in Regional Investment Treaties

The specific approval requirement is also adopted at the regional level in regional
investment treaties as well as FTAs. However, there seems to be inconsistent practice
regarding such requirement.
The 1987 ASEAN Investment Guarantee Agreement limits the scope of applica-
tion to investments that “are specifically approved in writing and registered by the
host country and upon such conditions as it deems fit for the purposes of this
Agreement.”17 Furthermore, investments made prior to its entry into force can be
protected if they are specifically approved in writing and registered by the host
country and upon such conditions as it deems fit for purpose of this Agreement.18
By contrast, the 2009 ASEAN Comprehensive Investment Agreement (ACIA)
loosened the specific approval requirement by incorporating it with the caveat of
“where applicable” and including the annex on the application procedure,19 such as
the contact details of its competent authority, the 1-month notification for the case of
an incomplete application, the 4 months period for consideration of the application,
etc.
Other ASEAN investment agreements also incorporate the specific approval
requirement but with different variations. ASEAN-Korea Investment Agreement
limits its scope of application to covered investment which includes specifically
approved investments under the procedures to be defined in Annex.20 Article 1 (b) of
ASEAN–Hong Kong Investment Agreement21 similarly adopts the requirement.
ASEAN-China Investment Agreement incorporates the specific approval require-
ment only for Thailand:
Unless otherwise provided in this Agreement, this Agreement shall apply to all investments
made by investors of a Party in the territory of another Party, whether made before or after
the entry into force of this Agreement. For greater certainty, the provisions of this Agreement
do not bind any Party in relation to any act or fact that took place or any situation that ceased
to exist before the date of entry into force of this Agreement. In the case of Thailand, this
Agreement shall apply only in cases where the investment by an investor of another Party in
the territory of Thailand has been admitted, and specifically approved in writing for
17
Article II of the 1987 ASEAN Investment Guarantee Agreement https://asean.org/?static_post=
the-1987-asean-agreement-for-the-promotion-and-protection-of-investments
18
Ibid
19
Article 4 (a) “covered investment” means, with respect to a Member State, an investment in its
territory of an investor of any other Member State in existence as of the date of entry into force of
this Agreement or established, acquired, or expanded thereafter and has been admitted according to
its laws, regulations, and national policies and, where applicable, specifically approved in writing
by the competent authority of a Member State. For the purpose of protection, the procedures relating
to specific approval in writing shall be as specified in Annex 1 (Approval in Writing). For a
commentary, see Chaisse J, Jusoh S (2016) In: Bjorklund AK, Reinisch A (eds) The ASEAN
comprehensive investment agreement – the regionalization of laws and policy on foreign invest-
ment, International investment law series. Edward Elgar, London, p 265.
20
For the purpose of protection, the procedures relating to specific approval in writing shall be in
Annex 1 (Approval in Writing).
21
ASEAN–Hong Kong, China SAR Investment Agreement (2017)
78 T. Wongkaew
protection by its competent authorities, in accordance with its domestic laws, regulations
and policies.22
Article 2 (a) of ASEAN-Australia-New Zealand Free Trade Agreement also

incorporates the specific approval requirement only in the case of Thailand and
Vietnam, whereby the covered investment means an investment in its territory of an
investor of another Party admitted by the host Party, subject to its relevant laws,
regulations, and policies. However, the footnote of this Article stipulates that:
For greater certainty:
a. in the case of Thailand, protection under this Chapter shall be accorded to covered
investments which have been specifically approved in writing for protection by
the competent authorities;
b. in the case of Viet Nam, “has been admitted” means “has been specifically
registered or approved in writing, as the case may be”.
Article 1 1(b) of ASEAN-India Investment Agreement limits the scope of appli-

cation to investments admitted subject to its relevant laws, regulations, and policies,
except in the case of Thailand, Cambodia, and Vietnam, where there is a specific
approval requirement:
(a) in the case of Thailand, protection under this Agreement shall be accorded to invest-
ments, as referred to in paragraph 1 (b) of this Article, which have been specifically approved
in writing for protection by the competent authorities; (b) in the case of Cambodia and Viet
Nam, “has been admitted” means “has been specifically registered or approved in writing, as
the case may be”.23
It is interesting to note that some treaties set the specific approval requirement in
accordance with the treaty term rather than by reference to the host state’s laws and
regulations. Article 12 of Investment Agreement for the COMESA Common Invest-
ment Area sets out the specific registration requirement pursuant to the Agreement
and the relevant authority in Annex.
Specific Case Study of Thailand: Evolution of Specific Approval

Regime
This section analyzes the evolution of Thailand’s investment treaty practice on the
specific approval requirement as well as the domestic regulations on the procedure
for obtaining treaty protection. Thailand has consistently adopted the approval for
protection requirement in its investment treaty network, both bilateral and regional
22
The name and contact details of the competent authorities responsible for granting such approval
shall be informed to the other Parties through the ASEAN Secretariat.
23
ASEAN-India Investment Agreement (signed on 12 November 2014)
treaties. Nevertheless, the implementation of such requirement is not without

challenges.
Treaty Practice
Most investment treaties as well as free trade agreements concluded by Thailand/
regional investment agreements to which Thailand is a party incorporate the
specific approval requirement.24 The first Germany–Thailand BIT contains a
unique wording for specific approval requirement, which is distinct from the
other investment treaties. The treaty limits the scope of application to “investments
made in projects classified in the certificate of admission by the appropriate
authority of the Kingdom of Thailand in accordance with its legislation and
administrative practice as an ‘approved project’”.25 Article 3 of the Thailand–UK
BIT (in force on 11 August 1979) adopts the standard provision which is followed
by subsequent treaties:
The benefits of this Agreement shall apply only in cases where the investment of capital by
the nationals and companies of one Contracting Party in the territory of the other Contracting
Party has been specifically approved in writing by the competent authority of the latter
Contracting Party.
Most of the Thailand’s investment treaties that incorporate the specific approval
requirement do not provide definition or guidance on the term “specifically approved
in writing.”
However, the most elaborate incorporation of such requirement is found in
Thailand–Myanmar BIT (in force 8 Jun 2012), whereby two Annexes on the specific
approval conditions/procedure are outlined. Such provision confirms that specific
approval is an additional precondition for treaty protection.
Article 2 of the Thailand–Myanmar BIT stipulates that the benefits of this
Agreement only apply to the investment that has been “specifically approved in
writing,” if so required, by the competent authorities. Annex A outlines the condi-
tions and procedures for investors of Myanmar in Thailand, while Annex B outlines
those for Thai investors in Myanmar. The key components of Annex A are 1) the
competent authority, 2) the legal basis, 3) procedures, and 4) factors for
consideration.
24
Article 2 of Hungary-Thailand BIT (in force 18 October 1991) only refers to approval in writing:
“the benefits of this Agreement shall apply only in cases where the investment by nationals or
companies of one Contracting Party in the territory of the other Contracting Party has been admitted
or otherwise approved in writing, if necessary, by the competent authority, in accordance with the
law and regulations of that Contracting Party. . ..”
25
Protocol 1(b) (emphasis added). It is unclear whether the certificate of admission referred in the
Protocol is distinct from an admission of investment certificate/document pursuant to relevant laws
and regulations. This is the issue in the jurisdictional phase of Walter Bau v Thailand, discussed in
2.4.
80 T. Wongkaew
1) The competent authority is the Committee on the Approval for the Protection of
Investment under the Agreement on the Promotion and Protection of Investment
between Thailand and Other Countries (the “Committee”) chaired by the Minis-
try of Foreign Affairs of Thailand. This authority is distinct from other regulatory
bodies that admit investments into the country in accordance with the laws and
regulations, such as Board of Investment, Industrial Estates Authority of Thai-
land, and Committee on Foreign Business.
2) The legal basis for the applications of specific approval is the Announcement of
the Committee on the Approval for Protection of Investment between Thailand
and Other Countries (2003), as may be amended.
3) Procedures for application of approval of investments are as follows: (a)
Investors of the Union of Myanmar shall submit the application for the Certif-
icate of Approval for Protection (“CAP”) to the Committee through the Minis-
try of Foreign Affairs giving full information on their intended investments. (b)
The Committee shall consider the application of the investors without undue
delay and inform the result to the investors within a period of 60 days from the
date of receipt of the application. In exceptional cases, if the Committee deems
it necessary, it may extend the time to consider the application of approval for
another period of 60 days.
4) Relevant factors: The Annex sets out the factors to be taken into account, such
as (a) the nation’s safety and security; (b) the nation’s economic and social
development; (c) technology transfer and research for development; (d) public
order and good moral; (e) art, culture, and tradition of the country; (f) natural
resource conservation, energy, and environment protection; and (g) consumer
protection.
Besides the Myanmar–Thailand BIT, other investment treaties concluded by

Thailand do not incorporate such detailed conditions and procedures.
One important feature in the evolution of Thailand’s investment treaty practice
is the shift away from the specific approval requirement. The most recently
concluded investment treaty, Thailand–UAE BIT (in force on 16 December
2016), does not include the specific approval requirement but adopts the “direct
investment” approach. Article 1 of the Thailand–UAE BIT defines the term
“investment” as foreign direct investment made by investors of one Contracting
Party in the territory of the other Contracting Party in accordance with the latter’s
laws and regulations. Some treaties, such as Article II of Turkey-Thailand BIT,
incorporate both a specific approval requirement and limitation of the scope to
“direct investments.”26
26
Article 1(2) – the said term [investment] shall refer to all direct investments made in accordance
with the laws and regulations in the territory of the Party where the investments are made. . ..
Article II (1) “the benefits of this Agreement shall apply only in cases where the investment by
investor of one Party in the territory of the other Party has been specifically approved in writing by
the competent authority, if so required, by the laws and regulations of that Party.”
Some FTAs concluded by Thailand also do not use the specific approval require-
ment.27 Furthermore, the negotiation mandate that has been recently approved by the
Council of Ministers adopts the “direct investment” rather than “the specific
approval requirement” regarding the scope of application.28
These recent developments seem to suggest an incremental shift from the specific
requirement. This evolution can be understood in terms of the proactive investment
promotion policy. Foreign investments still have to comply with relevant domestic
laws and regulations and particular procedures.
In summary, under the Thai regime, investment treaty protection is contingent
upon (1) mere compliance with Thailand’s laws, regulations, and policies and/or (2)
additional specific approval requirement. The next section will examine the latter.
Domestic Procedure for Approval of Investment Treaty Protection

This section examines the competent authority for approving protection of invest-
ments under investment agreements as well as the conditions and procedures.
(A) Mechanism: a permanent Committee on the Approval of Investment Treaty

was not set up until 1991.29 It comprised representatives of more than 13
agencies of the Thai Government. It was only until 2003 that there was a
comprehensive restructuring of the approval for investment treaty protection
mechanism with the promulgation of the Announcement of the Committee on
the Approval for the Protection of Investment between Thailand and other
Countries No. MFA 0704/1/2003 concerning Foreign Investment Protection
under the Agreements on the Promotion and Protection of Investments between
the Government of the Kingdom of Thailand and Foreign Governments.30
The Cabinet approved31 the principle and the title change of the Committee on the
Approval of Investment under the Agreement on the Promotion and Protection of
Investments between Thailand and Other Countries as well as a revised term of
27
Japan-Thailand Economic Partnership Agreement (in force on 1 November 2018) Article 91 (c)
stipulates that “direct investment enterprise” means: (i) an enterprise in the Area of a Party in which
an investor of the other Party directly owns at least 10% of the total equity interest in the enterprise
or (ii) an enterprise in the Area of a Party in which an investor of the other Party, whether directly
and indirectly, or indirectly, owns equity interest such that at least 10% of the total equity interest in
that enterprise is attributable to such investor.
28
Source from Department of International Economic Affairs, Ministry of Foreign Affairs, Thailand
29
The Cabinet of Ministers’ decision on 9 June 1991
30
The current status of the Announcement is questionable because the Committee was abolished by
the Cabinet of Ministers in 2011 [Cabinet Decision on 13 September 2011]. It also remains
uncertain how the term “specifically approved in writing” should be interpreted in light of the
practice that the Announcement is no longer valid and the Committee is no longer in function.
However, the analysis will proceed on the assumption that the Announcement is still valid.
31
In 1 July 2003 and 19 August 2003
82 T. Wongkaew
reference of the Committee, which was appointed by the Cabinet’s decision dated 10
April 1999 with the Ministry of Foreign Affairs acting as the secretary of the Commit-
tee and responsible for the issuance of the Certificate of Admission (CA), which was
subsequently changed to the Certificate of Approval for Protection, known as CAP.
The revised responsibilities of the Committee include:
(a) Determine the guidelines and criteria for the approval of protection for invest-
ment under the agreements on the promotion and protection of investment
between Thailand and other countries.
(b) Consider the approval of the protection for investment of investors from coun-
tries with which Thailand has concluded the agreement on the promotion and
protection of investments that apply for the issuance of the Certificate of
Approval for Protection – CAP.
(c) Consider the termination of the CAP when the agreement is expired, terminated,
or when the investment is not in accordance with the criteria for the approval of
protection for investment, or causes adverse effects to the economy.
(d) Invite relevant authorities which are not members of the Committee to attend the
meeting with the Committee, if deemed necessary, on a case-by-case basis.
(e) Appoint sub-committees under this Committee, if deemed necessary.
(B) Conditions for Approval
The Announcement sets out conditions and procedure for seeking approval of
treaty protection as follows:
First, only direct investments shall be granted protection under the agreement on the
promotion and protection of investments between the Government of the King-
dom of Thailand and the Government of the country of the foreign investors:
Second, the following investments will be deemed protected under the treaty:
(1) Investment that is granted the license by the Minister of Commerce or the
Director-General of the Department of Business Development according to
the Foreign Business Act B.E. 2542.
(2) Investment that received the Certificate of Promotion from the Board of
Investment.
(3) Investment under government concessions.
Whereby the above license from the Ministry of Commerce, the Certificate of
Promotion from the Board of Investment, and the contract of the government
concessions shall be considered as the Certificate of Approval for Protection –
CAP – for the investment. Such investment shall be granted protection under the
agreement on the promotion and protection of investments between the Government
of the Kingdom of Thailand and the Government of the country of the foreign
investors.
Third, all other direct investments, made prior to the date of entry into force of this
announcement must apply for the CAP from the Committee in order to obtain the
protection.
Forth, in granting the CAP, the Committee shall take into consideration the
benefits in relation to the nation’s safety and security; economic and social devel-
opment; technology transfer and research for development; public order and good
moral, art, culture, and tradition of the country; natural resource conservation;
energy and environment protection; and consumer protection.
It is interesting to note that prior to the Announcement, the practice was that the
Ministry of Foreign Affairs was the competent authority to issue the necessary
certificate of admission. A certificate of promotion granted by the Board of Promo-
tion of Industrial Investment under the Promotion of Industrial Investment Act
would be deemed as a certificate of admission pursuant to the treaty. For all other
investments which were not under the scope of the Act, the MFA would be the
competent authority to issue a certificate of admission for such investment to enjoy
treat protection.
Some observations on the specific approval regime can be noted. The rationale
behind the approval regime is to give the host State the ability to screen the
investment for treaty protection rather than for admission, in particular portfolio/
speculative investments. There might be some investments in which the host State
encourages and therefore admits in accordance with the laws and regulations but
does not want to give an incentive of treaty protection. In the past, only investments
within the scope of the Promotion of Industrial Investment Act enjoyed automati-
cally treaty protection. But now the regime grants automatic protection to three
categories of investments as mentioned above.
Nevertheless, there are few challenges in the implementation of this mechanism.
First, the implementation of specific approval requirement can be burdensome, as
there is a separate mechanism and procedure to follow in addition to compliance
with a normal regulatory admission procedure. Second, one can question the extent
to which foreign investors are aware of the existence of the investment treaty
approval regime. Third, greater clarity is required on the issue of whether share-
holders in the company that obtains the three types of certificates which are deemed
as CAP still need to apply for approval of treaty protection. Forth, it has to be
ascertained whether the scope of automatic protection of investment under the
Announcement covers all channels of direct investments admitted into the country
in view of the evolution of investment promotion scheme in Thailand. For example,
the Eastern Economic Corridor (EEC) Act 2018 has been recently enacted to
promote investments in the mega project “Eastern Economic Corridor.”
Jurisprudence on Specific Approval Requirement
This section aims to provide a systematic analysis of the jurisprudence on the

specific requirement. The jurisprudence can be categorized into two types: the
deference approach (e.g., Yaung Chi Oo Trading v Myanmar and Philppe Gruslin
84 T. Wongkaew
v Malaysia) and non-deference approach (e.g., Desert Line Projects LLC v the
Republic of Yemen and Walter Bau v Thailand). The deference approach respects
the right of the host State to impose a precondition for treaty protection (specific
approval/registration). The non-deference approach gives weight to the surrounding
circumstances and administrative practice in the interpretation of specific approval
requirement.
Yaung Chi Oo Trading v Myanmar32: Failure to Obtain Specific

Approval for Investments Subsequent to the Entry into Force of the
Investment Agreement
The tribunal had to determine whether the investment, made prior to the entry into
force of the 1987 ASEAN Investment Guarantee Agreement (IGA) which requires
specific approval and registration of investment, is entitled to treaty protection.33
The case concerns the Joint Venture Agreement, concluded in 1993, between the
Singaporean company and an agency of the Union of Myanmar Ministry of Industry
for the operation of the beer brewery in Mandalay. Problems occurred in the
relationship between the parties to the Joint Venture Agreement – armed seizure,
freezing of bank accounts of the managing director and principal shareholder, and
winding up of the company. The claimant commenced arbitration proceedings under
the 1987 ASEAN Agreement, in which Myanmar only acceded to in 1997 upon its
ASEAN membership.
The issue is whether the investment, made in 1993, met the requirement in Article
II (3) of the 1987 ASEAN Agreement which requires the investment to be “specif-
ically approved in writing and registered by the host country and upon such
conditions as it deems fit for the purpose of this Agreement subsequent in its entry
into force.”
The claimant’s contention is that various approvals under relevant laws, such as
the Foreign Investment Law and the Companies Act of Myanmar, satisfy the specific
approval and registration requirement under Article II of the 1997 ASEAN Agree-
ment. This is because there is no indication about a special procedure for registration
in the Agreement nor in the practice of the ASEAN State Parties. In any case, the
claimant argued that there has been “continuing approval” given by the Myanmar
State to the investment for the term of the Joint Venture Agreement after 23 July
1997. In addition, there were several acts of approval of the investment, in particular,
through decisions of the Board of Directors of the joint venture company, which
included representatives of the Myanmar ministry.
32
Yaung Chi Oo Trading Pte. Ltd. V Government of the Union of Myanmar, Award (ASEAN ID
Case No. ARB/01/1), 31 March 2003
33
Under Article II(l) of the 1987 ASEAN Agreement, the investment must be “specifically
approved in writing and registered by the host country and upon such conditions as it deems fit
for the purposes of this Agreement.”
On the contrary, the Respondent argued that despite the lack of specific procedure
for approval and registration for the purpose of the 1987 ASEAN Agreement, the
claimant must have sought specific approval and registration to obtain treaty
protection.
The tribunal set out several guiding principles on the specific approval require-
ment. First, it acknowledged that a specific approval and registration requirement is a
distinct requirement from the general rule that investment must be lawful under the
law of the host State.34
Second, the contracting States must make known to potential investors about the
coexistence of both procedures as well as provide details for special procedure.35 In
the absence of those in this case, the tribunal interpreted approval of foreign
investment under the internal law to fulfill the requirement of the approval and
registration for the purposes of the Agreement.36
However, the tribunal notes that the investment in question does not fall into that
category because the Agreement has a specific provision – Article II(3) which sets
out a requirement for investments prior to the entry into force of the Agreement,
namely, that the investment must be specifically approved and registered to be
covered under the treaty. The decisions of the board of directors failed to satisfy
the requirement for two reasons. First, the act of the company board of directors
could not have constituted the act on behalf of the Respondent. Second, the decisions
did not entail the official approval of the investment by the State but managerial in
nature. The tribunal considered that the earlier approval and registration of the
investment is not sufficient. The tribunal noted that the subsequent approval in
writing which would be sufficient include the renewal of the Joint Venture Agree-
ment, the formal approval of an amendment to the Joint Venture Agreement.
Therefore, the tribunal concludes that the claimant’s investment does not qualify
under Article II (3) of the 1987 ASEAN Agreement.
Philippe Gruslin v Malaysia37: Exclusion of Portfolio Investments
The tribunal determined that the investment in securities listed on the Kuala Lumpur
Stock Exchange (KLSE) was not qualified as an “investment” within the meaning of
the Belgium-Luxembourg-Malaysia BIT (in force on 8 February 1982), which
requires specific approval.
The claimant alleged that due to the exchange controls for the trading of currency
imposed by the Respondent in 1998, the claimant suffered losses. The pertinent issue
34
Paras 58–59: “No doubt a Party to the 1987 ASEAN Agreement could establish a separate register
of protected investments for the purposes of that Agreement, in addition to or in lieu of approval
under its internal law.”
35
Para 58
36
Para 59
37
Philippe Gruslin v. Malaysia, ICSID Case No. ARB/99/3, 27 November 2000
86 T. Wongkaew
is whether the portfolio and stock market investment, the kind of investment
involved in the case, falls within the scope of the treaty, given that Article 1(3) of
the BIT restricts the application of the agreement to those investments made in an
“approved project.”
The claimant’s contention is that the approval from the Capital Issues Committee
of Malaysia before listing and quotation of any shares satisfies the requirements of
proviso (1). On the contrary, the Respondent argues that based on the consistent
practice regarding the limitation of protection to investments in approved projects,
portfolio investment does not fall within the scope of the agreement since Malaysia
held the policy to limit protection of foreign investment to investment made in
projects that contributed to the manufacturing and industrial capacity of the country.
The tribunal held that the KLSE investment does not satisfy the definition of
investment under Article 1(3) of the BIT by mere fact of regulatory approval from
the authority. The tribunal clearly drew a distinction between regulatory approval
under the relevant laws and the approved project requirement under the agreement:
What is required is something constituting regulatory approval of a “project,” as such, and

not merely the approval at some time of the general business activities of a corporation. The
Tribunal rejects the Claimant’s contentions that a CIC approval for a corporation in the
listing processes for the KLSE suffices to satisfy the request for an “approved project” under
the proviso.38
It is interesting to note that the tribunal examined the conflicting interpretive notes
by the contracting parties. The Belgian side, in its note dated 28 September 1992,
interprets the term “approved project” in Article 1 para (i) “to be understood in the
larger sense and does include foreign investment for which the substance and or the
object are not subject to explicit approval procedures.”39 The Malaysian side
interprets the term to mean that the treaty only applies to an approved project
which requires approval from the relevant designated Ministries.
Desert Line Projects LLC v Yemen40: Rejection of a Merely Formalistic

Certificate Requirement
This case concerns a dispute related to payments for work performed under road
construction contracts in Yemen. The Omani company completed all but two of the
construction projects and a dispute concerning payments due under some of the
contracts arose.
The contentious issue in this case for our part is the interpretation of Article 1(1).
There are two issues: (1) whether the investment of the claimant fulfilled the
38
Para 25.5
39
Para 23.1
40
Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, 6 February
2008
requirement that the investment was accepted in accordance with the laws and
regulations of Yemen and (2) there was an “investment certificate” issued under
Article 1(1) of the BIT.41
The tribunal considered that the treaty did not require a particular procedure or
form to be followed for acceptance.42 The tribunal seemed to be convinced in view
of the evidence for substantive dealings between the Parties at the highest level:
It is self-evident that a BIT concluded in 1998 could, if the States-Party had intended to give
more specific content to the notion of “according to its laws and regulations,” have referred
to the YIL, which was first enacted in 1991. It does not. Even if it had, the Arbitral Tribunal
has not been directed to any explicit provision in the YIL that would require a particular
form in which an investment must be “accepted,” or to preclude that the highest organs of
the State choose their own manner of “acceptance” irrespective of procedures devised for
subordinate departments like the General Investment Authority.43
On the issue of certificate requirement, the tribunal declined the objection of the
Respondent that the failure to obtain an investment certificate would disqualify
investment from the treaty protection in light of circumstances. It is important to
note that the tribunal recognized, as “a legitimate policy rationale,” that States may
require a certificate for treaty protection in order to place “a qualitative control” on
the types of investments that the government wants to promote or protect.44
However, in this case, the lack of specificity and clarity on the procedure for
issuance of the investment protection certificate compelled the tribunal to conclude
that the certificate requirement was not imperative. The tribunal had to consider
whether the certificate requirement threshold in the treaty corresponds to “mere
formalism” or “some material objective”:
Indeed, if an imperative formality were intended to be required, it would have been

appropriate, if not indispensable, to identify the type of document required in each of the
two countries and to identify the issuing department, or at least direct the attention of readers
of the Treaty – prospective investors – to the proposition that the precise nature of the
required certificates is to be determined by “specific regulations in force from time to
time.”45
The tribunal also considered the magnitude and significance of the project to the
host State as an important factor for disregarding the formalistic requirement:
It would be extraordinary in these circumstances for the Respondent to argue that while other
projects of a fractional magnitude, considered at sub-ministerial level of government, would
be given protection under the BIT; whereas a project involving hundreds of millions of
41
Article 1(1) of the Oman-Yemen BIT
42
Para 102
43
Para 103 (emphasis added)
44
Para 108
45
Para 109 (emphasis added)
88 T. Wongkaew
dollars, considerable technical and indeed security risks, as well as the mobilization of vast
resources from the very country which had co-signed the BIT, leading to objectives of
national strategic importance in terms of commercial and social integration, security, and
cross-border flows of goods and services, should be deprived of protection due to the failure
to have obtained some unspecified stamped or signed form from a governmental
subdivision.46
Furthermore, the tribunal addressed the estoppel effect of the conduct of the State
representatives in welcoming and approving the investment:
It would be preposterous in the circumstances to require or expect the Head of State or the
Prime Minister to issue formalistic qualifications to their encouragements and approvals,
such as explicitly referring to the BIT (or even technical regulations of Yemeni law); when
they welcomed and approved the Claimant’s investment, they did so with all that it entailed.
It would offend the most elementary notions of good faith, and insulting to the Head of State,
to imagine that he offered his assurances and acceptance with his fingers crossed, as it were,
making a reservation to the effect “that we welcome you, but will not extend to you the
benefits of our BIT with your country.47
Walter Bau v Thailand: A “Two-Step” Approach to Investment

Protection Rejected48
The issue at jurisdictional phase of this case was whether the claimant’s investment
was an “approved investment” as required by the 2002 BIT between Germany and
Thailand. In 1987, the claimant had a 9.87% shareholding in the Don Muang
Tollway (DMT), the locally incorporated company in Thailand, which entered into
the concession contract in 1989 with the Department of Highway for the financing,
design, construction, and operation of a toll road that connected Bangkok with its
airport. Subsequently, the claimant alleged a breach of treaty obligations for wrong-
ful acts.
Since the investment was made in 1989, the 1961 BIT was then applicable. Given
that the 1961 BIT did not provide for an investor-State dispute settlement, the
claimant had to rely on the 2002 BIT which applies to “approved investments”
prior to its entry into force.49 Therefore, the claimant had to prove that its invest-
ments were “approved investments” under the 1961 BIT.
The Protocol to Article 1, which is an integral part of the 1961 BIT, sets out the
requirement for determining which investments are protected under the treaty:
46
Para 119
47
Ibid
48
Walter Bau AG (In Liquidation) v the Kingdom of Thailand (Partial Award on Jurisdiction) (5
October 2007) (available on https://www.italaw.com/cases/123)
49
Article 8 of the 2002 Treaty: “This Treaty shall also apply to approved investments made prior to
its entry into force by investors of either Contracting Party in the territory of the other Contracting
Party consistent with the latter’s laws and regulations.”
(a) Each Contracting Party is free to decide, in accordance with its legislation and rules and
regulations issued thereunder and with due regard to its policies and published plans,
whether it will grant a permit required. When a permit is issued the respective investment
enjoys full protection of the Treaty.
(b) in respect of investments in the territory of the Kingdom, the term “investment”,
wherever it is used in this Treaty, shall refer to all investments made in projects classified
in the certificate of admission by the appropriate authority of the Kingdom of Thailand
in accordance with its legislation and administrative practice as an “approved project”.
The crucial question is whether the claimant must have obtained a special
certificate of admission, in addition to the various approvals received from the
relevant agencies.
The claimant’s contention is that various grants of approvals and the grant of the
concession for the tollway itself were adequate compliance with the requirements of
the 1961 BIT. This argument was bolstered by reference to Protocol to Article 1(a)
which clearly stipulates that “when a permit is issued, the respective investment
enjoys full protection of the Treaty.” Therefore, there is no additional specific
procedure for obtaining protection.
The essential contention of the Respondent is that the various approvals (cabinet
approval or various departments of the government) were not sufficient for the
requirements of Article 1 of the 1961 BIT. The “approved investment” must require
an additional approval for protection, based on Protocol to Article 1(b) because the
protected investment must be investment “made in projects classified in the certif-
icate of admission” by the appropriate authority of the Kingdom of Thailand. In
other words, there is a separate and distinct specific approval of the investment for
the purpose of treaty protection. Furthermore, the Respondent also argued that the
claimant’s shareholding did not amount to an investment under Article 8 of the 1961
BIT.
The tribunal acknowledged a conflicting interpretation of the two paragraphs of
the Protocol invoked by the disputing parties. Paragraph (a) seems to suggest an
automatic protection once a permit is granted at the admission stage, while paragraph
(b) requires an additional issuance of “certificate of admission” to enjoy treaty
protection (“two-stage approach”). The tribunal took the view that the word “permit”
(paragraph a) and “certificate” (paragraph b) are essentially the same concept and
that the two parts of the Protocol could not be read as setting up inconsistent regimes.
The tribunal settled for the “one-step” approach to investment protection in light of
Article 1(1) which requires “sympathetic consideration to the granting of any
relevant permits required”50 as well as uncertain and equivocal administrative
practice regarding specific certificate of admission. The tribunal emphasized that
there could not have been investments approved under the “second step” process for
the purpose of treaty protection apart from the BOI certificate process prior to the
entry into force of the 1961 BIT in 1965.
50
Paras 4.20–4.26
90 T. Wongkaew
It is important to note that the tribunal considered the importance of the project to
the country, though it merely confirmed rather than determined the conclusion:
This view accords with common sense, particularly when one considers the huge nature of
the concession for the tollway being built by DMT for the Respondent. It encouraged and
permitted its construction and operation. The project clearly was an important piece of
infrastructure for the country. To hold that the lack of a separate ad hoc authorisation
deprived the Claimant of whatever protection the Treaty afforded to the Claimant runs
contrary to common sense and justice. The Tribunal is pleased that a clear interpretation
of the Treaty itself, supported by the documentation and the subsequent conduct of the
Respondent, makes this conclusion possible.51
There are two additional issues that the tribunal considered, which are significant
in this case: (a) Can a shareholder in the company responsible for the approved
project enjoy treaty protection? (b) Is the claimant’s 9.87% shareholding an invest-
ment within the 1961 BIT?
On the first point, the tribunal clearly affirmed that the shareholder in the
approved investment is entitled to treaty protection because the approval is granted
to the project:
The object of the various approvals received by DMT, and through DMT its shareholders,
was the tollway project. That fact that the approval was given for the project does not
prevent a shareholding in the company responsible for the approved project from being
covered by the broad definition of ‘investment’. It is difficult to see how else a foreign
investor might obtain an interest in a concession other than as a shareholder in the conces-
sionaire company.52
On the second point, the tribunal confirmed that the 9.87% shareholding is
entitled to treaty protection because the treaty does not specifically set a limit for
investment protection and one should consider the scale of investment. The tribunal
made it clear that the contracting parties could have set such limit, but they did not;
therefore there was no de minimis requirement:
There is nothing in the Treaty which imposes an arbitrary cap of a minimum shareholding
required for investment treaty protection. Nor is there any warrant for categorising the
Claimant’ s 9.87% as an “indirect” investment. A 10% shareholding in a project the size
of the tollway may well be a very large investment. Indeed, the investment only came below
10% after there had been a large increase of capital, with the Respondent taking an equity
holding. That fact did not make the quantum of the Claimant’s investment any less. A 10%
investment in the financing of a small enterprise might be a minor investment such as not to
warrant treaty protection under some de minimis principle. There is nothing in either Treaty
to so limit an investment. It would have been easy enough for such a limitation to have been
included. ASEAN guidelines cited by the Respondent have no persuasive quality when
51
Para 4.43
52
Para 4.16 (emphasis added)
interpreting this Treaty. Neither have the references to a 10% threshold expressed at certain
meetings of government officials any relevance.53
This case concerns an interpretation of the provisions on specific approval require-

ment in the Protocol to the 1961 Germany–Thailand BIT, which contains specific
provisions, as well as the absence of guidelines and clear administrative practices
regarding specific approval at the time. Subsequent treaties adopt the “specifically
approved in writing” wording in the scope of application. Furthermore, there was an
official announcement by the Thai Government on 22 October 2003 which set out the
guidelines on investment treaty protection, as discussed in section “Domestic Proce-
dure for Approval of Investment Treaty Protection” of the paper. Therefore, adjudi-
cation of any issue on specific approval requirement under Thai BITs has to consider
the wording of relevant treaties as well as subsequent administrative practice. Never-
theless, this decision will be of relevance to a certain extent for the adjudication of any
future disputes concerning specific approval requirement under Thai BITs.
Rafat v Indonesia54: Specific Approval for Admission of Investment

Under a Specific Legislation
The tribunal considers the interpretation of a specific approval requirement for admis-
sion process pursuant to a reference to specific law. This case concerns investments in
the banking sector in Indonesia. The tribunal had to interpret the scope of Article 2(1)
of the UK-Indonesia BIT (in force on 24 March 1977), in particular, the meaning of the
phrase “granted admission in accordance with the Foreign Capital Investment Law
No. 1 of 1967 or any law amending or replacing it.”55
The claimant’s contention is that a standard of admission in Article 2(1) does not
require any particular procedure but simply requires that foreign investments in
Indonesia comply with local laws. In other words, the meaning of the phrase “in
accordance with” simply requires that the admission is not inconsistent with or not
contradictory to the FCIL. Alternatively, the claimant contended that investments
“granted admission in accordance with” the FCIL are not only those administered by
the BKPM (Indonesia Investment Coordinating Board), as claimed by the Respon-
dent. The admission requirement in Article 2(1) includes other admission regimes
for foreign investments.
The Respondent on the other hand contested such contention and argued that the
BKPM is the sole regulatory authority under the FCIL. Since Article 2(1)
53
Para 5.14
54
Rafat Ali Rizvi v. Republic of Indonesia, ICSID Case No. ARB/11/13, 16 July 2013
55
BIT Article 2(1) provides as follows: “Scope of the Agreement (1) This Agreement shall only
apply to investments by nationals or companies of the United Kingdom in the territory of the
Republic of Indonesia which have been granted admission in accordance with the Foreign Capital
Investment Law No. 1 of 1967 or any law amending or replacing it.”
92 T. Wongkaew
specifically refers to the FCIL, only investments granted admission by the BKPM is
protected under the treaty.
The tribunal rejects the claimant’s interpretation that Article 2(1) only requires
that investments be lawful in the host State because the treaty specifically requires
the granting of admission in accordance with a particular law, namely, the FCIL.56
However, the tribunal takes the view that the BKPM-administered process is not the
only way to admit investments in accordance with the FCIL, referring to Article 5 of
FCIL, which grants Indonesia the flexibility to decide what sectors and conditions of
admission for foreign investments:
BIT Article 2(1) potentially can embrace not only investments granted admission by the
BKPM or pursuant to authority delegated by BKPM, but also investments granted admission
pursuant to conditions imposed by Indonesia with respect to sectors that are open to
investment but not governed by the BKPM procedures. For the banking sector, such
conditions of admission would be administered by Bank Indonesia. Hence, the Tribunal
accepts that the Claimant is not excluded from contending that his investment was granted
admission pursuant to a procedure other than the one administered by the BKPM.57
In this case, the investment of the claimant in the banking sector would be
regulated by Bank Indonesia. The tribunal had to asses, based on the evidence,
whether the regulatory steps taken by Bank Indonesia constituted a de facto grant of
admission of the claimant’s investment. On the thorough assessment of the evidence
presented, the tribunal was not satisfied that the conduct of Bank Indonesia consti-
tuted a grant of admission due to insufficient evidence.58
H&H Enterprises v Egypt59: Rejection of Implied Specific Approval

Requirement
This case concerns with the specific approval requirement that the Respondent
alleged, which was not explicitly mentioned in the underlying treaty. The case
concerns a dispute over joint investment in holiday resort in Egypt in 1989, while
56
Para 66: “It follows that to pass the threshold of being “granted admission in accordance with” the
FCIL it is not enough that an investment made in Indonesia is generally lawful or that it was
established without contradicting the FCIL. The investment is required to be “granted admission in
accordance with” a particular piece of legislation, namely the FCIL.”
57
Para 139
58
Para 196: “Claimant has not established that Bank Indonesia took these three steps in awareness
of Claimant’s shareholding in the investment. That is an important deficiency in his contention that
Bank Indonesia’s approvals, which apply equally to foreign and local investors, amount to a grant of
admission of his stated investment.” Para 197: “. . .Claimant relies on three regulatory actions
undertaken in awareness of his shareholding in the banks, an awareness that has not been supported
by evidence, in order to establish a de facto grant of admission.”
59
H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB 09/15, 5
June 2012
the US-Egypt BIT entered into force in 1992. However, the US-Egypt BIT applies to
investments prior to the entry into force so long as they are “accepted in accordance
with the prevailing legislation of either party”.60 The parties held different under-
standings on this term.
The claimant argued that this requirement does not impose a specific approval
beyond that which requires an investment to be lawful in the host State. The
Respondent contended that to be protected under the treaty, the investment must
have been accepted under the prevailing investment law – Law 43 of 1974 on Arab
and Foreign Capital Investment and Free Zones (Law 43) – by relying on the
preparatory works (the Submittal Letter of the US Secretary of State which refers
to Law 43).
The tribunal essentially takes the view that to meet the acceptance requirement of
Article II (2)(b) of the BIT, Law 43 does not set the exclusive procedures for the
acceptance of foreign investments. It considers that some acts might constitute the
acceptance, such as the issuance of the permits, the incorporation of Claimant’s
affiliate in Egypt, and the endorsement of the project at the highest level of the
State.61
The important point raised by the tribunal is the estoppel effect on the explicit
procedure requirement. The tribunal takes the view that even if the BIT referred to
Law 43 and specific procedure, the State seems to have waived the acceptance
requirement under Law 43 due to subsequent acts:
The Tribunal also considers that, assuming for the sake of argument that the BIT referred to
Law 43 expressly and that Law 43 contained exclusive procedures for the acceptance of
foreign investments, the same evidence provided by the Parties demonstrates that Respon-
dent accepted the investment and waived such acceptance procedure under Law 43. This is
reinforced by the fact that Respondent did not demonstrate that the State officials in charge of
accepting investments pursuant to Law 43 were of superior hierarchy and/or had greater
attributions of authority than those that approved Claimant’s investment.62
Bernhard von Pezold v Zimbabwe63: Giving Legal Effect to

Subsequent Amendment of Specific Approval Requirement
The tribunal considers that the specific approval requirement under the Germany-
Zimbabwe BIT, which was subsequently amended by the Protocol, was replaced
with the normal legality provision.
The case concerns a dispute over the land reform program in Zimbabwe which
resulted in expropriation of farmland without compensation. The farmland of the
60
Article II (2)(b) of the BIT
61
Para 53
62
Para 54
63
Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, 28 July
2015
94 T. Wongkaew
claimants was invaded and the title to most of the claimants’ land was transferred to
the Zimbabwean State, following the amendment of the Constitution in 2005. The
claimants brought a claim against Zimbabwe based on Switzerland-Zimbabwe and
Germany-Zimbabwe BITs, but only the latter is relevant for the discussion here.
The Respondent raised an objection that no specific approval was obtained by the
competent authorities at the time of admission of the investments pursuant to Article
9(b) of the German BIT64 which states that the BIT shall apply to investments that
have been “specifically approved by the competent authorities of the latter
Contracting Party at the time of their admission.” On the other hand, the claimants
argue that Ad Article 2 of the German Protocol amends Article 9(b) and no specific
approval is required.
Ad Article 2 states:
Investments made in accordance with the laws [of Zimbabwe] . . . shall enjoy the full
protection of the Agreement. The preamble to the German Protocol notes that Contracting
Parties have agreed on the following provisions, which shall be regarded as an integral part
of [the BIT].
The tribunal relies on two considerations in reaching the conclusion that there is
no specific approval requirement. First, the tribunal gives effect to Ad Article 2(a)
which is to override the approval requirement in Article 9(b) and modify Article 9 of
the German-Zimbabwe BIT.65 Second, the tribunal finds the lack of evidence for the
existence of specific approval mechanism to support the conclusion.66 The tribunal
notes that even if there were specific approval requirement, subsequent conduct
would constitute approvals so as the Respondent would be estopped from denying
that it approved the claimants’ investments.67
64
Para 350 – it is noted that the Respondent did not identify at this stage what form of approval was
required or by whom. The Respondent also did not argue at this stage whether any subsequent
approval might satisfy the requirements of Article 9(b) of the German BIT.
65
Para 409: “The Tribunal therefore considers it reasonable to infer that the parties intended the
Protocol to modify or add to the provisions of the BIT. Ad Article 2(a) would be rendered redundant
if its effect was not to modify Article 9 of the German BIT.”
66
Para 411: “Apart from the many informal statements of approval given by the Respondent and its
organs (see para. 354 above), it is unclear on the evidence what the process would have been to
obtain further approval. . . if this [specific approval] were truly the required procedure under the BIT
(as submitted by the Respondent), surely some evidence would exist to corroborate this submission.
The Respondent has not produced any such evidence.”
67
These acts include encouragement from senior Government officials, informally and in formal
correspondence, approval of the conversion of leasehold title to freehold title on four of the ten
properties on one of the estates, and approval of the loans by the Reserve Bank, which were granted
of all of the necessary licenses to operate the sawmills and factories and were granted an Export
Processing Zone Licence, etc.
Conclusions: Guiding Principles and Policy Options
This part will draw lessons from the treaty practice as well as the jurisprudence with
a view to providing clarity on the issue of specific approval requirement as well as
considerations for policymaking.
Guiding Principles
This section will draw a set of guiding principles regarding the specific approval
requirement by drawing on the analysis of treaty practice and the jurisprudence.
First, the specific approval requirement has a legitimate policy rationale in which
States may choose the types of investments to be protected under the treaty68 as well
as lay out any conditions and procedure to be fulfilled.69
Second, in the case of specific approval for treaty protection in lieu of admission
process, the host States should make it clear either in the treaty or in relevant
administrative practice or domestic laws, the coexistence of both procedures (admis-
sion and treaty protection procedures), and provide the details thereof, such as the
type of document required or the responsible department. The lack of evidence for a
specific procedure for obtaining treaty protection or administrative thereof provides
the assumption that regulatory approval in accordance with relevant laws satisfies
the specific approval requirement in the treaty.
Third, relevant factors for interpreting the specific approval requirement include
the importance of the investment project to the host State, the invitation, or dealings
of high-level organs of State to foreign investors.70
Forth, certain conduct of the host State may give rise to estoppel claim,
whereby representatives of the host State makes assurances about the investment
or gives approval to its investment, and the host State will be held to a waiver or
estoppel.
Policy Recommendations
There seems to be a trend moving away from the specific approval requirement, at
least in the case of some ASEAN countries, especially in Thailand, which has
predominantly adopted such requirement in its previous treaties. Some ASEAN
regional investment treaties abandon the specific approval requirement.
68
The specific approval requirement refers to both situations. First, it is a distinct/an additional
condition to be fulfilled besides a normal admission procedure. Second, it can also refer to an
admission mechanism in accordance with a specific piece of legislation that may require that an
investor seeks approval from a specific body and fulfill particular conditions.
69
Desert Lines v Yemen, para 109
70
“Overwhelming evidence of lengthy dealings between the parties at the highest level” which
demonstrated that the authorities were fully aware of claimant’s investment and therefore approved it.
96 T. Wongkaew
Nevertheless, as the conclusion, there are some policy options with regard to specific
approval requirement in investment treaties.
1. No specific approval requirement: countries may limit the scope of application by

using other techniques, such as “in accordance with the laws and regulations”
requirement, restricting the definition of “investment” to direct investment, to the
explicit exclusion of portfolio investment, and determining the characteristics of
investments covered under the treaty,71 exclusion of measures or sectors that are
covered under the treaty.
2. Clarification of the terms “specifically approved in writing” or “approved
project”: countries that have incorporated the terms could seek to clarify through
diplomatic correspondences that 1) the specific approval requirement is distinct
from the “in accordance with laws and regulations” requirement 2) what this
entails in terms of conditions for specific approval as well as the procedure for
obtaining such approval. In particular, contracting parties may clarify whether the
shareholders in the company that has received a certificate of specific approval are
automatically entitled to treaty protection or are required to apply separately.
3. Set up a specific procedure and competent authority for treaty protection: the
countries that incorporate a specific approval requirement in the treaties should
make it clear that there is a separate procedure for giving treaty protection as well
as clarify the legal basis (either the treaty itself or relevant domestic laws and
regulations), conditions, procedure, and competent authority for obtaining such
protection.
Cross-References
▶ Achieving Sustainable Development Objectives in International Investment Law

▶ Corruption in Investor-State Arbitration: Balancing the Scale of Culpability
▶ Inclusion of Investor Obligations and Corporate Accountability Provisions in
Investment Agreements
▶ Investor-State Conflict Management Mechanisms (CMMs) in International
Investment Law: A Preliminary Sketch of Model Treaty Clauses
71
Australia–Indonesia CEPA 2019 defines the term “investment” to mean “every asset that an
investor owns or controls, that has the characteristics of an investment, including such character-
istics as the commitment of capital or other resources, the expectation of gain or profit or
assumption of risk” (Chapter 14 Investment Section A, Article 14.1) (emphasis added).
Legitimate Expectations in Investment
Treaty Law: Concept and Scope of 5
Application
Emmanuel T. Laryea
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Meaning and Content of Legitimate Expectation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Legal Basis of Legitimate Expectation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Legitimate Expectation as a Component of FET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Legitimate Expectation as a Stand-Alone Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Legitimate Expectation as General Principle of International Law . . . . . . . . . . . . . . . . . . . . . . . . . 107
State of the Legal Basis of Legitimate Expectation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Host-States and Legitimate Expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Disadvantages to Host-State Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Limiting the Impact of Legitimate Expectations of Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Legitimate Expectation of Host-States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Abstract
Legitimate expectation is a concept, or doctrine, that is frequently invoked by
investors in claims against host-States before arbitral tribunals, for alleged
breaches (by the host-State) that have impaired investors’ investments. What
the concept of legitimate expectation itself entails is far from clear. It has been
applied mainly as a component (or one of the substantive elements) of fair and
equitable treatment (FET) standard, though some have surmised that it may have
evolved into a stand-alone doctrine or, arguably, a general principle of interna-
tional law. Its application has, arguably, provided more protection to investors,
often to the disadvantage of host-States. In particular, developing host-States have
E. T. Laryea (*)
Faculty of Law, Monash University, Melbourne, VIC, Australia
e-mail: emmanuel.laryea@monash.edu

https://doi.org/10.1007/978-981-13-3615-7_55
98 E. T. Laryea
sometimes found themselves held to expansive expectations they had not antic-
ipated. Despite this, the legal basis for the application of the concept in interna-
tional law is not fully examined. This chapter examines the concept of legitimate
expectations, exploring its meaning and content, its legal basis in international
investment law, the disadvantages it presents to host-States, how host-States may
limit the application (and potential impact) of the concept, and the possibility of
host-States creating for themselves and their citizens legitimate expectations
required of investors.
Keywords
Legitimate expectation · Investor expectation · Fair and equitable treatment ·
Investor protections · Investment treaty law · International investment law
Introduction
Legitimate expectation1 is frequently invoked by investors in claims against host-

States before arbitral tribunals for alleged breaches (by the host-State) that have
impaired investors’ investments. However, what the concept itself entails is far from
clear. This makes it fluid, allowing for expansive use, and difficult for host-State to
address through legal and policy guidances. The concept has been applied mainly as
a component (or one of the substantive elements) of fair and equitable treatment
(FET) standard that is often found in international investment agreements (IIAs).2
The content and meaning of FET, itself, is imprecise, just as the content and meaning
of legitimate expectation is imprecise. Yet, FET and legitimate expectation are
frequently applied to the benefit of investors, arguably to the detriment of host-
States, particularly those of developing States, which constitutes the bulk of respon-
1
Also referred variously as “reasonable expectation,” “investment-backed expectation,” “justifiable
expectation” or “basic expectation.” See, e.g., Nganjo-Hodu Y, Ajibo CC (2018) Legitimate
expectation in investor-state arbitration: re-contextualisind a controversial concept from a develop-
ing country perspective. Manchester J Int Econ Law 15:45–47.
2
The phrase “International Investment Agreements” (IIAs) is used here to describe treaties between
two or more States covering investment relationships between nationals or other identifiable entities
of one State in the jurisdiction of the other. The treaty may be solely on investments or be contained,
usually as a chapter, in a broader International Economic Agreement (IEA) covering not just
investment, but also trade, between the State parties and their nationals. The treaty may be bilateral
(i.e., between two States), regional (often between a few countries in a geographical area) or
between countries in dispersed regions that share a common goal in investment promotion and
regulation. Thus, IIAs encapsulate Bilateral Investment Treaties (BITs) (of which there are over
2300 in force currently), Multilateral Investment Treaties (such as the ASEAN Comprehensive
Investment Agreement), and and other trade-related treates that contain investment protection
provisions (such as Preferential Trade Agreements (PTAs) or Free Trade Agreements (FTAs).
5 Legitimate Expectations in Investment Treaty Law: Concept and Scope. . . 99
dent host-States in investor-State arbitration cases. Despite its frequent use, the legal
basis for the application of the legitimate expectation concept in international
investment law has not been fully interogated.
This chapter examines the concept of legitimate expectations, exploring its
evolution, how it has been applied, and the problem it poses for host-States,
particularly developing countries. It also examines the legal basis for the application
of the concept in international investment law, considering: (1) its iteration as a
component of FET standard; (2) whether it has evolved into a stand-alone doctrine
independent of FET; and (3) whether it has reached the status of general principle of
international law. The chapter also examines the possibility of legitimate expectation
of host-States, and their citizens, from investors, by way of re-balancing the current
application of the concept, which currently benefits investors only.
To achieve the above, Part 2 discusses the meaning and content of legitimate
expectation as it has evolved. Part 3 discusses the legal basis for the application of
legitimate expectation in international investment law. Part 4 outlines how host-States
may work adroitly to not only limit the potential adverse impact of the application of
the concept to them, but also how they may be able to create legitimate expectation in
themselves, and their citizens, from investors. Part 5 concludes the chapter.
Meaning and Content of Legitimate Expectation
Despite its frequent invocation by investor-claimants and use by arbitral tribunals in

the adjudication of investment disputes, the content and legal nature of the doctrine
of legitimate expectations, and circumstances of its application, remain controver-
sial.3 This part discusses the meaning and content of the doctrine.
There is no precise definition of the doctrine of legitimate expectation, due to its
general nature.4 In many instances where legitimate expectation has been invoked,
and used, it has not been defined. An often referred to description is from Thunder-
bird v Mexico.5 There, describing the concept in the context of (the now defunct)
NAFTA, the tribunal described it to be:
3
Postestà M (2013) Legitimate expectations in investment treaty law: understanding the roots and
the limits of a controversial concept. ICSID Rev 28(1):88–90
4
Dolzer R, Schreuer C (2012) Principles of international investment law, 2nd edn. Oxford Univer-
sity Press, p 115
5
Thunderbird v Mexico, Award, 26 January 2006.
100 E. T. Laryea
a situation where a Contracting Party’s conduct creates reasonable and justifiable expecta-
tions on the part of an investor (or investment) to act in reliance on the said conduct, such that
a failure by the NAFTA Party [host-state] to honor those expectations could cause the
investor (or investment) to suffer damages.6
From the above description, the concept has as its basis the conduct of the host-
State in respect of an investor (or investment). Thus, it may be defined as conduct of
a party, principally a host-State, that creates in another party, usually an investor, a
reasonable and justifiable expectation, that the conduct, when relied upon, will not
be unjustifiably or unconscientiously departed from in circumstances where such a
departure will cause material detriment to the investor (or investment).7
This formulation of legitimate expectation implies that the concept would be
created in, and inure to the benefit of a party only when that party has been given
precise, unconditional, and consistent assurances by authorized representatives of
the host-State and in accordance with applicable rules. Tribunals have found legit-
imate expectations to arise when a given State makes a representation (a promise to
do or not to do something) to an investor and the investor decided to establish the
investment on that basis.8 This iteration of legitimate expectation is similar to what is
said to be the formulation of the concept in EU law, and which is argued to converge
with international investment law.9
However, it is common for foreign investors to claim broader expectations, for
instance: that a host State should not amend its law or adopt new policies to the
investors’ disadvantage; that the host-State maintain consistency and regularity of
the legal rights granted to the investor by the law as it stands at the time of the
investment without change; or that the host-State refrain from acting irregularly,
inconsistently or arbitrarily. Viewed as such, the concept requires the host-State,
among other things, to act in good faith and without arbitrariness towards foreign
investors and to act consistently with the letter of an applicable IIA.
Despite the uncertainties characterizing the normative content of legitimate
expectation, certain situations that lead to the frustration of the expectations of
investors in a manner considered as unfair and inequitable have been held to be a
6
Ibid., para 147. See also Alpha GMBH v. Ukraine, ICSID Case No. ARB/07/16, Award of
8 November 2010, para 420.
7
While, currently, legitimate expectation is seen to be created in investors from host-States, as
argued in part 4 below, it should be capable of being created in host-States from investors.
8
See, Monebhurrun N (2015) Gold Reserve Inc. v. Bolivarian Republic of Venezuela. J Int Arbitr 32
(5):551–553. For example of cases, see Gold Reserve Inc. v. Bolivarian Republic of Venezuela,
ICSID Case No. ARB(AF)/09/1, Award, September 22, 2014; Parkerings Companiet A.S. v.
Lithuania, ICSID Case No. ARB/05/8, Award of Sep. 11, 2007, para 331; Mobil Cerro Negro,
Ltd. & Mobil Venezolana de Petróleos, Inc. v. Bolivarian Republic of Venezuela, ICSID Case No.
ARB/07/27, Award of Oct. 9, 2014, para 256. See also Schreuer C (2005) Fair and equitable
treatment in arbitral practice. J World Invest Trade 6:357–374.
9
See Carlos J, González M (2017) The convergence of recent international investment awards and
case law on the principle of legitimate expectations: towards common criteria regarding fair and
equitable treatment? Eur Law Rev 42:402, 413–417
breach, on the part of host-States, of legitimate expectations of investors. These

include: inconsistent governmental action that adversely affects investment,10 arbi-
trary changes to regulatory framework,11 and lack of transparency and administra-
tive negligence.12 Thus, breach of legitimate expectations is pleaded whenever there
is a possibility of a host-state’s breach of indirect expropriation standard, violation of
umbrella clause, or other alleged violation of the terms of investment treaties and
contracts. The doctrine, along with the broader fair and equitable treatment (FET)
standard, operates as an overarching principle that embraces other standards of
treatment in trade and investment relations.13 It can, therefore, be a wild card in
the hands of adjudicators, mainly arbitrators.14 Crucially, despite its regular invoca-
tion and use, the legal basis and nature of legitimate expectation remains doubtful.15
This is a major issue that is discussed next.
Legal Basis of Legitimate Expectation
IIAs rarely, if at all, specify legitimate expectation as a substantive or procedural

standard, so issues arise regarding the legal basis of the concept.16 That is, on what
basis is it applicable in international investment law? It has found expressions in the
broader concept of Fair and Equitable Treatment (FET), but there is also a view that
it may have evolved into a stand-alone, free-standing, standard, and, possibly, a
general principle of law.17 These sources of expressions are discussed next.
10
MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award
of 25 May 2004, para 164.
11
Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award of 29 May 2003,
para 154.
12
PSEG Global Inc. & anor. v. Republic of Turkey, ICSID Case No ARB/02/5, Award of 19 January
2007, paras 246–55, at 64–6.
13
Schreuer C (2007) Fair and Equitable Treatment (FET): interactions with other standards.
Transnatl Dispute Manag 4(5), at 1–2.
14
Brower CH (2001–2002) Investor-state disputes under NAFTA: the empire strikes back. Colum-
bia J Transnatl Law 40(1):43–88, at 56
15
Monebhurrun, above n8, 553.
16
Nganjo-Hodu and Ajibo, above n1.
17
Wongkaew T (2019) Protection of legitimate expectations in investment treaty arbitration a theory
of detrimental reliance. Cambridge University Press, p 16
102 E. T. Laryea
Legitimate Expectation as a Component of FET
The concept of legitimate expectation has mostly been applied as a component (or an
element) of FET, a concept that is frequently included in IIAs.18 But the ambit and
content of FET is, itself, imprecise.19 Whether an investor has been given fair and
equitable treatment depends on all the circumstances of the particular case.20 Prob-
ably the most expansive description of FET, which also captures the notion of
legitimate expectation, was that given by the arbitral tribunal in TECMED v Mex-
ico.21 There, the tribunal considered that FET required contracting parties to an IIA
to provide to covered investors treatment that does not affect the basic expectations
they took into account when they made the investment, and that the host-State was
expected to act in a consistent manner, free from ambiguity and totally transparent in
relation to the foreign investor.22
18
See, e.g., Meyers Z (2014) Adapting legitimate expectations to international investment law: a
defence of arbitral tribunals’ approach. Transnatl Dispute Manag 11(3):1–2. See also Chaisse J
(2012) Promises and pitfalls of the european union policy on foreign investment – how will the new
EU competence on FDI affect the emerging global regime. J Int Econ Law 15(1):51–84. For
examples of cases in which legitimate expectation has been claimed as a component (or an element)
of FET, see Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1,
Award, September 22, 2014; Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No.
ARB(AF)/00/2, Award of May 29, 2003 (Tecmed v. Mexico); Suez Sociedad General de Aguas de
Barcelona S.A. & InterAguas Servicios Integrales del Agua S.A. v. Argentina, ICSID Case No.
ARB/03/19, Decision on Jurisdiction of Jun. 30, 2010, paras 22–238; Ioannis Kardassopoulos &
Ron Fuchs v. Georgia, ICSID Case Nos ARB/05/18 & ARB/07/15, Award of Mar. 3, 2010, paras
434–452; AES Summit Generation Ltd. & AES-Tisza Eromu Kft. v. Hungary, ICSID Case No. ARB/
07/22, Award of Sep. 23, 2010, paras 9.3.6–9.3.26; Enron Corp. & Ponderosa Assets, L.P. v.
Argentina, ICSID Case No. ARB/01/3, Annulment Decision of Jul. 30, 2010; Alpha Projekholding
GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award of Nov. 8, 2010; EDF (Services) Ltd. v.
Romania, ICSID Case No. ARB/05/13, Award of Oct. 8, 2009; AES Summit Generation Ltd. &
AES-Tisza Eromu Kft. v. Hungary, ICSID Case No. ARB/07/22, Annulment Decision of Jun. 29;
Antoine Goetz et al. and S.A. Affinage des Métaux v. Burundi, ICSID Case No. ARB/01/2, Award of
Jun. 21, 2012; Ulysseas, Inv. v. Ecuador, UNCITRAL, Award of Jun. 12, 2012; EDF International
S.A., SAUR International S.A. & León Participaciones Argentinas S.A. v. Argentina, ICSID Case
No. ARB/03/23, Award of Jun. 11, 2012; M. Franck Charles Arif v. Moldavie, ICSID Case No.
ARB/11/23, Award of Apr. 8, 2013; LG&E Energy Corp. & anor. v. Argentina, ICSID Case No.
ARB/02/1, Decision on liability, 6 October 2006; Duke Energy & anor. v. Ecuador, ICSID Case No.
ARB/04/19, Award of 18 August 2008.
19
Dolzer and Schreuer, above n4, 115
20
UNCTAD (2012) Fair and equitable treatment, UNCTAD series on issues in international
investment agreements II. United Nations, New York, at 61–4; See OECD (2004) Fair and equitable
treatment standard in international investment law. OECD working papers series on International
Investment 2004/3, at 40; I Tudor (2008) The fair and equitable treatment standard in the interna-
tional law of foreign investment. Oxford University Press, Oxford, at 66–8
21
Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB(AF)/00/2, Award of
May 29, 2003, (Tecmed v. Mexico) para 173
22
Ibid.
In Gold Reserve v. Venezuela,23 where the investor claimed that measures adopted
to terminate its mining concessions breached the FET, full protection and security,
most-favored nation (MFN), and expropriation provisions of the IIA between Can-
ada and Venezuela, the tribunal found for the claimant on only a breach of the FET.
The tribunal held that the revocation measures had been adopted with an utter lack of
transparency, consistency, predictability, and good faith. The tribunal found that the
investor relied on representations made by the public authorities which gave rise to
legitimate expectations that they will be fulfilled. Those expectations were held to
have been frustrated by the revocation measures that Venezuela later adopted. The
tribunal determined that, in so doing, Venezuela had not treated the claimant fairly
and equitably.
When considered as an element of FET, the legal basis of legitimate expectation is
arguably anchored in FET provisions in the applicable IIAs. As most IIAs provide
for FET, the legitimate expectation standard as an element of the FET is seen to be
legally founded on the FET provision. However, apart from the fact that FET
standard itself is imprecise, there are those who question the soundness of legitimate
expectation being an element of FET. For instance, in his separate opinion in Suez,
Sociedad General de Aguas de Barcelona, S.A. & Vivendi Universal, S.A. v. Argen-
tine Republic,24 Pedro Nikken opined that the doctrine of legitimate expectations has
no strong, convincing legal basis in international investment law because it could not
be inferred by the ordinary meaning of the FET standard as it appears in investment
treaties.25 In the annulment proceedings in CMS Gas Transmission Co. v. Argentine
Republic,26 the tribunal stated that legitimate expectations might not arise as legal
obligations if they are considered to arise by reason of a course of dealing between
the investor and the host-State.27 Similarly, in the annulment proceedings in MTD
Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile,28 the tribunal questioned
the TECMED Tribunal’s apparent reliance on the foreign investor’s expectations as
23
Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award,
September 22, 2014.
24
Suez, Sociedad General de Aguas de Barcelona, S.A. & Vivendi Universal, S.A. v. Argentine
Republic, ICSID Case No. ARB/03/19, Decision on Liability of Jul. 30, 2010.
25
Suez, Sociedad General de Aguas de Barcelona, S.A. & Vivendi Universal, S.A. v. Argentine
Republic, Ibid., Separate Opinion of Arbitrator Pedro Nikken, paras 2–3. See also, CMS Gas
Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Annulment Decision of
Sep. 25, 2007, para 89; and MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile,
ICSID Case No. 01/7, Decision on application for Annulment of Mar. 21, 2007, para 67
26
CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Annulment
Decision of Sep. 25, 2007, para 89. In a similar sense, see MTD Equity Sdn. Bhd. & MTD Chile
S.A. v. Republic of Chile, ICSID Case No. 01/7, Decision on application for Annulment of Mar. 21,
2007, para 67.
27
CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Annulment
Decision of Sep. 25, 2007, para 89.
28
MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile, ICSID Case No. 01/7, Decision on
application for Annulment of Mar. 21, 2007.
104 E. T. Laryea
the source of the host-state’s obligations.29 It went on to state that the “obligations of
the host State towards foreign investors derive from the terms of the applicable
investment treaty and not from any set of expectations investors may have or claim
to have.”30 Thus, a “tribunal which sought to generate from such expectations a set
of rights different from those contained in or enforceable under the BIT might well
exceed its powers.”31
Despite the above expressions of doubt over whether legitimate expectation is
bourne out by FET, the majority of arbitral tribunals have found legitimate expec-
tations to be an element of the fair and equitable treatment standard since the
landmark Tecmed case.32 Many scholars too have tended to accept legitimate
expectations as an element of FET.33 It seems, therefore, that legitimate expectations
have gradually consolidated into one of the cardinal elements of FET in international
investment law.34 In fact, in Electrabel v. Hungary, the tribunal asserted that it “is
widely accepted that the most important function of the fair and equitable treatment
standard is the protection of the investor’s reasonable and legitimate expectations.”35
Legitimate Expectation as a Stand-Alone Doctrine
Some consider legitimate expectation to be a stand-alone doctrine independent of

FET.36 For instance, it has been said that “a breach of an investor’s legitimate
expectations does not ipso facto amount to a breach of the fair and equitable
treatment obligation.”37 If legitimate expectation is a stand-alone doctrine, questions
arise as to the legal basis of the concept as a source of obligation on the part of a
29
MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile, ICSID Case No. 01/7, Decision on
application for Annulment of Mar. 21, 2007, para 67.
30
Ibid.
31
Ibid.
32
See, e.g., Novenergia, para 646, where the tribunal stated, in respect of the FET provision in the
Energy Charter, that “the Tribunal agrees with the arbitral tribunals” findings in Isolux, Plama and
Eiser that the stability and transparency obligation is simply an illustration of the obligation to
respect the investor’s legitimate expectations through the FET standard, rather than a separate or
independent obligation.’ See also cases cited in note 18 above.
33
See, e.g., Nganjo-Hodu and Ajibo, above n1; Monebhurrun, above n8. See also Dolzer R (2014)
Fair and equitable treatment: today’s contours. Santa Clara J Int Law 12:7–34; Westcott TJ (2007)
Recent practice on fair and equitable treatment. J World Invest Trade 8(3):409–430, at 414.
34
35
Electrabel S.A. v. Hungary, ICSID No. ARB/07/19, Award of 25 November 2015, para 7.75.
36
See, e.g., Nganjo-Hodu and Ajibo, above n1, 45, 48 and 57; Chaisse J and Ng SR (2018) The
doctrine of legitimate expectations: comparing international law and common law in Hong Kong.
Hong Kong Law J 48(1):79–81; International Thunderbird Gaming Corporation v. United Mexican
States, UNCITRAL, Award of 26 January 2006.
37
Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award of 8 April 2013, para 536. See
also, International Thunderbird Gaming Corporation v. United Mexican States, Separate Opinion
of Thomas Wälde, December 2005, para 37.
host-State. Arbitral tribunals have not evaluated in detail the legal sources of the
concept.38 Some continue to see it as an instrument of interpretation rather than a
general rule,39 while others have seen it as entailing substantive norms.40
Viewed as conferring substantive rights, the concept of legitimate expectation
seems to have its basis in domestic legal systems. It is not doubted that the concept
of legitimate expectation has been used in various contexts in domestic legal
systems.41 It has been applied in various procedural and, to some extent, substantive
contexts within some domestic legal systems. It has been applied in balancing of the
rights of citizens and appropriate latitude needed by public authorities to effectively
discharge their duties. In courts and other adjudicatory processes, the concept is used
as entailing due process; parties can legitimately expect to be afforded a fair hearing.
In some jurisdictions, the notion of legitimate expectation is said to be rooted in
national constitution.42 In some other legal and administrative traditions, it is used
for the protection of trust.43
The concept has also been applied in domestic takings doctrine, by which owners
whose assets are expropriated can legitimately expect certain conditions (such as public
purpose and adequate compensation) to be met. In some common law jurisdictions, its
effects may manifest in other substantive law principles, such as estoppel in private law.
In that context, it prevents a party who has made a presentation that was intended to be
relied upon and has been relied upon by the other party to change its position and in
circumstances where to allow the representor to depart from the representation will
result in a detriment to the relying party and it will be unconscionable on the part of the
representor to so depart.44 To this extent, legitimate expectation may find expression in
the principle of good faith in civil law systems45 and closely related to estoppel in
international law.46 Legitimate expectation is said to be a fundamental principle of the
European legal system.47 But its meaning in the EU context may be distinguishable
from its conceptualization in the common law tradition.48
38
Postestà, above n3, 89. See also Chaisse J (2016) Investor-state arbitration in international tax
dispute resolution – a cut above dedicated tax dispute resolution? Virginia Tax Rev 41(2):149–222.
39
40
Chaisse and Ng, above n36, 81.
41
42
E.g Germany. See González, above n9, 412.
43
See Kari Sperr A, Hohenlohe-Oehringen D (2017) Introduction. In: The protection of legitimate
expectations in administrative law: a comparative study. Hart Publishing, Oxford
44
See, Monebhurrun, above n8.
45
Monebhurrun, above n8, 557
46
Crawford J (2012) Brownlie’s principles of public international law, 8th edn. Oxford Univeristy
Press, p 420
47
AG Jääskinen confirms that “according to settled case-law, the principle of the protection of
legitimate expectations is one of the fundamental principles of the European Union”. See France
Télécom SA v Commission (C-81/10 P) EU:C:2011:554 at [159].
48
Nolte G (1994) General principles of German and European administrative law: a comparison in
historical perspective. Mod Law Rev 57:191, 195.
106 E. T. Laryea
The diversity of the understandings, content, source, and application of the

legitimate expectation concept reflect different, though closely related, perspectives
inherent in its meaning. For instance, its application in civil and administrative law
may be different to its application in private law. Even in a particular area within a
particular legal tradition, the concept may not be equivalent to the related principles
through which it may be expressed. For instance, legitimate expectation is not
necessarily the same as, may not entail the same elements of or perform the same
function as, good faith or estoppel in a common law system.
On the point of legitimate expectation and estoppel, the words of Mason CJ and
Wilson J in their joint judgment in the Australian case of Trident General Insurance
Co Ltd v. McNiece Bros Pty Ltd49 is instructive. While upholding the right of a third
party to sue on an insurance contract in the face of the privacy rule, they stated: “We
doubt that the doctrine of estoppel provides an adequate protection of the legitimate
expectations of such persons and, even if it does, the rights of persons under a policy
of insurance should not be made to depend on the vagaries of such an intricate
doctrine.”50 In other words, the doctrine of estoppel may be inadequate to protect
legitimate expectation; legitimate expectation should be protected directly, separate
from estoppel (which the justices did in this case), rather than through the doctrine of
estoppel, which would present serious impediments. Similar thought has been
expressed in investor-State arbitration. For instance, in his separate opinion in the
case of International Thunderbird Gaming arbitration, Thomas Wälde stated that
arbitral tribunals find the principle of legitimate expectations to be a preferred way of
providing protection to investors where the tests of a breach appear “too difficult,
complex and too easily assailable for reliance.”51
The concept of good faith too is upheld in some jurisdictions independently of
estoppel and legitimate expectation. For instance, the concept of good faith is
recognized in Australian law independent of estoppel and has been applied in
various cases.52 It is applied independently of estoppel or legitimate expectation.
For example, the iteration of the concept and principles of good faith in Australian
law was inapplicable in the Trident case53 referred to above.54 It is similar in other
49
(1988) 165 CLR 107
50
Ibid., 123.
51
International Thunderbird Corporation v. United Mexican States, NAFTA Arbitration under
UNCITRAL, 2005, para 37.
52
See, e.g., Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; Hughes
Aircraft Systems International v Airservices Australia (1997) 146 ALR 1; Renard Constructions
(ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. See also, Carter J, Peden E
(2003) Good faith in australian contract law. J Contract Law 19(2):155–172.
53
(1988) 165 CLR 107
54
See text accompanying footnotes 49 to 51 above.
jurisdiction, such as the USA, where it exists alongside, and separate from, estop-
pel.55 These concepts are different, devised to address different issues.
Considering the diversities of application of contexts and meanings between, and
within, different domestic legal systems, it is problematic to superimpose a particular
meaning or understanding of legitimate expectation as a stand-alone principle on
international investment law, and on host-States in particular. Arguably, when legiti-
mate expectation has been applied by arbitral tribunals, the members of the tribunals
may have come from their conception and understanding of the concept from their
particular legal background. Unsurprisingly, serious disagreements remain in what the
concept entails and its application. In the relatively recent decision in Novenergia II v.
Spain,56 the tribunal disagreed with the formulation of legitimate expectation adopted
by the tribunal in Eiser v. Spain.57 It went on to hold that Spain’s actions had breached
the Claimant’s legitimate expectation (as a component of FET), in contrast with the
tribunal in Charanne v. Spain,58 which found that the same acts of the Spainish
government did not infringe the legitimate expectations of the investor.
More importantly for the purpose of this chapter, the establishment of the concept
of legitimate expectation in domestic legal systems, however uniform or divergent it
may be, does not in itself make it international law. Domestic law of a State is not
equated to international law. Thus, there is a need for an appropriate basis for the
application of legitimate expectation; however it is conceived and couched, in
international law.
Legitimate Expectation as General Principle of International Law
There is some view that the concept of legitimate expectation (as applied in domestic
legal systems) has evolved into a general principle of law.59 On that basis, legitimate
expectation is arguably a principle of international law as encapsulated in Article
38(1) of the statutes of the International Court of Justice (ICJ). Article 38(1), which
is generally considered to be the most authoritative enumeration of the sources of
55
For a discussion of the concept of Good Faith in US law, see, e.g., Summers RS (1982) The duty
of good faith: its recognition and conceptualization. Cornell Law Rev 67:810; Houh E (2005) The
doctrine of good faith in contract law: a (nearly) empty vessel? Utah Law Rev:1–56.
56
Novenergia II Energy Environment Grand Duchy of Luxembourg SICAR v The Kingdom of Spain,
SCC Arbitration, Final Arbitral Award 15 February 2018.
57
Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID
Case No. ARB/13/36, Final Award, 4 May 2017, para 382.
58
Charanne B.V. and other v. Kingdom of Spain, Award, 21 January 2016. See also Isolux
Infrastructure Netherlands, B.V. v. the Kingdom of Spain, SCC V2013/153, Award, 12 July 2016,
where Spains actions were held not to have infringed its FET obligations.
59
See, Monebhurrun, above n8, 551–562. See, e.g., Snodgrass E (2006) Protecting investors’
legitimate expectations: recognizing and delimiting a general principle. ICSID Rev 21(1): 1–58;
Postestà, above n3, 88–122; Chaisse and Ng, above n36, 81.
108 E. T. Laryea
international law, identifies sources of international law other than treaties.60 These
include “general principles of law recognized by civilized nations.”61 International
tribunals have applied general principles of law in deciding cases. For instance, in
Amco Asia Corporation v. Indonesia, decided in 1984, the ICSID tribunal “looked to
general principles of law rather than to the treaty’s terms for guidance” in calculating
damages to be paid by Indonesia.62 The tribunal referred to, and applied, the general
principles governing damages for contractual liability under Indonesian law, French
law, English law, and US law, which it found to be similar.63
Similarly, it is arguable that a general principle of law on legitimate expectation
has evolved to maturity. The tribunal in Gold Reserve Inc. v. Venezuela64 seems to
have taken this view of legitimate expectation, though it started, and ended, its
analysis conceiving of the concept as a component of FET.65 The tribunal examined
the existing case law and reviewed the different elements of FET and legitimate
expectation propounded by the arbitral tribunals in those cases. It went on to
consider the ICSID Convention and Additional Facility, which enables arbitral
tribunals to refer to rules of international law when deciding on the applicable
law and concluded that those “rules of international law” encompass the
general principles of law recognized by civilized nations as provided for by the
60
Statute of the International Court of Justice (hereafter “ICJ Statute”), Article 38(1). Available at
http://www.icj-cij.org/en/statute. It provides that:
1. The Court, whose function is to decide in accordance with international law such disputes as are
submitted to it, shall apply:
(a) international conventions, whether general or particular, establishing rules expressly recog-
nized by the contesting states;
(b) international custom, as evidence of a general practice accepted as law;
(c) the general principles of law recognized by civilized nations;
(d) subject to the provisions of Article 59, judicial decisions and the teachings of the most
highly qualified publicists of the various nations, as subsidiary means for the determination of
rules of law.
61
ICJ Statute, Article 38(1)(c).
62
Amco Asia Corp. v. Indonesia, ICSID Case No. ARB/81/1, Award (Nov. 21, 1984), 24 I.L.M.
1022 (1985); Schefer KN (2013) International investment law: texts, cases and materials. Edward
Elgar, p 51
63
Amco Asia Corp., 24 I.L.M. at 1036–37.
64
Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award,
September 22, 2014.
65
See, paras 568–576, particularly para 576, where the tribunal sated “With particular regard to the
legal sources of one of the standards for respect of the fair and equitable treatment principle, i.e., the
protection of ‘legitimate expectations,’ these sources are to be found in the comparative analysis of
many domestic legal systems.” For authority for this position, the tribunal cited, among other
sources, Vicuña FO (2003) Regulatory authority and legitimate expectations: balancing the rights of
the state and the individual under international law in a global society. Int Law Forum 5
(3):188–194; Schill S (2010) Fair and equitable treatment, the rule of law, and comparative law.
In: Schill S (ed) International investment law and comparative public law, vol 151. Oxford
University Press, pp 156–157.
ICJ statute.66 The tribunal saw legitimate expectations as being tantamount to a

general principle of law common to the main legal systems of the world, which can
therefore be transposed into international law. Accordingly, it found legitimate
expectations as existing “as a legal principle in many legal traditions of the European
continent and of some Latin American states such as Argentina and Venezuela”67
and applicable in this case. Ultimately, though, the tribunal seems to have applied
“legitimate expectation as a FET component”68 that had been breached by Venezu-
ela.69 It means that this case is not authoritative for the proposition that legitimate
expectations have assumed the status of general principle of law in international law.
More fatally for the view that legitimate expectation is a general principle of
international law is the recent judgement of the ICJ in the case of Bolivia v. Chile.70
While the case itself was not specifically on international investment, the court
rejected Bolivia’s argument that legitimate expectation was applicable as a general
principle of international law, citing Gold Reserve v. Venezuela. The court noted:
Those references to legitimate expectations may be found in arbitral awards concerning

disputes between a foreign investor and the host State that apply treaty clauses providing for
fair and equitable treatment. It does not follow from such references that there exists in
general international law a principle that would give rise to an obligation on the basis of what
could be considered a legitimate expectation. Bolivia’s argument based on legitimate
expectations thus cannot be sustained.71
Judge ad hoc Daudet, in his dissenting opinion, agreed with the majority on this
point.72 Judge Salam, another dissenter, also agreed with the majority’s conclusion
on this point, though his reasoning was rather ambiguous.73 Judge Robinson, also
dissenting, was silent on this point.
It follows that the Court was almost unanimous on this point that there is no
general international law principle of legitimate expectation that would give rise to
an obligation. It is, however, arguable that the Court’s ruling is to the effect that there
is no rule on legitimate expectations under general international law as applicable in
relations between States. Thus, the existence of legitimate expectation between
investors and host-States are unaffected. But, this seems tenuous. The Court’s
judgment does not have any such limitation on its face in its scope of application;
66
See paras 568–576.
67
Monebhurrun, above n8; Gold Reserve Inc. v. Bolivarian Republic of Venezuela, para 576.
68
Gold Reserve Inc. v. Bolivarian Republic of Venezuela, para 606
69
Gold Reserve Inc. v. Bolivarian Republic of Venezuela, paras 577–610.
70
Obligation to Negotiate Access to the Pacific Ocean (Bolivia v Chile), ICJ, Judgment, 1 October
2018. Available at https://www.icj-cij.org/en/case/153/judgments
71
See the judgement of the majority, para 162.
72
See, Dissenting Opinion of Judge ad hoc Daudet, para 6. Available at https://www.icj-cij.org/files/
case-related/153/153-20181001-JUD-01-04-EN.pdf
73
See, Dissenting Opinion of Judge Salam, para 25. Available at https://www.icj-cij.org/files/case-
related/153/153-20181001-JUD-01-03-EN.pdf
110 E. T. Laryea
it appears emphatic. The better view, therefore, is that there is no general interna-
tional law principle of legitimate expectation that would give rise to an obligation.
State of the Legal Basis of Legitimate Expectation
As discussed above, the jurisprudence on legitimate expectation may have its legal
basis anchored in one of three possible underpinnings, namely: (1) a component of
FET; (2) a stand-alone concept independent of FET; and (3) general principle of law
applicable as a rule of international law. Of these, its basis in international investment
law as a stand-alone or a general principle of law seems dubious and controversial.
Its basis as a component of FET obligation in an IIA seems to be most widely
accepted, and less controversial. Even then, as FET is largely undefined in IIAs, the
content and meaning of its legitimate expectation component tend to derive from the
varying contents, meanings, and applications of the concept’s understandings from
domestic legal systems.
That said, an overwhelming majority of cases support the contention that legit-
imate expectation is generated by the conduct of States. That is, “where the state has
acted in such a way so as to generate a legitimate expectation in the investor and that
investor has relied on that expectation to make its investment, an action by the state
that reverses or destroys those legitimate expectations will be in breach of the fair
and equitable treatment standard and thus give rise to compensation.”74
However, there remains disagreement as to when an action of a State crosses the
line so as to constitute a breach of legitimate expectation of an investor. Most agree
that legitimate expectation does not mean a freeze on regulatory or other changes or
act as a stabilization clause.75 In Saluka, the arbitral tribunal remarked that “No
investor may reasonably expect that the circumstances prevailing at the time the
investment is made will remain totally unchanged.”76 In EDF v. Romania,77 the
tribunal remarked that:
Except where specific promises or representations are made by the State to the investor, the
latter may not rely on a bilateral investment treaty as a kind of insurance policy against the
risk of any changes in the host State’s legal and economic framework. Such expectation
would indeed, neither be legitimate nor reasonable.78
74
Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.
R.L. v. Romania, ICSID Case No. ARB/05/20, Award, 11 December 2013, para 667.
75
See, e.g., Micula v. Romania, para 669; AES Summit Generation Limited and AES-Tisza Erömü
Kft v. Republic of Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010, para 9.3.73;
Case No. ARB/13/36, Final Award, 4 May 2017.
76
Saluka Investments B.V. v. Czech Republic, UNCITRAL, Partial Award of 17 March 2006.
77
EDF v. Romania, ICSID Award, 8 October 2009.
78
EDF v. Romania, ICSID Award, 8 October 2009, para 217
But, there is no agreement on when regulatory changes tips over from the permis-
sible to a breach. For instance, the arbitral tribunal in Eiser conceived of breach as a
radical change adopted in ways that deprives investors of their investment’s value.79
But the tribunal in Novenergia II disagreed “with the approach adopted by the
arbitral tribunal in Eiser.”80 It adopted what it described as “a balancing exercise,
where the state’s regulatory interests are weighed against the investors’ legitimate
expectations and reliance.”81 The tribual went on to hold that the legitimate expec-
tation of the investor had been breached.
Besides, what conduct creates legitimate expectation is also unsettled. Drawing
on the conceptualization of legitimate expectation as a fundamental rule of European
law, González argues that legitimate expectation would arise only when there are
specific assurances to the investor by very clear and unambiguous conduct.82 Thus
vague, generic, and unspecific assurances would not suffice. It cannot be based on
assurances that are merely similar to other legitimate expectations and without a
formal legal basis. Parties cannot claim hypothetical or potential expectations; nor
will statements that have a specific address but do not contain the specific and
unambiguous assurances. From this perspective, tribunals would need to exercise
prudence when it comes to recognizing alleged violations of legitimate expectations,
ensuring that they recognize the principle only in very limited circumstances.83 It
would require due diligence on the part of the investor. For instance, the claimant-
investor must know in detail the relevant regulatory framework, including the
possibility that changes may occur in the future.
However, others argue that legitimate expectations arise naturally, and that the
undertakings and assurances need not be specific. The arbitral tribunal in Electrabel
stated that “[w]hile specific assurances given by the host State may reinforce the
investor’s expectations, such an assurance is not always indispensable.”84 Other
arbitral tribunals have taken similar position. For instance, in Micula the arbitral
tribunal observed that “There must be a promise, assurance or representation attrib-
utable to a competent organ or representative of the state, which may be explicit or
implicit.”85 That is, the supposed assurance may be implied. The tribunal in
Novenergia II took this view.86
79
Case No. ARB/13/36, Final Award, 4 May 2017, para 382
80
Novenergia II, para 694.
81
Novenergia II, para 694.
82
González, above n9, 416
83
See e.g., van Meerbeeck J (2016) The principle of legal certainty in the case law of the court of
justice of the European Union: from certainty to trust. EL Rev 41:275–282. See also Schwarze J
(1992) European administrative law. Sweet & Maxwell, London, p 950
84
Electrabel S.A. v. Hungary, ICSID No. ARB/07/19, Award of 25 November 2015, para 7.78
85
Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.
R.L. v. Romania, ICSID Case No. ARB/05/20, Award, 11 December 2013, para 669.
86
Novenergia II., para 7.78
112 E. T. Laryea
From the above discussion, it can be seen that the legal underpinnings of
legitimate expectation are debatable, while the content of the concept itself also
remains fluid. This does not make for ease of legal and policy guidance for States.
That said, there are a few things that can be drawn to guide States in their engage-
ment with international investment law, which are outlined next.
Host-States and Legitimate Expectations
As it stands currently, the legitimate expectation concept has been developed as

creating obligations for host-States, in favor of investors. This is just one example of
the skewed nature of the current state of international investment law, creating
obligations for host-States toward investors with no corresponding obligations by
investors toward host-States and their citizens.87 This presents pitfalls for host-
States. The reason, though, is not difficult to fathom; it goes to the genesis of the
development of international investment law, the motivations behind the develop-
ment of the law, which has shaped its formulation and application. It is not intended
to revisit the discussions of the development of the law and the much-documented
criticisms of the current imbalance in the laws.88 This part simply looks briefly at
how States, particularly developing countries, which often suffer the disadvantages
associated with the application of concept of legitimate expectations as it operates
currently, may address the disadvantages. First, it looks at how and why developing
countries, in their capacity as host-States, may be disadvantaged by the application
of the concept as it operates currently. Second, it discuses how host-States may be
able to limit the adverse impact on them of the application of the concept of
legitimate expectation. And, third, it discusses how host-States may possibly create
legitimate expectations, in themselves, from investors.
87
For discussions of the imbalance in the law, see, e.g., Garcia F et al (2015) Reforming the
international investment law regime: lessons from international trade law. J Int Econ Law 18:861;
Arcuri A, Montanaro F (2018) Justice for all? Protecting the public interest in investment treaties.
Boston Coll Law Rev 59:2791; Forster GK. Balancing investor protections, the environment and
human rights: investors, states and stakeholders: power asymmetries in international investment and
the stabilizing potential of investment treaties. Lewis Clark Law Rev 17:361.
88
For the evolution of the law, see Miles K (2013) The origins of international investment law:
empire, environment and the safeguarding of capital. Cambridge University Press; Salacuse JW
(2015) The law of investment treaties, 2nd edn. Oxford University Press, p 46; Chester B (2015)
The evolution of the regime of international investment agreements: history, economics and
politics. In: M Bungenberg et al (eds) International investment law. Bloomsbury T & T Clark, p
154; Vandevelde KJ. A brief history of international investment agreements. UC Davis J Int Law
Policy 12:157.
Disadvantages to Host-State Developing Countries
As noted by Thomas Wälde, in a separate opinion, in the case of International

Thunderbird Gaming arbitration, the principle of legitimate expectations has become
for tribunals a preferred way of providing protection to investors where the tests of a
breach appear “too difficult, complex and too easily assailable for reliance.”89 In
other words, the concept is used to grant protections to investors (and compensation
when the protections are held to have been breached) in circumstances where
investors would otherwise be unsuccessful in establishing breaches of specific rights.
Thus, legitimate expectation is pleaded whenever there is a possibility of a host
state’s breach of indirect expropriation standard, violation of umbrella clause, or any
other violation of the terms of investment treaties and contracts.90 The concept is
used as an overarching principle that is resorted to when specifics are not helpful. It
can be used to maximize protection for the investor by circumventing the high
threshold test of expropriation because it allows “a measure of subjective judg-
ment.”91 Its recurrent application by arbitral tribunal seems to be based on their
prioritization of precedent and preoccupation with investment protection.92
Application of the legitimate expectation concept overwhelmingly benefits inves-
tors. Considering that developing countries are mostly the respondents in investor-
State arbitration cases, it stands to reason that they suffer the most from the
application of the legitimate expectation principle, at least to the extent that the
principle disadvantages host-States. Unfortunately, the fluidity and indeterminacy of
the scope and content,93 and inconsistent application of the principle, makes it harder
for host-States to address. As has been observed, the legitimate expectation standard
is unsettled. Tribunals disagree on when it is breached. One tribunal may hold a
particular act of a host-State to be in breach of legitimate expectations of investors,
while another tribunal may hold the same act of the State not to constitute a breach.94
The inconsistency in investor-State arbitral tribunals is pervasive, well documented
and heavily criticized, and presents problems for host-States. It makes it difficult to
formulate a consistent policy regarding expectations of investors. However, pro-
spective host-States may be able to limit the adverse impact of the application of the
concept on them as well as re-balance its application in some ways. This is discussed
next.
89
Separate Opinion of Thomas Wälde, para 37
90
Dolzer R (2005) Fair and equitable treatment: a key standard in investment treaties. Int Lawyer 39
(1):87–106
91
See, Wongkaew, above n17, 5.
92
93
See discussions under Part 2 (Meaning and Content of Legitimate Expectation), and under Part
3.4 (State of the Legal basis of Legitimate Expectations), above.
94
See, for instance, the contrasting decisions in respect of Spain’s renewable energy tariff regime:
Novenergia; Charanne, Eiser.
114 E. T. Laryea
Limiting the Impact of Legitimate Expectations of Investors
Due Consideration of Investors’ Expectations

One way by which host-States may avoid being held to have breached legitimate
expectations of investors is to give due consideration to the investors’ expectations.
In regulating (or changing regulations) regarding economic activities, host-States
may be advised to have due regard for the interest of, and potential impact on foreign
investments. It would help for them to engage with the sector to be affected, granting
investors and relevant stake-holders a fair hearing. They would be advised not to
adopt regulatory policies that are disproportionately harsh to investors, but to take a
balanced and considered approach.
Omitting FET from IIAs

As previously discussed, legitimate expectation obligations (or breaches) are often
applied as a component of FET provision in IIAs. It means that States may be able to
limit, or avoid, enlivening the application of the concept by omitting FET in their
IIAs. While most IIAs have FET provisions, there are a few that do not.95 Further,
even for States that concluded first generation IIAs with FET provisions in the
1990s, many of those IIAs have either reached renewal or are coming up for renewal.
States may rethink the need to retain their FET provisions in their current form. In
fact, States that wish to revise their IIAs do not need to wait for their IIAs to reach
renewal time; they may be able to terminate and replace sooner if they wish.
Of course, the content of an IIA does not depend solely on one State. It would
take the agreement of the counterpart State-party to omit or limit the ambit of a FET
provision. This may not be forthcoming if the counterparty is adamant that FET be
included. That said, the general current trend in newer generation IIAs is to reduce
the over-expansive rights conferred on investors to the disadvantage of host-States as
the implications of the provisions of those earlier IIAs have become clearer. Conse-
quently, one may be inclined to think that IIA parties may be open to omitting FET in
IIA provisions.
It is arguable, though, that omitting FET provisions in IIAs may undermine the
confidence of prospective investors in the protections available, the standard of
treatment they can expect, and therefore their willingness to invest in a jurisdiction
with such a regime. If the purpose of IIAs are to create an enabling international legal
regime so as to promote and attract investment, then a perceived weaker regime,
95
An example of IIAs with no reference FET can be found in IIAs entered into by Singapore. Thus,
the Australia-Singapore FTA (2003), India-Singapore Comprehensive Economic Cooperation
Agreement (2005), New Zealand-Singapore FTA (2001) do not contain FET provisions. Other
examples are the New Zealand-Thailand Closer Economic Partnership Agreement (EPA) (2005),
the Albania-Croatia BIT (1993), the Croatia-Ukraine BIT (1997) and a number of BITs concluded
by Turkey. See also Chaisse J, Bellak C (2015) Navigating the expanding universe of investment
treaties – creation and use of critical index. J Int Econ Law 18(1):79–115. For further discussion of
the impact of the omission of FET in IIAs, see UNCTAD, Fair and Equitable Treatment (2011)
18–20. Available at https://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf
under which investors cannot be sure of fair and equitable treatment, would arguable
undermine the purpose of the IIA and its prospect of inducing investments.96
Limiting the Ambit of FET Provision

State parties may not omit FET from their IIAs altogether but, instead, limit its ambit
to narrow circumstances. They may do this by defining the FET standard narrowly,
giving specific circumstances within with they apply. They may also reserve unto
themselves conduct that would be outside the FET treatment. That is, they may state
government actions, such as changes in tax regimes and concessions, regulations for
health and environment, discretion to grant, renew, or revoke concessions, and
licenses to be outside the FET standard.
Cautious in Granting Assurances to Investors

At the heart of all alleged breaches of legitimate expectations are claims that the host-
State has breached assurances it gave to the investor-claimant, directly or implicitly.
Such an assurance could be in an investment contract concluded between the State
and the investor.97 Host-States may, therefore, save themselves from claims by being
cautious in the assurances they give. The less they give, the less the prospect of their
being found to have created legitimate expectations in the investor, and breached
them.
As mentioned in respect of omitting FET provisions in IIAs,98 however, the
confidence of prospective investors may be undermined, and be dissuaded from
investing, if a prospective host-State declines to give necessary assurances that inves-
tors consider to be critical for, and conditional to, them investing. This would be
particularly the case where the investors’ capital commitment will be high and the
sector for the investment entails high risk. Often investors would conduct their risk-
benefit analysis, and opt for the choice that gives them the highest risk-adjusted return
relative to alternate investment. All things being equal, if a jurisdiction presents a
higher risk, due to equivocation, for instance, that will affect its competitiveness in
investment attraction. Ultimately, therefore, it would be a question of balance for the
prospective host-State to weigh up the optimal assurances it can afford to give.
Legitimate Expectation of Host-States
As previously stated, currently the law creates legitimate expectations in investors, by

way of obligations from host-States. No such expectations are created in host-States in
96
See Gallagher KP, Birch M (2006) Do investment agreements attract investment? evidence from
Latin America. J World Invest Trade 7(6):961–974.
97
See, for instance, Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9,
Award of 5 September 2008, para 261, where the tribunal observed that unilateral modification of
contractual commitments by host government calls for scrutiny in view of the legal rights and
legitimate expectation of compliance generated in favour of the investors.
98
See discussions in 4.2.1 above.
116 E. T. Laryea
international law. This is due to the content of IIA provisions, which are mostly
couched in terms of standard of treatment expected from the host-State toward covered
investors and, or, investments.99 The idea is that the sovereign host-State has available
to it political, legislative, and regulatory power to enact laws and regulations over
investments within its jurisdiction. This may be exercised against an investor in a
manner that is contrary to acceptable standards of international law. IIAs are supposed
to guard against this risk. As far as the host-State is concern, it can always legislate
legitimately to protect itself from the abuses and breaches by the investor. Conse-
quently, the State does not need the protection of IIA provisions.
At first glance, the above line of argument is sound. However, experience has
shown that some investors have taken undue advantage of the lack of responsibility
in international law to inflict unremedied harm in host-States, and on their citizens,
particularly in developing countries where political, legal, and governance systems
are weak.100 Ironically, the international investment law regime has been developed
due to concerns of investors, particularly from developed countries (who predomi-
nantly exported, at least initially), over perceived weak legal and governance
systems in developing countries.101 Yet, the system now enables them to take
advantage of the weak systems that was perceived not to be good enough for
them. They are able to cause environmental damage, destroy the livelihoods of
local communities, and be directly involved (or be complicit) in human rights abuses
in developing countries without corresponding legal responsibility.102
Host-States too have expectations from investors.103 Host-States expect investors
to act in a manner that would legitimately benefit them, and contribute to their
development trajectory.104 States may consider including in their IIAs obligations on
covered investors to a standard of conduct that prevents them from causing harm,
and to hold them liable when they do cause harm. In other words, States may be able
to create legitimate expectation required of investors.105 As was pointed out by the
tribunal in EDF (Services) Limited v. Romania, “legitimate expectations cannot be
solely expectations of the investor.”106 Some IIAs, or similar instruments, are
99
Investment and investors.
100
Chapman M. Seeking justice in lago agrio and beyond: an argument for joint responsibility host
states and foreign investors before the regional human right systems. Human Rights Brief 18:6;
Arcuri and Montanaro, above n87. See also, Laryea ET (2018) Making investment arbitration work
for all: addressing the deficits in access to remedy for wronged host state citizens through
investment arbitration. Boston Coll Law Rev 59:2845–2852.
101
See, Laryea, ibid.
102
Ibid.
103
Nganjo-Hodu and Ajibo, above n1, 54; Snodgrass (2006), above n59, 1–4.
104
Nganjo-Hodu and Ajibo, above n1, 59; Sauvant KP, Ünüvar G (2016) Can host countries have
legitimate expectations? In: Columbia FDI perspectives, paper no. 183
105
See, Sauvant KP, Ünüvar G (2016) Can host countries have legitimate expectations? In:
Columbia FDI perspectives, paper no. 183
106
EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award Merits, 8 October
2009, para 219.
beginning to provide such investor obligations. For instance, the Morocco-Nigeria

IIA of 2016 contains a series of obligations upon investors.107 Investors must
comply with environmental assessment screening and assessment processes in
accordance with the most rigorous laws of the host and home States, as well as a
social impact assessment based on standards,108 must maintain an environmental
management system and uphold human rights in accordance with core labor and
environmental standards as well as labor and human rights obligations of the host
State or home State.109 Investors may not engage or be complicit in corrupt practices,
must meet or exceed national and internationally accepted standards of corporate
governance,110 and are expected to operate through high levels of socially respon-
sible practices and apply the ILO Tripartite Declaration on Multinational Invest-
ments and Social Policy.111 So too does the Pan-African Investment Code.112
The long-debated question of whether investment protection must be conditioned
on the investment contributing to the economic development of the host-State can
also be made more categorical and prominent by host-States. Despite reference to
economic development in the preamble of some IIAs,113 and in ICSID,114 many
arbitral tribunals have not given that element the importance it deserves. This is so,
despite expression of right to development in international law.115 Incidentally,
tribunals are much more disposed to relying on preamble statements on invest-
ment-protection to interpret IIAs pro-investor. Some newer model IIAs, such as
the SADC model IIA, are now including economic development as a criterion to be
107
See, Reciprocal Investment Promotion and Protection Agreement Between The Government of
the Kingdom of Morocco and The Government of the Federal Republic of Nigeria (3 December,
2016). Available at https://investmentpolicy.unctad.org/international-investment-agreements/
treaty-files/5409/download
108
Art. 14(1) and 14(2).
109
Art. 18.
110
Art. 19.
111
Art. 24.
112
African Union, Pan-African Investment Code. Available at https://au.int/sites/default/files/docu
ments/32844-doc-draft_pan-african_investment_code_december_2016_en.pdf
113
See for instance the preamble of . . .to the July 2012 Southern Africa Development Community
(SADC) Model Bilateral Investment Treaty. Available at: www.iisd.org/itn/wp-content/uploads/
2012/10/sadc-model-bit-template-final.pdf. See also, the 2014 Canada – Senegal BIT and many
others. Available at http://investmentpolicyhub.unctad.org/IIA/MostRecentTreaties#iiaInnerMenu
114
See ICSID, article 25.
115
See for instance, the December 1986 UN Declarations on the Right to Development at UN Doc.
A/RES/41/128, adopted on 4 December 1986, text available at https://www.un.org/ga/search/view_
doc.asp?symbol=A/RES/41/128; and International Covenant on Economic, Social and Cultural
Rights, General Assembly Resolution 2200A (XXI), 993 U.N.T.S. 3, 16 December 1966, entered
into force 3 January 197, available at: www.ohchr.org/EN/ProfessionalInterest/Pages/CESCR.aspx.
See also Bunn ID (2000) The right to development: implications for international economic law.
Am Univ Int Law Rev 15(6):1425–1467; Arts K, Tamo A (2016) The right to development in
international law: new momentum thirty years down the line? Neth Int Law Rev 63(3):221–249.
118 E. T. Laryea
protected in their IIAs. It is arguable that such provisions may be able to create in
host-States and in their citizens legitimate expectation of investors.
Beyond IIAs, States may be able to construct standards of expected conduct to be
observed by investors in contracts between the State and investors, in regimes for
admission of foreign investments, and in licensing systems where appropriate. Some
investments by foreign entities are undertaken pursuant to signed contracts between
the investor and the host-State. This is usually the case with huge infrastructure
projects (such as power generation and road construction) and exploitation of natural
resources such as agricultural land use, forestry, logging, hard-rock minerals extrac-
tion, and oil and gas extraction. The State-party may be able to articulate specific
requirements of conduct on the part of the investor, such as observance of labor
rights in accordance with international standards, observance of environmental best
practice, refrain from conduct that adversely impact local communities, refrain from
profit-shifting (which often deprives host-States of appropriate tax revenues), and
other such relevant demands. As this author has argued elsewhere, host-States may
also consider including statements to the effect that the investor consent to interna-
tional arbitration initiated by host-State citizens whose interests are adversely
affected by wrongful acts of the investor.116 Additionally, sometimes investors
make commitments intended to benefit host-State communities, such as promises
to provide development projects and to employ the local people. There is also the
phenomenon of Community Development Agreements or Impact and Benefit
Agreements (IBAs) that multinational corporations sometimes sign with local com-
munities in which they undertake to provide certain benefits to the host communi-
ties.117 These may create in host-States and in their citizens legitimate expectations
from relevant investors, which, if not fulfilled, may give rise to claims.
Admittedly, not all foreign investments involve a contract between the investor
and the host-State. A foreign investor may enter a country to acquire, or merge with,
an existing private business. It may enter into a joint venture with some private host-
State citizens or may commence a wholly-owned investment operation that does not
require contracting with the host-State. Such modes of investing would not present
the opportunity to a host-State to extract contractual undertakings from investors.
Host-States may address this gap by enacting legislation deeming that all foreign
investors are considered to have made certain undertakings, such as those outlined in
the previous paragraph. In such a case, the fact that a foreign enterprise invests in the
jurisdiction subsequent to the legislation entering into force may trigger the opera-
tion of the undertakings; express, individual, agreement of the investor (as in a
contract) would not be required. Host-States could also require, as a matter of
domestic law, that all foreign investors obtain an authorization (or license) to invest
in that State. Obtaining authorization to invest in the host-State would be contingent
upon investors making certain undertakings, such as outlined in the previous
116
See, Laryea, above n100.
117
Odumososu-Ayanu I (2014) Governments, investors and local communities: analysis of a multi-
actor investment contract framework. Melb J Int Law 15:473–474.
paragraph above. In this way, those undertakings “may be made a condition for
admission of investments in the host State.”118 These legislative options seem
straightforward and would capture all foreign investors and investments.
From the above, it is arguable that host-States can create unto themselves
legitimate expectations from investors for the benefit of the government and their
citizens, and in the rebalancing of the current international investment law regime
that is currently skewed in favor of investors. Of course, that does not relieve host-
States from the need to refrain from breaching the legitimate expectations of
investors. It only creates in host-States, too, and arguably their citizens, recognizable
and enforceable legitimate expectations against investors in a manner that have
hitherto not been recognized.
Conclusion
This chapter has discussed the concept of legitimate expectation, which is frequently
invoked by investors in claims against host-States before arbitral tribunals, for
alleged breaches (by host-States) that have impaired the investors’ investments. It
has examined the nature and content of the concept as applied in international
investment law, concluding that it is far from clear.
The chapter has also examined the legal basis for the application of the concept in
international investment law. In doing so, it looked at: (1) the iteration of the concept
as a component of FET standard that is frequently found in IIAs; (2) whether it has
evolved into a stand-alone doctrine independent of FET; and (3) whether it has
reached the status of general principle of international law. It found that in the vast
majority of cases, legitimate expectation has found its expression and application as
a component of FET standard. While a few scholars and arbitrators have doubted the
soundness of the legal basis of legitimate expectation as a component of FET, the
vast majority of scholars and arbitrators agree that legitimate expectation is a
component of FET. The status of legitimate expectation as a stand-alone doctrine
or general principle of law is more controversial, and less sound. While some scholars
and arbitrators have surmised that it may have evolved into a stand-alone doctrine or
general principle of law, there is no clear evidence of the legitimate expectation
having been applied as such.
The chapter has also discussed various ways by which States may limit the
potential adverse impact on them of the application of the concept of legitimate
expectations as well as examined the possibility of legitimate expectation being
created in host-States, and their citizens, from investors. Currently, the law creates
legitimate expectations in investors, by way of obligations from host-States, but no
such expectations are created in host-States in international law from investors. This
is due to the content of IIA provisions, which are mostly couched in terms of
118
Schreuer C (2008) Consent to arbitration. In: Muchlinski P, Ortino F, Schreuer C (eds) The
Oxford handbook of international investment law, pp 831–837
120 E. T. Laryea
standard treatment expected from host-States toward covered investors. This is

disadvantageous to host-States, and their citizens, who sometimes suffer adverse
effects of investment without effective avenues for remedy. The chapter has explored
how host-States may be able to create legitimate expectations from investors, in a
manner that may rebalance the currently skewed law.
Cross-References
▶ Emerging Practice on Investor Diligence: Jurisdiction, Admissibility, and Merits

Good Faith in International Investment
Law and Policy 6
Sanja Djajić
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
The Principle of Good Faith in General International Law: From the Principle to
the Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Good Faith Principle in International Investment Law and Arbitration . . . . . . . . . . . . . . . . . . . . . . . 127
Good Faith Principle as a Procedural and Substantive Rule at Different Stages of
Investment Proceeding: Balancing Function of the Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Article 41(5) of the ICSID Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Good Faith at the Preliminary Stage of the Proceedings: Jurisdiction of Tribunal and
Admissibility of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Good Faith Argument at the Merits Stage: Balancing Competing Interests . . . . . . . . . . . . . . . 145
Good Faith Reflected in Damages and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Abstract
This chapter aims to provide a comprehensive framework for understanding how
principle of good faith functions within international investment law in order to
outline the roles the good faith plays within the discipline. This assessment covers
different conceptualizations of the principle of good faith within the rules,
arguments, and arbitral awards, but also the practical advantages it may provide
for parties in the course of arbitral proceedings. The offered conceptual frame-
work comprises the evaluation of the principle in general international law and in
relation to international investment law and arbitration, overview of substantive
and procedural derivatives of the principle, and overall assessment of the function
and relevance of the principle in contemporary investment law, policy, and
S. Djajić (*)
Department for International Law, School of Law, University of Novi Sad, Novi Sad, Serbia
e-mail: sdjajic@pf.uns.ac.rs

https://doi.org/10.1007/978-981-13-3615-7_115
122 S. Djajić
arbitration. How the good faith principle, within existing procedural concepts
and substantive rules, but also as a self-standing standard, may play out is
demonstrated by the overview of relevant arbitral jurisprudence and presented
through different stages of an arbitral proceeding. States tend to rely on good
faith to deny claimants’ rights to seize the tribunal (Article 41(5) of the ICSID
Rules), to challenge jurisdiction or admissibility, to limit obligations arising
under investment treaties or otherwise employ good faith as a defense in
merits, and to minimize or exclude compensation. Claimants primarily rely
on good faith as a part of the substantive standard of fair and equitable
treatment, to expand interpretation of investment treaties and maximize their
chances for compensation. Recent trends demonstrate the inherent balancing
function of the good faith principle given that claimants and respondents alike
rely on the good faith argument using it both as entitlement and defense, while
arbitral tribunals have shown readiness to employ different variants of the good
faith principle.
Keywords
Good faith · Abuse of process · Investment arbitration · Fair and equitable
treatment · Legitimate expectations · Jurisdiction and admissibility ·
Unconscionable conduct · Misrepresentations
Introduction
The principle of good faith has been omnipresent in international investment law and
arbitration.1 It has been frequently employed by all actors in investment arbitration:
investors, States, and tribunals.2 There is some preliminary explanation why this is
the case: investment arbitration is based on arbitration agreement which per se is
ruled by the principles of pacta sunt servanda and good faith. Although the principle
of good faith is deeply embedded in international legal scholarship, its application is
not without difficulties. However, it is equally difficult to ignore possible practical
consequences the principle of good faith may have for the parties and the system of
investment protection at all stages of the proceeding.
1
This chapter draws on previous research published as Djajić S (2012) Mapping the good faith in
international investment arbitration: assessment of its substantive and procedural value. Zbornik
radova PF NS 47(3):207–233
2
“It is difficult to find any international arbitration award not based on, or that does not at least
mention, good faith. The omnipresence of good faith does not mean (rather quite the contrary) that it
is clearly understood, that we know how to use it, or that we are able to predict how an arbitral
tribunal may apply good faith in a particular case.” – Cremades B (2012) Good faith in international
arbitration. Am Univ Int Law Rev 27(4):761–789, 761
6 Good Faith in International Investment Law and Policy 123
Therefore, some preliminary observations on the complex character of the prin-

ciple are due at the very beginning. Good faith manifests its complex structure
through difficulty to define its nature with precision. It habitually dwells between
the principle and the rule, between procedure and substance, and between an
autonomous and auxiliary norm. Good faith turns out to be applied as such, directly
and without any intermediary, or via a set of good faith derivatives. It may serve as a
tool for interpretation and as a ground of rights and obligation. It may have relevance
at each step of the proceeding finding its footing in a set of arguments based on
procedural and substantive rules, being, unlike many other rules in international
investment law, equally relevant for both claimants and respondents.
Having in mind the complex and multifaceted character of the good faith princi-
ple, this article will begin with the brief overview of the principle of good faith in
general international law, which will be followed by the analysis of direct and
indirect application of the good faith, both in terms of procedure and substance, at
different stages of an arbitral proceeding. At each of these steps, good faith principle
will be assessed against the preliminary framework provided herein: rule or princi-
ple, rule of interpretation or rule of performance, objective or subjective concept,
procedure or substance, autonomous or auxiliary norm, good faith as such or a good
faith derivative, standard of conduct or obligation of result, and good faith as a sword
or a shield.
The Principle of Good Faith in General International Law: From

the Principle to the Rule
Principle of good faith has been recognized in international law having found its
place in a number of international treaties and in case law of international courts.
Major international treaties, like the UN Charter3 and the Vienna Convention on the
Law of Treaties (VCLT),4 expressly incorporate the rule. The International Law
Commission Draft Declaration on Rights and Duties of States (1949)5 and UN
Declaration on Principles of International Law Concerning Friendly Relations
3
“All Members, in order to ensure to all of them the rights and benefits resulting from membership,
shall fulfil in good faith the obligations assumed by them in accordance with the present Charter.” –
Charter of the United Nations Art 2(2)
4
Art 26: “Every treaty in force is binding upon the parties to it and must be performed by them in
good faith.”
Art 31(1): “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to
be given to the terms of the treaty in their context and in the light of its object and purpose.”
Vienna Convention on the Law of Treaties, opened for signature 22 May 1969, 1155 UNTS 331
(entered into force 27 January 1980), (hereinafter “VCLT”)
5
“Every State has the duty to carry out in good faith its obligations arising from treaties and other
sources of international law, and it may not invoke provisions in its constitution or its laws as an
excuse for failure to perform this duty.” UNGA, Draft Declaration on Rights and Duties of States,
UN Doc A/RES/375(IV) (6 December 1949) Art 13
124 S. Djajić
and Cooperation Among States (1970)6 reinforced the good faith as a principle of the
UN. There are numerous international agreements which expressly indorse the
principle of good faith, such as Article 3.10 of the Understanding on Rules and
Procedures Governing Dispute Settlement of the WTO7 or Article 300 of the UN
Convention on the Law of the Sea.8 A number of them refer to the corollaries of
the principle of good faith, such as the abuse of right or duty of loyal cooperation.
For example, Article 17 of the European Convention on Human Rights prohibits
the abuse of rights to both States and individuals.9 The same concept of equal
distribution of this obligation, even with the exact wording, is to be found in
Article 5(1) of the International Covenant on Civil and Political Rights.10 EU law
recognizes the duty of sincere and loyal cooperation,11 just another facet of the
6
“The principle that States shall fulfil in good faith the obligations assumed by them in accordance
with the Charter:
Every State has the duty to fulfil in good faith the obligations assumed by it in accordance with the
Charter of the United Nations.
Every State has the duty to fulfil in good faith its obligations under the generally recognized
principles and rules of international law.
Every State has the duty to fulfil in good faith its obligations under international agreements valid
under the generally recognized principles and rules of international law.” – UNGA, UN
Declaration on Principles of International Law concerning Friendly Relations and Coopera-
tion Among States, UN Doc A/RES/2625 (XXV) (24 October 1970)
7
Art 3.10, Understanding on Rules and Procedures Governing the Settlement of Disputes, Marra-
kesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 (opened
for signature 15 April 1994, entered into force on 1 January 1995). See Chaisse J (2015)
Deconstructing the WTO conformity obligation: a theory of compliance as a process. Fordham J
Int Law 38(1):57–98.
8
“States Parties shall fulfil in good faith the obligations assumed under this Convention and shall
exercise the rights, jurisdiction and freedoms recognized in this Convention in a manner which
would not constitute an abuse of right.” – Art 300 (Good faith and abuse of rights), United Nations
Convention on the Law of the Sea, opened for signature 10 December 1982, 1833 U.N.T.S. 397
(entered into force 16 November 1994)
9
“Nothing in this Convention may be interpreted as implying for any State, group or person any
right to engage in any activity or perform any act aimed at the destruction of any of the rights and
freedoms set forth herein or at their limitation to a greater extent than is provided for in the
Convention.” – Art 17 (Prohibition of abuse of rights), European Convention for the Protection
of Human Rights and Fundamental Freedoms, opened for signature 4 November 1950, ETS No. 5
(entered into force 3 September 1953), (hereinafter “ECHR” or “European Convention on Human
Rights”)
10
“Nothing in the present Covenant may be interpreted as implying for any State, group or person
any right to engage in any activity or perform any act aimed at the destruction of any of the rights
and freedoms recognized herein or at their limitation to a greater extent than is provided for in the
present Covenant.” – Art 5(1), International Covenant on Civil and Political Rights, adopted by the
UNGA on16 December 1966, 999 UNTS 171 (entered into force 23 March 1976) (hereinafter
“ICCPR”)
11
“Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full
mutual respect, assist each other in carrying out tasks which flow from the Treaties.” – Treaty of the
European Union, 2012/C 326/13, Art 4(3)
good faith principle. These provisions demonstrate the underlying rationale of the
good faith principle of balancing rights and harmonizing even conflicting
interests.
While treaty law has its considerable share in shaping and reconfirming the
good faith as international legal principle, it can also be argued that the good faith
principle is part of customary international law. The Court of Justice of the
European Union proceeded to the issue of legitimate expectations from the posi-
tion that:
The principle of good faith, codified by Article 18 of the First Vienna Convention, is a rule of
customary international law whose existence is recognized by the International Court of
Justice and is therefore binding on the Community. That principle is the corollary in public
international law of the principle of protection of legitimate expectations, which forms part
of the Community legal order.12
In addition, doctrinal consensus regarding the origin and position of the good
faith within formal sources of international law seems to rely mostly on general
principles of law (of civilized nations) within the meaning of Article 38(1) of the
Statute of International Court of Justice.13
Given the complex character of the good faith principle and variety of formal
sources that could possibly serve as a basis for its binding character, it is not
surprising that international courts seem to rely on good faith considerations in a
variety of ways. While they have been ready to have their say on the principle,
they have been more willing to entertain the good faith argument within rules
deriving from the good faith principle such as the abuse of right, estoppel,
legitimate expectations, or negligence than to directly rely on the good faith as a
rule.
The International Court of Justice in the Nuclear Tests case refers to good faith as
a principle capable of creating the rule on binding unilateral declarations:
One of the basic principles governing the creation and performance of legal obligations,
whatever their source, is the principle of good faith. Trust and confidence are inherent in
international co-operation, in particular in an age when this co-operation in many fields is
becoming increasingly essential. Just as the very rule of pacta sunt servanda in the law of
treaties is based on good faith, so also is the binding character of an international obligation
12
Case T-115/94 Opel Austria GmbH v Council of the European Union [1997] ECR II-43, para. 2
13
See, e.g., Ziegler AR, Baumgartner J (2015) Good faith as a general principle of (international)
law. In: Mitchell AD, Sornarajah M, Voon T (eds) Good faith and international economic law.
Oxford University Press, New York, pp. 9–36, 10, Chap 2; Tanzi A (2018) The relevance of the
foreign investor’s good faith. In: Gattini A, Tanzi A, Fontanelli F (eds) General principles of law
and international investment arbitration. Brill Nijhoff, Leiden/Boston, p 193, Chap 10; Sipiorski E
(2020) Introducing good faith in international investment law. Investment claims, Oxford Univer-
sity Press, para 1.03. http://oxia.ouplaw.com, https://oxia.ouplaw.com/view/10.1093/law/
9780198826446.001.0001/law-9780198826446-chapter-1
126 S. Djajić
assumed by unilateral declaration. Thus interested States may take cognizance of unilateral
declarations and place confidence in them, and are entitled to require that the obligation thus
created be respected.14
Although in subsequent cases the ICJ retracted and limited the relevance of the
principle by finding that “good faith is not in itself a source of obligation where none
would otherwise exist,”15 which could imply that there is no autonomous standing
for the good faith principle and thus no remedy for its breach, more recently the ICJ
discussed the relevance of abuse of rights, abuse of process, and “clean hands”
doctrine as independent grounds for dismissing jurisdiction. The Court opined that
“only in exceptional circumstances should the Court reject a claim based on a valid
title of jurisdiction on the ground of abuse of process.”16 Although the Court rejected
the respondents’ objections against jurisdiction in both of these cases, it did not
dismiss them for the absence of the rule but rather for the fact that the threshold that
had been set high was not reached. As for the “clean hands” doctrine, the Court
seemed unwilling to treat it as an independent basis for dismissing preliminary
objection but nevertheless left the door open for this particular good faith argument
to be used as a defense on the merits.17
The ICJ also often dealt with good faith argument within the meaning of “good
faith negotiations”18 where it was the conduct of parties rather than the content of an
obligation that was scrutinized by the Court. It seems that the conduct in good faith
14
Nuclear Tests Case (Australia v. France), Judgment, 20 December 1974, ICJ Reports 1974, p.
268, para. 46
15
Border and Transborder Armed Actions (Nicaragua v. Honduras), Jurisdiction and Admissibility,
Judgment, 20 December 1988, ICJ Reports 1988, p. 105, para. 94
16
Immunities and Criminal Proceedings (Equatorial Guinea v. France), Preliminary Objections,
Judgment, 6 June 2018, ICJ Reports 2018, p. 336, para. 150; Certain Iranian Assets (Islamic
Republic of Iran v. United States of America), Preliminary Objections, Judgment, 13 February
2019, ICJ Reports 2019, p. 42, para. 113
17
“122. Without having to take a position on the ‘clean hands’ doctrine, the Court considers that,
even if it were shown that the Applicant’s conduct was not beyond reproach, this would not be
sufficient per se to uphold the objection to admissibility raised by the Respondent on the basis of the
‘clean hands’ doctrine (. . .). 123. Such a conclusion is however without prejudice to the question
whether the allegations made by the United States, concerning notably Iran’s alleged sponsoring
and support of international terrorism and its presumed actions in respect of nuclear non-prolifer-
ation and arms trafficking, could, eventually, provide a defence on the merits.” – Certain Iranian
Assets (Islamic Republic of Iran v. United States of America), Preliminary Objections, Judgment, 13
February 2019, ICJ Reports 2019, p. 42, paras. 122–123
18
Delimitation of the Maritime Boundary in the Gulf of Maine Area (Canada/United States of
America), Judgment, 12 October 1984, ICJ Reports 1984, p. 292, para. 87; Fisheries Jurisdiction
(United Kingdom v. Iceland), Merits, Judgment, 25 July 1974, ICJ Reports 1974, pp. 33–34, paras.
78–79; Fisheries Jurisdiction (Federal Republic of Germany v. Iceland), Merits, Judgment, 25 July
1974, I.C.J. Reports 1974, p. 202, para. 69; Nuclear Tests (Australia v. France), Judgment, 20
December 1974, ICJ Reports 1974, p. 268, para. 46; Nuclear Tests (New Zealand v. France),
Judgment, 20 December 1974, ICJ Reports 1974, p. 473, para. 49; North Sea Continental Shelf
(Federal Republic of Germany/Denmark; Federal Republic of Germany/Netherlands), Judgment,
20 February 1969, ICJ Reports 1969, pp. 46–47, para. 85
was somehow easier for the Court to translate into directly applicable rules. In a case
between FYR Macedonia and Greece over the name of Macedonia, the ICJ set up
criteria for good faith standard during negotiations.19 More importantly, the Court
was willing to introduce the good faith in the absence of any specific reference to the
principle: “although Article 5, paragraph 1, contains no express requirement that the
Parties negotiate in good faith, such obligation is implicit under this provision.”20
Without specific directions to the principle of good faith, it may be difficult for
any court to fully embrace it. It comes as no surprise that judges and “arbitrators are
extraordinarily cautious in their decisions when they must apply the principle of
good faith.”21 Nevertheless, as a principle, the good faith serves to prevent and
sanction the abuse of the system, as a general corrective even in the absence of direct
reference to the principle. Recent trends in jurisprudence of international courts in
general, and in investment arbitration in particular, show that the principle finds its
way to the formation of autonomous and a directly applicable good faith rule.22
Good Faith Principle in International Investment Law and

Arbitration
International investment agreements (IIAs) rarely refer directly to the good faith
principle although this trend seems to be changing as of recently. For example,
Article 8.18(3) of the Comprehensive Economic and Trade Agreement (CETA)
between the European Union and Canada23 now expressly provides protection
only to legal and good faith investments: “investor may not submit a claim under
this Section if the investment has been made through fraudulent misrepresentation,
concealment, corruption, or conduct amounting to an abuse of process.” Inclusion of
good faith principle and its derivatives directly into international investment agree-
ments seems to be the policy of the EU given that similar provisions can be found in
other recent EU IIAs.24
19
Application of the Interim Accord of 13 September 1995 (the former Yugoslav Republic of
Macedonia v. Greece), Judgment, 5 December 2011, ICJ Reports 2011, para. 132
20
Ibid., para. 131
21
Cremades B (2012) Good faith in international arbitration. Am Univ Int Law Rev 27(4):761–
789, 786
22
Djajić S (2012) Mapping the good faith in international investment arbitration: assessment of its
substantive and procedural value. Zbornik radova PF NS 47(3):207–233, 209
23
Signed on 30 October 2016. Not yet in force. Provisionally applied in part since 21 Septem-
ber 2017, Official Journal of the European Union, L11/23 (14 January 2017)
24
For example, Art 3.27 of the EU-Vietnam Investment Protection Agreement (signed on 30 June
2019, not yet in force) excludes claims made through “fraudulent misrepresentation, concealment,
corruption or conduct amounting to an abuse of process,” while Art 4.43 (Anti-circumvention)
declines jurisdiction for disputes over investments where ownership restructuring occurred after the
dispute had arisen or become foreseeable. The similar provision is to be found in Art 3.7(5) of the
EU-Singapore Investment Protection Agreement (signed on 19 October 2018)
128 S. Djajić
Given the lack of treaty law sources on good faith leaves its application to other
sources and to the discretion of tribunals. Speaking in general terms, there seems to
be consensus that good faith principle is applicable as a matter of law despite
possible absence of the reference to the rule. Article 42 of the ICSID Convention
opens up possibility for application of general international law25 and thereby of the
good faith principle as a rule of international law. Several tribunals also referred to
the good faith as a matter of international public policy. Within the context of
claimants’ obtaining investments and contracts by fraudulent means, at least three
investment tribunals26 dismissed the claims as contrary inter alia to the basic notion
of international public policy and as such to the principle of good faith.27 The
tribunal in World Duty Free v. Kenya defined international public policy as “an
international consensus as to universal standards and accepted norms of conduct that
must be applied in all fora.”28 With respect to some derivatives of the good faith
principle, several tribunals seemed to disagree – in South American Silver v. Bolivia,
the tribunal, while agreeing in principle with other tribunals upholding the good
faith, still concluded that “clean hands” doctrine is not part of international public
policy.29
As a matter of law, there seems to be consensus that good faith certainly is a
principle: “It is indisputable, and this Arbitral Tribunal can do no more than confirm
it, that the safeguarding of good faith is one of the fundamental principles of
international law and the law of investments.”30 Inceysa tribunal, for example,
referred to general principles of law within the meaning of Article 38 of the Statute
of the International Court of Justice as a formal source for its application.31 How-
25
“The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the
parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State
party to the dispute (including its rules on the conflict of laws) and such rules of international law as
may be applicable.” – Convention on the Settlement of Investment Disputes between States and
Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (entered into force
14 October 1966), Art 42(1) (hereinafter “ICSID Convention”)
26
Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Jurisdiction,
Award (2 August 2006), [249] (hereinafter “Inceysa v. El Salvador, Award”); World Duty Free
Company Limited v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award (4 October 2006),
[139], [179] (hereinafter World Duty Free Company Limited v. Kenya, Award); Plama Consortium
Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (27 August 2008), [141]–
[143] (hereinafter Plama v. Bulgaria, Award)
27
Plama v. Bulgaria, Award, [144]
28
World Duty Free Company Limited v. Kenya, Award, [139]
29
South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia, UNCITRAL,
PCA Case No. 2013-15, Award (22 November 2018), [452]–[453] (hereinafter South American
Silver v. Bolivia, Award)
30
Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award (7 February
2011), [116] (hereinafter Malicorp v. Egypt, Award)
31
“General principles of law are an autonomous and direct source of International Law, along with
international conventions and custom.”- Inceysa v. El Salvador, Award, [226]
ever, there is no such consensus when it comes to discussion whether good faith is
also a rule and whether it is only an auxiliary and complementary rule or also a self-
standing rule eligible for autonomous application. While this will be addressed later
in relevant sections, within the discussion on different derivatives of the good faith
principle, here it will be just briefly presented the general disagreement with the
proposition of the self-standing character of the rule. For example, in Mobil Invest-
ments v. Canada, the tribunal was of the opinion that “[g]ood faith is pertinent to the
manner in which that obligation [pacta sunt servanda] is to be performed; it is not
put forward as a free-standing obligation.”32 In Malicorp v. Egypt, the stance was
that “the principle fulfils a complementary function; it allows for lacunae in the
applicable laws to be filled, and for that law to be clarified by the specific application
of existing principles.”33 Tribunal in South American Silver v. Bolivia found that
“clean hands” doctrine is not an international legal rule,34 and similarly, in Hulley v.
Russia, the tribunal ruled that this doctrine is not a general principle of law within the
meaning of Article 38 of the ICJ Statute.35
Some other tribunals took another path and found that good faith has much more
strength than argued elsewhere. Just as an illustration, in a famous Phoenix v. Czech
Republic, the tribunal relied upon autonomous character and direct applicability of
the good faith principle in dismissing investor’s claims for finding investments made
contrary to the principle of good faith.36 Therefore, the breach of the principle led
directly to dismissing jurisdiction.
International investment arbitration has been a busy playground for good faith
arguments. Despite asymmetrical architecture of international investment treaties in
terms of distribution of rights and obligations between investors as claimants and
States as respondents, good faith arguments have been equally shared between them.
The good faith thus can serve as the basis both of claim and of defense. Unlike many
other investment law rules, this one has the ability to harmonize the system by being
equally at the disposal for both parties. In order to illustrate the multiple functions of
the good faith in international investment law and arbitration, the following section
will show different shapes and derivatives of the good faith throughout an invest-
ment proceedings and how it is being employed by both parties at the same stage of
the proceedings.
32
Mobil Investment Canada v. Government of Canada, ICSID Case No. ARB/15/6, Jurisdiction and
Admissibility, Decision (13 July 2018), [169]
33
Malicorp v. Egypt, Award [116]
34
South American Silver v. Bolivia, Award [453]
35
Hulley Enterprises Limited (Cyprus) v. The Russian Federation, UNCITRAL, PCA Case No.
2005-03/AA 226, Final Award (18 July 2014), [1357]–[1363] (hereinafter “Hulley v. Russia, Final
Award”)
36
Phoenix Action Ltd. v. The Czech Republic, ICSID Case No. ARB/06/6, Award (15 April 2009)
[106], [113] (hereinafter “Phoenix v. The Czech Republic, Award”)
130 S. Djajić
Good Faith Principle as a Procedural and Substantive Rule at

Different Stages of Investment Proceeding: Balancing Function of
the Principle
Balancing and harmonizing function of the good faith principle, which potentially
serves the system and as such all parties to the proceeding, was aptly described by
the Inceysa tribunal: “Good faith is a supreme principle, which governs legal
relations in all of their aspects and content. . .”37 According to Ponce and Cevallos,
the good faith contributed to the investor-State dispute settlement (ISDS) system
playing field being level.38 It is indeed a benefit of the principle of good faith that it
can be applied equally to investors and States, to claimants and respondents. Its
scope of application and multiple forms in which it can be applied will be illustrated
through different stages of an investment proceeding that should testify to the
practical relevance of the good faith principle.
Article 41(5) of the ICSID Arbitration Rules
Article 41(5) of the 2006 ICSID Arbitration Rules provides for a summary procedure
designed for dismissal of claims manifestly without legal merit. Due to a short
deadline for challenging the claim on this particular ground (30 days from the
constitution of the tribunal), some tribunals refer to Article 41(5) challenge as
a “pre-preliminary objection.”39 This rule is equally applicable to requests for
annulment and revision. It is being understood that this challenge exists to prevent
frivolous claims as early as possible and thereby to prevent the abuse of the system.
As it addresses prima facie legal merit, it follows that it can arguably involve both
issues of jurisdiction and merits. According to De Brabandere, Article 41(5) is
emanation of the principle of good faith and abuse of process.40
To date, 33 decisions and awards were rendered on the basis of Article 41(5)
objections.41 Although not all of these decisions are publicly available, it has been
37
Inceysa v. El Salvador, Award, [230]
38
Ponce JE, Cevallos RA (2016) Good faith in investment arbitration. Transnatl Dispute Manag 13
(5):1–36, 35. www.transnational-dispute-management.com/article.asp?key¼2388
39
Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/
09/11, Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules, Decision
(1 December 2010) [34]
40
“The principles of ‘good faith’ and ‘abuse of process’ in assessing the submissions of investment
treaty claims have often been used in these cases, essentially to avoid abuses of the direct access to
investment arbitration. Both principles are increasingly taking a prominent role in investment
arbitration.” De Brabandere E (2012) The ICSID Rule on Early Dismissal of Unmeritorious
Investment Treaty Claims: Preserving the Integrity of ICSID Arbitration. Manchester J Int Econ
Law (9)1: 23–44, 24 (references omitted)
41
ICSID, Decisions on Manifest Lack of Merit. https://icsid.worldbank.org/en/Pages/Process/Deci
sions-on-Manifest-Lack-of-Legal-Merit.aspx
known that objections of “manifest lack of legal merit” were successful in at least
five cases and partially in one. It is arguable that this very provision represents the
emanation of good faith even if it may not be directly invoked or upheld in each
particular case. However, in some of the known cases, the issue of “manifest lack
of legal merit” turned on the good faith. In Rachel Grynberg et al. v. Grenada,42
respondent argued inter alia that claimants’ second attempt at the ICSID was the
abuse of process. After their contractual claim was dismissed, the claimants gave it
another try with a treaty-based claim. The second tribunal found that the claim was
an attempt to re-litigate the issue already decided by a previous ICSID tribunal, so
attempt to avoid the decision that was final under Article 53 of the ICSID Conven-
tion made such claim “manifestly without legal merit.”
Article 41(5) operationalizes the good faith principle and abuse of process by
providing respondents with an effective remedy against frivolous or otherwise
abusive claims. Despite a high threshold for proving “unmeritorious” claims so
early in the course of an investment proceedings, there is still some procedural
advantage for respondent States since they have a procedural option to remove the
case at the very beginning and thereby save both time and resources.
Good Faith at the Preliminary Stage of the Proceedings: Jurisdiction

of Tribunal and Admissibility of Claim
Given that preliminary objections are raised by respondent States, it follows that
reliance on the good faith argument for challenging jurisdiction of the tribunal or
admissibility of the claim places the principle of good faith in the hands of respon-
dents. To that end, good faith can indeed play a principal or supportive role, either
through one of the good faith derivatives or simply as a complementary argument.
Investment protection is usually conditioned by the fulfillment of several criteria set
forth in applicable IIAs and other applicable treaties (e.g., ICSID Convention if the
arbitration is conducted in ICSID arbitration). These criteria are very often similar
and there is tendency of converging interpretation of identical or similar provisions,
but there is also a question whether there are generally applicable criteria which are
not necessarily spelled out in applicable treaties. All these considerations can
sometimes involve different aspects of good faith. For the purpose of discussion
on jurisdiction and admissibility, good faith can be relevant for either interpreting or
complementing existing requirements relevant for the consent of the State to arbi-
trate under applicable international agreements or for a variety of reasons relevant for
the admissibility of the claim. Here we shall explore the most common preliminary
issues which are in close connection with the good faith principle.
42
Rachel S Grynberg, Stephen M Grynberg, Miriam Z Grynberg, and RSM Production Corporation
v. Grenada, ICSID Case No. ARB/10/6, Respondent’s Objection under Rule 41(5) of the ICSID
Arbitration Rules, Decision (10 December 2010)
132 S. Djajić
Requirement of Legality and Good Faith

If investment is made in violation of the host State laws and regulations, this can in
turn imply that such investment is without protection granted by applicable IIAs. It
can also be argued that providing an illegal investment with international legal
protection would run contrary to the principle of good faith because per definition
such investments cannot be treated as good faith investments. The legality require-
ment (admission clause) is a common standard in IIAs. When this requirement is set
forth in applicable treaties, with the purpose to exclude unlawful investments from
the States’ obligations to protect,43 respondent States get certain leverage in invest-
ment proceedings and usually raise this issue at the preliminary stage with argument
that tribunals do not have jurisdiction over unlawful investments or that a claim
based on violation of domestic law are mala fide investments deprived of interna-
tional protection. Advantage of admission clauses is to exclude investments made in
violation of the host State laws and regulations, and in this respect, these clauses fall
to be assessed as preliminary issues with preliminary objections as a procedural tool.
However, post-investment illegality does not affect jurisdiction of investment tri-
bunals.44 Arguments of illegality usually involve charges of corruptive practices or
fraudulent behavior and if proven correct will strip the investment off the protection
and investment tribunal off jurisdiction.45
Legality requirement in relation to good faith can turn into several procedural
impediments. For example, if applicable IIA expressly provides for an admission
clause, i.e., if it requires investment to be made legally, respondent’s argument
against illegal investment is capable of removing the claim as incompatible with
the IIA but is usually accompanied by the good faith argument implying that
pursuing claim based on an illegal investment runs against the principle of good
faith. In such cases, the good faith principle is complementary but still a useful
argument because it points to the rationale of international investment protection
system. There are additional questions like whether a good faith can be read into the
domestic legality requirement and whether a good faith can be applied as a self-
standing standard even in absence of an admission clause. Is dishonesty, indepen-
dently of domestic legality requirement, capable of removing protection and thereby
jurisdiction of the tribunal? The investment tribunals seem to have divergent views
on this point.
43
Joubin-Bret A (2008) Admission and establishment in the Context of Investment protection. In:
Reinisch A (ed) Standards of investment protection. Oxford University Press, Oxford, pp 9–28, 27
44
Khan Resources Inc., Khan Resources B.V., CAUC Holding Company Ltd. v. The Government of
Mongolia, MonAtom LLC, An Arbitration under the Founding Agreement for the Creation of a
Company with Limited Liability, the Energy Charter Treaty, the Foreign Investment Law of
Mongolia, UNCITRAL, PCA Case No. 2011–09, Jurisdiction, Decision (25 July 2012), [380]–
[385] (hereinafter “Khan Resources v. Mongolia, Decision”)
45
Yackee JW (2012) Investment treaties and investor corruption: an emerging defense for host
states. Va J Int Law 52(3):723–745
For example, the Inceysa v. El Salvador tribunal found it lacked jurisdiction due
to the breach of good faith on behalf of the investor. It seems that the Inceysa tribunal
applied good faith as an autonomous standard:
[g]eneral principles of law are an autonomous and direct source of International Law, along
with international conventions and custom. (. . .) Based on the above, we analyze the
Inceysa’s investment in light of the general principles of law, which the Arbitral Tribunal
considers to be applicable to the case. (. . .) Good faith is a supreme principle, which governs
legal relations in all of their aspects and content. (. . .) The conduct mentioned above
constitutes an obvious violation of the principle of good faith that must prevail in any
legal relationship. (. . .) By falsifying the facts, Inceysa violated the principle of good faith
from the time it made its investment and, therefore, it did not make it in accordance with
Salvadoran law. Faced with this situation, this tribunal can only declare its incompetence to
hear Inceysa’s complaint, since its investment cannot benefit from the protection of the
BIT.46
Several tribunals followed the suit. In World Duty Free v. Kenya and Fraport v.
Philippines, the tribunals accepted the proposition that corruptive practices leave the
investment without protection, as such practices run contrary to international and
transnational public policy47 or admission clause in the applicable BIT affecting
jurisdiction ratione materiae.48
There are also cases which upheld the rule according to which investments made
in bad faith or in violation of host State laws would not deserve protection of
international law although preliminary objections were ultimately dismissed. In
Khan Resources v. Mongolia, the tribunal rejected the preliminary objection based
on claim that post-investment breach of local laws affected jurisdiction, but never-
theless upheld in principle the rule that investments made in bad faith would not pass
the preliminary stage even when the applicable treaty does not contain admission
clause, as the case is with the Energy Charter Treaty (ECT):
An investor who has obtained its investment in the host state only by acting in bad faith or in
violation of the laws of the host state, has brought him or herself within the scope of
application of the ECT only as a result of his wrongful acts. Such an investor should not
be allowed to benefit as a result, in accordance with the maxim nemo auditur propriam
turpitudinem allegans.49
46
Inceysa v. El Salvador, Award, [226], [229]–[230], [237], [239]
47
World Duty Free Company Limited v Kenya, Award, [157]
48
Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No.
ARB/03/25, Award (16 August 2007) (hereinafter “Fraport v. Philippines, Award”)
49
Khan Resources v. Mongolia, Decision, [383]. The similar position was undertaken by the tribunal
in the Hulley v. Russia, one of the Yukos cases. There the tribunal ruled that although the ECT does
not have clause with legality requirement, there still exists obligation of making legal and bona fide
investment in order to gain protection of the ECT (Hulley v. Russia, Final Award, [1352]). The
tribunal also found that such implicit good faith and legality requirement do not extend to the
performance but only to making of an investment. – Ibid., [1354]–[1356]
134 S. Djajić
Cortec v. Kenya tribunal also upheld the principle that only investments made in
good faith deserve protection but on the facts it found that charges of bribery,
corruption, or other forms of bad faith of the investor had not been proven “on a
balance of probabilities.”50 The similar was the position of Getma International et al
v. Guinea where the principle was upheld51 but the claim of corruption failed to
succeed on evidence.
In addition to bribery and corruption, investment tribunals were faced with other
claims of illegality together with bad faith. These claims can involve the lack of
permits52 or fraudulent behavior in making an investment. In Hamester v. Ghana, the
tribunal discussed allegations of fraud in initiation of the investment. Although these
allegations were not proven, the tribunal ruled that good faith is relevant for
jurisdiction53:
An investment will not be protected if it has been created in violation of national or

international principles of good faith; by way of corruption, fraud, or deceitful conduct; or
if its creation itself constitutes a misuse of the system of international investment protection
under the ICSID Convention. It will also not be protected if it is made in violation of the host
State’s law (. . .) These are general principles that exist independently of specific language to
this effect in the Treaty.54
Misrepresentations regarding the ownership of the investment equally raise the

issue of legality and good faith. Such misrepresentations were discussed in two
similar and connected cases, Europe Cement v. Turkey55 and Cementownia v.
50
Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v. Republic of
Kenya, ICSID Case No. ARB/15/29, Award (22 October 2018), [308]
51
“Le Tribunal arbitral est d’accord avec la Défenderesse que seuls les investissements légaux et
réalisés dans la bonne foi sont à protéger par l’arbitrage CIRDI et que le Tribunal arbitral doit se
déclarer incompétent s’il apparaît que l’investissement a été fait frauduleusement ou à la suite de
corruption.” – Getma International, NCT Necotrans, Getma International Investissements, NCT
Infrastructure & Logistique c. La Republique de Guinee, ICSID Case No. ARB/11/29, Award (16
August 2016), [174]
52
In Mamidoil v. Albania, the tribunal extensively discussed whether the claimant applied for and
was granted a set of necessary permits in order to assess whether there was a legal and bona fide
investment. The Mamidoil tribunal upheld the principle that only legal and good faith investments
were covered by the applicable treaties (BIT, ECT). Although it did find that majority of necessary
permits were neither applied for nor granted, it still found that these illegalities did not make the
whole investment illegal to the extent that would leave it without the protection of the applicable
agreements. The tribunal implied that such illegality was not finally settled because the Respondent
State did not sanction the construction without permits timely and still offered negotiations to
resolve the issue. See Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. Republic of
Albania, ICSID Case No. ARB/11/24, Award (30 March 2015), [289], [359], [492]–[495]
53
Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24,
Award (18 June 2010), [129]
54
Ibid., [122]–[123]
55
Europe Cement Investment & Trade SA v. Turkey, ICSID Case No. ARB (AF)/07/2, Award (13
August 2009) (hereinafter “Europe Cement v. Turkey, Award”)
Turkey,56 which actually involved the businesses of the same family, and were
decided within weeks. Misrepresentation consisted in presentation of false docu-
ments and information and thereby represented the false assertion of ownership of an
investment. The tribunal in Europe Cement v. Turkey dismissed the case for lack of
jurisdiction, and good faith played the major role to that end:
In the present case, there was in fact no investment at all, at least at the relevant time, and the
lack of good faith is in the assertion of an investment on the basis of documents that
according to the evidence presented were not authentic. The Claimant asserted jurisdiction
on the basis of a claim to ownership of shares, which the uncontradicted evidence before the
Tribunal suggests was false. Such a claim cannot be said to have been made in good faith.57
In Cementownia, the claimants failed to produce original share certificates

evidencing its shareholdings, submitted inconsistent evidence, and engaged in
procedural misconduct. As there was no evidence of investment, just like in Europe
Cement, and that the award in Europe Cement had already been adopted, claimants
in Cementownia moved to request decision for the lack of jurisdiction without
prejudice. However, the tribunal refused the claim and made an additional step in
safeguarding the good faith principle – it dismissed the case with prejudice not only
for the failure of claimants to prove ownership or control of the investment but also
because “the Claimant’s claim is fraudulent and was brought in bad faith.”58 The
good faith principle here serves as the sole ratio decidendi in the operative part of the
award even in the absence of any express legality requirement in the applicable ECT.
The Cementownia tribunal placed good faith principle on a new level, and its
application resulted in a decision with res judicata effect preventing claimants to
pursue their claim ever again.59
However, there were tribunals which rejected the application of the good faith
principle as implied condition for legality. In Saba Fakes v. Turkey, the tribunal
refused to follow the proposition that the good faith requirement is an implied term
of Article 25(1) of the ICSID Convention.60 Metal-Tech v. Uzbekistan followed this
56
Cementownia “Nowa Huta” SA v. Republic of Turkey, ICSID Case No. ARB (AF)/06/2, Award
(17 September 2009 (hereinafter “Cementownia v. Turkey, Award”)
57
Europe Cement v. Turkey, Award [175]
58
Cementownia v. Turkey, Award [179]
59
Ibid., [162]
60
“Likewise, the principles of good faith and legality cannot be incorporated into the definition of
Article 25(1) of the ICSID Convention without doing violence to the language of the ICSID
Convention: an investment might be “legal” or “illegal,” made in “good faith” or not, it nonetheless
remains an investment. The expressions “legal investment” or “investment made in good faith” are
not pleonasms, and the expressions “illegal investment” or “investment made in bad faith” are not
oxymorons.
While a treaty should be interpreted and applied in good faith, this is a general requirement under
treaty law, from which an additional criterion of “good faith” for the definition of investments,
which was not contemplated by the text of the ICSID Convention, cannot be derived.” – Saba Fakes
v. Republic of Turkey, ICSID Case No. ARB/07/20, Award (14 July 2010) [112]–[113]
136 S. Djajić
rationale and held that good faith is not an element of the objective definition of
investment under Article 25(1) the ICSID Convention.61 Similarly, in Bear Creek v.
Peru, the tribunal refused to imply the condition of a good faith investment in
applicable IIA: “the Tribunal does not consider that the alleged good faith of the
investor is a further condition under the FTA for the jurisdiction of the Tribunal.”62
Tribunals have had different approaches as to how to incorporate the rule of good
faith within the legality requirement. Good faith of an investment, standing alone or
in conjunction with domestic legality, has usually been framed as issue of jurisdic-
tion: ratione voluntatis,63 ratione materiae,64 just jurisdiction,65 or as a genuine bar
to jurisdiction for fraudulent claims.66 Given that legality requirement subsuming the
good faith principle is related to the definition of the covered investments, it makes
sense to have this requirement entertained as a jurisdictional issue. However, the
potential of good faith exceeds the framework of jurisdiction, even for preliminary
stage of the proceedings as will be illustrated in the following sections.
Abuse of Process and Investment Treaty System: Investment

Restructuring, Nationality Requirement, and Parallel Proceedings
Good faith as a preliminary issue that has been mostly in focus is whether the
claimant is entitled to seek international protection under applicable treaties even
if all formal conditions are met at the time the proceedings are launched. In other
words, if formal conditions were secured only to gain access to international
protection that would otherwise be unavailable, is the engineering of formal condi-
tions contrary to the principle of good faith? Are investment tribunals empowered to
conduct judicial review of the right to access investment treaty system beyond
textual and formal requirements? Difference between legality requirement and
abuse of process lies in the fact that in the first case, the investment is made in
violation of domestic law and/or good faith which consequently denies the lawful-
ness of international protection, while in the second case, there is no illegality per se,
and transactions may have legal effect under domestic law, but the issue is whether
the intent behind transactions reveals the abuse of the system. In other words, the
question is whether there could be international illegality despite domestic
lawfulness.
The function of good faith principle here is to prevent the abuse of the system.
Sometimes it is referred to as the abuse of investment treaty system, abuse of right, or
abuse of process, but in reality all these terms refer to the same phenomenon. As
61
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013),
[126]–[127]
62
Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award (30
November 2017), [321]
63
Inceysa v. El Salvador, Award, [144]
64
Fraport v. Philippines, Award, [401]
65
Europe Cement v. Turkey, Award, [145]
66
defined by Ceretelli, “the legal notion of abuse of right is based on two pillars: the
formal entitlement of the acting subject and the improper purpose achieved through
the material conduct.”67 The abuse of right or of international investment treaty
system is usually invoked in relation to mala fide restructuring of an investment,
abuse of foreign nationality, or conducting parallel proceedings for essentially the
same claim. Such an abuse of process is concomitant to the so-called “treaty
shopping” phenomenon.68
Investment or corporate restructuring denotes the change of nationality of the
investor with a view of gaining protection of a particular treaty, which is a common
practice and as such is not illegal. However, if the restructuring is done for the sole
purpose of gaining the access to arbitration, which was foreclosed or less promising
under the original nationality, and only after the breach has been in place or
foreseeable, such a maneuver can amount to abuse and thereby represent the breach
of the good faith principle. Given that the good faith is a principle, it follows that it is
embedded in the investment protection system which should be protected from the
abuse.
Therefore, the main question is when the corporate or investment restructuring
amounts to the abuse of process and how such an abuse affects access to arbitration.
For the discussion here, it is relevant to see how the good faith works in terms of
substantive and procedural rules and how tribunals process the principle of good
faith through the abuse of process.
The landmark case here is the Phoenix v. Czech Republic where the tribunal denied
jurisdiction on the basis of the abuse of the system of international ICSID investment
arbitration. The manipulation was conducted through a rearrangement of assets within
a family that included the transfer of ownership over two Czech companies to a new
company Phoenix Ltd. established in Israel only after the Czech companies had
already been embroiled in a series of domestic proceedings. The ICSID tribunal did
not have difficulty to find that there was an abuse of corporate structure of Phoenix
which was set up solely for the purpose of gaining access to international protection
under Israel-Czech BIT. The Phoenix decision is relevant not only for finding that
diversity of nationalities is not necessarily a natural consequence of doing business
globally but also because the principle of good faith was applied as autonomous
standard69 and as an independent condition for jurisdiction:
67
Ceretelli C (2020) Abuse of process: an impossible dialogue between ICJ and ICSID tribunals? J
Int Dispute Settlement 11(1):47–68, 77
68
See, e.g., Chaisse J (2015) The issue of treaty shopping in international law of foreign investment
– structuring (and restructuring) of investments to gain access to investment agreements. Hastings
Bus Law Rev 11(2):225–306.
69
“The importance of the Phoenix decision lies in its application of the sole international legal
principle of ‘good faith’ outside the formal context of the question whether the investment was in
accordance with the national laws of the host State.” – De Brabandere E (2012) ‘Good Faith’,
‘Abuse of Process’, and the initiation of investment treaty claims. J Int Dispute Settlement 3(3):609-
636, 625
138 S. Djajić
In the Tribunal’s view, States cannot be deemed to offer access to the ICSID dispute settlement
mechanism to investments not made in good faith. The protection of international investment
arbitration cannot be granted if such protection would run contrary to the general principles of
international law, among which the principle of good faith is of utmost importance.70
Tribunal is concerned here with the international principle of good faith as applied to the
international arbitration mechanism of ICSID. The Tribunal has to prevent an abuse of the
system of international investment protection under the ICSID Convention, in ensuring that
only investments that are made in compliance with the international principle of good faith
and do not attempt to misuse the system are protected.71
Phoenix decision certainly left its mark and opened the door for application of the
good faith principle against malevolent corporate restructuring aimed at gaining
access to international protection system. Therefore, despite the fact that applicable
treaties are silent on pre-arbitration maneuvers, which per se may be perfectly legal,
tribunals still have decided not to be blind for legal fictions thus created.
ST-AD v. Bulgaria72 tribunal followed the script of the Phoenix award as circum-
stances were quite similar. After the ST-AD v. Bulgaria tribunal had established that
the main purpose for the acquisition of the shares by the claimant was to open the
possibility for a recourse to international arbitration, where the acquisition took place
following the events giving rise to the alleged breach of the applicable IIA, the
tribunal concluded that this was investment made in bad faith. The tribunal con-
cluded that this attempt of manufacturing jurisdiction represents “manipulation of
the international arbitral mechanism”73 and consequently denied jurisdiction on the
basis of abuse of rights.74 As to the powers of the tribunal to protect good faith
principle, the tribunal opined:
It is the duty of the Tribunal not to protect such an abusive manipulation of the system of
international investment protection. It is indeed the Tribunal’s view that to accept jurisdiction
in this case would go against the basic objectives underlying bilateral investment treaties.75
In Gremcitel v. Peru,76 the tribunal equally sanctioned mala fide restructuring as

an abuse of process finding that the tribunal was precluded from exercising juris-
diction over the dispute. The similar rationales also led the tribunal in Philip Morris
v. Australia case to find claims inadmissible precluding the tribunal to exercise
jurisdiction. Here the reasoning clarified the conditions for an abuse of rights: “the
Tribunal cannot but conclude that the initiation of this arbitration constitutes an
70
Phoenix v The Czech Republic, Award, [106]
71
Ibid., [113]
72
ST-AD GmbH (Germany) v. The Republic of Bulgaria, UNCITRAL, PCA Case No. 2011-06 (ST-
BG), Award on Jurisdiction (18 July 2013) (hereinafter “ST-AD v. Bulgaria, Award on Jurisdiction”)
73
Ibid., [422]
74
Ibid., [431] (operative part of the Award)
75
Ibid., [423]
76
Renée Rose Levy and Gremcitel S.A. v. Peru, ICSID Case No. ARB/11/17, Award (9
January 2015)
abuse of rights, as the corporate restructuring by which the Claimant acquired the
Australian subsidiaries occurred at a time when there was a reasonable prospect that
the dispute would materialise and as it was carried out for the principal, if not sole,
purpose of gaining Treaty protection.”77 In Transglobal Green v. Panama, jurisdic-
tion was denied on the ground of “abuse of the investment treaty system.”78
The abuse of process within international investment system has taken root and
gained the status of autonomous concept. However, for the abuse of process to be
applicable, certain conditions need to be met: timing of restructuring that occurs after
the dispute had already come into existence or become foreseeable and that such
restructuring was undertaken with the main or sole purpose of gaining access to
international arbitration.79 In other words, it seems that restructuring for getting
better international protection before any dispute or breach is in view is perfectly a
legitimate action of investors and will not be penalized by investment tribunals. This
was exactly the rationale of Mobil v. Venezuela80 where it was found that reorgani-
zation and change of nationality with the purpose of getting access to all benefits of
another BIT was legitimate and cannot lead to deprivation of protection provided by
the BIT.81 The same line of reasoning was adopted by a number of tribunals which
ultimately upheld jurisdiction having found that restructurings were not performed
mala fide (Pac Rim v. El Salvador,82 Tidewater v. Venezuela,83 Conoco Phillips v.
Venezuela,84 Cervin Investissements v. Costa Rica85).
77
Philip Morris Asia Ltd. v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012–
12, Award on Jurisdiction and Admissibility (17 December 2015) [588]
78
Transglobal Green Energy de Panama, SA v The Republic of Panama, ICSID Case No ARB/12/
28, Award (2 June 2016)
79
Ceretelli C (2020) Abuse of process: an impossible dialogue between ICJ and ICSID tribunals? J
Int Dispute Settlement 11(1):47–68, at 54–55
80
Mobil Corporation, Venezuela Holdings, B.V., Mobil Cerro Negro Holding, Ltd., Mobil
Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de
Petróleos, Inc., ICSID Case No. ARB/07/27, Decision on Jurisdiction (10 June 2010) (hereinafter
“Mobil v. Venezuela, Decision on Jurisdiction”)
81
“As stated by the Claimants, the aim of the restructuring of their investments in Venezuela through
a Dutch holding was to protect those investments against breaches of their rights by the Venezuelan
authorities by gaining access to ICSID arbitration through the BIT. The Tribunal considers that this
was a perfectly legitimate goal as far as it concerned future disputes.” – Mobil v. Venezuela, Decision
on Jurisdiction, [204]
82
Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on
Jurisdictional Objections (1 June 2012)
83
Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., Twenty Grand Offshore, L.L.
C., Point Marine, L.L.C., Twenty Grand Marine Service, L.L.C., Jackson Marine, L.L.C. and
Zapata Gulf Marine Operators, L.L.C. v. The Bolivarian Republic of Venezuela, ICSID Case No.
ARB/10/5, Decision on Jurisdiction (8 February 2013)
84
ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V., and ConocoPhillips Gulf of Paria
B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and
Merits (3 September 2013)
85
Cervin Investissements SA & Rhone Investissements SA v Republic of Costa Rica, ICSID Case No.
ARB/13/2, Decision on Jurisdiction (15 December 2014)
140 S. Djajić
These fine distinctions leave tribunals with task to scrutinize the timing of
restructuring and motives for the choice of particular IIA. Every restructuring and
change of nationality in the course of an investment does give rise to concerns and
should trigger scrutiny by the tribunal. Differences between the two groups of cases
seem to be factual since all tribunals unequivocally confirmed the autonomous and
binding character of doctrine of abuse of process for assessing jurisdiction and
admissibility of claims.86
All previous cases examined the abuse of rights/process from the perspective of
change of nationality regardless of whether the change (restructuring) was from
nationality of the host State to foreign nationality or from one foreign nationality to
another. The change per se was not illegal, but the purpose behind this maneuver was
found to be contrary to good faith. There seems to be room for another discussion on
good faith within the same framework: are national investors allowed to internation-
alize their investments and thereby obtain international protection that otherwise
would be even theoretically unavailable? It is common knowledge that organizing a
company in another jurisdiction is not insurmountable impediment. As explained by
Gaillard: “The permissive terms of investment treaties and the relatively low costs of
incorporating a subsidiary abroad or migrating to another jurisdiction has enabled
some companies to push the boundaries of legitimate investment protection in the
event of a dispute with a host State.”87 Although national investors-turned interna-
tional are likely to be banned from investment arbitration if they make such
reorganization after the dispute has arisen, the question here is different: why
would national investors be allowed to create artificial link with another jurisdiction,
where no effective seat, place of business, or economic activity exists. Does not such
maneuver raise suspicion at least in terms of motives and good faith?
This issue was raised alone or in combination with the requirements generally
applicable for the abuse of process doctrine. As for the first scenario, such challenge
was raised in Tokios Tokel_es v. Ukraine,88 Rompetrol v. Romania,89 and TSA
Spectrum v. Argentina.90 The issue was whether the system of international
86
There seems to be difference among the tribunals whether it is the jurisdiction that is being denied
(jurisdictional issue) or that jurisdiction exists, but the tribunal is precluded to exercise it (admis-
sibility issue). While this discussion may not have much practical relevance, it still can be useful to
note opinion of the Pac Rim tribunal on the issue: “the Tribunal has noted that the Respondent’s
jurisdictional objection based on Abuse of Process by the Claimant does not, in legal theory, operate
as a bar to the existence of the Tribunal’s jurisdiction; but, rather, as a bar to the exercise of that
jurisdiction, necessarily assuming jurisdiction to exist.” – Pac Rim Cayman LLC v. Republic of El
Salvador, ICSID Case No. ARB/09/12, Decision on Jurisdictional Objections (1 June 2012), [2.10]
87
Gaillard E (2017) Abuse of process in international arbitration. ICSID Rev 32(1):17–37, 30
88
Tokios Tokel_es v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction (29 April 2004)
(hereinafter “Tokios Tokel_es v. Ukraine, Decision on Jurisdiction”)
89
The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision on Jurisdiction and
Admissibility (18 April 2008) (hereinafter “Rompetrol v. Romania, Decision on Jurisdiction and
Admissibility”)
90
TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, Award (19
December 2008)
protection that aims at securing inflow of foreign investments in return for legal
security by host States is meant to be available to national investors, too. In Tokios
Tokel_es, Ukraine challenged the right of the Lithuanian company to bring the case
because it was wholly owned by Ukrainian nationals who would not enjoy the BIT
protection and access to the ICSID system. As Article 25 of the ICSID Convention
provides protection only to foreign investors, it follows that the claimant was not a
“genuine” investor. Ukraine requested the tribunal to pierce the corporate veil,
establish the abuse of legal personality, and deny jurisdiction. The tribunal opted
for the textual approach to the terms of the BIT and declined to impose restrictions
not expressly agreed upon.91 The tribunal relied on the fact that the claimant
company had been established six years before the BIT entered into force.92 The
rationale was thus similar to decisions on the abuse of process which relied on the
timing of restructuring, but the main question remained unanswered – whether the
system is open for national investors and whether the issue of abuse could also arise
in this context. The presiding arbitrator dissented from the majority decision and
employed good faith argumentation: “What is decisive in our case is the simple,
straightforward, objective fact that the dispute before this ICSID Tribunal is not
between the Ukrainian State and a foreign investor but between the Ukrainian State
and an Ukrainian investor—and to such a relationship and to such a dispute the
ICSID Convention was not meant to apply and does not apply.”93
Several other tribunals followed the same rationale.94 For example, the Rompetrol
v. Romania tribunal shared the similar formalistic approach and refused to decline
jurisdiction for the lack of effective foreign nationality: “[t]he Tribunal accordingly
finds that neither corporate control, effective seat, nor origin of capital has any part to
play in the ascertainment of nationality under The Netherlands-Romania BIT, and
that the Claimant qualifies as an investor entitled to invoke the jurisdiction of this
Tribunal by virtue of Article 1(b)(ii) of the BIT.”95 The tribunal equally rejected
another Romania’s good faith argument according to which the Romanian nationals
were abusing the system in order to force Romania to terminate criminal investiga-
tions against owners of the claimant. This would not be the last case with such
91
“This method of defining corporate nationality is consistent with modern BIT practice and
satisfies the objective requirements of Article 25 of the Convention. We find no basis in the BIT
or the Convention to set aside the Contracting Parties’ agreed definition of corporate nationality
with respect to investors of either party in favor of a test based on the nationality of the controlling
shareholders. While some tribunals have taken a distinctive approach, we do not believe that
arbitrators should read in to BITs limitations not found in the text nor evident from negotiating
history sources.” – Tokios Tokel_es v. Ukraine, Decision on Jurisdiction [52]
92
Ibid., [56]
93
Dissenting opinion of Prosper Weil, [21] (emphasis original) – Tokios Tokel_es v. Ukraine,
Decision on Jurisdiction
94
Aguas del Tunari SA v. Bolivia ICSID Case No. ARB/02/3, Decision on Respondent’s Objections
to Jurisdiction (21 October 2005); ADC v. Hungary, ICSID Case No. ARB/03/16, Award (2 October
2006); Saluka v. Czech Republic, UNCITRAL, PCA Case No. 2001-04, Partial Award (17
March 2006)
95
Rompetrol v. Romania, Decision on Jurisdiction and Admissibility [110]
142 S. Djajić
approach.96 In the absence of strict exclusion clauses regarding the nationality of

investor or denial of benefits clause, the tribunals were willing to accept formal
foreign nationality as valid even when national investors continued to have the host
State nationality as the effective one in terms of ownership, place of business, and
main economic activity.97
However, in TSA Spectrum v. Argentina, the tribunal turned the tide and reached
for object and purpose of the applicable IIA to define who is entitled to the ICSID
procedural mechanism. The TSA Spectrum tribunal pierced the corporate veil in
order to establish the real and effective control that turned out to be with the national
of the host State, which ultimately prevented the claimant to benefit from the ICSID
protection on the basis of Article 25 of the ICSID Convention. Notably good faith
and abuse of process were not expressly relied upon by the tribunal as it conserva-
tively used the teleological approach to exclude the benefits of the applicable IIA for
host State nationals.
These cases illustrate that discussion was about the legal relevance of the princi-
ple of good faith and existence of the rule that could potentially bar nationals of the
host State to be ultimate beneficiaries of the system which does not seem to be
established for this particular purpose. All tribunals showed reluctance. Even in TSA
Spectrum v. Argentina, the good faith reference was avoided although it must have
been in the back of arbitrators’ minds. It may come as a surprise that there is a such
strong restraint to rule on the abuse of foreign “corporation of convenience” by host
State nationals when the rationale of the system as explained in cases regarding the
abuse of process through restructuring could work equally well even for pre-dispute
nationality swaps aimed at internationalization of investments. Several tribunals
were ready to make an extra step in preventing the abuse of the system, and such
step could also be based on good faith considerations for piercing the foreign
corporate veil and for examining the legitimacy of foreign shell companies. Some
of the findings of these tribunals are actually quite apposite: “The Tribunal has to
ensure that the BIT mechanism does not protect investments that it was not designed
to protect, that is, domestic investments disguised as international investments or
domestic disputes repackaged as international disputes for the sole purpose of
gaining access to international arbitration.”98
Abuse of process within international investment arbitration may arise in relation to
“multiplication of arbitral proceedings in order to maximize chances for success.”99
Complex investments are usually organized through corporate chains linked to several
jurisdictions which opens up possibility of using several applicable IIAs and thereby
different dispute settlement options. Diverse options which may be at disposal for
96
E.g. KT Asia Investment Group BV v Kazakhstan, ICSID Case No. ARB/09/8, Award (17
October 2013)
97
Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on
Jurisdiction (30 November 2018), [153]–[154]
98
ST-AD v. Bulgaria, Award on Jurisdiction [423]
99
direct and indirect investors may be put into operation simultaneously, where each
case will be seemingly different due to different IIAs and formally different claimants
but would actually represent the same dispute. If such tactics is being employed
abusively, in order to enhance probability of securing the relief, the good faith
principle could come into play to remedy the potential distortion of the system.
It seems that the trend of parallel arbitrations has picked up the pace in investment
arbitration recently, but it is not without some history. Lauder v. Czech Republic and
CME v. Czech Republic represent landmark example of parallel proceedings pursued
under different IIAs for essentially the same dispute. After the CME’s investment in
the Czech Republic failed, two cases were launched simultaneously, by CME itself
under the Dutch-Czech BIT and by Ronald Lauder, the owner of CME, under the
USA-Czech BIT. The compensation sought was in each case for the same conduct of
the Czech Republic and on the basis of the same facts – interference of the media
agency with the television broadcaster owned by CME. However, this multi-arbi-
tration strategy was not qualified as abuse of process by either tribunal.100 Although
the investor failed in one of these cases, this fact did not diminish the success in the
other where his company obtained full compensation. This is a good illustration of
all advantages opened by multiple options for forum shopping especially when they
are all put into operation simultaneously.
The issue of abuse was also raised in two cases discussed above (Europe Cement
v. Turkey and Cementownia v. Turkey) as the claimants were held and controlled by
the same family. While the claims in both arbitrations were dismissed on different
good faith grounds, for failure to prove the existence of an investment, the abuse of
process in launching multiple proceedings was also an imminent issue that the
Cementownia tribunal addressed with a formal declaration preventing the claimant
from filing the claim before other international jurisdictions.101
As of recently, there seems to be at least acknowledgment that launching several
proceedings to resolve the same dispute could potentially be abusive and as such
inadmissible. In Ampal v. Egypt, the tribunal cautiously conceded that “double
pursuit of the same claim in respect of the same interest” could be the abuse of
process. However, at the same time, the tribunal found that abuse of process did not
100
“174. Even assuming that the doctrine of abuse of process could find application here, the
Arbitral Tribunal is the only forum with jurisdiction to hear Mr. Lauder’s claims based on the Treaty.
The existence of numerous parallel proceedings does in no way affect the Arbitral Tribunal’s
authority and effectiveness, and does not undermine the Parties’ rights. On the contrary, the present
proceedings are the only place where the Parties’ rights under the Treaty can be protected.
175. Therefore, the Arbitral Tribunal holds that the seeking of the same remedies in a different
fora does not preclude it from having jurisdiction in the present proceedings.” - Ronald S. Lauder v.
The Czech Republic, UNCITRAL, Final Award (3 September 2001) [174]–[174]
CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Partial Award (13 September
2001) [412]
101
144 S. Djajić
involve the bad faith of the claimants.102 The remedy for this “good faith” abuse of
process was the invitation of the tribunal to the claimants to continue pursuit of the
contested claim in that ICSID arbitration or to make their choice by the set dead-
line.103 Claimants then requested the extension of time before definitively making
such an election in order “to obtain confirmation from the UNCITRAL tribunal that
it has decided to dismiss all of Egypt’s objections to jurisdiction and admissibil-
ity.”104 The extension was indeed granted, and after the concurrent UNCITAL
tribunal confirmed jurisdiction, the claimants elected the ICSID arbitration with
respect to the claim identified as concurrently pursued. Interestingly, the
UNCITRAL tribunal issued certificate to confirm the withdrawal of the disputed
claim.105 Solution for the potentially abusive parallel proceedings was beneficial for
the claimants, but its beneficial effects for the investment treaty system are in doubt.
In the most recent case, the things have changed dramatically by denying
admissibility to duplicative proceedings. In Orascom v. Algeria, the controlling
shareholder caused two of its subsidiaries in the chain to bring different arbitrations
under different IIAs, while the third arbitration was initiated in his own name, all in
relation to the same dispute. The Orascom tribunal dismissed the claim as inadmis-
sible on the ground of abuse of process:
[T]he Claimant availed itself of the existence of various treaties at different levels of the
vertical corporate chain using its rights to treaty arbitration and substantive protection in a
manner that conflicts with the purposes of such rights and of investment treaties. For the
Tribunal, this conduct must be viewed as an abuse of the system of investment protection,
which constitutes a further ground for the inadmissibility of the Claimant’s claims and
precludes the Tribunal from exercising its jurisdiction over this dispute.106
The relevance of Orascom award in upholding yet another derivative of the good
faith principle within admissibility criteria can hardly be overstated. Manipulative
multiplication of arbitrations launched for essentially the same harm may have several
negative repercussions not only for the system but also for States where substantive
102
“In the Tribunal’s opinion, while the same party in interest might reasonably seek to protect its
claim in two fora where the jurisdiction of each tribunal is unclear, once jurisdiction is otherwise
confirmed, it would crystallize in an abuse of process for in substance the same claim is to be
pursued on the merits before two tribunals. However, the Tribunal wishes to make it very clear that
this resulting abuse of process is in no way tainted by bad faith on the part of the Claimants as
alleged by the Respondent. It is merely the result of the factual situation that would arise were two
claims to be pursued before different investment tribunals in respect of the same tranche of the same
investment.” – Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID
Case No. ARB/12/11, Decision on Jurisdiction (1 February 2016) [331]
103
Ibid., [339], [346e]
104
Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No.
ARB/12/11, Decision on Liability and Heads of Loss (21 February 2017) [11]
105
Ibid., [22]
106
Orascom TMT Investments S.à r.l. v. People’s Democratic Republic of Algeria, ICSID Case No.
ARB/12/35, Final Award (31 May 2017), [545]
time and resources are necessarily at stake. Here the tribunal upheld the autonomous
character of the abuse of process in relation to parallel proceedings which now serves
as a separate inadmissibility ground. Departing from the rationale of Lauder and CME
cases and in reference to them, the Orascom tribunal clearly articulated how and why
good faith considerations can be engaged in arbitral decision-making:
Moreover, it cannot be denied that in the fifteen years that have followed those cases, the
investment treaty jurisprudence has evolved, including on the application of the principle of
abuse of rights (or abuse of process), as was recalled above. The resort to such principle has
allowed tribunals to apply investment treaties in such a manner as to avoid consequences
unforeseen by their drafters and at odds with the very purposes underlying the conclusion of
those treaties.107
Good Faith Argument at the Merits Stage: Balancing Competing

Interests
Ponce and Cevallos rightly argued: “In investment arbitration, good faith is a funda-
mental element, for a variety of reasons. To begin with, the principle permeates into
every aspect of the relationship between a foreign investor and a host State. . .”108
Merits stage of an investment proceedings well illustrates this point. Arguments relying
on this principle seem to be equally shared by both claimants and respondents in
relation to substantive obligations and procedural matters. Needless to say, the main
principle of treaty interpretation envisaged in Article 31(1) of the Vienna Convention of
the Law of Treaties (1969) mandates interpretation in good faith. Interpretative function
of the good faith principle is considered to be one of its most important functions in
international investment law. According to Emily Sipiorski, “The principle of good
faith allows the treaty to be expressed and applied in light of a broader, contextual
focus.”109 There are several interpretative functions of the good faith: gap-filling,
legitimizing/balancing, and connecting function.110 Its balancing function is manifested
not only in frequent references to the principle by both parties but also in the ability of
the good faith to serve both as entitlement and limitation. Also, application of good faith
at this stage of the proceeding “allows the possibility of avoiding all-or-nothing
outcome scenarios.”111 In this section, the good faith principle balancing function
will be illustrated through substantive and procedural norms applied at the merits stage.
107
Ibid., [547]
108
Ponce JE, Cevallos RA (2016) Good faith in investment arbitration. Transnatl Dispute Manage
13(5): 1–36, 35. www.transnational-dispute-management.com/article.asp?key¼2388
109
Sipiorski E (2020) Introducing good faith in international investment law. Investment claims.
Oxford University Press, [1.41]. http://oxia.ouplaw.com https://oxia.ouplaw.com/view/10.1093/
law/9780198826446.001.0001/law-9780198826446-chapter-1
110
Ibid., [1.42]–[1.48]
111
Tanzi A (2018) The relevance of the foreign investor’s good faith. In: Gattini A, Tanzi A,
Fontanelli F (eds) General principles of law and international investment arbitration. Brill Nijhoff,
Leiden/Boston, p 211, Chap 10
146 S. Djajić
Good Faith as a Substantive Rule of International Investment Law

Complexity and diversification of the good faith as a substantive principle is
manifested within substantive guarantees of IIAs in general and in the fair and
equitable treatment (FET) in particular. Good faith will be mostly discussed within
the substantive guarantees of IIAs and as a possible ground of State responsibility.
This asymmetry is at odds with the balancing function of the good faith principle, but
still some authors use the good faith to justify its use for interpretation of host State
obligations.112 Most notably, it is the fair and equitable treatment standard that is
most often connected with the good faith principle.113 A number of investment
tribunals shared this view and incorporated the good faith principle within the FET
standard.114 Here the good faith represents entitlement within a standard clause
of IIAs.
Good faith may be understood as a general obligation of the host State under the
FET standard.115 Draguyev identifies several fact patterns that investment tribunals
qualified as bad faith conduct in breach of FET: political engineering, conspiracy,
abuse of power, denial of justice, coercion and harassment, and corruption.116 There
are several derivatives of the substantive good faith obligations of States, primarily
obligation to respect investor’s legitimate expectations. IIAs do not expressly incor-
porate the concept of legitimate expectations, but nevertheless it has been firmly
established as one of the protective mechanisms and actionable privileges of foreign
112
“In part, this emphasis on good faith reflects the fundamental significance of the concept for the
understanding of all obligations in international law. More specifically, however, the subject matter
of the field itself may direct tribunals to apply the principle, in view of the long-term relationship in
which the investor provides most of the required resources at the outset of the project expecting to
receive a fair return in a stable relationship within the legal order of the host state thereafter. The
financial long-term risk of the investor finds its legal corollary in the protection of good faith
without which investment flows would be hampered.” Dolzer R, Schreuer C (2008) Principles of
international investment law. Oxford University Press, Oxford, 5
113
Dolzer R (2005) Fair and equitable treatment: a key standard in investment treaties. Int Lawyer
39(1):87–106, 90
114
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7,
Award (25 May 2004), [109]; Siemens A.G. v. the Argentine Republic, ICSID Case No. ARB/02/8,
Award (6 February 2007), [308]; Sempra Energy International v. Argentine Republic, ICSID Case
No. ARB/02/16, Award (28 September 2007) [297]; Waguih Elie George Siag and Clorinda Vecchi
v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award (1 June 2009), [450] (herein-
after: “Siag and Vecchi v. Egypt, Award”); Ioan Micula, Viorel Micula, S.C. European Food S.A, S.
C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No ARB/05/20, Award (11
December 2013) [831]–[834]; Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao
Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award (8
December 2016), [621] (hereinafter: “Urbaser et al. v. Argentina, Award”). See Qian X (2020)
Rethinking judicial discretion in international adjudication. Conn J Int Law 35(2):251–310.
115
“[B]ad faith acts of States comprise an autonomous type of per se violation of the ‘fair and
equitable treatment’ standard under various international law instruments.” – Draguyev D (2014)
Bad faith conduct of states in violation of the ‘fair and equitable treatment’ standard in international
investment law and arbitration. J Int Dispute Settlement 5(2):273–305, 273
116
Ibid., 285–300
investors. As it assumes reliance, either in general manner or with respect to more

particular assurances and promises, the concept of legitimate expectations clearly
rests on honesty, mutual trust, respect, and loyalty. Several tribunals upheld the
connection between the legitimate expectations and good faith117 that was met with
some criticism.118 Broad range of commitments and types of State conduct can fall
within the ambit of legitimate expectations, from contractual commitments, more or
less general unilateral representations, to right to a stable regulatory framework.119
One of the questions is whether a legal standard, such as FET, can be served well
by “the most general principle” to make the FET standard readily and predictably
applicable.120 Another question is whether good faith, and legitimate expectations as
its corollary, permit constitution of obligations without quid pro quo which is
inherent to its balancing function. This intrinsically harmonizing function of good
faith means that expectations cannot be assessed solely on the basis of subjective
perceptions of investors121 imposing far-reaching obligations for host States. In
other words, legitimate expectations and fair and equitable treatment necessarily
need counterbalancing which indeed may take several forms.
Balancing competing interests has taken different forms and rationales. For
example, for some the very notion of legitimate expectations and FET assumes
intra-norm balancing – expectations can be assessed only in relation to and in return
of state’s expectations, taking into account certain margin of flexibility and particular
117
Tecnicas Medioambientales Tecmed v. United Mexican States, ICSID Case No. ARB (AF)/00/2,
Award (29 May 2003) [153]; Saluka Investments B.V. (the Netherlands) v. Czech Republic,
UNCITRAL, PCA, Partial Award (17 March 2006) [301]–[302]; International Thunderbird Gam-
ing Corporation v. United Mexican States, NAFTA/UNCITRAL, Award (26 January 2006) [147];
Total S.A. v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability (27 December 2010),
[111]; Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1,
Award (22 September 2014), [576]
118
“The good faith origin does not provide a credible explanation of the term ‘legitimate expecta-
tions’.” – Sornarajah M (2015) Resistance and change in the international law on foreign invest-
ment. Cambridge University Press, Cambridge, 260
119
See Potestà M (2013) Legitimate expectations in investment treaty law: understanding the roots
and the limits of a controversial concept. ICSID Rev 28(1):88–122
120
“Good faith is, of course, of great systemic importance in international law, but that does not
mean that assertions about the existence of principles or rules derived from it have to be accepted
without satisfying the usual law-making criteria, or that such assertions have to be preferred over
principles or rules that have satisfied those criteria.” Paparinskis M (2015) Good faith and fair and
equitable treatment in international investment law. In: Mitchell AD, Sornarajah M, Voon T (eds)
Good faith and international economic law. Oxford University Press, New York, p. 171, Chap 7
121
“Legitimate expectations cannot be solely the subjective expectations of the investor. They must
be examined as the expectations at the time the investment is made, as they may be deduced from all
the circumstances of the case, due regard being paid to the host State’s power to regulate its
economic life in the public interest.” – EDF (Services) Ltd v. Romania, ICSID Case No ARB/05/
13, Award (8 October 2009), [219]
148 S. Djajić
circumstances122 including economic and political environment in developing coun-

tries and countries in transition.123 Without such considerations, “[s]ometimes, the
description of what FET implies looks like a programme of good governance that no
State in the world is capable of guaranteeing at all times.”124 Consideration of
inherent or intra-norm reciprocity has been a slow trend with varying results but
still represents a welcoming dynamic of the legitimate expectations concept as it
encapsulates the very balancing nature of the good faith principle.
Another counterbalancing instrument is the application of good faith as an
autonomous defense which may possibly outweigh the unlawfulness of the measure:
“legitimate governmental policies may exonerate a State from liability for FET
breaches.”125 For example, in GAMI v. Mexico, the tribunal formulated the following
principle: “Proof of a good faith effort by the Government to achieve the objectives
of its laws and regulations may counter-balance instances of disregard of legal or
regulatory requirements.”126
Good faith can also function as a more proactive autonomous defense when
respondent State relies on abuse of process, clean hands doctrine, misrepresenta-
tions, or inconsistent behavior of the investor to challenge the claim and oppose the
decision in favor of the investor. As Muchlinski explains: “Thus it is said that the
person who comes to equity must do equity and that the person who comes to equity
must come with clean hands. The conduct of the claimant is central to the application
of equitable principles.”127 Good faith strategy for dismissing claims was successful
for States in several cases in relation to unconscionable conduct and misrepresenta-
tions of investor.128 In Plama v. Bulgaria, the case was dismissed for reasons that
122
“The host State is not required to elevate the interests of the investor above all other consider-
ations, and the application of the FET standard allows for a balancing or weighing exercise by the
State and the determination of a breach of the FET standard must be made in the light of the high
measure of deference which international law generally extends to the right of national authorities to
regulate matters within their own borders.” – Antaris Solar GmbH and Dr. Michael Göde v. Czech
Republic, PCA Case No. 2014-01, Award (2 May 2018), [360(9)]
123
For a detailed overview of arbitral practice regarding the relevance of socio-political circum-
stances and economic crisis in developing countries and countries in transition in relation to their
responsibility under the FET standard, see Islam R (2018) The fair and equitable treatment (FET)
standard in international investment arbitration – developing countries in context. Springer Nature,
Singapore, pp 99–167
124
El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15,
Award (31 October 2011), [342]
125
Draguyev D (2014) Bad faith conduct of states in violation of the ‘fair and equitable treatment’
standard in international investment law and arbitration. J Int Dispute Settlement 5(2):273–305, 284
126
GAMI Investments Inc. v. Mexico, UNCITRAL, Final Award (15 November 2004), [97]
127
Muchlinski P (2006) ‘Caveat investor’? The relevance of the conduct of the investor under the
fair and equitable treatment standard. Int Comp Law Q 55(3):527–557, 532
128
Robert Azinian, Kenneth Davitian, & Ellen Baca v. The United Mexican States, ICSID Case No.
ARB(AF)/97/2, Award (1 November 1999), [104], [121]–[122]; Alex Genin Eastern Credit Limited,
Inc. and A.S. Baltoil v. The Republic of Estonia, ICSID Case No. ARB/99/2, Award (25 June
2001), [380]
echo rationale of Phoenix v. Czech Republic regarding the good faith investments,
with difference that in the former case this issue was resolved only at the merits stage
on the basis of misrepresentations and bad faith.129 Yet another good faith defense
strategy can be based on the argument that contractual arrangements that led to
investment arbitration were in fact frustrated by claimant – defense here is based on
the argument that termination or non-performance of contract was justified and thus
undertaken in good faith.130
The most significant example of an autonomous defense based on investor’s
misconduct for removing the responsibility for the established breach of the FET
is Al-Warraq v. Indonesia case.131 The tribunal dismissed preliminary objection
based on clean hands doctrine, found that Indonesia breached obligation to provide
fair and equitable treatment, only to follow with finding that the claimant breached
his obligations arising under Article 9 of the OIC Agreement132 by which he had
deprived himself of the right to pursue FET claim.133 In addition, clean hands
doctrine separately precluded any award of damages.134 This case is remarkable
for several reasons. First, the breach of FET was the result of violation of interna-
tional human rights of the claimant in the course of criminal investigations (FET
itself was introduced to the OIC Agreement via MFN clause). Then, an investor was
found to be in breach of international obligation established by an international
agreement. Finally, good faith argument here played out as autonomous international
obligation, but this time of an investor. Interestingly, the tribunal established two
distinct breaches of the agreement but the latter outweighed the former,135 so the role
of good faith as a defense had its full force. Still, this case needs to be taken in its
129
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (27
August 2008), [135], [145]–[146]
130
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/03/29, Award (27 August 2009), [301]–[315], [461]; Malicorp Limited v. The Arab Republic
of Egypt, ICSID Case No. ARB/08/18, Award (7 February 2011); Urbaser et al. v. Argentina, Award
[1005]
131
Hesham Talaat M. Al-Warraq v. Republic of Indonesia, UNCITRAL, Final Award (15 December
2014) (hereinafter: “Al-Warraq v. Indonesia, Final Award”)
132
“The investor shall be bound by the laws and regulations in force in the host state and shall
refrain from all acts that may disturb public order or morals or that may be prejudicial to the public
interest. He is also to refrain from exercising restrictive practices and from trying to achieve gains
through unlawful means.” – Article 9 of the Agreement on Promotion, Protection and Guarantee of
Investments among Member States of the Organisation of the Islamic Conference (opened for
signature 5 June 1981, entered into force 23 September 1986)
133
Al-Warraq v. Indonesia, Final Award, [645]–[648]
134
Ibid., [654]. See Beharry CL, Méndez Bräutigam E (2020) Damages and valuation in interna-
tional investment arbitration. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international
investment law and policy. Springer, Singapore
135
“The Tribunal concludes that, although it has been established that the Claimant did not receive
fair and equitable treatment, as set out in paragraphs 555 to 603 above however, by virtue of Article
9 of the OIC Agreement the Claimant is prevented from pursuing his claim for fair and equitable
treatment.” – Ibid., [648]
150 S. Djajić
context and arguably Article 9 manufactured the final result of the case. However,
this obligation might have remained just a cursory declaration of investors’ general
obligation to comply with national law of the host State had not the tribunal raised it
to actionable right for the respondent State for which the remedy was the preclusion
of FET claim. Therefore, such express recognition of international obligations of
investors can be seen as significant and beneficial for rebalancing investment
obligations.136
Good faith was discussed outside the FET standard, for example, with respect to
“taxation measure,” a carve-out clause in Article 21 of the Energy Charter Treaty
(ECT).137 The question raised in ECT cases was not only what State fiscal and
taxation measures should fall under this clause but also whether only so-called “good
faith” taxation measures could trigger the application of this escape clause. For
example, in Yukos v. Russia case, the tribunal held that taxation measures were rather
mala fide138 and thus susceptible for tribunal’s scrutiny under substantive provisions
of applicable treaty. Other tribunals, like Isoflux v. Spain, ruled that there is a
presumption that taxation measures are applied bona fide.139 In the same vain, in
Belenergia v. Italy, the tribunal did not find that taxation measure was introduced in
breach of good faith.140 In this type of cases, the standard of “good faith” was
engaged as interpretative tool for clarifying the carve-out clause in Article 21 of the
ECT.
Good Faith as a Rule of Procedure and Evidence

In the course of arbitral proceedings, it is not uncommon that parties and their legal
representatives engage in a number of procedural tactics in order to gain advantage
and hinder preparations of the opponent: “One might loosely refer to this conduct as
‘abusive’, such conduct should be properly characterized as a violation of due
process and can be remedied under existing procedural rules.”141 Abusive tactics,
such as submission of massive irrelevant evidence, unreasonably burdening docu-
ments requests (“fishing expeditions”), failure to comply with procedural orders,
unsolicited pleadings and requests, delays, and similar maneuvers, can be addressed
136
Newcombe A, Marcoux J-M (2015) Hesham Talaat M. Al-Warraq v Republic of Indonesia:
imposing international obligations on foreign investors. ICSID Rev 30(3):525–532
137
Article 21(1): Except as otherwise provided in this Article, nothing in this Treaty shall create
rights or impose obligations with respect to Taxation Measures of the Contracting Parties. In the
event of any inconsistency between this Article and any other provision of the Treaty, this Article
shall prevail to the extent of the inconsistency.
138
Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, Final
Award (18 July 2014), [1404]
139
Isolux Infrastructure Netherlands, B.V. v. Kingdom of Spain, SCC Case No. V2013/153, Award
(17 July 2016), [739]
140
Belenergia S.A. v. Italian Republic, ICSID Case No. ARB/15/40, Award (6 August 2019), [376]–
[379]
141
through rules of procedure but also against the duty of bona fide conduct in the
course of a proceeding.
IBA Rules on the Taking of Evidence in International Arbitration142 provide
remedies for failure to comply with the principle of good faith in relation to
evidence. The preamble of the IBA Rules requires the taking of evidence be
conducted in good faith, reasonably and timely.143 Failure to comply with the
good faith requirement may, at the discretion of a tribunal, result in sanctions
envisaged in Articles 9.5., 9.6., and 9.7., which provide for assignment of costs of
arbitration including costs arising in connection with the taking of evidence (Article
9.7.)144 and the rule of adverse inference (Articles 9.5. and 9.6.).145
In several cases, tribunals noted the procedural misconduct or even the abuse of
procedure in relation to non-evidentiary matters. In ST-AD v. Bulgaria, the tribunal
clarified two different concepts of procedural abuse: “Abuse of process can be
divided into two categories, including the major or substantial issue of systemic
abuse and the more minor one of procedural abuse.”146 As for the second one, which
is discussed here, the tribunal found abusive behavior in the conduct of the proceed-
ing which consisted of dilatory pleadings, contradictory statements, and inappropri-
ate negative allegations against legal representatives of the other party.147
Unsuccessful party was charged with abusive behavior which was only a contribut-
ing factor in allocation of costs of arbitration.
Abusive procedural tactics can be handled by tribunals with procedural rules and
discretionary power they generally have in handling procedure. It may also be the
case that failure to follow certain procedural and evidentiary rules gets sanctioned
under a variety of different headings of good faith. For example, false documents or
142
IBA Rules on the Taking of Evidence in International Arbitration. International Bar Association.
Adopted by a resolution of the IBA Council 29 May 2010
143
“The taking of evidence shall be conducted on the principles that each Party shall act in good
faith and be entitled to know, reasonably in advance of any Evidentiary Hearing or any fact or merits
determination, the evidence on which the other Parties rely.” – Ibid., Preamble
144
“If the Arbitral Tribunal determines that a Party has failed to conduct itself in good faith in the
taking of evidence, the Arbitral Tribunal may, in addition to any other measures available under
these Rules, take such failure into account in its assignment of the costs of the arbitration, including
costs arising out of or in connection with the taking of evidence.” – Ibid., Article 9(7)
145
“If a Party fails without satisfactory explanation to produce any Document requested in a Request
to Produce to which it has not objected in due time or fails to produce any Document ordered to be
produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such document would be
adverse to the interests of that Party.” – Ibid., Article 9(5)
“If a Party fails without satisfactory explanation to make available any other relevant evidence,
including testimony, sought by one Party to which the Party to whom the request was addressed has
not objected in due time or fails to make available any evidence, including testimony, ordered by the
Arbitral Tribunal to be produced, the Arbitral Tribunal may infer that such evidence would be
adverse to the interests of that Party.” – Ibid., Article 9(6)
146
ST-AD v. Bulgaria, Award on Jurisdiction, [404]
147
Ibid., [427]–[429]
152 S. Djajić
manipulation with evidence of an investment will more likely be penalised with

decision on inadmissibility of the claim that will equally sanction the abusive tactics.
Good Faith Reflected in Damages and Costs
Once the breach of good faith is established, there should be an easy equation –
adoption of remedies to undo the breach. Here the good faith considerations do not
seem to differ from general considerations in assessing damages and ordering
monetary compensation for any other breach. However, the question here is whether
there should be a special consideration at work given the specific nature of good faith
or, more precisely, whether bad faith calls for application of different principles for
the assessment of damages. Could equitable considerations or certain discretion in
choice of remedies or method for valuation of damages be appropriate (or accept-
able) when good faith breach is at stake?148 Also, is it possible that some lack of
good faith or procedural tactics of the successful party may affect the amount of
compensation awarded?149
Several tribunals did refer to these considerations in assessing or adjusting
quantum either within discussion on bad faith, moral damages, or some specific
non-monetary remedies perceived as more appropriate to redress the wrong. If
circumstances leading to breach are grave and extremely serious, they indeed can
be related to bad faith and calculated within the amount of damages or addressed
through still rare instance of moral damages.150 In Al-Warraq v. Indonesia, the
tribunal refused to award damages on account of the doctrine of clean hands, due
to investor’s breach of his international obligations.151 In Cementownia v. Turkey,
the tribunal declined jurisdiction, but it also issued a separate declaration that was
supposed to serve as a bar to future frivolous claims of the same investor.152 In Renco
148
“The possibility to resort to equity could enable the arbitrators to adjust the quantum of equity in
light of the peculiar features of the case, such as the intensity of the State’s violation, or the fact that
it acted in good faith or bad faith, or the fact that the State has been enriched by it, or the conditions
of the host State’s economy.” – Crespi Reghizzi Z (2018) General rules and principles on state
responsibility and damages in investment arbitration: some critical issues. In: Gattini A, Tanzi A,
Fontanelli F (eds) General principles of law and international investment arbitration. Brill Nijhoff,
Leiden/Boston, p 193, Chap 4 (references omitted)
149
“Ascertainment of the investor’s good faith and the investment’s legality informs the tribunal’s
determinations regarding its own jurisdiction, the claim’s admissibility, the State’s liability and the
quantum of compensation.” – Tanzi A (2018) The relevance of the foreign investor’s good faith. In:
Gattini A, Tanzi A, Fontanelli F (eds) General principles of law and international investment
arbitration. Brill Nijhoff, Leiden/Boston, p 63, Chap 10
150
E.g., Desert Line Projects LLC v. Republic of Yemen, ICSID Case No. ARB/05/17, Award (6
February 2008)
151
Al-Warraq v. Indonesia, Final Award, [645]. See Nadakavukaren Schefer K (2020) Crime in
international investment arbitration. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of
international investment law and policy. Springer, Singapore
152
Cementownia v. Turkey, Award, [162]
v. Peru, the tribunal upheld the preliminary objection of the respondent based on a
failure of the claimant to comply with a formal waiver requirement. However, the
tribunal expressed concern that a possible abuse of rights could arise if Peru argued
in any future proceedings that claimant’s claims were time barred – it made a
recommendation on how to possibly avoid future abuse of rights.153 In MTD v.
Chile, the tribunal halved the damages to be awarded on the ground of contributory
fault of the claimant and his business decisions.154 However, the tribunal in Siag and
Vecchi v. Egypt expressly rejected the proposition to award punitive damages
because they are not, by their nature, compensatory and are a matter of controversy
in international law.155 Although there are examples manifesting the understanding
that bad faith of either party may be calculated within award on damages,156
jurisprudence does not seem to be quite settled.
Regarding the costs of arbitration, when a good faith or abuse of rights argument
turns out to be successful, tribunals tend to make reference to this finding and order
costs against unsuccessful party.157 What also counts is the conduct of the parties in
the course of proceedings which tribunals regularly assess before making a final
decision on allocation of costs, so good faith as a rule of procedure and evidence here
seems to have a considerable weight.158
Conclusion
Good faith is one the most important principles of any legal system, so its relevance
for international investment law is hardly surprising. However, frequent reliance
on good faith, its conceptualization and dynamics, provide evidence of its significant
153
“While this Tribunal cannot prevent Peru from exercising in the future what it then considers to
be its legal rights, the Tribunal can, and it does, admonish Peru to bear in mind, if that scenario
should arise, Renco’s submission that Peru’s conduct with respect to its late raising of the waiver
objection constitutes an abuse of rights.” – The Renco Group Inc. v. Republic of Peru, UNCITRAL,
UNCT/13/1, Partial Award on Jurisdiction (15 July 2016), [188]
154
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7,
Award (25 May 2004), [242]–[243]
155
Siag and Vecchi v. Egypt, Award [545]
156
Les Laboratoires Servier, S.A.A., Biofarma, S.A.S., Arts et Techniques du Progres S.A.S. v.
Republic of Poland, UNCITRAL, Award (14 February 2012), [642], [645]
157
E.g. Phoenix v The Czech Republic, Award, [151]–[152]; Europe Cement v. Turkey, Award,
[182]–[186]; Cementownia v. Turkey, Award, [175]–[178]; Rachel S Grynberg, Stephen M
Grynberg, Miriam Z Grynberg, and RSM Production Corporation v. Grenada, ICSID Case No.
ARB/10/6, Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules, Decision (10
December 2010), [8.34]–[8.36]; Renée Rose Levy and Gremcitel S.A. v. Peru, ICSID Case No.
ARB/11/17, Award (9 January 2015), [201]
158
In Cortec v. Kenya the respondent prevailed with its objection based on illegality of an
investment but was not awarded full arbitration costs partly because of its conduct in the pro-
ceedings. – Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v.
Republic of Kenya, ICSID Case No. ARB/15/29, Award (22 October 2018), [388]–[401]
154 S. Djajić
influence within the discipline. Its adaptability to the architecture of investment

arbitration has given the good faith many functions for all participants, investors
and States alike, in terms of both substantive and procedural rules, relevant at every
stage of the proceedings. Good faith amply demonstrates its intrinsically balancing
and harmonizing function given that both claimants and respondents equally rely on
the good faith. However, this trend needs to be cautiously lauded given the risks that
an overreaching principle such as the good faith may carry with it when applied
without refinement or reference to other rules. Good faith should not serve as a
shorthand for judgments of first impression, for broad discretionary powers, or for
introducing rules contrary to express consent of the parties – even the good faith
principle needs to be applied bona fide. However, good faith has proven that it is
capable of remedying strict formalism in protecting a system as a whole. Good faith
is both instructive and corrective; it is equally the principle and the rule. All these
features may explain the striking frequency and a remarkable variety of good faith in
international investment law.
Cross-References
▶ Applicable Law in Investment Arbitration

▶ General International Law and International Investment Law: A Systematic Anal-
ysis of Interactions in Arbitral Practice
Ratione Temporis)
Application
▶ The Concept of “Investment”: Treaty Definitions and Arbitration Interpretations
Investment Promotion Agencies:
Investment Attraction, Policy Role, and 7
Response to Crises
Carlos Portales Undurraga and Cristián Rodríguez Chiffelle
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Overview of the Work of IPAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Policy Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Background and Rationale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
New Post-Pandemic Priorities on Policy Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
The Role of IPAS During Crises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Investment Flows in Times of COVID-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Investment Policies and Investment Promotion Agencies in Times of COVID-19 . . . . . . . . 173
Screening Mechanisms and National Security Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
Abstract
According to the World Bank, Investment Promotion Agencies (IPAs) can be
considered a country’s best tool for attracting, establishing, retaining, expanding,
and linking private foreign direct investment (FDI). But the ability of a country to
attract investment goes well beyond proactive attraction efforts: market size,
availability of natural and human resources, physical and digital connectivity,
participation in global value chains, and having the right domestic and interna-
tional policies are some of the factors that have the largest impact on the way
investors see a host country. Hence, IPAs are increasingly undertaking a policy
advocacy role, in order to improve the country’s investment climate, to the
C. Portales Undurraga
Heidelberg University and University of Chile, Providencia, Chile
e-mail: cap2235@columbia.edu
C. Rodríguez Chiffelle (*)
David Rockefeller Center for Latin American Studies (DRCLAS) at Harvard University, Luksic
Visiting Scholar, Cambridge, MA, USA
e-mail: crodriguezchif@llm13.law.harvard.edu

https://doi.org/10.1007/978-981-13-3615-7_129
156 C. Portales Undurraga and C. Rodríguez Chiffelle
advantage of foreign and domestic investors alike. This advocacy role becomes
especially relevant in moments of crises, such as the one presented by the SARS-
CoV-2 pandemic (the COVID-19 pandemic) and its subsequent economic reces-
sion, as countries need to find innovative ways to attract foreign capital in times of
global economic distress, including a continuous improvement of their domestic
investment climate. But turbulent times also come with additional considerations
with regard to free flows of FDI, including domestic review and/or restrictions on
acquisition of sensitive assets by foreign entities (“screening mechanisms”).
Keywords
COVID-19 · Promotion · Facilitation · Screening mechanisms · IPA
Introduction
Foreign direct investment (FDI) has increased substantially over the last four
decades. When measured as a share of GDP, global FDI inward stocks grew from
around 8% to almost 25.7% between 1990 and 2019.1 Moreover, the benefits of FDI
for an economy are widely recognized: producing a positive impact on productivity,
competitiveness, and sustainability, through technology and knowledge transfer,
diversification of production, and access to new markets. Increased competition
with local players, vertical linkages created with domestic firms, further insertion
into global value chains, and, especially, creation of jobs (many times for high-
skilled workers) are other positive externalities of the arrival of foreign capital into
an economy.2 The latter is particularly relevant in a COVID-19 scenario, as OECD
stated that decline in greenfield FDI in early 2020 reduced potential job creation by
nearly 50%, implying that up to 500,000 FDI-related expected jobs never material-
ized in the first 5 months of 2020.3 Developing countries have been especially
affected by this, as hard-hit sectors such as infrastructure, automotive, consumer
electronics, and textiles lose steam.
Furthermore, the benefits of FDI can be limited by prevailing trade and invest-
ment costs, being one important component of them information barriers. And even
when those barriers have been bridged, FDI may be curtailed by other hurdles –
including domestic regulations and permitting processes – which investors face
when seeking to establish into a foreign country.4
1
UNCTAD (2020) World Investment Report, Table IV. 1 Evolution of International Production
since 1990, p 124. IMF (April 2020). World Economic Outlook Database
2
See this Handbook, Reiter L, Bellak C Effects of BITs on FDI: the role of publication bias
3
OECD (2020) Mealy and Wermelinger, Investment and sustainable development: between the risk
of collapse and opportunity to build back better. Discussion paper for the joint IC-DAC session at
the 2020 Roundtable on Investment and Sustainable Development
4
OECD and IDB (2019), p XX
7 Investment Promotion Agencies: Investment Attraction, Policy Role, and. . . 157
Recognizing these positive effects – and also the need to attract and support
foreign investors, especially at the early stages of their projects – governments
around the world have resorted to different policies to attract FDI: creating incentives
(subsidies, tax breaks, free trade zones, tariff reductions or exemptions, etc.), and
also to establishing foreign investment promotion agencies (IPAs). These agencies
intend to create awareness for foreign capital of existing investment opportunities,
attract investors that can foster job creation and productivity growth, and facilitate
their establishment and expansion in the local economy.5
IPAs are normally part of a country’s wider national foreign investment promo-
tion policy, which in time is an integral part of a country’s growth and development
policy/plan. In the end, an IPA’s end goals are nothing but economic development
goals, which are sought through the attraction of FDI, namely: accelerated and
sustained economic growth; sustainable economic development; and, more equitable
economic development.6 But in order to contribute to these “higher” goals, objec-
tives specific to FDI need to be achieved: maintaining high levels of FDI (in constant
growth); increasing the quality and economic impact of those investments; diversi-
fying the destination and use of those investments; and, diversifying the geograph-
ical sources of FDI, seeking an increased participation of countries which are
relevant capital-exporters globally, but which are not yet relevantly present in the
host country. The advantage of having diversified sources of foreign trade and
investment has been made even more evident by the recent COVID-19 pandemic.
Simultaneously, national economic development policies and instruments should
also support FDI attraction policies, in order to foster FDI, innovation, and entre-
preneurship, providing instruments such as incentives and other tools to attract
investment, including continuous formation of advanced IT and human capital,
which should be readily available for foreign investors interested to develop value-
added projects in a specific country. The relevance of a host country having readily
available adequate human capital for FDI projects should not be underestimated, as
foreign workers confront both regulatory (visas) and economic (costs) barriers, and
many times also additional cultural challenges.
Nonetheless, evidently there are many other factors that play into a country’s
ability to attract FDI: geographical location, availability of natural resources, again
human capital, a country’s branding, its safety and security, insertion into global
value chains, the role of tax policies, its investment treaties, and also national
security considerations, are some of many factors that investors take into account
before making an investment decision.
In this regard, it is worth noting that the OECD’s policy Framework for Invest-
ment (PFI) looks at 12 different policy areas affecting investment: investment policy,
investment promotion and facilitation, competition, trade, taxation, corporate
5
OECD (2018) Mapping of investment promotion agencies in OECD countries, p 3 www.oecd.org/
investment/Mapping-of-Investment-Promotion-Agencies-in-OECD-Countries.pdf
6
See this Handbook, Sauvant K. Multinational enterprises and the global investment regime: toward
balancing rights and responsibilities
governance, finance, infrastructure, developing human resources, policies to pro-

mote responsible business conduct and investment in support of green growth, and
broader issues of public governance.7
More than diving into all these factors – and explaining the mechanics of
investment promotion in detail – the current chapter seeks to develop certain specific
subjects at the crossroads of foreign investment promotion and international invest-
ment law and policy, particularly investment policy advocacy. It also does not strive
to give a comprehensive account on the structure of IPAs, which is readily available
in recent literature.8
To this extent, the chapter presents a brief overview of the work of IPAs, with a
deep dive into their policy role, also highlighting their role during crises (such as the
COVID-19 pandemic) and the relationship between their work and national security-
based FDI restrictions.
Overview of the Work of IPAS
An investment promotion agency (IPA) is generally a government agency tasked

with attracting overseas investments into a country, State, region, or city. Although
developed countries pioneered the establishment of IPAs, nowadays most countries
have at least one national agency or public service tasked with fostering FDI (every
OECD country has at least one), and in many cases a number of sub-national FDI
promotion agencies. IPAs are normally funded by fiscal budgets, and have a political
line of report, although they increasingly include forms of civil society and business
community participation. In the majority of the cases they are autonomous public
entities, although a relevant number of them are also housed within a specific
Ministry. According to the OECD and the Inter-American Development Bank
(IDB), the median IPA has an annual total budget of US$7 million, and an annual
budget for investment promotion of US$3 million.9
They often have a multiyear strategy on investment attraction, prioritizing fostering
investment into specific sectors, with an increased influence from the Sustainable
Development Goals (SDGs).10 An average IPA has 11 priority sectors,11 such as
renewable energy, agriculture, IT services, and construction. As one of their core
functions, IPAs are normally prepared to provide expert advice and solutions to foreign
investors interested in entering these sectors, and to connect them to the local ecosystem.
7
OECD (2015) Policy framework for investment 2015 edition. OECD Publishing, Paris. https://doi.
org/10.1787/9789264208667-en
8
As an example, see OECD (2018) Mapping of investment promotion agencies in OECD countries
9
OECD and IDB (2019), p XXIII
10
See this Handbook, Gudrun ZAGEL, Achieving sustainable development objectives in interna-
tional investment law
11
WAIPA-WBG (2020) State of investment promotion agencies: evidence from WAIPA-WBG’s
joint global survey
According to a recent survey by the World Bank and the World Association of
Investment Promotion Agencies (WAIPA),12 IPAs are still providing more services
at the attraction stage, followed by information and assistance services at the entry
and establishment stage. In about 65% of the cases, they organize and systematize
their work through a customer relationship manager (CRM) software,13 a number
which is increasingly growing as IPAs further professionalize. Cost-benefit assess-
ments should also be increased, as over 50% of promotion agencies still do not
quantify for the benefits and costs of their work today,14 not even economically;
evidently, a comprehensive policy measure on this should look beyond economic-
only factors, also taking account environmental, social, and political variables. More
advanced IPAs are increasingly using more digital tools and instruments such as
social media to find investment leads, supported by a digital marketing strategy.
IPAs are usually tasked with operationalizing government FDI goals via provid-
ing services for foreign investors, often labeled as “investment promotion.”
Although all IPAs main mandate is to attract inward FDI, they increasingly feature
additional tasks related to improve the investment environment, and a few are even
mandated to support a country’s Outward Foreign Direct Investment (OFDI), that is
domestic firms’ investments overseas. An interesting example is the Thai Overseas
Investment Plan, which was approved by the national IPA (Board of Investment –
BOI). OFDI was identified in Thailand as a national priority and it was specified by
the BOI that its aim, with regard to the promotion of Thai overseas investment, was
to “enhance the nation’s competitiveness, to overcome the middle-income trap and
to achieve sustainable growth.”15
Therefore, most IPAs have four essential functions: foreign investment generation,
image building (of the territory they are promoting), “landing” support for investors (as
they develop their projects), and “aftercare” services for established foreign investors.
Some IPAs also have an additional policy advocacy function, a topic which will
be developed in detail in this chapter.
The functions presented above can be grouped also in different manners: for example,
the World Bank presented in 2020, within its novel “WBG Framework for Investment
Promotion,” the “Comprehensive Investment Services Framework” (CISF), which con-
siders four categories of services – marketing, information, assistance, and advocacy –
across the four stages of the investment life cycle. In doing so, “the CISF helps IPAs ensure
that they offer all relevant services and establish long-term relationships with investors.”16
But not all blueprints are holistic, as developing countries could also start to spin-
out non-promotion functions of IPAs to separate agencies. At the moment, most IPAs
12
Ibid.
13
Ibid.
14
Ibid.
15
UNESCAP (2020) Studies in trade, investment and innovation no. 93 – outward Foreign Direct
Investment and Home Country Sustainable Development. p 54
16
World Bank Group (2020) Helibron A, Aranda-Larrey Y, “The Comprehensive Investor Services
Framework”, p 3
serve various functions as described above, such as regulatory, incentive manage-

ment and investment facilitation. Although some may argue it could be better for
countries to create specialized IPAs with focus on promotion only, we believe that
such a holistic approach to investment promotion, with IPAs harnessing all promo-
tion and policy functions, is more cost-efficient.
In any case, beyond these functions, there are many additional factors that
determine an investment site selection. Hence, a key role for IPAs is to be “incre-
mental”17 in influencing an investor’s decision to locate in a specific country. In the
end, the IPAs role is to increase the possibility for an investor to select the Agencies’
territory, as in very few cases it will be responsible for the whole decision. According
to the OECD,18 there are five determinants for investors to select a project’s location:
market size and growth; natural and human resource endowments (the availability
and cost of natural and human resources); physical, financial, and technological
infrastructure (the quality and availability of backbone services); openness to inter-
national trade and investment; and the policy and institutional framework of the host
territory: a fair, transparent and predictable regulatory and administrative framework
for investment, with efficient institutions, affects MNEs’ decisions in both their
initial investments and potential reinvestments or expansions.19
Hence, in order to become “incremental” in influencing the investor’s decision, in
general IPAs follow a thorough “commercial process” for FDI attraction. Since this is
not the focus of this chapter, we will limit ourselves to list its main components and
variables: an IPA’s commercial process includes managing potential investors through
a pipeline of projects, using tools such as direct promotion, business intelligence,
inbound (digital) marketing and leveraging a country’s overseas infrastructure (nor-
mally embassies, consulates, trade, and investment commissioners). And beyond
harnessing new investors, aftercare services for already established investors are
becoming essential, particularly in times of economic crises. Some countries not
only feature an external network (embassies, commissioners, etc.) supporting the
IPA, but also a domestic one through sub-national investment promotion agencies or
units. In order to improve processes and increase their networks, in many occasions
IPAs also profit from experiences acquired through international IPA networks, such as
the ones hosted at UNCTAD, OECD, WAIPA, the World Bank, and others. Details
about the investment promotion process are broadly available in the literature, includ-
ing recent papers by the World Bank, UNCTAD, and the OECD.20
17
Meaning increasing the possibility of an investor to select one’s country as its project destination
18
OECD (2018) Mapping of Investment Promotion Agencies in OECD Countries, p 14
19
Ibid., p 15
20
For recent publications on the issue, see for example World Bank Group and World Association of
Investment Promotion Agencies (WAIPA) (2020) State of investment promotion agencies, evidence
from WAIPA-WBG’s Joint Global Survey. In the report the Bank presents a novel “WBG Frame-
work for Investment Promotion,” with three core pillars: (1) Corporate Planning and Sector
Prioritization; (2) Institutional Framework for FDI; and, (3) Investor Services (based on CISF,
later referred on this chapter)
Policy Advocacy
Background and Rationale
As previously mentioned, traditional functions that have been systematically asso-

ciated with IPAs are investment generation, image building, investment facilitation
(landing), and investment retention (aftercare).21 However, IPAs increasingly are
being given a mandate of policy advocacy. In this section, we will solely focus on
this function. As we delve into its core features and main goals, it is important to
delineate the rationale and how the institutional structure of an IPA might affect the
manner in which the policy advocacy function is performed.
Then, we will dive into the advocacy process and key features that relate to the
enhancement of a country’s overall investment environment. And finally, we will
briefly touch base on new priorities for IPAs on policy advocacy due to the COVID-
19 pandemic.
Policy Advocacy consists of actions conducted by the IPA, related to: i) monitor
the investment climate and identify existing bottlenecks; and ii) channel these
concerns, often jointly with recommendations, to relevant policy makers, either
formally or informally.22 The immediate goal of this advocacy is to shape a climate
conducive to attracting and benefiting from FDI, where the ultimate goal is to make
FDI work for the socioeconomic development of the host country, while building
national competitiveness in a global economy.23 Needless to say, a successful
advocacy policy will not only benefit foreign investors but also the whole investment
ecosystem of a country, including for domestic investment players and local service
providers, conferring a positive externality to this role which benefits the country’s
economy as a whole.
Furthermore, it has the effect of enhancing dialogue and policy reviews with
stakeholders, including the foreign investor community, thereby contributing to the
predictability and transparency of the investment environment, and the avoidance of
application of dispute resolution mechanisms.
For the World Bank Group,24 advocacy in investment promotion “is about (a)
understanding the issues investors face; (b) advocating on their behalf; and, (c)
influencing stakeholders to improve the investment ecosystem so investors can
operate more efficiently and smoothly.” The Bank rightly notes that “as an indirect
service, IPA advocacy helps many investors – and the location – achieve key reforms
21
Wells LT, Wint AG (2000) Marketing a country (Revised edition). World Bank FIAS Occasional
Paper 13, Washington, DC
22
OECD (2019) Supporting investment climate reforms through policy advocacy, p 1
23
UNCTAD (2008) Investment promotion agencies as policy advocates, Investment advisory
series, series A, number 2, pp 1 and 5
24
World Bank Group (2020) Helibron A, Aranda-Larrey Y, “The Comprehensive Investor Services
Framework”, p 8
needed for their investments,”25 and that “an effective IPA has an advantageous
perspective of the investment projects its economy has won and lost, and has access
to both investors and policymakers.”26 Particularly this last feature place IPAs in an
ideal position to articulate regulatory and administrative reform.
Policy advocacy is therefore at the crossroads of investment policy and facilita-
tion, and presumes that these disciplines are complementary. But it also acknowl-
edges that IPAs are not policymakers or regulators themselves, but simply advocates
and facilitators. Nonetheless, their exclusive position that permits them to regularly
interact with a country’s business community – and key regulators – makes them
particularly well placed to identify norms and practices that hamper the investment
environment, passing on these concerns to relevant policy or decision makers, and
ultimately influencing policy and regulations. This privileged position allows IPAs
to develop a public-sector-driven agenda, aiming at generating economic and social
benefit, while also supporting private companies in developing their businesses.27
But regardless of this clear function, IPAs operate within a governmental and
business network where different mandate and activities are not clearly delineated.
This of course can be problematic, as lack of clarity can be a source of broad
challenges, specifically considering that the advocacy process may overlap with
the mandates of other governmental entities, which are competent for specific policy
design and decision-making. An IPA’s ability to drive a public agenda could be
contingent on the willingness of the relevant policymaker, whereas an IPA’s rela-
tionship with private companies could also alienate them from sectorial regulators or
governmental entities less intertwined with business players.
Organizational and Strategic Choices

There are several factors that will determine how and with what intensity an IPA will
perform policy advocacy activities. These factors relate mainly to organizational and
strategic choices, which affect how IPAs approach policy advocacy.
Primarily, as with many of the traditional functions associated with IPAs, the fact
that there isn’t specific staff dedicated to policy advocacy does not mean that the IPA
is not involved in policy advocacy activities. With this regard, OECD IPAs perform
on average 72% of the policy advocacy activities listed in a survey conducted by the
OECD and the IDB.28
An IPA’s size, though it can affect budget and resource allocation, does not seem
to be a relevant factor. It is more important to focus on an IPA’s mandate, because
there is a direct correlation of policy advocacy activities that IPAs tend to perform,
and the number of official mandates under its responsibility.29 Beyond inward
25
Ibid., p 9
26
Ibid., p 9
27
28
OECD (2019) Supporting investment climate reforms through policy advocacy, p 5 and OECD
(2018) Mapping of investment promotion agencies in OECD countries, p 46
29
foreign direct investment promotion, there are governments that have extended the
scope of IPAs toward export promotion and innovation promotion, which will
naturally expand an IPA’s line of policy advocacy beyond investments, and toward
a wide range of issues associated with a country’s whole business environment.30
Consequently, an expanded mandate will also broaden the interaction with different
business and government stakeholders, making it easier for an IPA to directly
influence in a wider range of policy areas, all of which will normally be related.
An IPA’s governance, primarily its legal status, will determine its autonomy vis-à-vis
the government. IPAs that are part of government will have a closer relationship with
decision makers; hence, this proximity should be a significant enabler toward effectively
getting a particular message across the table. Additionally, the IPA’s legal status seems to
have a role in the decision to formally dedicate staff to the policy advocacy function.
Ninety percent of governmental IPAs formally dedicate staff to policy advocacy, while
only 63% of autonomous public agencies do. In terms of resource allocation, on
average, governmental IPAs allocate 10% of their financial resources to policy advo-
cacy, versus 4% for autonomous agencies and 3% for joint public-private agencies.31
Finally, the decision on the key interactions with stakeholders can be a relevant
factor for IPAs to determine the amount of policy advocacy activities they perform.
Interactions can vary from communications to more formal manners of collabora-
tion. There is a negative correlation between the number of institutional partners and
the policy activities performed, i.e., the more interactions an IPA has with external
partners (either public or private), the less advocacy activities it conducts. One
possible reason for this trend is that when an IPA has the appropriate mandate to
perform policy advocacy it will not require strong interactions with specific partners.
Alternatively, it could be possible that the institutional partners with whom an IPA
interacts, could have their own mandate to perform policy advocacy activities, thus
the more activities that are handled by agencies and ministries themselves, the less
they need to be performed by the IPAs.32
Challenges
As expressed before, an IPA’s policy advocacy mandate doesn’t make them either
policymakers or regulators of specific areas of government. This is why the effec-
tiveness of IPA’s policy advocacy activities is not always clear, and it cannot be
measured simply (as a matter of fact, this seems to be a challenge across all functions
of IPAs).
IPAs require having active and extensive interactions with external partners in
order to reach their goals. On one side, it is paramount to have a close relationship
with the business community to identify the problems that could be dealt through a
policy advocacy process, and on the other, to channel that feedback, together with
the suitable recommendations, to the ministries or government agencies
30
OECD (2018) Mapping. . .”, p 24
31
Ibid., p 47
32
OECD (2019) “Supporting. . .”, p 10
(i.e., policymakers and regulators) that can effectively take the necessary actions to
solve the identified problems.
This specific position is an important asset to help identify and formulate concrete
responses to enhance a country’s business environment, but it can also pose certain
challenges. It is not always clear if IPAs voices are heard within governmental
structures, and how the efficiency and impact of their policy advocacy activities
can be measured.
In terms of effectively measuring policy advocacy activities, the challenge is
twofold: a) measuring the policy advocacy’s output, i.e., assessing the efficiency of
the IPA in conducting its related activities; and, b) evaluating its policy advocacy
outcomes, i.e., ensuring that the IPA’s voice is heard in government and that there is
an impact in regulatory/administrative procedures.33
With regard to output, OECD IPAs rarely track their related policy advocacy
activities in their customer relationships’ management (CRM) systems.34 This could
be explained by the often informal or horizontal nature of these activities, making it
difficult for IPAs to measure their performance as advocates. This is also why IPAs
often rely on examples of the outcome of successful reforms to illustrate the
relationship between their policy advocacy activities and the improvement of the
country’s investment climate.35
Another challenge for IPAs arises from being at the crossroads of serving public
and private interests. In this sense, the difference between policy advocacy and
lobbying for private companies can be blurred, especially when an IPA deems
convenient to defend a specific interest.
IPAs have a public sector-driven agenda to generate economic and social benefit
and, at the same time, provide services to private companies and serve their interests
in their advocacy activities. Certain interest groups might be tempted to use IPAs to
lobby reforms that would not necessarily benefit all stakeholders. In order to avoid
lobbying for a selected interest (as opposed of serving all business, regardless of their
size and nationality), IPAs should carefully scrutinize a priori the impact of a
proposed policy reform and, if implemented, its actual impact should be monitored
a posteriori as well. At the same time, while conducting this evaluation, IPAs must
keep in mind that their policy advocacy function should be associated with broader
socioeconomic outcome indicators, to ensure that policy proposals are consistent
with the country’s public interests.36
The Policy Advocacy Process

IPAs sit at a unique position that permits them to access and comprehend political
and business stakeholders. This combination allows them to effectively act as drivers
of change for economic growth and development. But in order to achieve such
33
Ibid., p 16
34
OECD (2018) “Mapping. . .”, p 81
35
36
effectiveness, there must be a complete understanding of the cyclical nature of the

policy advocacy process, alongside well-established goals and priorities before
starting its first step. Those priorities should be established explicitly at the onset,
considering all of the IPAs goals in accordance to preset priorities and feasibilities
for advocating better policies, and then formulate strategies to achieve as many as
possible.
Even though, setting goals and priorities might seem a straightforward process,
long-term priorities are not necessarily in line with the political changes introduced
by new administrations. Maneuvering through these changes, while at the same time
trying to keep an unwavering and coherent strategy, is the first step of a process.
Consequently, in order to remain effective, IPAs should always aim for the contin-
uous application of their long-term strategies, regardless of changes in political
administration.
Once these goals and priorities are identified, IPAs can start their policy advocacy
process, which can be broken down into four-steps:37
(a) Problem identification/agenda setting

(b) Developing the most effective policy remedy
(c) Advocating the policy
(d) Monitoring and evaluation
The last step then becomes a new input for the first one, making this process
cyclical. But the key is that those new inputs should fall within the scope of a pre-
established agenda that encompasses all the goals and priorities established by the IPA.
Because without consciously and explicitly addressing goals other than FDI attraction,
such as achieving employment, technology transfer, or development impact, they will
tend to be neglected.38 By the same token, IPAs must make sure that the goals that
delineate the advocated policies, which seem to give preference to foreign investors,
should be justifiable in terms of a national interest and economic progress.
Problem Identification/Agenda Setting

Identifying problems require first and foremost determining what counts as a
problem. This decision should be based on the IPA’s goals and the information
gathered from clients (foreign investors and related stakeholders) and other business
sources. The manner in which information is gathered is fundamental to determine
whether there will be a proactive or reactive focus in the process of problem
identification.
37
Adapted from Bardach E (2000) A practical guide for policy analysis: the eightfold path to more
effective problem solving. Chatham House Publishers of Seven Bridges Press, New York; Kingdon
J (1984) Agendas, Alternatives and Public Policies, 2edn. Little, Brown and Company, Boston/
Toronto. In UNCTAD (2008) Investment promotion agencies as policy advocates, Investment
advisory series, series A, number 2, p 6
38
UNCTAD (2008) Investment promotion agencies as policy advocates, Investment Advisory
Series, series A, number 2, p 60
An effective IPA’s organization and distribution should be conducive to a “two-

pronged” approach (proactive and reactive). IPAs should react to complaints of
existing investors and advocate changes that lead them to reinvest, which will in
turn help toward building the country’s positive investment climate. Nonetheless,
IPAs should also conduct a proactive process of information gathering aiming to
identify additional long to medium term problems that hamper the investment
climate.39
This dual role will require that IPA dedicate specific staff that has closer relation-
ship with investors to work side-by-side with those involved in intelligence gather-
ing and data analysis. In addition, to fulfill this two-pronged approach, IPAs should
use their main sources of information and influence in a complementary manner.
And, they should take special advantage of their position between business and
government. In this regard, the major influences for establishing an agenda will be:
i) existing investors; ii) potential investors; and, iii) benchmarking against the
investment climate of other countries. 40
The weight that an IPA gives to each one of these sources will probably determine
whether there will be a proactive or reactive focus. Logically, if existing investor’s
problems serve as the main source, the IPA will tend to privilege a reactive approach.
Whereas a proactive approach will be more focused on potential investors and on the
investment climate of other countries, especially those that are perceived as direct
competitors.
On the other hand, the next three influencers in an IPA’s agenda are: i) govern-
ment officials and legislators; ii) national goals such as growth and development;
and, iii) internal research.41 It is important that an IPA – concerned with benefiting
from FDI and not just attracting it – takes cognizance and gives the appropriate
weight to those opinions that tend to focus on long-term goals for benefitting the
country. Investors’ complaints or opinions, many times do not tend to paint the
complete picture of a particular obstacle, thus a comprehensive in-depth research
will help the IPA understand the industry as an insider, getting a more nuanced and
effective assessment on the table. This will help justify and legitimize domestically
what would otherwise tend to be perceived as policies that solely benefit foreign
investors. Likewise, taking into account these sources will help the IPA set a more
balanced target, where they should evenly consider the “two-pronged” approach.
Alongside information gathering begins a process of determining who in gov-
ernment will be best equipped to deal with the issue (commonly a group of
authorities or entities), and who will be the likely supporters and opponents. Then,
the likelihood and costs of policy reform should be balanced with the capacity of the
relevant authorities to effectively implement them.42
39
Ibid., p 14 and 15
40
Ibid., p 28
41
Ibid.
42
UNCTAD (2008) Ibid., p 31
Correspondingly, once a particular set of problems has been identified; priorities

need to be established based on the impact and likelihood of reaching a desired
modification. Through a rough analytical assessment, which could be applied to
most policy environments, an IPA should consider: i) how many people are impacted
by the problem (scope); ii) the intensity of the problem (impact); iii) the cost of
advocating, implementing, and maintaining the changes ( financial assessment); and,
iv) the adequate backing needed by key decision makers and stakeholders to
understand, accept, and adopt the proposed changes (political assessment).43 As
the identified problems are analyzed considering these factors, the combinations that
could be projected as the ones with the highest likelihood of change should be
prioritized.
Finally, those issues that affect the investment environment and have been
categorized and prioritized as important and actionable, should be explicitly and
narrowly defined, and included into the IPA’s policy advocacy agenda.
Though this is the ideal agenda construction process, as explained before, it will
not necessarily match with the priorities of the relevant ministries and decision
makers. Consequently, IPAs should allocate an important part of its resources
building their position of influence within governmental structures, in order to
push these evidence-based issues. In addition, a policy advocacy agenda built
upon these objective criteria should be sufficiently flexible to adjust to the common
changes in political priorities, but without forfeiting its main features.
Developing the Most Effective Policy Remedy

Developing a policy remedy consists of selecting evaluative criteria, formulating
alternatives, projecting outcomes, and choosing the best proposal to advocate. This
specific process must take into account the IPA’s mission, mandate, and the national
development goals of a country. Then, by assigning relative weight to these factors,
the IPA should evaluate its several draft proposals against these criteria and select the
one that appears to serve its mission, mandate, and goals most fully.44
Projecting outcomes: It should be a common trend that each alternative proposal
will generate different ones, in terms of FDI attraction, positive spillovers for the
economy, and job creation, but it will also probably affect certain stakeholders,
require certain budgetary considerations, and create some unintended consequences.
The potential positive effects of the proposals must outweigh the negative and
unintended consequences, aiming for the most effective (most likelihood of change)
policy or combination of policies.
This exercise of projecting outcomes should aim at minimizing the unanticipated
and unintended consequences that may create negative effects that reduce or out-
weigh the benefits of the changed policy. Accordingly, this exercise helps the IPA to
43
Adapted from Gerston L (2004) Public policy making: process and principles. M.E. Sharpe, New
York. In UNCTAD, p 37
44
UNCTAD (2008) “Investment Promotion Agencies as . . .,” p 40
keep various goals in mind rather than focusing completely on getting any type of
FDI as the end goal itself.45
Choosing the best proposal to advocate does not always need to come from the
IPA itself. Business France has established a model where government-led proposals
are then prioritized by investors themselves. Interestingly, a combined panel of
private law firms and CEOs of foreign affiliates is consulted on their opinion on
the level of priority to be given to the various recommendations.46
Finally, while drafting, evaluating, and projecting the effects of a proposal, IPAs
must also consider possible changes in circumstances. With these changes, effec-
tive policies might turn into ineffective ones. However, while projecting an
outcome it might be difficult to predict the end result, thus the continuous policy
advocacy process requires constant monitoring and evaluation (last step of the
process).
Advocating the Policy

A comprehensive approach to policy advocacy has five elements: (i) preparations;
(ii) persuasion, (iii) publicity, (iv) mobilization, and (v) consensus building.47
Like the initial research and information gathering for the creation of a policy
agenda, preparing an effective strategy to convince others of a certain position
requires drafting specific and concrete policy proposals, communication materials,
and evidentiary support for the proposal. In this sense, 84% of OECD IPAs produce
policy advocacy reports or position papers, some of which are discussed with the
private sector before concrete reforms are envisaged or executed.48
In terms of persuasion, IPAs have to operate in a complex network of stakeholders
at the crossroads of policy and business.49 Interactions with external partners,
whether private sector representatives, civil society, or governmental entities is a
key aspect to identify and target, not only the most relevant decision makers, but also
those with influence over decision makers, regardless if they are supporters or
potential opponents of the advocated policy.
Publicity can help to establish a positive frame for public discourse. It is quite
common in countries – developing and developed – to find certain skepticism
toward FDI. This phenomenon can be preempted through regular meetings, public
speeches, or articles aimed at educating stakeholders.50 It is of particular impor-
tance, the weight that political leaders give to public opinion and particularly to
their constituencies; thus, negative public perception toward a particular advocated
45
Ibid., p 42 and 43
46
Business France’s policy advocacy process in OECD (2019) “Supporting. . .,” p 6
47
UNCTAD (2008) “Investment promotion agencies as . . .,” p 47
48
OECD (2018) “Mapping. . .,” p 48
49
OECD (2019) “Supporting. . .,” p 10
50
UNCTAD (2008) “Investment promotion agencies as . . .,” p 47
proposal could outweigh any evidentiary support put forward by the IPAs, making
the advocacy process completely ineffective. To avoid these potentially negative
outcomes, IPAs can also have a proactive approach by trying to frame future
debates and improve long-term openness to FDI via constant, low-key media
messages.51
Constant interactions with external partners and supporters are a key aspect
toward building relationships that will allow an IPA to get its message conveyed
consistently, repeatedly, and from multiple sources. Mobilizing a group of different
supporters is crucial because a message is much more influential when it comes from
multiple sources. In addition, establishing an institutionalized mobilization, in terms
of regular participation of stakeholders and common interest groups, is an element
that guaranties effective results.52
The density of the IPA’s networks illustrates the importance of the interactions
with external partners. On average IPAs interact with 25 different organizations,
where 9 out of 10 IPA relationships considered as most strategic are with the public
sector.53 This indicates the priority of keeping close coordination with their institu-
tional environments, which gives the IPA the upper hand when advocating for
enhancement of the investment climate.
Finally, the means of consensus building will vary in accordance to the nature of
the relationship between a particular advocate and the party he or she is trying to
convince, as well as their particular interests and beliefs. However, as with mobili-
zation, consensus is better maintained over time through institutionalized coopera-
tion than built anew with each specific problem. In this regard, considering that
transparency and accountability are fundamental pillars in the relationship of an
authority and the concerned stakeholders, if there is a formal framework where an
authority can participate, the authority will be more inclined to show real progress
toward approving policy changes on such meetings, rather than continuously arriv-
ing empty-handed.54
Monitoring and Evaluation

Policy advocacy does not end with the adoption of a particular policy, this process is
result-oriented, and hence requires that advocates continuously monitor them to
confirm that the advocacy is in line with the pre-established goals. It is perfectly
normal that an adopted policy may have been implemented less than fully or with
unintended consequences.55
51
Ibid., p 54
52
Ibid., p 48
53
OECD-IDB (2017) Survey of investment promotion agencies, in OECD (2018) “Mapping. . .,” p
91
54
UNCTAD (2008) “Investment Promotion Agencies as . . .,” p 48
55
Ibid., p 57
Monitoring should not only be applied to the product itself but also to the
process. The cyclical nature requires that this final step of the process provide
essential feedback and inputs for future problem identification and agenda setting.
But, regrettably, accurate monitoring is not a normal trend among IPAs. For
instance, OECD’s IPAs only track 12% of their policy advocacy activities in
their customer relationship management systems, which make it difficult for
officials to measure their performance and to prioritize their actions accordingly.
In the end, demonstrating a systematic relationship between policy advocacy
activities and investment climate improvements can be quite a challenge for
IPAs.56
New Post-Pandemic Priorities on Policy Advocacy
Although less known than their marketing/promotion functions, policy advocacy

is a key function of IPAs. On average, agencies that focus their activities on
promotion, whether investment generation or image building, are less involved in
policy advocacy than they are facilitators.57 This reinforces the idea that invest-
ment facilitation, investment retention, and policy advocacy go hand in hand for
business climate improvements.58 And due to the COVID-19 pandemic, the
enhancement of the business and investment environment will probably be one
of the most relevant objectives for IPAs, as countries look to minimize the
negative effects of the pandemic during these times of economic recession and
restrictions.
Logistical and travel restrictions that we have encountered during 2020, which are
likely to continue well into 2021, will make it difficult for IPAs to perform their
activities – especially promotion – in the manner they were used to, through
roadshows and direct contacts with foreign investors overseas. Accordingly, IPAs
should take advantage of this context by redirecting their efforts toward the enhance-
ment (or establishment) of their policy advocacy processes, alongside budget
reallocation toward activities associated with them.
Beyond advocacy, the sharp decrease of investment flows and the somber eco-
nomic forecast should make IPAs focus their efforts on investment retention and
facilitation, as it is most likely that fewer new projects will be developed in the short-
to-medium term. It is fundamental that those investors that had already decided to
invest remain committed to their projects, and that those already established in the
country maintain a desire for reinvestment in those economies. In other words, IPAs
should also put a strong focus on aftercare, not only to spur reinvestments but also to
avoid FDI divestments.
56
57
Facilitators are usually IPAs with strong aftercare teams, which are well placed to help identify
recurring challenges and support the policy advocacy process. OECD (2019) “Supporting. . .,” p 13
58
The Role of IPAS During Crises
Investment Flows in Times of COVID-19
The SARS-CoV-2 pandemic, source of the COVID-19 disease, has posed a partic-
ularly difficult challenge for investment promotion agencies. Besides the major
downfall in investment flows – the United Nations Conference on Trade and
Development (UNCTAD) predicted a drop in FDI flows up to 40% during 2020–
2021, reaching its lowest level of the past two decades59 – the pandemic is a direct hit
to a very relevant part of an IPAs core business, which is physically connecting with
investors around the world, and also having foreign investors materially scoping
projects in their countries.
In May 2020, the OECD outlined a number of scenarios for success of public
health and economic support policy measures taken by governments to address the
COVID-19 pandemic, and the forthcoming recession.60 Even under the most opti-
mistic scenario, the Organization predicted FDI flows to shrink in at least 30%,
attuned with the previous analysis made by UNCTAD. To make matters even more
complicated, this decrease is only accentuating and accelerating the already steady
decline of FDI flows observed in the past 5 years.61 And then the news for
developing countries were even worse, as they rely on sectors which have been
more severely impacted by the pandemic, including the primary and the manufactur-
ing sectors, as previously noted in this chapter.62
Beyond immediate closure of operations, in the long-term the pandemic may also
lead to a change in allocation of companies’ foreign affiliates, with the subsequent
loss of economic activity for host countries (and gains to where operations
reallocate, as companies no longer look only for efficiency through off-shoring but
also for certainty and supply-chain security through “near-shoring”). Chances are
many of these affiliates will move toward territories which companies can deem as
“value-chain secure,” even in times of crises. What companies will likely look for, is
territorial diversification to reduce risks which are location-specific, such as border
closures, lockdowns, and other events resulting in disruptions of their value chains.
IPAs should keep this very much in mind when working not only on investment
attraction, but also on investment retention.
Divestments – a change in the firm ownership and business structure, involving a
partial or full disposal of an asset or a business unit63 – post- COVID-19 are likely to
have an additional impact on FDI flows. Even in normal times, divestments are a
59
UNCTAD (2020) Investment trends monitor, “Impact of the Covid-19 Pandemic on Global FDI
and GVCs”
60
OECD (2020) “Foreign direct investment flows in times of COVID-19,” p 1
61
OECD (2020) “OECD investment policy responses to COVID-19,” p 1
62
63
OECD (2020) Borga, Ibarlucea and Sztajerowska, Drivers of divestment decisions by multina-
tional enterprises – a cross-country firm-level perspective. https://doi.org/10.1787/5a376df4-en
natural feature of global supply chains and international investment: A study by the
OECD found that one in every five foreign-owned firms is divested every 5
years.64,65 But this trend may be heavily accentuated post-COVID, including not
only sell-offs of foreign affiliates to domestic players, but also liquidations, bringing
a direct and immediate loss of jobs and economic activity for the host country.
Following the 2008 financial crisis, “foreign divestments increased in OECD and
G20 countries in 2008, exceeding foreign acquisitions in terms of number and value.
These divestments were followed by a wave of foreign acquisitions a year later, as
some firms that remained in the market were able to buy assets at attractive prices.”
However, on this occasion – at least until the time this book went to print – MNEs
seemed to be more reluctant to let go of their international assets and foreign
affiliates at wholesale prices, hoping for a prompt recovery. Only time will tell
how sustainable this behavior will be, and if a large wave of divestments will
accompany the projected downfall in new FDI flows.
In either case, the silver lining lies in acknowledging that, as in other crises, FDI
could also play a key role in supporting host economies during the recovery. The
OECD recalls that evidence from past crises has shown that “foreign-owned affili-
ates, including small and medium enterprises, can show greater resilience during
crises thanks to their linkages with, and access to, the financial resources of their
parent companies.66,67 FDI could be particularly important for emerging and devel-
oping economies given that other sources of international financing, including
portfolio investment, have fled these economies.”68
The OECD also acknowledges that FDI contributions to recovery can go beyond
financing, stressing that MNEs are generally “larger, more research and development
(R&D) intensive, and more productive than purely domestic firms.”69 As such,
foreign companies are likely to help governments deal with the pernicious effects
of the pandemic, providing the opportunity for IPAs to liaise between foreign
affiliates and its local clients and partners, looking to facilitate business collabora-
tions that build momentum toward recovery (e.g., finding ways to resume production
and exports while protecting worker’s health).70
64
Borga, M., P. Ibarlucea Flores and M. Sztajerowska (2020), “Drivers of divestment decisions of
multinational enterprises – A cross-country firm-level perspective”, OECD Working Papers on
International Investment, No. 2019/03, OECD Publishing, Paris, https://doi.org/10.1787/5a376df4-en.
65
66
Alfaro, L. and M. Chen (2012), “Surviving the Global Financial Crisis: Foreign Ownership and
Establishment Performance,” American Economic Journal: Economic Policy, 4(3):30–55.
67
Desai, Mihir, C. Fritz Foley, and Kristin J. Forbes (2008), “Financial Constraints and Growth:
Multinational and Local Firm Responses to Currency Depreciation,” Review of Financial Studies,
21(6):2857–88.
68
Ibid., p 1
69
Ibid., p 2
70
Ibid., p 2
Investment Policies and Investment Promotion Agencies in Times of

COVID-19
As a reaction to the crisis, for now governments have relaxed policies across the
board, easing monetary policy, boosting USD and hard currency liquidity, introduc-
ing large (and many times subsequent) fiscal stimulus packages, offering credit
guarantees and relaxing prudential policies.71 Some of these policies have obvious
consequences on FDI, and countries like China, Peru, and India have even come to
ease measures on FDI inflows, including on cross-border borrowing and on foreign
portfolio investment.72
The other side of the coin – with regard to FDI – are governments reviewing or
preventing acquisition of sensitive assets, for example, through the implementation
or refinement of foreign investment, the so-called “screening mechanisms.”
Although some countries have had these in place for decades, the current crisis
acts as an additional incentive for jurisdictions to consider the implementation of
these mechanisms. The last section of this chapter refers to these government
measures pertaining national security objectives.
Investment treaties are also expected to be further resorted to because of the
pandemic. As treaties prohibit discrimination and uncompensated direct or indirect
expropriation, and in many cases the obligation to provide “fair and equitable
treatment” to foreign investors, it is likely that their dispute settlement mechanisms
are triggered. To prevent this, “extraordinary restrictive measures to address the
health crisis should be targeted, proportionate, transparent and temporary. [. . .] As
emphasized in the 2020 G20 Ministerial statement, these distortionary measures
should remain temporary as needed to mitigate the crisis, and not permanent fixtures
in the world trade system.”.73
For IPAs, the COVID-19 crisis also poses major challenges. As public budgets
are increasingly under pressure, they will be forced to “do more with less.” Although
in the near future less expenses in travel and international roadshows may balance
their budget, in the long-term most likely their financial means will shrink. Hence, it
is particularly important for IPAs to pass on the message that FDI promotion,
attraction, and retention are part of the solution.
In the short term – during the pandemic – companies will aim to reduce costs of
operations and reassure liquidity. Therefore, IPAs should not immediately focus on
attraction per se, as they should adapt to a new way of doing business, concentrat-
ing their focus on aftercare (including providing timely information to investors
and foreign affiliates about support policies and government actions), and policy
advocacy in order to improve the investment climate. Aftercare and policy
71
OECD (2020) “OECD investment policy responses to COVID-19,” p 3
72
Ibid.
73
Ibid., p 6
advocacy will play a critical role in minimizing the effects of the pandemic, and
ensuring retention of the existing investors. Then in the medium to long term, these
retentions should turn into expansions and re-investments.74
OECD IPAs “have been particularly active in providing rapid, regular and up-to-
date information on COVID-19 related developments and government support
programmes,” with agencies like InvestChile having prepared a comprehensive
report on the Impact of COVID-19 on the Economy and FDI, while Business
Sweden established a taskforce to help foreign companies supply chain relation-
ships.75 IPAs are in general focusing their efforts first on the health sector, and
second on hardest hit activities.
COVID-19 responses have also drastically accelerated the trend toward dig-
itization of IPAs, with robust Customer Relationship Manager softwares (CRMs)
becoming increasingly more important in order to “do more with less.” Exchange
of best practices within IPAs in confronting the pandemic has become a valuable
tool, with forums such as the OECD IPA network,76 and discussions propelled by
UNCTAD, the World Bank and WAIPA, and the Inter-American Development
Bank serving similar purposes. In the end, IPAs need to remain ready to adapt to
new realities and in particular boost their analytical capabilities toward
supporting “FDI policies, including FDI restrictions and national security screen-
ing mechanisms, FDI qualities indicators, and broader business climate reforms
[. . .].”77
Finally, IPAs need to be instrumental in preparing an inclusive, fair, and
resilient recovery.78 The opportunity to “build back better” has gathered hori-
zontal support, but if this will be finally possible will be more a question of
execution than strategy. Pressing economic needs (and the temptation for quick
wins) may derail increasing considerations of factors such as climate change
effects of new investments. In accordance, OECD key considerations include
“how investments can contribute greater resilience, what institutions and policies
are needed to address problems of inequality, poverty and the climate crisis; and
how all economies can benefit to the fullest extent from the opportunities of
FDI.”79
In order to achieve this, advancements on IPA’s benchmarking seems essential. It
will be very hard to assess how much are IPAs contributing to sustainable recovery,
if solid figures of agencies’ performance and their incidence in attracting and
retaining sustainable investments are not readily available, which is regrettably the
case for the majority of IPAs.
74
WAIPA (2020) “The impact of Covid-19 from the perspective of IPAS,” p 6–7
75
OECD (2020) “Investment promotion agencies in the time of COVID-19,” p 5
76
Ibid., p 9
77
Ibid., p 8
78
OECD (2020) “OECD investment policy. . .,” p 6
79
Ibid.
Screening Mechanisms and National Security Concerns
An IPA’s primary policy advocacy role consists of monitoring the domestic invest-
ment climate, finding problems, and channeling them to relevant policy makers. In
most cases enhancing the investment climate requires not only identifying and
solving bottlenecks, but also strengthening the transparency and predictability of
policy measures.
In this regard, it has been a common trend in the past few years – one only
accentuated by the COVID-19 pandemic – for certain developed and emerging
economies to impose or tighten mechanisms to protect their essential security
interests against threats associated with foreign acquisitions of certain assets, espe-
cially for national security reasons.80 Most of these counties share two specific
characteristics: (a) they are the main global destinations for foreign investment;
and, (b) many of these economies share a high degree of openness toward foreign
investment.
These “screening mechanisms” for the acquisition or ownership of certain assets
have risen in the past few years81 because of the following reasons: concerns about
investment originating in “less than transparent economies,” including an involve-
ment of foreign State-controlled entities; concerns that foreign ownership could
threaten a state’s security by limiting the diversity of suppliers of certain products
or services (in addition to the more traditional risk of espionage and sabotage);
technological changes and the growing sensitivity and quantity of sensitive data;
and, the more assertive stance of some countries in global economic and strategic
competition.82
The application of these mechanisms has been accompanied by several phenom-
ena that affect the manner in which transactions are conducted. On this subject, we
will explore on three specific dilemma situations that emerge from this policy
practice: first, these mechanisms directly interact with domestic and international
norms, which do not always coexist peacefully with these regimes; second, there can
be concrete shifts on foreign investment flows related to the manner in which
different countries apply these regimes; and finally, third, the effects of the rule-
application on one country could easily spillover to other countries, thus
80
UNCTAD. Investment Policy Monitor “National Security-Related Screening Mechanisms for
Foreign Investment.” p 3: “UNCTAD has identified 28 jurisdictions that have such mechanisms.
These countries are: Australia, Austria, Belgium, Canada, China, Denmark Finland, France,
Germany, Hungary, Iceland, India, Italy Japan, Latvia, Lithuania, Mexico, New Zealand, Norway,
Poland, Portugal, the Republic of Korea, Romania, the Russian Federation, Spain, South Africa, the
United Kingdom, and the United States. In addition to these 28 countries, an FDI Screening
cooperation mechanism was also established by the European Union.”
81
See Chaisse J, Chakraborty D, Mukherjee J (2011) Sovereign wealth funds as corporations in the
making – assessing the economic feasibility and regulatory strategies J World Trade 45(4):837–875
82
OECD (2020) Acquisition – and ownership-related policies to safeguard essential security
interests, pp 1–2
international cooperation is a critical factor for the adequate and effective – non-
protectionist – application of these regimes.83
It is an important challenge for IPAs to advocate for the consistency between legal
regimes open to FDI, and screening mechanisms related to national security con-
cerns. Although many times justified; they certainly make the equation more com-
plicated. These mechanisms grant ample maneuvering space for governments to
determine the risks associated with certain transactions, and the interplay of these
regimes with a country’s international commitments it is not always clear. This is
especially true with respect to high-ranking domestic law, in particular constitutional
law, especially with respect to due process rules or civil liberties.
Such an interaction has been observed with constitutional law protections, espe-
cially in countries where these policies allow for divestment “orders.”84 An often-
cited case is Ralls Corporation v CFIUS et al., where the United States District Court
of Appeals of the District of Columbia concluded, “that the Presidential Order
deprived Ralls of constitutionally protected interests without due process of law.”85
Even though this matter was ultimately settled, the Court of Appeals did acknowl-
edge that a Presidential Order deprived the acquirer’s property interest from a
constitutional protection. Although there have been few studies devoted to the
issue in general, it is foreseeable that the application of these restrictive and discre-
tionary policies should be subject to judicial review.
In terms of international commitments, most investment protection agreements
include exceptions to the treaty’s obligations due to national security, preventing
breaches of those obligations in case a Government decides to put in place or
effectively use these mechanisms. Notwithstanding, as with Ralls, the absolute
coverage of those exceptions is not clear, and neither is what would happen when
tested against specific provisions that grant protection to investors, i.e., whether this
could breach investors’ legitimate expectations. This lack of certainty poses an
important obstacle for IPAs trying to perform their core roles, and in general for
the construction of a country’s investment environment.
In a similar fashion, host-country governments have found other means apart
from a formal interdiction to prevent a foreign takeover, or have allowed it only
under the condition that the foreign ownership shares be reduced.86 Accordingly, the
government of Germany in 2018 prevented the acquisition of a 20% minority share
of “50Hertz” – a German grid operator with 18 million connected users – by the
83
See Chaisse J (2015) Demystifying public security exception and limitations on capital movement
– hard law, soft law and sovereign investments in the EU internal market. Univ Pa J Int Law 37
(2):583–646
84
OECD (2020) “Acquisition – and ownership-related policies to safeguard essential security
interests,” p 37
85
758 F.3d 296 (D.C. Cir. 2014) United States Court of appeals for the district of Columbia. Ralls
Corporation v CFIUS et al., p 47
86
UNCTAD, Investment Policy Monitor, “National Security-Related Mechanisms for Foreign
Investment,” p 2
People Republic of China State-owned State Grid Corporation of China (SGID), as

the planned transaction did not meet the screening threshold.87
On the other hand, a completely different scenario resulted from the acquisition of
Chile’s third-largest distributor of electricity by the same company SGID a year after.
This transaction was subject to approval by the Chilean anti-trust authority, but it
was never subject to any review related to national or essential security matters.88
Even though these examples are not necessarily linked, it is noteworthy that econ-
omies open to foreign investment, which lack formal regulation to implement
screening mechanisms, might be more attractive to certain kind of investors. It
may have been possible (although we certainly do not know this for sure) that the
available capital due to the failure of the SGID take-over in Germany perhaps
opened the opportunity for the subsequent acquisition in Chile. This is an issue to
remain attentive to, especially considering that there have been growing concerns
regarding how overly broad interpretations of a country’s interests covered by these
mechanisms could be creating new investment barriers.89 But at the same time, there
are certainly legitimate reasons for which countries could prevent foreign acquisition
to sensitive assets; the question here is where is the line drawn, and if this line will
move due to the global economic recession prompted by COVID-19.
A third important phenomenon, related to these mechanisms, is the interdependence
of a government’s decision in transactions that occur in other jurisdictions. A clear
example is illustrated by the far-reaching regulation providing authority to the Com-
mittee on Foreign Investments in the United States (CFIUS). Its application has not
only prevented transactions of US-based corporations (within the US territory), but it
has also influenced decisions with regard to transactions that occur in other latitudes.
This was the case with a transaction involving the digital map provider Navinfo Co.
(China), which abandoned its proposal to acquire a 10% minority stake in the digital
mapping services and software company HERE International BV (Netherlands) in
Europe, following the opposition from CFIUS.90
In addition to this growing trend, as mentioned, the current pandemic has
augmented the interest of countries to consider or even tighten these mechanisms.
This can be explained by the pale economic forecast that will create a scenario of
economic stress and the parallel price disruptions, where potentially problematic
investors could more easily acquire certain sensitive domestic assets91 at wholesale
prices. In this sense, the European Union published its guidance concerning foreign
direct investment, emphasizing that with this emergency there could be a risk of
87
Ibid., p 3
88
See https://www.beltandroad.news/2019/10/25/china-state-grid-buys-chiles-chilquinta-electric
ity-utility-for-us2-23-billion/
89
UNCTAD, Investment Policy Monitor, “National Security-Related Mechanisms for Foreign
Investment,” p 12
90
UNCTAD, Investment Policy Monitor, “National security-related mechanisms for foreign invest-
ment,” Annex I – FDI screening: foreign takeovers over $50 million blocked or abandoned for
national security reasons, 2016-september 2019, p 1
91
OECD (2020) Investment policy responses to COVID-19
attempts to acquire healthcare or related industries, highlighting the need to preserve

such capacities within the single market ownership.92
The expansion of interests claimed by countries, in the name of national or
essential security, makes it more challenging to draw a line between legitimate and
illegitimate government interference; even more so, considering that these mecha-
nisms can easily be used to impose foreign investment barriers or restrictions. Thus,
in a world where companies are fully integrated in global supply chains, IPAs will
require to pay close attention to specific measures that may affect investment flows
and acquisitions, not only in their home markets, but also in those of the most
prominent capital exporters.
As explained before, even the most sophisticated and open-to-investment markets
have complex regulations that do not always peacefully coexist with the principle of
due process, transparency, or predictability. In this post-COVID context, IPAs
should advocate to keep the contours of national security objectives and its FDI
limitations as narrow as possible.
But the question that will remain, in the short term, is how IPAs will interact with
these regulations, in order to keep their countries as an attractive destination for
foreign investment. At these crossroads, a solid policy advocacy process could help
to strike a balance between safeguarding national interests and keeping open borders
for FDI.
Conclusion
The role of FDI in contributing to recovery is of the essence. Beyond the regular
promotion and attraction functions of IPAs, these agencies also serve a relevant
policy advocacy role. Especially in times of crises, enhancing and improving the
investment environment, easing regulations and bureaucracy, and allowing admin-
istrative procedures to adapt to the speed of global business, will be particularly
important in competing for scarce post-pandemic FDI.
In that regard, IPAs should further streamline their policy advocacy processes
toward improving their investment environments, for which this chapter presents a
thorough step-by-step guide on advocacy implementation.
Particularly in a post-COVID scenario, investment promotion confronts huge
challenges, for which other functions of IPAs beyond marketing are also essential. It
has been noted than aftercare and investment retention has become even more
relevant, due to the fall in FDI flows and risk of divestment by companies with a
commercial presence in the host country.
92
European Commission. Communication from the Commission – Guidance to the Member States
concerning foreign direct investment and free movement of capital from third countries, and the
protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI
Screening Regulation)
Finally, a better understanding and more thorough systematization – including by

IPAs – of national security-related FDI restrictions, will also play a relevant role for
countries in promoting FDI in a cost-efficient manner in the near future.
Cross-References
▶ National Security Exception in an Era of Hegemonic Rivalry: Emerging Impacts

on Trade and Investment
▶ Protection of Cross-Border Data Flows Under International Investment Law
▶ Specific Approval Requirement in Investment Treaties: A Pursuit of Legitimate
Policy Objectives
▶ The Interactions of Competition Law and Investment Law: The Case of Chinese
State-Owned Enterprises and EU Merger Control Regime
Effects of BITs on FDI: The Role of
Publication Bias 8
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Investment and Political Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
The Causal Link from IIAs to FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Literature Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Empirical Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Preliminaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Pooled Effect Sizes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
Publication Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
List of Studies in Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Abstract
The question, whether International Investment Agreements (IIAs) actually
increase FDI inflows has been at the center of the debate about the political,
legal, and economic desirability of IIAs. As empirical evidence is mixed so far,
we use meta-analysis in order to study the role of publication bias as well as the
existence of a genuine effect. Our meta-analysis comprises 40 studies and 721
effect sizes, defined as semi-elasticities, carefully selected from an initial sample
of 70 empirical studies. Disregarding a possible publication bias, we estimate the
effect of Bilateral Investment Treaties on FDI between zero and an increase of
A Meta-analysis on the Impact of Bilateral Investment Treaties on Foreign Direct Investment By

Vienna 2020
L. Reiter · C. Bellak (*)

Vienna University of Economics and Business, Vienna, Austria
e-mail: bellak@wu.ac.at

https://doi.org/10.1007/978-981-13-3615-7_123
182 L. Reiter and C. Bellak
23.3% of FDI. However, our findings point to the existence of a positive

publication bias in subgroups of the studies, suggesting genuine effects below
1%. This has important policy implications.
Keywords
International economic law · International investment agreements · Meta-
analysis · Empirical study · International economics
Introduction
The issue, whether IIAs (International Investment Agreements) actually increase

FDI (Foreign Direct Investment) has been at the center of the debate about the
political, legal, and economic desirability of IIAs (normative issue). To date, we have
identified almost 100 empirical studies dealing with this question.
Over the last six decades, IIAs and in particular bilateral investment treaties
(BITs) have gained importance:
1. From an economic point of view due to the strong increase of FDI (and not least
global value chains) – with the exception of crisis years, such as the 2008
financial crisis – which inter alia depend on regulatory stability.
2. From a political science perspective, which concluded that during some periods
“peers were more likely to follow either as part of a rational cascade or because
signing became progressively institutionalized and widely understood to be a
desirable policy in the toolkit of economically responsible policy makers”.1
3. From a legal perspective, not only due to the strong growth of the number of IIAs,
but also due to the substantial increase of international arbitration cases based on
IIAs, suggesting a maturing of the system.
Not least since the publication of a book on this subject by Sauvant and Sachs,2
there was a huge increase in the number of empirical studies on the question whether
IIAs increase FDI.
The subject may be framed within two normative aspects of the research question:
“Should governments promote FDI (because it may lead to growth and develop-
ment)?”3 and “Should governments use IIAs to promote FDI (or are there more
efficient means of FDI attraction)?”
1
Jandhyala S (2011) Three waves of BITs. J Confl Resolut 55(6):1047–1073
2
Sauvant KP, Sachs LE (2009) The effect of treaties on foreign direct investment. Oxford University
Press, Oxford
3
Hanson GH (2001) Should countries promote FDI? G-24 discussion paper series 9. Center for
International Development, Harvard
8 Effects of BITs on FDI: The Role of Publication Bias 183
Looking at the latter question, it has been studied conceptually,4 on a subjective

basis5 or in the form of empirical studies applying statistical methodology (see
section “List of Studies in Sample”). To the best of our knowledge, the only
exception is Brada et al.6 (see subsection “Literature Overview”).
While this seems sufficient for a number of purposes, there are two serious
caveats: First, there are prominent examples of failure to replicate earlier results in
economics. Secondly, a prominent feature of empirical research is neglected, namely
the possibility of a publication bias: “Researchers have been acutely aware that the
selective reporting of statistically significant results . . . poses a major threat to the
scientific validity of psychology and other social sciences” (Stanley 2017, p. 581).7
Unsurprisingly, “(t)he question whether they do in fact promote foreign invest-
ment flows has been subjected to considerable doubt in recent literature” (Sornarajah
2017, p. 204).8 Moreover, it has been claimed that the question is “unsupported by
the preponderance of empirical evidence” (Van Harten 2010)9 or that “(t)aken as a
whole, the effectiveness of BITs in attracting FDI seems to be weak. (. . .) Increasing
evidence of the substantial litigation and reputational costs associated with investor-
state arbitration may indicate that the costs of BITs outweigh their benefits” (Bauerle
Danzman 2016, p. 452 f.).10
The mixed evidence on the one hand, which does not allow to draw clear-cut
conclusions, and considerable doubt on the other hand were the main motivations to
employ more sophisticated methods in order to provide a tentative answer about the
effects of IIAs on FDI. The purpose of this chapter is to shed light on the diverse and
mixed empirical evidence of whether investment treaties positively impact FDI by
estimating the existence (and extent) of a publication bias present in empirical
evidence published so far. It should thus be seen as a complement to the study by
4
Bonnitcha JM (2017) Assessing the impacts of investment treaties: overview of the evidence. IISD
Report September. International Institute for Sustainable Development
5
Bonnitcha JM (2017) Assessing the impacts of investment treaties: overview of the evidence. IISD
Report September. International Institute for Sustainable Development; Jacobs MN (2017) Do
bilateral investment treaties attract foreign direct investment to developing countries? A review of
the empirical literature. Int Relat Dipl 5(10):583–593; UNCTAD (2014) The impact of international
investment agreements on foreign direct investment: an overview of empirical studies 1998–2014.
UNCTAD Issues Note. UNCTAD
6
Brada JC, Drabek Z, Iwasaki I (2019) Does investor protection increase foreign direct investment?
A large meta-analysis. Forum for Research in Empirical International Trade Working Paper 1546.
https://www.freit.org/WorkingPapers/Papers/TradePolicyMultilateral/FREIT1546.pdf
7
Stanley TD (2017) Limitations of PET-PEESE and other meta-analysis methods. Soc Psychol
Personal Sci 8(5):581–591
8
Sornarajah M (2017) The international law of foreign investment, 4th edn. Cambridge University
Press, Cambridge
9
Van Harten G (2010) Five justifications for investment treaties: a critical discussion. Trade Law
Dev 2(1):1–32
10
Bauerle Danzman S (2016) Contracting with whom? The differential effects of investment treaties
on FDI. Int Interact 42(3):452–478
Brada et al.11 Hence, by proving the existence of a publication bias, this chapter
contributes to the growing literature that addresses “one source of the current
credibility and replication “crises” across the social sciences” (Stanley 2017, p.
581).12
The next section briefly outlines the conceptual background of the hypothesis that
investment treaties impact positively on FDI, followed by a section which presents
the empirical evidence on the basis of a meta-analysis. The final section summarizes.
Theory
Investment and Political Risk
This section asks how political risk impacts investments. In line with Keynes’ notion
of investors’ behavior, “(i)f human nature felt no temptation to take a chance, no
satisfaction (profit apart) in constructing a factory, a railway, a mine, or a farm, there
might not be much investment merely as a result of cold calculation”,13 we assume
that foreign investors may take rational decisions when investing abroad, yet psy-
chological and other factors may also play a key role in investment decisions.
Political risk encompasses the notions of policy uncertainty14 as well as regula-
tory uncertainty.15 Political risk is defined as the risk that “an investment’s returns
could suffer as a result of political changes or instability in a country. Instability
affecting investment returns could stem from a change in government, legislative
bodies, other foreign policymakers or military control. Political risk is also known as
‘geopolitical risk’, and becomes more of a factor as the time horizon of investment
gets longer” (https://www.investopedia.eom/terms/p/politicalrisk.asp).
In addition, regulatory risk has been described very aptly by Hallward-Driemeier
and Pritchett16 – though without using the term explicitly – as a scenario “when
stringent formal rules that characterize the de jure investment climate in developing
countries meet weak government willingness or capability to enforce those rules”
(p. 121). Both are types of government failures.
11
Brada JC, Drabek Z, Iwasaki I (2019) Does investor protection increase foreign direct investment?
A large meta-analysis. Forum for Research in Empirical International Trade Working Paper 1546.
https://www.freit.org/WorkingPapers/Papers/TradePolicyMultilateral/FREIT1546.pdf
12
13
Keynes JM (1936) The general theory of money, interest and employment. Macmillan
14
Davis SJ (2019) Rising policy uncertainty. NBER working paper 26243. NBER, Cambridge, MA
15
World Bank (2020) Global investment competitiveness report 2019/2020: rebuilding investor
confidence in time of uncertainty. Global Investment Competitiveness Report 2019/2020. World
Bank, Washington, DC
16
Hallward-Driemeier M, Pritchett L (2015) How business is done in the developing world: deals
versus rules. J Econ Perspect 29(3):121–140
Above, we have mentioned risk and uncertainty as if they were the same.
Therefore, it is important to emphasize the difference between risk and uncertainty:
“(R)isk can be adequately quantified; the more homogeneous the events, the more
we know about the distribution of possible outcomes. By contrast, quantification of
“uncertainty” is far more difficult; indeed, the more heterogeneous the events, the
less we know about the distribution of possible outcomes” (Hill 1998, p. 287 f.).17
Busse and Hefeker18 point to the close link between a number of political risk
components and the quality of political institutions. “Above all, the quality of the
bureaucracy is closely associated with the institutional strength of a particular
country. Likewise, ensuring law and order and reducing corruption levels are
important determinants (and effects) of high-quality institutions” (p. 400).
With regard to IIAs and FDI, today the literature more or less agrees that the main
political risk of investing abroad concerns the threat to an investor’s property rights
by time inconsistent economic policy,19 which may encompass all of the above types
of political risk and regulatory uncertainty. These threats to property rights and the
way countries act change over time. In the past the threats often originated by
opportunistic behavior of governments (i.e., the obsolescing bargain view). Today
the threats to property rights of foreign investors are increasingly “propelled in good
part by the competition among potential host countries for credible property rights
protections that direct investors require” (Elkins et al. 2006, p. 812)20; see also
(Sornarajah, 2017, ch. 5)21; i.e., the competitive view). Evidently there has been a
shift from direct expropriations to indirect expropriation, i.e., grosso modo changes
in the regulatory environment, which is thought to constitute the main threat today.
This is reflected in the empirical fact that indirect expropriations have been the major
cause of investment arbitration claims in recent years.
How does political risk affect FDI? Political risk, due to its heterogeneous and
changing nature, acts as a constraint to investment in general and FDI in particular.
For example, Busse and Hefeker22 maintain that “the risk premium incorporated in
any investment project and, therefore also the location decision is influenced by
political risk” (see also MIGA 2010, p. 1823). Davies summarizes a large literature
about this issue: “heightened uncertainty provides an incentive to delay or forego
investments that are costly to reverse. Uncertainty can also depress investment by
17
Hill CA (1998) How investors react to political risk. Duke J Comp Int Law 8:283–312
18
Busse M, Hefeker C (2007) Political risk, institutions and foreign direct investment. Eur J Polit
Econ 23:397–415
19
Kerner A, Lawrence J (2012) What’s the risk? Bilateral investment treaties, political risk and fixed
capital accumulation. Br J Polit Sci 44(1):107–121
20
Elkins Z, Guzman AT, Simmons B (2006) Competing for capital: the diffusion of bilateral
investment treaties, 1960–2000. Int Organ 60(4):811–846
21
Sornarajah M (2017) The international law of foreign investment, 4th edn. Cambridge University
Press, Cambridge
22
Econ 23:397–415
23
MIGA (2010) World investment and political risk. World Bank Group
raising risk premiums” (Davis 2019, p. 544).24 In particular, irreversible investment

in an industry may decline if economic agents are uncertain about future payoffs.25
Recent evidence on the importance of regulatory risk put forward by the World
Bank26 shows that the effect of regulatory risk on FDI is sizeable and comparable in
magnitude to the investment enhancing effects of trade openness: “On average, a 1
percent reduction in regulatory risk increases the likelihood of an investor entering or
expanding in a host country by 0.5–2 percentage points” (p. 142).
To summarize, political risk and regulatory uncertainty cause market failure in the
form of the hold-up problem (cf. Shotts 201627), which impedes FDI. One possible
response to the hold-up problem arises on the level of the investor, as firms may take
up political risk insurance. Yet, as the World Bank reports, surveys reveal that only “15
percent of respondents state that they use political risk insurance” (World Bank 2020,
p. 12928). The other possible response is to rely on an IIA, to which we turn now.
The Causal Link from IIAs to FDI
In risky environments, the possibility of protection and recourse29 will become

particularly valuable for foreign investors. Blake30 argues in general that interna-
tional institutions “help governments make credible commitments to other state and
nonstate actors by raising the costs of commitment violation,” i.e., the commitment
function. The solution to the hold-up problem is to “make the commitments of the
host state credible”31 by entering into IIA, since IIAs are international legal com-
mitments that guarantee the property rights of foreign investors and “an effective
24
Davis SJ (2019) Rising policy uncertainty. NBER working paper 26243. NBER, Cambridge, MA
25
Robin D, Germán G, Philippon T (2017) Is there an investment gap in advanced economies? If so,
why? In: European Central Bank (ed) Investment and growth in advanced economies: conference
proceedings. Oxford University Press, Frankfurt, pp 129–193
26
27
Shotts KW (2016) Political risk as a hold-up problem: implications for integrated strategy. In: de
Figueiredo JM, Lenox M, Oberholzer-Gee F, Vanden Bergh RG (eds) Strategy beyond markets:
advances in strategic management. Emerald Group Publishing Limited, Bingley, UK, pp 57–85
28
29
30
Blake DJ (2013) Thinking ahead: government time horizons and the legalization of international
investment agreements. Int Organ 67:797–827
31
van Aaken A (2010) The international investment protection regime through the Lens of
economic theory. In: Waibel M, Kaushal A et al (eds) The backlash against investment arbitration.
Kluwer Law International, Alphen aan den Rijn, pp 537–554
system of dispute settlement”.32 Summarizing this strand of argument, IIAs “present

significant ex-post costs to signatory states that violate the agreement” (Kerner 2009,
p. 7433). Of course, this comes with a cost for the host country government in the
form of constraints on the autonomy in domestic policy making.
Besides, IIAs may have a signaling function as IIAs “may, in particular, serve as a
costly signal of governments’ preferences and intentions”. This type of function of
IIAs refers to the impact of IIAs on “FDI inflows from foreign countries that are not
covered by the treaty” (Bonnitcha et al. 2017, p. 159).34 As Kerner35 points out, BITs
can “present enough ex ante costs, (. . .) that ratifying a BIT credibly signals that a
state is predisposed against expropriating from foreign investors.”
Following (Bonnitcha et al., 2017, Ch. 6),36 in this meta-analysis we use this
distinction between commitment effects and signaling effects in order to group
results of earlier studies, as it is very likely that the effects of IIAs on FDI vary
between investors that are covered and those that are not covered by IIAs. A third
function of IIAs has recently been described by Poulsen37 which, however, defies an
empirical analysis: “Rather than providing formal dispute settlement, sanctions, and
penalties to make credible commitments, Western states intended investment treaties
to serve as salient focal points for the informal resolution of investment disputes”
(emphasis added).
In short, the possibility to enter into dispute settlement with the host State acts as
an “insurance” against political risk and provides a signal to an investor, even if not
covered by an IIA, of a certain preparedness of a government to abide by its
commitments. As a caveat, in line with the reasoning of Busse and Hefeker,38 we
should not forget that “it appears that when strict rules meet weak state capability –
or, more broadly, ‘institutions’ – the rules bend and become more like individuated
‘deals’ where outcomes are not the result of a neutral application of policy to the
facts but rather have to be negotiated case by case” (Hallward-Driemeier and
Pritchett, 2015, p. 135).39 This also includes protections granted by IIAs and may
32
Schreuer C (2011) Investment, international protection. https://www.univie.ac.at/intlaw/
wordpress/pdf/investments_Int_Protection.pdf
33
Kerner A (2009) Why should I believe you? The costs and consequences of bilateral investment
treaties. Int Stud Q 53(1):73–102
34
Bonnitcha JM, Poulsen LNS, Waibel M (2017) The political economy of the investment treaty
regime. Oxford University Press, Oxford
35
36
Bonnitcha JM, Poulsen LNS, Waibel M (2017) The political economy of the investment treaty
regime. Oxford University Press, Oxford
37
Poulsen LNS (2020) Beyond credible commitments: (investment) treaties as focal points. Int Stud
Q 64(1):26–34
38
Econ 23:397–415
39
Hallward-Driemeier M, Pritchett L (2015) How business is done in the developing world: deals
versus rules. J Econ Perspect 29(3):121–140
be particularly relevant in cases where foreign investors are large firms with consid-
erable local importance. In order to establish whether a causal positive relationship
exists between IIAs and FDI, the empirical part presents the results of the meta-
analysis.
Literature Overview
Evaluations of policy implementation usually seek to establish empirically, whether

a causal effect exists between the implementation of a policy measure and the
objective. The literature about BITs and FDI is no exception. Usually, one may
distinguish policy measures, which affect the dynamics of the economy, i.e., process
policy like a change in the tax rate and those, which are part of the policy framework,
i.e., regulatory policy. IIAs are clearly part of the latter.
Since the earliest studies have been published, the research question has been
largely the same: Do IIAs increase FDI? In line with other empirical studies on the
determinants of FDI, IIAs are usually considered as a policy determinant besides
other policies like trade agreements, the degree of flexibility of the labor market,
R&D and innovation policies, tax policies, etc. As is standard in the empirical
literature on determinants of FDI, only a small fraction of empirical studies analyze
effects on the basis of a theoretical model.40
Concerning the methodology used, while earlier studies did not account for
endogeneity, the more recent studies routinely take endogeneity between IIAs and
FDI into account. Concerning the operationalization of the variables, while one is
very much restricted in the measurement of either, IIA and FDI, more recent studies
have also included the quality of IIAs (e.g., whether an IIA includes investor-State
dispute settlement provisions). The main source of IIAs is UNCTAD’s International
Investment Agreements Navigator.41 As more and more FDI data became available,
especially on the bilateral country level, it became possible to set up large panel
datasets. Two datasets on FDI have been primarily used, one of UNCTAD and the
other one available from OECD. As a standard, regression analysis has been
employed to estimate the relative impact of the IIA variable against other determi-
nants. More recent studies increasingly use versions of an augmented gravity model.
Over time, in line with the reasoning of Busse and Hefeker,42 variables reflecting the
quality of the institutional environment, like judicial quality, corruption levels,
governance, degree of democratic control, trade-agreements, etc., have been used.
40
Egger P, Merlo V (2007) The impact of bilateral investment treaties on FDI dynamics. World
Econ 30(10):1536–1549
41
UNCTAD (2020) International investment agreements navigator. https://investmentpolicy.unctad.
org/international-investment-agreements
42
Econ 23:397–415
The findings of this literature show great heterogeneity as the range of effect sizes
within our study is between 1063 and 10.5 trillion percent and the median value is
18.6%. The majority of results provide evidence of a positive effect of IIAs on FDI,
yet since the range of effects is large and statistically significant effects have not been
found in every study, there is no consensus about the answer to our research
question.
Using the partial correlation coefficient (PCC) as the effect size measure, Brada
et al.43 conclude that “the existing literature does provide genuine empirical evi-
dence of the positive effect of IIAs on FDI” (p. 24; MIT . . . multilateral investment
treaty) with regard to BITs. They also note that “different types of investment
protection treaties have different effects on FDI” (ibidem).
It should also be mentioned, however, that somewhat unexpectedly, several
coefficients on the BIT variable in published studies carry a negative sign. While
this is clearly not in line with the theoretical argument above, one paper argues that,
“under some circumstances, international devices may be substitutes for local
institutions and lead to reductions in governance quality” (Ginsburg 2005,
p. 122).44 Reduced governance quality would then attract fewer FDI. While this
clearly contradicts the argument made by Busse and Hefeker45 and other authors,
recently, there has been only one empirical study, which made the claim that “BITs
may even substitute for domestic institutions,” namely that of Busse et al.46 Yet,
even in this case, there is no reason to assume that IIAs would then impact negatively
on FDI. Indeed, there is convincing evidence that the effects of IIAs are smaller, the
lower the quality of domestic institutions.47
Empirical Part
Preliminaries
The empirical part presents the methodology and the results of a meta-analysis
of empirical results on the effect of IIAs on FDI. “A meta-analysis is a
tool for aggregating estimates of a similar ‘effect’ across many studies”
43
Brada JC, Drabek Z, Iwasaki I (2019) Does investor protection increase foreign direct invest-
ment? A large meta-analysis. Forum for Research in Empirical International Trade Working Paper
1546. https://www.freit.org/WorkingPapers/Papers/TradePolicyMultilateral/FREIT1546.pdf
44
Ginsburg T (2005) International substitutes for domestic institutions: bilateral investment treaties
and governance. Int Rev Law Econ 25:107–123
45
Econ 23:397–415
46
Busse M, Königer J, Nunnenkamp P (2010) FDI promotion through bilateral investment treaties:
more than a bit? Rev World Econ 146(1):147–177
47
Tobin JL, Rose-Ackerman S (2011) When BITs have some bite: the political-economic environ-
ment for bilateral investment treaties. Rev Int Organ 6(1):1–32
(Hong 2019, p. 2).48 We focus here on a specific subgroup of IIAs, namely BITs.
The aim of this meta-analysis is twofold.
First, we are interested in determining empirical evidence on a causal relation-
ship, which is in line with the theoretical effect of IIAs on FDI. This is not only
important, since the debate around the desirability of the system of IIAs is almost as
old as the agreements themselves, but also because the policy debates – and indeed
the political debates – on the revision of the system of investment agreements are
plagued by a host of problems, inter alia lack of a consistent and plausible quanti-
fication of the effect of IIAs on FDI.
Second, we would like to establish, whether publication (selection) bias is
present. Publication selection bias occurs when researchers, reviewers, and editors
are inclined to publish research results that are consistent with the conventional view
and/or statistically significant. It may also concern the model selection process.
Publication bias is closely linked to the file-drawer problem, which describes the
phenomenon that insignificant results are less likely to be published. Regardless of
its source, when present, publication bias leads to a biased presentation of the current
status of research. This influences both narrative and quantitative assessments such
as meta-analyses.
Due to publication bias, “larger and more significant effects will be overrepre-
sented in the research record” (Iwasaki 2020, p. 3).49 This latter phenomenon is not
just a problem concerning the scientific literature, but also the public, as it may
undermine public trust in research results. “Researchers have been acutely aware that
the selective reporting of statistically significant results . . . poses a major threat to the
scientific validity of psychology and other social sciences” (Stanley, 2017, p. 581).50
Last but not least, biased estimates of the true effect would lead to misguided
policies. Stanley and Doucouliagos51 pointed out that “[t]he real problem of publi-
cation selection is not its existence, but the large biases that it can impact upon any
summary of empirical economic knowledge, when uncorrected” (p. 52).
Given that in the case of BITs and IIAs large amounts of public money are spent
on investment incentives of various types,52 any opportunity costs arising from such
policies would add to the sovereignty costs described above and may put a large
burden on society.
48
Hong S (2019) Meta-analysis and publication bias: how well does the FAT-PET-PEESE procedure
work? A replication study of Alinaghi & Reed (research synthesis methods, 2018). Int J Re-Views
Emp Econ (IREE) 3(2019–4):1–22
49
Iwasaki I (2020) Meta-analysis of emerging markets and economies: an introductory note for the
special issue. Emerg Mark Financ Trade 56(1):1–9
50
51
Stanley TD, Doucouliagos H (2012) Meta-regression analysis in economics and business.
Routledge, New York
52
Tavares-Lehmann AT, Toledano P, Johnson L, Sachs L (eds) (2016) Rethinking investment
incentives: trends and policy options. Columbia University Press, New York
Testing for publication selection bias is thus the most unique aspect of meta-
analysis. Economics seems to be especially plagued by its presence. Doucouliagos
and Stanley53 classified the publication bias as “substantial” in nearly 60% of the
economic research fields they observed in their study. Therefore, examination of the
likelihood of publication selection and the presence of genuine empirical evidence
beyond the bias is one of the most important aims of meta-analysis.
Data Collection
The main inclusion criterion of studies was the empirical investigation of a causal
effect of BITs on FDI. This relationship however, is not required to be the chapter’s
main interest. Studies investigating other factors that attract FDI routinely include
the presence of a BIT as a control variable. Potential empirical studies were identified
via Google Scholar, including keywords “FDI” and “BIT” both in their abbreviated
form and their fully written form in English language, in order to allow other
researchers to replicate our study. Besides, snowballing has been used, using our
research networks. The search was conducted between 2011 and the end of 2018. To
maximize coverage of existing research, peer-reviewed journal articles as well as
grey literature were considered, including working papers, book chapters, technical
reports, and theses. Since we use semi-elasticities as effect sizes (see below), we had
to apply rigorous requirements on studies to be included. Some of the following
criteria have led to a reduction in the number of studies, some to a reduction of the
number of observations of the remaining studies and some both. Exclusion of results
is based on the following criteria:
• If more than one version of a study was available (e.g., as a working paper and
published in a journal), only the most recent was used. This concerns mostly
working papers, later published in journals or as book chapters, but remained
largely unaltered54
• If a study was either identified or published after the end of 201855
53
Doucouliagos H, Stanley TD (2013) Are all economic facts greatly exaggerated? Theory com-
petition and selectivity. J Econ Surv 27(2):316–339
54
Berger A, Busse M, Nunnenkamp P, Roy M (2011) More stringent BITs, less ambiguous effects
on FDI? Not a bit! Econ Lett 112(3):270–272; Haftel YZ (2007) The effect of U.S. BITs on FDI
inflows to developing countries: signaling or credible commitment? Paper prepared for the work-
shop on Globalization, Institutions and Economic Security (GIES). The Ohio State University;
Peinhardt, Clint and Todd Allee (2008). The costs of treaty participation and their effects on U.S.
Foreign Direct Investment. Tech. rep. American Society for International Law’s International
Economic Law Interest Group Meeting, Washington, DC
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Armstrong S (2019) The impact of investment treaties and ISDS provisions on FDI in Asia and
globally. In: Chaisse J (ed) China’s international investment strategy: bilateral, regional, and global
law and policy. Oxford University Press, Oxford, pp 57–82; Jung HJ, Kim EM (2019) International
treaties and foreign direct investment: an empirical analysis of effects of bilateral investment treaties
on South Korea’s FDI. J Asia Pac Econ. https://doi.org/10.1080/13547860.2019.1686915
• Studies or specifications where the exact method used remained unclear56

• One study included a large number of coefficients. Besides missing insufficient
information to derive effect sizes it was impossible to judge which of the large
number of models displayed were the preferred ones57
• The dependent variable was not defined in terms of FDI, but in terms of foreign
affiliates, employment etc. Thus, it could not be compared to the results of other
studies included. This has led to the exclusion of whole studies58 or to the
exclusion of single observations in case a study used several types of foreign
investment measurements.
• Studies, where authors asked explicitly for their exclusion, despite they were
available on the internet59
• The study of Chen et al.60 includes the same coefficients twice and thus cannot be
considered reliable.
• The dependent variable in an empirical specification was defined as a ratio or
quota and could not be transferred into a comparable semi-elasticity.
• Some combinations of the criteria for classifying observations into distinct groups
(see below) have led to groups with too few observations and did not warrant
separate investigation: (i) one study investigating signaling effects using aggre-
gate FDI stocks; (ii) two studies investigating signaling effects using bilateral FDI
stocks; and (iii) despite a total of 13 studies use FDI as a ratio, unfortunately too
few would fall into a distinct group and observations based on ratios of FDI can
therefore not be analyzed separately.
• Outliers based on the methodology described below.
• Coefficients on interaction effects with BIT variable, as the statistical significance
of these coefficients cannot be inferred from the t-value.61
56
UNCTAD (1998) Chapter IV: the impact on foreign direct investment. In: Bilateral investment
trendies in the mid-1990s. UNCTAD, Geneva
57
Siegmann T (2007) The impact of bilateral investment treaties and double taxation treaties on
foreign direct investments. U. of St. Gallen Law & Economics Working Paper 2008-22
58
Myburgh A, Paniagua J (2016) Does international commercial arbitration promote foreign direct
investment? J Law Econ 59(3):597–627; Nguyen HTV, Vinh C, Trang L (2014) The impact of
heterogeneous Bilateral Investment Treaties (BIT) on Foreign Direct Investment (FDI) inflows to
Vietnam. SECO/WTI Academic Cooperation Project Working Paper Series 3; Urata S (2015)
Impacts of FTAs and BITs on the Locational Choice of Foreign Direct Investment: The case of
Japanese firms. RIETI Discussion Paper Series 15-E-066. Research Institute of Economy, Trade and
Industry (RIETI)
59
Jandhyala S, Henisz W, Mansfield ED (2007) Pooling is a BIT inappropriate: a two stage model
for bilateral investment treaty signing; Rose-Ackerman S, Tobin JL (2005) Foreign direct invest-
ment and the business environment in developing countries: the impact of bilateral investment
treaties. Yale Law & Economics Research Paper 293
60
Chen H, Li C, Whalley J (2015) The impact of BITs and DTTs on FDI inflow and outflow:
evidence from China. CIGI Papers 75
61
Brambor T, Clark WR, Golder M (2006) Understanding interaction models: improving empirical
analyses. Polit Anal 14(2):63–82
This has led to a total of 69 studies, which were identified as potential candidates
for the meta-analysis of which 40 are part of the final data set. The first study in the
final sample used in our study was published in 1998 and the most recent study dates
from 2018. The coding of the reviewed studies has been done partly by both authors
and has been cross-checked by both. In addition, numerous e-mails were exchanged
between the authors of the studies and ourselves. The sample includes data on
studies used in Bellak62. Throughout this study we follow the reporting guidelines
of Havránek et al.63
Derivation of Effect Sizes

Depending on whether the signaling or commitment effect is being investigated, the
regression models used in the investigated studies usually take one of two forms.
Commitment effects are modeled as:
f diijt ¼ α þ β bitijt þ γ control ijt þ εijt , ð1Þ
where fdiijt corresponds to FDI from country i, in country j, over period t, FDI is
either used as absolute value, logged, and/or as a ratio; bitijt is a dummy variable that
takes the value of 1 if a BIT is in force/signed between countries i and j over period t
and control consists of a set of control variables, such as GDP, trade agreements, and
institutional variables. Models used to investigate signaling effects take the form:
f diit ¼ α þ β cum bitit þ γ control it þ εit , ð2Þ
where fdiit describes aggregate FDI in or coming from country i over period t,
cum_bitit is the total/logged sum of BITs signed by country i over period t and
controlijt is again a set of control variables. In both models, the coefficient of interest
is β. Combinations of both approaches as one model are rare, but appear in some of
the studies investigated.
To compare the results from different studies and model specifications, the
reported regression coefficients are transformed into a common metric. For the
present analysis, all regression coefficients on BITs were transformed into semi-
elasticities and are subsequently referred to as effect sizes. The use of semi-elastic-
ities allows the assessment of the economic effect of BITs on FDI, while having a
commonly used interpretation, namely the percentage change in FDI related to the
presence of a BIT. Depending on the specification of FDI and the BIT variable,
different calculations for the semi-elasticities are required. Table 1 shows the trans-
formations of the coefficients and their standard errors. Alternative units of effect
sizes include Partial Correlation Coefficients (PCCs). As a unitless measure, PCCs
62
Bellak C (2015) Economic impact of investment agreements. Department of Economics Working
Paper Series 200. https://ideas.repec.org/p/wiw/wiwwuw/wuwp200.html
63
Havránek T, Stanley TD, Doucouliagos H, Bom P, Geyer-Klingeberg J, Iwasaki I, Robert Reed W,
Rost K, van ARCM (2020) Reporting guidelines for Meta analysis in economics. J Econ Surv.
Online version of record before inclusion in an issue
Table 1 Calculations of semi-elasticities

Semi- Variance of semi- Number of studies
Model specification elasticitya elasticity identified
Level-level β
VarðβÞ β2 VarðfdiÞ 4
fdi 2 þ 4
fdi fdi
Log-level β Var(β) 17
(cumulative)
Log-levelc (dummy) exp(β) 1 (exp(β))2 Var(β) 27
β

Level-log 1 VarðβÞ β2 VarðfdiÞ 0
fdibit 2 2 þ 4
bit fdi fdi
Log-log β VarðβÞ 1
2
bit bit
a
To obtain percentage changes, the shown semi-elasticities were multiplied by 100 and variances by
1002. Overlined variables refer to sample means
b
The sum of studies identified does not add up to the total amount of studies (N ¼ 40) used as one
study might use various model specifications
c
Log-level models require two different transformations depending whether the BIT variable is
coded as a dummy or a cumulative variable. In the case of dummies, the “corrected” transformation
according to Halvorsen et al. (The interpretation of dummy variables in semilogarithmic equations.
Am Econ Rev 70(3):474–475, 1980) was used. Alternative transformations have been considered
but deemed impractical in application with the present data (See Kennedy PE et al (1981)
Estimation with correctly interpreted dummy variables in semilogarithmic equations. Am Econ
Rev 71(4):801–801; Giles DEA (1982) The interpretation of dummy variables in semilogarithmic
equations: unbiased estimation. Econ Lett 10(1–2):77–79)
enable a joint investigation of regression coefficients across different model speci-

fications, but do not allow an economic interpretation of results. For example, Brada
et al.64 used PCCs in a meta-analysis on IIAs in a preliminary draft. Having
transformed the data into semi-elasticities, the effect sizes were grouped to ensure
comparability with respect to measurement. The grouping depends on three dimen-
sions, regarding the specifications of FDI and BITs. First, FDI can be measured as
inward or outward total stocks or annual flows of a country. Secondly, annual FDI
can either be aggregated for one country or measured between two countries (i.e.,
dyads). The third dimension concerns the above described signaling and commit-
ment effects. This leads to various combinations and in the final analysis four groups
of observations have been used.
Table 2 shows their characteristics along with descriptive statistics. Two potential
groups were discarded because not enough studies match their criteria. (see above)
Differences in the study designs, such as different data and methods used influence
the range of effect sizes. The variation of effect sizes is referred to as study
heterogeneity. The concept of study heterogeneity is crucial to meta-analysis and
will be further discussed below. In the present sample, a high degree of heterogeneity
can be expected. While in the present investigation studies were grouped according
64
Table 2 Group characteristics and descriptive statistics

Group 1 Group 2 Group 3 Group 4
FDI specification Flow bilateral Stock bilateral Flow bilateral Flow aggregate
BIT effect commitment commitment signaling signaling
Observations 299(26) 241(20) 57(0) 123(0)
Studies 18 14 7 12
Mean 38.41 107.2 108.01 19.62
Std. deviation 124.98 201.85 233.77 66.76
Median 34.99 36.21 1.77 2.35
Minimum 849.15 77.52 5.2 38.61
Maximum 705.59 992.55 856.5 535.2
Notes: Values refer to groups without outliers. The number of excluded outliers is given in
parenthesis
to the effect investigated, the groups do not distinguish between the studies’ different
country compositions. While some studies restrict the host States to include only
low-level income countries, other studies are interested in the effect of a BIT
concluded between high-level income countries. Even within studies different coun-
try compositions are used as robustness checks. Additionally, the wide array of
models and statistical methods used can be expected to be another source of
heterogeneity.
Outliers
The literature on meta-analysis provides little discussion on the treatment of outliers.
As effect sizes are weighted with their standard errors, outliers (usually having larger
standard errors) should show little effect on results.65 The present sample, however,
contains several large effect sizes that are not only economically implausible but also
single-handedly influence results to an undesirable extent. To deal with both poten-
tial problems this study uses a two-step approach. First, all effect sizes with an
absolute value above 1000 were excluded. A threshold of 1000 – i.e., an increase of
1000% in FDI associated with the implementation of a BIT – deals with extreme
values in the data, but is also conservative enough to keep the subjective judgment of
the authors’ to a minimum. Afterwards dfbeta values were used to identify obser-
vations which on their own drive the results of the present study. Note that using
dfbeta allows the simultaneous identification of outliers (extreme values of
the dependent variable, i.e., effect sizes) and leverage points (extreme values in the
independent variable, i.e., the standard error). The target regression for dfbeta is the
FAT-PET regression, using robust standard errors. The FAT-PET procedure is pre-
sented below. The dfbeta was derived for both coefficients (on the intercept and 1/SE).
Observations were identified as overly influential if either one of its absolute values for
65
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dfbeta was above 1. A threshold of 1 is a compromise between the inclusion of as much

available data as possible and excluding observations that overly influence results.
Note that all observations identified as overly influential points are outliers except
for one point identified in group 2 which is a leverage point. The following results
are based on samples excluding those points.
Pooled Effect Sizes
To assess the overall effect, three estimators are commonly used in meta-analysis:
the fixed-effect estimator (FEE), the random-effects estimator (REE) and the
unrestricted weighted least squares estimator (UWLS). The FEE and REE should
not be confused with the panel regression methods with the same names. All three
estimators used can be expressed as weighted means:
Pn
η wi
η ¼ Pi n i ,
b ð3Þ
i wi
where ηi denotes the ith effect size and n the total number of effect sizes investigated.
The estimators differ in the assigned weights wi. The FEE uses the squared precision
of each effect size as weights, i.e., the inverted squared standard errors. The FEE’s
critical assumption is study homogeneity. This implies that all effect sizes (and thus
studies) are drawn randomly from the same population of effect sizes, i.e., they are
identically and independently distributed around the population’s true effect and
variation in effect sizes can only be due to sampling error:

ηi ¼ η þ ϵi , ϵi N 0, σ 2 , i ¼ 1, . . . , n, ð4Þ
where η is the populations true effect and σ 2 models the within-study variance. The
within-study variance is approximated by the effect sizes’ squared precision. More
precise effect sizes are expected to be closer to the population’s true effect and are
thus given more weight. The relationship between the value and the precision of
effect sizes is best illustrated by funnel plots, as shown below.
If there is true heterogeneity between the investigated effect sizes, the i.i.d.
assumption no longer holds. In that case the REE is appropriate, which assumes
multiple populations of effect sizes from which observations are drawn. The REE
estimates the mean of those effects:

ηi ¼ η þ νi þ ϵi , νi N 0, τ2 , ϵi N 0, σ 2 , i ¼ 1, . . . , n, ð5Þ
where τ2 models the variation in true effects. The REE’s Variance (and its weights)
consist of the sum of two components, the within-study and the between-study
variance: wi,REE ¼ 1=ððSEi Þ2 þ τ2 Þ . The within-study variance is again presented
by the squared precision, and the between-study variance (i.e., heterogeneity) τ2 was
estimated by the widely used DerSimonian and Laird method. By adding τ2 to each
weight, the REE balances the weight of the individual effect sizes according to the
overall heterogeneity between the effect sizes.66 There is an ongoing debate on when
to use the REE as opposed to the FEE.67 In the presence of heterogeneity the REE is
the theoretically correct model. To assess heterogeneity, the Cochran’s Q-test and the
resultant I2-statistic are widely used. Q is calculated as:
X
n
ðηi ηFEE Þ2
Q¼ , ð6Þ
i ðSEi Þ2
where ηFEE is the FEE’s estimate. Under the null hypothesis of homogeneity, Q
follows a chi-squared distribution with n – 1 degrees of freedom.
Another common indicator for heterogeneity that can be directly derived from Q
is the I2 statistic. It shows the percentage of variation that can be attributed to
heterogeneity as opposed to sampling variation, and therefore ranges from 0 to
100, with higher values indicating larger heterogeneity. I2 is calculated as:
Q ð k 1Þ
I 2 ¼ 100 ð7Þ
Q
Authors like Stanley and Doucouliagos68 and Borenstein et al.69 argue, however,
that the presence of heterogeneity should be determined based on the researcher’s
prior knowledge about the studies used, instead of the Q– and I2 statistics. As
mentioned above, a high degree of heterogeneity in the present sample can be
expected due to differences in countries investigated and methods used. The use of
FEE and REE also dictates the extent to which results obtained from the sample can
be generalized. Due to the assumptions described above, it is argued that only the
REE is appropriate when generalizing results beyond the studies covered in the
analysis (see, e.g., Borenstein et al.70 Colagrossi et al.71, Tufanaru et al.72).
66
Borenstein M, Hedges LV, Higgins JPT, Rothstein HR (2009) Introduction to Meta-analysis. John
Wiley & Sons, Chichester
67
Rice K, Higgins JPT, Lumley T (2018) A re-evaluation of fixed effect(s) metaanalysis. J R Stat
Soc A Stat Soc 181(1):205–227
68
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69
Borenstein M, Hedges LV, Higgins JPT, Rothstein HR (2009) Introduction to Meta-analysis. John
Wiley & Sons, Chichester
70
Borenstein M, Hedges LV, Higgins JPT, Rothstein HR (2010) A basic introduction to fixed-effect
and random-effects models for meta-analysis. Res Synth Methods 1(2):97–111
71
Colagrossi M, Rossignoli D, Maggioni MA (2020) Does democracy cause growth? A meta-
analysis (of 2000 regressions). Eur J Polit Econ 61:397–415
72
Tufanaru C, Munn Z, Stephenson M, Aromataris E (2015) Fixed or random effects meta-analysis?
Common methodological issues in systematic reviews of effectiveness. Int J Evid Based Healthc 13
(3):196–207
In addition to the FEE and REE, Stanley and Doucouliagos73 present UWLS as
an alternative estimator. The UWLS is again calculated as a weighted average with
weights: wi, UWLS ¼ wi, FEE/ϕ, where ϕ ¼ Q/(k 1). The UWLS is based on the
FEE’s model (Eq. 4) and assumes that the effect sizes’ variance can be estimated up
to an unknown multiplicative constant ϕ. Note that the UWLS’ point estimate is
equal to the FEE, since ϕ cancels out. However, its confidence interval is equal or
wider due its variance being multiplied by ϕ. Using simulations, Stanley and
Doucouliagos74 have shown that when publication bias is present, the UWLS
performs better than both the FEE and REE in terms of their confidence interval
covering the true effect. Below, results from all three estimators will be presented.
Results of Pooled Effects

Table 3 shows the pooled effects’ results for each group. The Q-test for heterogeneity
rejects homogeneity in all groups at the 0.1% level. The I2 shows correspondingly
high values, confirming prior expectations of high degrees of heterogeneity.
According to Stanley and Doucouliagos75 I2-values between 80% and 90% are the
norm, rather than the exception.
The point estimates shown in Table 3 can be interpreted as percentage changes in
FDI due to the presence of a BIT, yet there is a subtle difference between groups 1
and 2 versus groups 3 and 4: The estimates derived for groups 1 and 2 measure the
effect of a country-pair having a BIT or not having a BIT on the flow (group 1) or the
stock (group 2) of FDI. Hence, they reflect the commitment effect. The estimates for
Table 3 Averages per group

Unw. 95% 95% 95%
Mean FEE CI (FEE) REE CI (REE) UWLS CI (UWLS) I2
Group 1 38.41 8.046 7.896 to 23.284 19.964 to 8.046 5.883 to 99.52
8.197 26.604 10.21
Group 2 107.201 0.858 0.667 to 9.534 8.097 to 0.858 0.384 to 83.67
1.05 10.972 1.333
Group 3 108.007 1.434 1.312 to 1.036 0.436 to 1.434 1.014 to 91.51
1.557 1.637 1.855
Group 4 19.62 0.433 0.38 to 1.332 1.099 to 0.433 0.295 to 85.47
0.485 1.565 0.571
Notes: The used samples exclude outliers. For group definitions, see Table 2. Q-Statistics per group:
Group 1: Q ¼ 61545.19, Group 2: Q ¼ 1469.83, Group 3: Q ¼ 659.33, Group 4: Q ¼ 839.87
73
Stanley TD, Doucouliagos H (2015) Neither fixed nor random: weighted least squares meta-
analysis. Stat Med 34(13):2116–2127
74
analysis. Stat Med 34(13):2116–2127
75
regression. Res Synth Methods 8(1):19–42
groups 3 and 4 refer to a percentage change in FDI flows due to an additional BIT.
Recall that these groups contain observations regarding the signaling effect of BITs.
The FEE and UWLS show positive effects across all groups, ranging from 0.43%
to 8.05%. These effects are much lower when compared to the unweighted means.
The REE’s point estimates, however, are notably higher than the FEE’s in all groups
except for group 3. Such large differences between FEE and REE are not uncom-
mon.76 Group 3’s estimations are very similar across all estimators, with the REE
showing the widest confidence interval of 0.81–2.11%. Overall, the results from the
pooled averages per group suggest effects ranging from a 0.43% to 23.28% increase
in FDI, depending on the estimator. The results should be viewed as preliminary
before testing for the presence of a publication bias. Regarding the nature of effects
investigated, the relatively high differences between the REE of groups 1 and 2 when
compared to groups 3 and 4 are plausible. Signaling effects can be expected to be
smaller than commitment effects. Group 1 investigates studies using FDI flows,
while group 2 investigates FDI stocks. Again, larger estimates of group 1 's effect are
plausible. First, since a country’s FDI flows usually comprise only a fraction of its
FDI stocks, BITs should have a correspondingly larger effect on flows than on
stocks. Also, as BITs should affect the attraction of FDI into a host country, a non-
negligible effect on FDI inflows seems plausible.
Publication Bias
To test for the presence of publication bias and assess its extent, the FAT-PET-PEESE
procedure has been established as the standard method in meta-analyses across
various fields of research. The method as presented here is based on M. Egger
et al.77 and further extended by Stanley.78
The FAT-PET-PEESE Procedure

The main idea of the FAT-PET-PEESE procedure is best illustrated by a funnel plot.
These graphs plot the effect sizes against their precision (i.e., their inverted squared
standard errors). Without publication bias, available effect sizes can be expected to
be symmetrically distributed around the true underlying effect. Effect sizes with
lower precision have a larger spread, giving funnel plots their distinct funnel-like
shape. Asymmetry in a funnel plot can be associated with the sources of publication
bias discussed above. The relationship between the effect sizes and their standard
errors can be expressed as:
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77
Egger M, Smith GD, Schneider M, Minder C (1997) Bias in metaanalysis detected by a simple,
graphical test. Br Med J 315(7109):629–634
78
Stanley TD (2008) Meta-regression methods for detecting and estimating empirical effects in the
presence of publication selection. Oxf Bull Econ Stat 70(1):103–127
effect i ¼ δ0 þ δ1 SEi þ εi , ð8Þ
where effecti describes the i-th effect size and SEi its standard error. The coefficient δ1
is a measure of publication bias. Without a bias, the coefficient is expected to be zero,
since a regression coefficient is expected to be independent of its standard error.
Intuitively, δ1 tests for symmetry in the corresponding funnel plot. Corrected for
publication bias, δ0 serves as an estimate for the true overall effect size. However,
coming from several studies with different sample sizes and models the error term ϵi
cannot be expected to be identically and independently distributed, leading to a
heteroscedastic error structure. However, the estimated variance of effecti is known
in the form of its reported standard errors (or equivalent transformations). Dividing
Eq. 8 by SEi should make its variance approximately constant, allowing a basic OLS
estimation:
effect i 1 ε
¼ δ0 þ δ1 þ i ð9Þ
SEi SEi SEi
Note that estimating Eq. 8 with weighted OLS, using the inverse of the squared
standard error as weights will yield equivalent results.
δ1, the coefficient on the intercept is used when testing for the presence of a
publication bias. This test is called the funnel-asymmetry test (FAT) with the H0:
δ1 ¼ 0. The test statistic is δ1’s t-statistic that can be easily derived by conducting
OLS using any statistical software.
Having identified a publication bias, the next step is to assess whether there is a
genuine effect when correcting for the publication bias. The precision-effect test
(PET) has the H0: δ0 ¼ 0. Again the results can be directly derived from the
regression output of model 9. While the PET serves as the preferred test for the
existence of a genuine effect, there are superior methods to derive an estimate for this
effect. Having identified a genuine effect beyond a publication bias (i.e., rejected
both FAT and PET), the precision-effect estimate with standard error (PEESE)
should be used as an estimator for the true effect. Its model is derived by using the
variance instead of the standard error in Eq. 1 and dividing by the standard error:
effect i 1 ς
¼ θ0 þ θ1 SEi þ i ð10Þ
SEi SEi SEi
In contrast to model 9, this model has no intercept and includes SEi instead. The
model’s error term is now represented by ςi/SEi. The PEESE is the regression
coefficient θ0. Note that the PEESE should only be considered as an estimate for
the true effect when the PET has been rejected, since otherwise it is biased
upwards.79
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While the FAT-PET-PEESE procedure offers an effective and intuitive framework

to deal with a publication bias it has limitations. First of all the FAT has low power,
i.e., a high probability that the FAT does not detect publication bias when it is
present. Therefore, Stanley and Doucouliagos80 recommend a statistical significance
level of 10% as the cut-off to decide whether a publication bias is present. The PET,
on the other hand, tends to identify effects that are not there, i.e., are more likely to
reject the Null of “no genuine effect” than would be expected by the set significance
level. This issue is linked to the presence of heterogeneity in the data. Stanley81
argues that the PET (and PEESE) is unreliable for data with I2 above 80%. He adds,
however, that the methods outperform pooled averages and other alternatives.
Recent simulations of the FAT-PET-PEESE procedure under more realistic condi-
tions (i.e., heterogeneous data with multiple estimates per studies) confirm that the
procedure should be considered with caution.82
Results of the FAT-PET-PEESE Procedure

Figure 1 shows the funnel plots for each group. All of them show a concentration of
effect sizes close to zero with larger effect sizes having lower precision. With the
exception of group 1, effect sizes deviating from zero are clearly concentrated on the
right side, suggesting a disposition to publish positive effects of BITs on FDI – in
line with theory. Due to large differences between effect sizes with the highest and
the lowest precision, the plots resemble an “L”- or inverted “T”-form, instead of
the usual funnel-like form. As a first cautious assessment, groups 2, 3, and 4 show
signs of a positive publication bias, while group 1’s effect sizes seem to be more
symmetrically distributed around zero. Group 3 is the smallest group in terms of
observations and studies included. Furthermore only one study83 notably deviates
from the center, that is, all observations above 6.70% stem from Kerner.84. As this
study’s estimates have low precision, they contribute little to group 3’s overall effect
size, explaining the homogeneous results on the pooled effect sizes as presented in
the earlier subsection. The results for the FAT and PET are shown in Table 4. As
outlined above, WLS is used to deal with heteroscedasticity. To address study-
80
regression. Res Synth Methods 8(1):19–42
81
82
Alinaghi N, Reed WR (2018) Meta-analysis and publication bias: how well does the FAT-PET-
PEESE procedure work? Res Synth Methods 9(2):285–311; Hong S (2019) Meta-analysis and
publication bias: how well does the FAT-PET-PEESE procedure work? A replication study of
Alinaghi & Reed (research synthesis methods, 2018). Int J Re-Views Emp Econ (IREE) 3(2019–4):
1–22
83
84
Fig. 1 Funnel plots
specific effects, panel regression methods were applied. Stanley and Doucouliagos85
generally advise to use fixed effects since random effects assume that the unobserved
study effects are independent of the regressors (i.e., the effect sizes’ standard errors),
an assumption that is unlikely to hold. Employing a Hausman-test, however, sug-
gests using random effects in all groups except group 1. (The Hausman test cannot
be rejected at the 10% level in groups 2, 3, and 4. For group 1, the Hausman-test is
rejected at the 0.1% level. Since the Hausman test is not suited for regressions using
robust standard errors, alternative tests as proposed by Wooldridge86 and Mundlak87
85
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86
Wooldridge JM (2002) Econometric analysis of cross section and panel data, vol 108. MIT Press,
Cambridge, MA
87
Mundlak Y (1978) On the pooling of time series and cross section data. Econometrica 46(1):69–85
Table 4 FAT-PET regression results

WLS WLS FE WLS RE
Regressor Coefficient p-value Coefficient p-value Coefficient p-value
Group 1 Intercept 0.739 0.300 1.688 0.409 5.154 0.130
(FAT) (0.692) (1.991) (3.404)
1/SE 7.755 0.376 18.621 0.052 13.755 0.154
(PET) (8.534) (8.916) (9.653)
Group 2 Intercept 1.579 0.000 1.510 0.001 1.652 0.045
(FAT) (0.258) (0.364) (0.824)
1/SE 0.192 0.029 0.569 0.779 0.240 0.697
(PET) (0.078) (1.986) (0.617)
Group 3 Intercept 1.171 0.406 1.146 0.186 0.783 0.390
(FAT) (1.310) (0.767) (0.911)
1/SE 1.089 0.082 1.108 0.105 1.152 0.036
(PET) (0.521) (0.580) (0.550)
Group 4 Intercept 1.547 0.020 1.440 0.000 1.610 0.000
(FAT) (0.567) (0.037) (0.461)
1/SE 0.195 0.006 0.257 0.000 0.232 0.000
(PET) (0.057) (0.021) (0.031)
Notes: The used samples exclude outliers. For group definitions see Table 2. All estimations use
clustered standard errors on the study level (given in parenthesis). The FAT is conducted on the
intercepts regression coefficient, which technically does not exist in a fixed effects model. Instead a
weighted mean of the fixed effects is used, with the weights being the number of effect sizes per
study. Note that stata routinely reports this weighted average as the intercept in a fixed effects model
using xtreg, fe
were applied, confirming the Hausman test’s results.) To compare results across
different methods, results of both fixed and random effects models are presented.
Clustered standard errors on the study level are used to address within-study
dependence and to produce conservative results. Results for the PEESE are shown
in Table 5. Again, WLS in addition to fixed and random effects were used, all in
combination with clustered standard errors. Random effects were estimated using the
maximum-likelihood estimator. Since results presented in Tables 4 and 5 are closely
related, they are now described together.
The FAT can be rejected at the 10% level in groups 2 and 4, suggesting the
presence of a publication bias. Consequently, the PET’s application is justified to
evaluate, whether there is any genuine effect of BITs on FDI beyond the publication
bias. Group 2’s PET shows mixed results, rejecting the null hypothesis at the 10%
level in one out of three estimation methods. Group 2’s PEESE coefficient, the
estimate of the genuine effect of BITs on FDI, ranges from 0.49% to 0.89%. Recall,
however, that the PEESE is only reliable when there is actually a genuine effect,
which is not certain, given group 2’s ambiguous results on PET. Group 4’s PET can
be rejected across all methods applied, justifying the application of the PEESE. Its
values range from 0.27% to 0.43%, depending on the estimation method. The FAT
cannot be rejected in groups 1 and 3. Consequently, their PET cannot be reliably
estimated. Given its small sample and particular distribution of studies, group 3
Table 5 PEESE regression results

WLS WLS FE WLS MLE
Regressor Coefficient p-value Coefficient p-value Coefficient p-value
Group 1 1/SE 8.046 0.355 18.657 0.052 16.891 0.000
(PEESE) (8.461) (8.920) (1.498)
SE 0.001 0.426 0.002 0.465 0.001 0.699
(0.001) (0.002) (0.003)
Group 2 1/SE 0.858 0.019 0.567 0.780 0.485 0.119
(PEESE) (0.321) (1.992) (0.311)
SE 0.000 0.348 0.000 0.000 0.000 0.219
(0.000) (0.000) (0.000)
Group 3 1/SE 1.432 0.016 1.087 0.112 1.217 0.000
(PEESE) (0.429) (0.584) (0.294)
SE 0.012 0.000 0.015 0.000 0.008 0.252
(0.000) (0.000) (0.007)
Group 4 1/SE 0.432 0.011 0.268 0.000 0.294 0.000
(PEESE) (0.143) (0.021) (0.072)
SE 0.008 0.004 0.008 0.021 0.009 0.049
(0.002) (0.003) (0.004)
Notes: The used samples exclude outliers. For group definitions see Table 2. All estimations use
clustered standard errors on the study level (given in parenthesis)
should be treated as a special case. Since only one study deviates notably from the
center, it would be misleading to assess publication bias regardless of the outcome of
the FAT and PET.
Summarizing results on FAT-PET-PEESE, the presence of a publication bias was
identified in two groups.
Their genuine effect when controlling for a publication bias was estimated below 1%.
Summary
In the past decades, many governments in developed and developing countries alike
have pursued deregulation and liberalization policies of capital markets, which have
partly been driven by heavy lobbying from transnational corporations pushing for
policies that spur the expansion of FDI and give access to previously restricted
foreign capital markets.88 One particular outcome of this process was the emergence
of a complex and sophisticated network of IIAs.
This chapter investigates some of the empirical evidence on the effects of the
system of IIAs by reviewing empirical evidence. As these studies have produced
mixed evidence, researchers try to make sense of these results on a subjective (e.g.,
literature reviews) or objective basis (e.g., meta-analyses; econometric studies).
Analyses using universally comparable effect sizes, while able to include a larger
88
Cox RW (2019) Corporate power, class conflict, and the crisis of new globalization.
Lexington Books
number of effect sizes, do not allow for an economic interpretation/quantification of

the effects of BITs on FDI. Hence, the definition of the effect size chosen in our
analysis, i.e., semi-elasticity, goes beyond the pure identification of the statistical
significance of any effect and in addition allows the derivation of the economic
significance. Already a simple comparison of unweighted effects with weighted
effects demonstrates clearly the need for such analysis.
With full awareness of the large between-study heterogeneity given in this field of
economic research and the low power of the FAT, we summarize the main findings as
follows:
The theory section described the effects of political risk as a constraint to FDI,
since it poses a threat to property rights of foreign investors. It was argued that a
credibility problem on the side of the host country government may impede an
otherwise profitable investment. In this scenario, IIAs may act as an insurance
against political risk, as they offer the possibility of arbitration in case of a violation
of IIA commitments by the host State.
In line with Brada et al.,89 we find a positive genuine effect. Ignoring the possible
presence of publication bias, the effect of BITs on FDI was estimated between zero and
an increase of 23.3% of FDI. Yet, it is not necessarily statistically significant in all
cases. Expectedly, comparing group 1 and group 2, effects of BITs on FDI-flows are
considerably larger than on FDI-stocks. In addition, signaling effects seem to be lower
than commitment effects, which is plausible and in line with theory. Second, a
publication bias has been identified across several methods applied in our analysis
for two groups of effect sizes. This is an indication that researchers would have an
incentive to publish large, significant, and positively signed coefficients on the effect
of BITs on FDI. Due to the publication bias, actual effects are likely smaller than those
published in earlier studies and the genuine effect of BITs on FDI drops to below 1%.
Finally, it should be noted that a positive and significant effect of IIAs on FDI is of
course only a partial justification for IIAs from an economic point of view. This has
to be weighed against the (opportunity) costs of IIAs described above.
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Protection of Cross-Border Data Flows
Under International Investment Law 9
Scope and Boundaries
Sheng Zhang
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Provisions on CBDF Under International Trade and Investment Agreements . . . . . . . . . . . . . . . . 211
WTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
Bilateral Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
Mega and Regional FTAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Horizontal Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
The Protection of CBDF Under International Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . 216
The Definition of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
Investment Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
The Boundaries of Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
General Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
National Security Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Necessity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Reform of the Investment Treaty Regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Abstract
Data is the lifeblood of the digital economy, and cross-border data flows have
been regulated in recent trade agreements. In international investment agree-
ments. Clear references to cross-border data flows are still rare. Nonetheless,
some components of digital operations could qualify as investment and enjoy
protection under international investment law. Exception clauses in investment
The author would like to thank Professor Julien Chaisse and Professor Sufian Jusoh for their
valuable comments on the draft. The author also wishes to thank Ms. Yanfei Ma for her assistance
with the footnotes. Any errors remain with the author.
S. Zhang (*)
School of Law, Xi’an Jiaotong University, Xi’an, China
e-mail: sheng-zhang@xjtu.edu.cn

https://doi.org/10.1007/978-981-13-3615-7_126
210 S. Zhang
agreements are also helpful for States to maintain the balance between different
objectives, including the goals of an open, efficient, and secure Internet. How-
ever, the way that international investment law regime is shaped predates the
digital economy and is not well suited to the regulation of cross-border data flows.
A refined and balanced regime is necessary to meet the challenges of digital
transformation. Efforts should also be made to close the digital divide between
countries that dominate the digital landscape and smaller and developing
countries.
Keywords
Cross-border data flows · International investment agreements · Digital divide ·
Exception clauses
Introduction
In the twenty-first century, data has come to be regarded as the world’s most valuable
resource.1 Flows of data and information now generate more economic value than
trade in good. In a world affected by the COVID-19 crisis, the importance of data
economy has risen further due to its significance for a new era of economic growth.2
While facilitating and transforming global trade, the flows of data, if being abused or
insecurely stored, can negatively affect national security, public moral and privacy of
citizens. In recent years, there has been an increasing tendency among both devel-
oped and developing countries to regulate cross-border data flows (CBDF).3 These
regulations are underpinned by the tension between data localization and free flows
of data. In addition to regulation though domestic legislations, provisions on CBDF
are commonly found in recent free trade agreements. In contrast, clear references to
CBDF in bilateral investment treaties (BITs) are rare. This does not rule out the
possibility of the protection of CBDF under international investment law. In circum-
stances where there is a broad definition of investment in investment treaties or when
the arbitral tribunals adopt a broad interpretation of the term of investment, data can
be regarded as a qualified investment, and digital companies are entitled to the
treatment and guarantees provided by international investment agreements (IIAs).
To maintain public trust in the global internet, the free flows of data alone are not
sufficient. The significance of a secure and efficient environment cannot be
1
The Economist (2017) The world’s most valuable resource is no longer oil, but data. https://
www.economist.com/leaders/2017/05/06/the-worlds-most-valuable-resource-is-no-longer-oil-
but-data
2
World Economic Forum (2020) A roadmap for cross-border data flows: future-proofing readiness
and cooperation in the new data economy, p 12. http://www3.weforum.org/docs/WEF_A_
Roadmap_for_Cross_Border_Data_Flows_2020.pdf
3
Drake WJ (2016) Background paper for the workshop on data localization and barriers to
transborder data flows. World Economic Forum. http://www3.weforum.org/docs/Background_
Paper_Forum_workshop%2009.2016.pdf
9 Protection of Cross-Border Data Flows Under International Investment Law 211
underestimated. Exception clauses in BITs can delimit the boundaries of the open-
ness of the Internet and define the extent to which governments can take measures to
fulfill legitimate policy objectives. However, a large number of BITs were concluded
before 20104 and these are not well suited to the digital economy. To achieve open
and secure flows of data, reforms are needed to address the challenges posed by
CBDF, in particular the digital divide between those economies that have compar-
ative advantages in data sectors and those that do not.
Following this introduction, the chapter proceeds as follows: the next part pre-
sents a brief overview of the provisions on CBDF in trade and investment agree-
ments. The subsequent third part discusses the conditions under which data can be
regarded as a covered investment and delves into the protection of CBDF under
international investment law through mechanisms for national treatment, prohibition
of performance requirements, fair and equitable treatment, and protection against
indirect expropriation. The fourth part turns to exceptions clauses in the BITs, to
discuss the extent to which the free flows of data should be measured against general
exceptions, national security exceptions and related customary international law. The
fifth part proposes some concrete measures to mitigate these challenges posed by the
CBDF. It concludes with a call for a consensus-building mechanism aiming at a
multilateral agreement on CBDF.
Provisions on CBDF Under International Trade and Investment

Agreements
The regulation of CBDF is not novel in the sphere international economic law. Its
study could be traced back to mid-nineteenth century.5 The United States of America
(USA) took the initiative to regulate CBDF in its foreign economic policy. In a
statement on international investment policy, then US President Ronald Regan,
committed the US government to work with the Organization for Economic Coop-
eration and Development (OECD) for a “data pledge” that would ensure the free
flows of data among developed countries and encourage all countries to adopt more
open and liberal policies on transborder data flows.6 As an outcome of these efforts,
the OECD adopted the Declaration on Transborder Data Flows in 1985, and the
governments of OECD Member States declared their intention to promote access to
4
According to UNCTAD, investment treaties with broad and vague provisions, which were signed
before 2010, represent the 95% of international investment agreements in force today. See
UNCTAD (2017) World investment report 2017: investment and the digital economy. United
Nations, New York/Geneva, p xii
5
Drake (2016)
6
Regan R (1983) Statement on international investment policy. The American Presidency Project.
http://www.presidency.ucsb.edu/ws/index.php?pid¼41814
212 S. Zhang
data and not to create unjustified barriers to the international exchange of data.7 This
declaration is regarded by the USA as an important accomplishment in the area of
trade in services.8 Direct and indirect references to CBDF can now be found in
World Trade Organization (WTO) rules, and in various regional and bilateral
agreements.
WTO
WTO rules do not address CBDF directly because they predate global public
Internet. At the Second Ministerial Conference in 1998, ministers adopted the
declaration on global electronic commerce, which established a work program on
the global trade ramifications of electronic commerce.9 However, due to the com-
plexities involved in securing free digital trade and the digital divide separating the
USA, the European Union (EU), and China on data governance,10 little progress has
been made on how to reach a multilateral consensus on unfettered digital trade.
Despite the absence of any direct reference to CBDF, rules that implicitly relate to
data flows and digital trade are included in several WTO agreements, such as the
Information Technology Agreement, the Agreement on Trade-Related Aspects of
Intellectual Property Rights and the General Agreement on Trade in Service
(GATS).11 The most pertinent of these agreements is the GATS.12 The GATS
Council on Services noted in 1999 that much of electronic commerce falls within
the scope of the agreement, and that GATS obligations are applicable to measures
affecting the electronic delivery of services.13 The WTO dispute settlement bodies
asserted that WTO rules applied to data flows in deciding on the cases United States-
Measures Affecting the Cross-Border Supply of Gambling and Betting Services14
7
OECD (1985) Declaration on transborder data flows, adopted by the governments of OECD
member countries on 11th April 1985. https://www.oecd.org/internet/ieconomy/
declarationontransborderdataflows.htm
8
Robinson P (1986) Legal issues raised by transborder data flow. Can U S Law J 11:295–316, 301
9
WTO. Electronic commerce. https://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm
10
See for instance, Wunsch-Vincent S (2006) The WTO, the Internet and trade in digital products:
EC-US perspectives. Hart Publishing, Oxford, p 6 and Aaronson SA, Leblond P (2018) Another
digital divide: the rise of data realms and its implications for the WTO. J Int Econ Law 21(2):245–
272
11
Aaronson and Leblond (2018), p. 251
12
Mitchell A, Hepburn J (2017) Don’t fence me in: reforming trade and investment law to better
facilitate cross-border data transfer. Yale J Law Technol 19(1):182–237, 196
13
WTO General Council (1999) Work programme on electronic commerce, S/L/74
14
WTO (2004) United States – measures affecting the cross-border supply of gambling and betting
services. WT/DS285/R, Report of the Panel, para 6.28
and China-Measures Affecting Trading Rights and Distribution Services for Certain
Publications and Audiovisual Entertainment Products.15 However, the application of
pre-Internet GATS disciplines to issues relating to data is challenging.16 This
explains why some countries choose to govern CBDF through bilateral and regional
free trade agreements (FTAs). Over the last decade, FTAs have been central in
shaping the regulatory environment for digital trade.17
Bilateral Agreements
There is a direct reference to CBDF in the US-South Korea FTA signed in 2007.
Article 15.8 states, upon the recognition the importance of the free flow of informa-
tion in facilitating trade, the parties shall endeavor to refrain from imposing or
maintaining unnecessary barriers to electronic information flows across borders.18
In essence, the provisions on digital trade and CBDF in US FTAs present a fairly
liberal regime with commitments that go beyond those in the GATS.19 In contrast,
the EU’s position places more focus on privacy commitments. This division could be
found in the negotiations of the Transatlantic Trade and Investment Partnership
Agreement, where the EU was reluctant to change its position on CBDF and data
localization.20 The EU-Canada Comprehensive Economic and Trade Agreement
(CETA), for instance, features a provision that commits the parties to adopt or
maintain domestic laws for the protection of personal information of users engaged
in electronic commerce.21
The principle of technological neutrality was introduced in the EU-Japan Eco-
nomic Partnership Agreement (EPA).22 Although it contains no binding provisions
on CBDF, the EPA requires the parties to reassess within 3 years of the date of entry
into force of this agreement the need to include provisions on the free flows of data.23
15
WTO (2009) China-measures affecting trading rights and distribution services for certain publi-
cations and audiovisual entertainment products. Report of the Appellate Body, WT/DS363/AB/R,
paras 412–413
16
Mitchell AD, Mishra N (2019) Regulating cross-border data flows in a data-driven world: how
WTO law can contribute. J Int Econ Law 22(3):389–416
17
Burri M (2017) The regulation of data flows through trade agreements. Georget J Int Law 48
(1):407–448
18
Article 15.8 of the US-South Korea FTA
19
Burri (2017), p. 422
20
Mitchell and Mishra (2019), p. 415
21
Article 16.4 of the EU-Canada CETA
22
Article 8.70 of the EU-Japan EPA
23
Article 8.81 of the EU-Japan EPA
214 S. Zhang
Some countries have already taken the initiative to conclude bilateral agreement
specially dealing with digital trade. The US-Japan Digital Trade Agreement specifies
that neither party shall prohibit or restrict the CBDF if the activity is for conducting
business.24 Restricting the location of computing facilities as a condition for
conducting business is also prohibited.25 The Australia-Singapore Digital Economy
Agreement, which was concluded in March 2020, includes advanced digital trade
rules that prevent unnecessary restrictions on the transfer and localization of data.26
Alongside this, both sides signed several Memorandums of Understanding, which
include shared understandings regarding data innovation and cooperation in per-
sonal data protection.27
Mega and Regional FTAs
More comprehensive approaches to addressing CBDF are found in the Comprehen-

sive and Progressive Trans-Partnership Agreement, which grew out of the US
withdrawal from the proposed Trans-Pacific Partnership Agreement (TPP). Different
from the non-binding provisions in the US-South Korea FTA, the CPTPP imposes
binding obligations on the parties in relation to CBDF. CPTPP is regarded as the first
agreement to comprehensively address contemporary policy issues in digital trade.28
As confirmed by Article 14.2, one of the rationales behind the chapter on electronic
commerce is to facilitate the free flows of e-commerce across borders. In particular,
Article 14.11 requires the parties to allow the cross-border transfer of information
when it is for the conduct of business. This obligation is qualified by an exception
that allows a party to adopt or maintain inconsistent measures if these intend to
achieve a legitimate public policy objective, provided that such measures are applied
in a nondiscriminatory and nonarbitrary manner and comply with the principle of
proportionality. Article 14.13 clearly prohibits the parties from using data localiza-
tion as a condition for conducting business in their territories. Articles 14.11 and
14.13 do not generally apply to financial services and institutions. Instead, the
CPTPP contains separate provisions on data transfer requirements for the financial
sector, which require each party to allow a financial institution of another party to
24
Article 11 of the US-Japan Digital Trade Agreement
25
Article 12 of the US-Japan Digital Trade Agreement
26
Department of Foreign Affairs and Trade (2020) Australia-Singapore Digital Economy Agree-
ment: fact sheet. https://www.dfat.gov.au/sites/default/files/australia-singapore-digital-economy-
agreement-fact-sheet.pdf
27
Memorandum of Understanding between the Government of Australia and the Government of the
Republic of Singapore on data innovation (2020) and Memorandum of Understanding between the
Office of the Australian Information Commissioner and the Personal Data Protection Commission
of the Republic of Singapore on Cooperation in Personal Data Protection (2020).
28
Mishra N (2017) The role of the Trans-Pacific Partnership Agreement in the Internet ecosystem:
uneasy liaison or synergistic alliance? J Int Econ Law 20(1):31–60
electronically transfer information into and out of its territory for data processing if
such processing is necessary in the institution’s ordinary course of business.29
The provisions on CBDF contained in the CPTPP are becoming a template for
similar agreements. In June 2020, for instance, New Zealand, Singapore, and Chile
signed the Digital Economic Partnership Agreement (DEPA), in which the parties
agreed to uphold the same commitments and principles in the CPTPP.30 The DEPA
sets out a series of modules covering topics relevant to the digital economy and
digital trade.
The United States-Mexico-Canada Agreement (USMCA) contains stronger lan-
guage for liberalizing CBDF and prohibiting data localization. Article 19.11 states
that the parties shall not prohibit or restrict CBDF except in relation to legitimate
policy objectives, and Article 19.12 places strong limits on data localization. Unlike
the TPP, the USMCA does not provide for exceptions to the prohibition of data
localizations, which reveals the USA’s ambitious attempt to ensure the free flows of
information. The USMCA also goes further to maintain the balance between the free
flows of data and the communication with the protection of privacy and security, by
explicitly referring to the Asia-Pacific Economic Cooperation (APEC) Privacy
Framework and OECD guidelines as the principles and guidelines underpinning
its commitments.31
Horizontal Provisions
Although CBDF is frequently referred to in recent FTAs, few investment treaties

contain provisions that clearly cover data flows. The EU has taken the initiative to
propose horizontal provisions on CBDF and personal data protection in its trade and
investment agreements.32 Compared with the EU FTAs, the horizontal provisions
explicitly list the CBDF-restriction measures that should not be undertaken, includ-
ing the use of local computing facilities and the localization of data. The provisions
specify that data protection standards are excluded from the scope of Investor-State
Dispute Settlement (ISDS). The European Commission regarded the horizontal
provisions as nonnegotiable and intends to produce a stand-alone chapter on
CBDF to be included in the trade and investment agreements. However, the opinions
29
Annex 11B of TPP Chapter 11
30
See Article 4 of the DEPA
31
Fefer RF (2019) Data flows, online privacy, and trade policy. Congress Research Service Report,
p 15. https://fas.org/sgp/crs/row/R45584.pdf
32
European Commission (2018) Horizontal provisions for cross-border data flows and for personal
data protection (in EU Trade and Investment Agreements). https://trade.ec.europa.eu/doclib/docs/
2018/may/tradoc_156884.pdf
216 S. Zhang
of the EU Member States remain divided, and no decision has been made to use
these provisions in any specific trade or investment negotiations.33 For instance, the
EU has been criticized for not including these provisions in its investment protection
agreement between EU and other States, such as the EU-Singapore Investment
Protection Agreement.34
The Protection of CBDF Under International Investment

Agreements
How corporations produce and market goods and services across borders has
changed fundamentally in the digital economy. Digital companies can operate their
business with little physical presence in the territory of the host States. This digital
transformation of investment has important implications for international investment
law. Although bilateral investment treaties have been reshaped to accommodate the
economic transformation, the current regime is still dominated by the European-style
model bilateral investment treaty.35 These treaties mainly include investment rules
designed for the physical economy, and they need to be reviewed in light of the
digital economy.36
The Definition of Investment
Digital companies seeking the protection of bilateral investment treaties should first
demonstrate that their presence in the host State qualifies as an “investment.” If the
claim is filed with the International Centre for the Settlement of Investment Disputes
(ICSID), it should also meet the jurisdiction ratione materiae as provided in the
of Other States (the ICSID Convention). Article 25 of the ICSID Convention
specifies that the jurisdiction of the ICSID shall extend to any legal dispute arising
directly out of an investment. Although the concept of investment is central to the
ICSID Convention, no definition or description of the term is provided.37 As
indicated in the Report of the Executive Directors, no attempt was made to give a
33
UK Parliament (2018) Exchange data with non-EU countries, in documents considered by the
Committee on 23 May 2018. https://publications.parliament.uk/pa/cm201719/cmselect/cmeuleg/
301-xxviii/30104.htm
34
Wessels A (2018) EU-Singapore Trade Agreement not compatible with EU data protection.
Foundation for a Free Information Infrastructure. https://ffii.org/eu-singapore-trade-agreement-
not-compatible-with-eu-data-protection/
35
More than 2500 bilateral investment treaties that are in force today were concluded before 2010
and most of these treaties were negotiations in the 1990s. See UNCTAD (2017), p. 127.
36
UNCTAD (2017), p. iv
37
Schreuer CH, Malintoppi L, Reinisch A, Sinclair A (2010) ICSID Convention: a commentary,
2nd edn. Cambridge University Press, Cambridge, p 114
concrete definition to the term “investment,” and it was left to be decided by the
contracting States what kinds of disputes they would or would not consider submit-
ting to the ICSID.38 In practice, most tribunals apply a dual test to determine the
existence of an “investment”: whether the class of dispute is covered by the disputing
parties’ consent and whether it meets the ICSID Convention’s requirements.39
ICSID tribunals have also attempted to identify certain features of a qualified
investment, including a certain duration, a certain regularity of profit and return,
an assumption of risk, and a substantial commitment.40 These features are now
written into investment treaties. The 2012 China–Canada BIT, for instance, defines
“covered investment” as involving the commitment of capital or other resources, the
expectation of gain or profit, or the assumption of risk.41
Some treaties choose to limit the scope of their application to investments that
have been registered or approved in writing for the purpose of the treaties.42 These
requirements are closely connected to the definition of investment in the investment
treaties, and are commonly found in treaties signed by developing countries in the
1960s and 1970s.43 When interpreting such requirements, some tribunals, including
those in the cases of Yuang Chi Oo v. Myanmar and Philippe Gruslin v. Malaysia,
held that if the approval requirements were not met, the claims would be denied
based on a lack of jurisdiction.44
A large part of the operations of some digital enterprises, including social media
companies, do not possess the features of investment defined in the current BIT
regime. Digital companies, which rely most heavily on CBDF, do not need to have
any physical presence or to register in the territory of host States and do not engage
in any obvious flow of capital or other resources into host States.45 It can be argued
that digital operations do not strictly meet the conventional understanding of invest-
ment activity in international investment law. However, some components of digital
companies’ operations could be read as qualified investments,46 in particular when
the related investment treaties adopt a broad asset-based investment definition to
38
Schreuer et al. (2010), p. 116
39
40
41
Paragraph 4, Article 1 of the China-Canada BIT
42
Bernasconi-Osterwalder N, Malik M (2012) Registration and approval requirements in invest-
ment treaties. International Institute for Sustainable Development, p 2. https://www.iisd.org/sites/
default/files/publications/best_practices_registration_requirements.pdf
43
Bernasconi-Osterwalder and Malik (2012), p. 2
44
Yaung Chi Oo Trading Pte. Ltd. v. Government of the Union of Myanmar, Award (ASEAN ID
Case No. ARB/01/1), 31 March 2003, paras 58–63; Philippe Gruslin v. Malaysia, Award, ICSID
Case No. ARB/99/3, 27 November 2000, para 25.5.
45
Horváth E, Klinkmüller S (2019) The concept of ‘investment’ in the digital economy: the case of
social media companies. J World Invest Trade 20(4):577–617, 590
46
Horváth and Klinkmüller (2019), p. 577
218 S. Zhang
cover intangible property and intellectual property rights.47 Although not all data, in
particular personal data, can be the subject of property law,48 non-personal data in
the context of commercial transactions, including computer programs and databases,
have already been commoditized over time through the expansion of intellectual
property law.49 Data is described by the OECD as a “core asset” in the digital
economy,50 and are also regarded as a certain type of “property” under the laws of
some US States and the domestic law of Canada.51 When faced with a broad
definition, some tribunals have adopted a straightforward definition of investment
in which digital assets are clearly covered.52
The criterion of physical existence in the definition of investment has also been
loosely applied by some tribunals. In the case of SGS v. Philippines, the Philippines
objected to jurisdiction on the basis that the Swiss company SGS was a non-resident
providing services abroad, but the tribunal held that the existence of a Liaison Office
employing a significant number of people was sufficient to qualify the service as one
provided in the Philippines.53 Regarding the requirements of registration or approval
that are connected to the definition of investment, the tribunal of Desert Line v.
Yeman took a somewhat different approach. When interpreting the requirement for
an investment certificate written into the Yemen–Oman BIT, the tribunal considered
it to correspond to a mere formalism rather than a material fact.54 It found that
although Desert Line was not issued a formal certificate, it would have received an
investment certificate had it requested one, given the endorsement of the investment
at the highest level of the Yemeni State.55 This interpretation indicates that it remains
unclear whether registration or approval requirements alone will be sufficient for a
tribunal to decline its jurisdiction.56
Meanwhile, some tribunals have adopted a holistic approach when determining
the presence of a qualified investment. The tribunal in the case of Koch v. Venezuela,
47
Chaisse J, Bauer C (2019) Cybersecurity and the protection of digital assets: assessing the role of
international investment law and arbitration. Vanderbilt J Entertain Technol Law 21(3):549–589, 557
48
Stepanov I (2020) Introducing a property right over data in the EU: the data producer’s right – an
evaluation. Int Rev Law Comput Technol 34(1):65–86, 70
49
Käll J (2020) The materiality of data as property. Harv Int Law J Front 61:7. https://harvardilj.org/
wp-content/uploads/sites/15/Kall-PDF-format.pdf. See also Yu X, Zhao Y (2019) Dualism in data
protection: balancing the right to personal data and the data property right. Comput Law Secur Rev
35(5):1–11, 7
50
Chaisse and Bauer (2019), p. 558
51
Robinson (1986), pp. 295–316
52
53
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/
02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, paras 101–103.
54
Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6
February 2008, para 106.
55
Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6
February 2008, para 116.
56
Bernasconi-Osterwalder and Malik (2012), p. 10
for example, held that the off-take agreement, which was contended by Venezuela to
represent a mere sales contract, was in fact an integral and necessary part of the
whole investment project and was thus a protected investment.57
Investment Protection
Once data is considered to qualify as an “investment” under an IIA, the operations of

digital companies can fit into existing frameworks for investment protection. If the
flow of data is affected by governmental regulations, digital companies can then
claim violations of the guarantees of the relevant investment treaties. The most
prominent measures that could be challenged are likely to be those related to data
localization, which more than 30 countries have adopted.58
Other provisions that could be referred to in investment claims include those
related to national treatment, performance requirements, fair and equitable treatment,
and indirect expropriation.
National Treatment
As a core and standard treatment of investment treaties, national treatment clauses
aim to provide a level playing field for local investors and foreign competitors.59
National treatment was traditionally granted once a foreign investment had been
established in the host States, but has now been extended to cover the admission and
establishment stages. In practice, arbitral tribunals tend to consider both de jure and
de facto differentiation when making a finding of discrimination. For instance, the
arbitral tribunal of ADM v. Mexico held that the national treatment obligation under
NAFTA represents a general prohibition of discrimination based on nationality,
including both de jure and de facto discrimination,60 as did the tribunal in Corn
Products v. Mexico.61 On the surface, it appears that data localization measures apply
equally to foreign and domestic investors, but it is argued that they increase the costs
of foreign competitors by requiring foreign suppliers of data to duplicate expensive
57
Koch Minerals Sarl and Koch Nitrogen International Sarl v. Bolivarian Republic of Venezuela,
ICSID Case No. ARB/11/19, Award, 30 October 2017, paras 6.56–6.61.
58
Stephenson S, Lalonde PM (2019) The limits of data localization laws: trade, investment, and
data. Dentons. http://www.dentonsdata.com/the-limits-of-data-localization-laws-trade-investment-
and-data/
59
Dolzer R, Schreuer C (2012) Principles of international investment law, 2nd edn. Oxford
University Press, Oxford, pp 130, 145–152, 198
60
Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican
States, ICSID Case No. ARB(AF)/04/5, Award, 21 November 2007, para 193.
61
Corn Products International Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/1,
Decision on Responsibility, 15 January 2008, para 115.
220 S. Zhang
infrastructure in host States and bear greater burdens.62 In addition to data localiza-
tion measures, measures taken by States to protect personal privacy and enhance
cybersecurity can be regarded as discriminatory against foreign investors.63 For
instance, the USA has seen China’s cybersecurity laws and related implementing
measures as instruments utilized by China to limit foreign investors from carrying
out business in China.64 However, exceptions specified in investment treaties, which
are further discussed in Part IV of this chapter, mean that data localization require-
ments are justified when they are applied to achieve legitimate national security or
public policy objectives.65
Prohibitions of Performance Requirements

Performance requirements are policies designed to require foreign investors to meet
certain specific goals with respect to their operations in host countries.66 Under
customary international law, each State maintains the right to set conditions for the
admission of foreign investment. Accordingly, the majority of BITs do not prohibit
the use of performance requirements.67 Performance requirements have been used
extensively by both developed and developing countries, and have helped many
countries to meet various development objectives.68 Some recent treaties, notably
those signed by the USA, the EU, and Japan, have introduced prohibitions on
performance requirements. In regard to these prohibitions, some treaties maintain
similar requirements to those stipulated in the Agreement on Trade-Related Invest-
ment Measures (TRIMS), whereas other treaties, including NAFTA, USMCA, and
EU–Vietnam FTA, impose further obligations on the contracting parties. The prohi-
bition of performance requirements is also a core issue in EU–China investment
treaty negotiations.69
Article 14.10 of the USMCA requires contracting parties not to impose or enforce
any undertaking “to purchase, use or accord a preference to a good produced or a
62
Crosby D (2016) Analysis of data localization measures under WTO services trade rules and
commitments. E15 Initiative, International Centre for Trade and Sustainable Development and
World Economic Forum, Geneva, p 8
63
Bauer M, Lee-Makiyama H, van der Marel E, Verschelde B (2014) The costs of data localization:
friendly fire on economic recovery. ECIPE occasional paper no. 3/2014. https://ecipe.org/wp-
content/uploads/2014/12/OCC32014__1.pdf
64
USTR (2019) 2018 Report to Congress on China’s WTO Compliance. https://ustr.gov/sites/default/
files/2018-USTR-Report-to-Congress-on-China%27s-WTO-Compliance.pdf
65
World Economic Forum (2020), p. 12
66
UNCTAD (2013) Foreign direct investment and performance requirements: new evidence from
selected countries, p 2. https://unctad.org/en/Docs/iteiia20037_en.pdf
67
Nikièma SH (2014) Performance requirements in investment treaties. International Institute for
Sustainable Development. https://www.iisd.org/sites/default/files/publications/best-practices-perfor
mance-requirements-investment-treaties-en.pdf
68
UNCTAD (2013), pp. 32–33
69
European Commission (2020) EU-China Comprehensive Agreement on Investment. https://trade.
ec.europa.eu/doclib/press/index.cfm?id¼2115
service supplied in its territory.” Intentionally or not, this obligation might cover the
prohibition of data localization requirements.70 In its annual report on China’s WTO
compliance, the United States Trade Representative identified several measures
taken by China as performance requirements and protectionist tools, including
those restricting CBDF, technology localization policies, and local data storage
and processing requirements in critical information infrastructure sectors.71 It has
been suggested that these issues should be addressed in Phase 2 of the negotiations
toward a US–China economic agreement.72
Fair and Equitable Treatment

Fair and equitable treatment (FET) has been a requirement in most bilateral invest-
ment treaties, and it is the most frequently invoked treatment standard in arbitral
practice.73 Although its scope is vaguely defined in most BITs, the central role of
FET has been highlighted by tribunals.74 Principles that have been identified by
tribunals as coming under the definition of FET include the protection of the
investor’s legitimate expectations, transparency, due process and prohibitions
against arbitrary and discriminatory treatment.75 The broad and undefined nature
of FET avails foreign investors who are affected by policy changes that impact
CBDF or are imposed data localization requirements to submit claims of unfair
treatment in breach of BITs to tribunals.76 This may happen when the measures taken
by a host State lack consistency or reasonableness, or when there is a denial of justice
or a lack of due process.77 Applying the principles of data localization and minimi-
zation may also violate the requirement of FET under international investment law,
particularly when they are applied disproportionately to greatly diminish the value of
digital goods or services.78
Recent practice reveals the possibility of a creeping violation of FET require-
ments. The tribunal in the case of El Paso v. Argentina considered FET as a process
extending over time and comprising a succession or accumulation of measures that,
taken separately, would not breach the standard but do constitute a breach if taken
70
71
USTR (2020) 2019 Report to Congress on China’s WTO Compliance. https://ustr.gov/sites/default/
files/2019_Report_on_China%E2%80%99s_WTO_Compliance.pdf
72
USTR (2020)
73
Dolzer and Schreuer (2012), p. 130
74
Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award, 28
September 2007, para 300.
75
Dolzer and Schreuer (2012), pp. 145–152
76
Chaisse and Bauer (2019), pp. 570–571
77
Chaisse and Bauer (2019), pp. 570–577
78
Ramesh V (2018) Data protection principles around the world: do they violate international
investment law? Völkerrechtsblog. https://voelkerrechtsblog.org/data-protection-principles-
around-the-world/
222 S. Zhang
together.79 There has been a global rise of data regulations over the past decade. If
the measures taken by one State have accumulated negative effects on the free flow
of data, these measures can be considered as a breach of FET. This is most likely to
occur when the objective of a state’s relevant legislation is to introduce strict
requirements for data localization to ensure that its domestic companies can access
a large quantity of data.
Indirect Expropriation
Generally, investment treaty claims of expropriation fall into two categories: direct
expropriation and indirect expropriation. Although direct expropriation is now rare,
indirect expropriation is referred to more often in arbitral practice. It is argued that
data localization measures may amount to indirect expropriation because they place
foreign competitors at a disadvantage compared to their local counterparts, and thus
can be regarded as discriminatory.80 Although data localization regulations and other
discriminatory privacy or security laws increase data processing costs,81 the mere
fact that foreign digital companies suffer economic losses does not amount to
indirect expropriation. A claim of indirect expropriation will be upheld only if the
measure being challenged constitutes a substantial deprivation of foreign invest-
ment. It remains to be seen what degree of adverse effect is necessary to cross the
threshold from non-compensable regulation to impermissible indirect expropria-
tion.82 In some circumstances, data localization requirements will not be considered
to require a fundamental shift in the operations of foreign digital companies to
remove their ability to continue to operate in the host States.83 Moreover, tribunals
need to consider whether the measures are proportionately applied and whether they
affect the legitimate expectations of foreign investors. This determination will
require a case-by-case, fact-based inquiry.
The Boundaries of Protection
Compared with the commitments to facilitate the digital economy offered by the
WTO and other trade agreements, international investment law can provide enforce-
able remedies for digital corporations operating in a less secure environment.84 The
ISDS enables digital companies to file disputes for international arbitration when
breaches of investment protection are alleged. However, investment treaties do not
offer unlimited protection. The proliferation of restrictions on CBDF can be justified
79
El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15,
Award, 31 October 2011, para 518.
80
Ramesh (2018)
81
Bauer et al. (2014)
82
Mitchell and Hepburn (2017), p. 221
83
84
by connecting them to various legitimate objectives, of which the most relevant are
national security, public morals, and privacy,85 some of which overlap with the
exception clauses in investment treaties. Even when a breach of investment protec-
tion is found by a tribunal, the host State does not need to take the responsibility if
the measures being challenged by a foreign investor are covered by an exception
clause. However, as discussed below, although exception clauses allow States to take
measures to safeguard legitimate objectives, the high threshold for their application
makes it difficult for States to invoke them in practice.
General Exception
Although BITs were initially only focused on protecting foreign investors against
expropriation, they are now used by foreign investors to challenge a broad range
of regulatory measures to protect labor and the environment. One instrument used
by States to recalibrate the investment treaty regime to maintain a balance
between the protection of foreign investment and the regulatory power of States
is general exception clauses. Recent years have seen an increase in exception
clauses in BITs.86 In most circumstances, the general exception clauses in BITs
are modeled on Article XX of the General Agreement on Tariffs and Trade
(GATT) and/or Article XIV of the GATS.87 For example, the China–New Zealand
FTA incorporated both of these in Article 200 (“General Exception”), which
provides that,
1. For the purposes of this Agreement, Article XX of GATT 1994 and its interpretative notes
and Article XIV of GATS (including its footnotes) are incorporated into and made part of
this Agreement, mutatis mutandis.
2. The Parties understand that the measures referred to in Article XX(b) of GATT 1994 and
Article XIV(b) of GATS, as incorporated into this Agreement, can include environmental
measures necessary to protect human, animal or plant life or health, and Article XX(g) of
GATT 1994, as incorporated into this Agreement, applies to measures relating to the
conservation of living and non-living exhaustible natural resources, subject to the
requirement that they are not applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination or a disguised restriction on trade in goods or
services or investment.
3. For the purposes of this Agreement, subject to the requirement that such measures are not
applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between the Parties where like conditions prevail, or a disguised restric-
tion on trade in goods or services or investment, nothing in this Agreement shall be
construed to prevent the adoption or enforcement by a Party of measures necessary to
85
Mitchell and Hepburn (2017), pp. 188–195
86
UNCTAD (2017), p. xii
87
Sabanogullari L (2015) The merits and limitations of general exception clauses in contemporary
investment treaty practice. Investment Treaty News. https://www.iisd.org/itn/2015/05/21/the-
merits-and-limitations-of-general-exception-clauses-in-contemporary-investment-treaty-practice/
224 S. Zhang
protect national works or specific sites of historical or archaeological value, or to

support creative arts of national value.
4. Nothing in this Agreement shall prevent the Parties from taking any necessary measures
to restrict the illicit import of cultural property from the other Party under the framework
of the United Nations Educational, Scientific and Cultural Organization (“UNESCO”)
Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and
Transfer of Ownership of Cultural Property, done at Paris on 14 November 1970.
Though there is no clear approach to defining the scope of and interpreting

general exception clauses in IIAs, these clauses increase the public policy space
and policy flexibility of host States. It is likely that the jurisprudence developed by
the WTO panels and Appellate Body in interpreting the GATT and GATS will affect
the interpretation of general exception clauses in investment treaties.88
The relevance of general exception clauses in BITs to an investment claims
relating to data transfers depends on the wording of the specific clauses, which
are geographically and economically diverse.89 The policy objectives used by
States to justify interference with CBDF do not fully match those provided in the
BITs. Although restrictions on data flows are often justified on the grounds of
national security, public morals, and privacy, BITs normally attach significance to
protecting the environment and human health. For instance, Article 4 of the 2018
Turkey–Cambodia BIT defines a general exception covering the protection of human,
animal or plant life or health, the conservation of exhaustive natural resources, and
essential security interests. Few treaties clearly refer to exceptions related to public
morals and privacy. However, critics claim that general exception clauses create
uncertainty in investment disputes and fail to offer greater flexibility than already exists
in current jurisprudence.90
Some investment agreements have sought to narrow the scope for the application
of general exception clauses. The EU-Canada CETA adopts the exception clauses
from both the GATT and the GATS but specifies that its general exception clauses are
only applicable to the “establishment of investments” and “non-discriminatory
treatment.”91 Accordingly, violations of other provisions, such as FET and the
protection against indirect expropriation, cannot be justified by recourse to these
exceptions. With the absence of such provisions in other treaties, there remains a
high threshold for the application of general exception clauses to FET and indirect
expropriation provisions. In practice, tribunals tend to interpret general exceptions
88
Gagliani G (2020) The interpretation of general exceptions in international trade and investment
law: is a sustainable development interpretative approach possible. Denver J Int Law Policy 43
(4):559–588, 577
89
Sabanogullari (2015)
90
Newcombe A (2011) General exceptions in international investment agreements. In: Segger M-
CC, Gehring M, Newcombe A (eds) Sustainable development in world investment law. Kluwer
International Law, The Hague, pp 355, 369–370
91
Article 28.3 of the EU-Canada CETA
narrowly, thus making these clauses difficult to implement.92 For these reasons, it is
argued that general exception clauses, at least in their current shape, do not play a
significant role in investment claims related to CBDF.93
National Security Exceptions
National security exceptions clauses are significant tool for States to maintain a
sufficient level of protection for their national security interests in BITs. A typical
clause can be found in Article XI of the US–Argentina BIT, which reads, “This
Treaty shall not preclude the application by either Party of measures necessary for
the maintenance of public order, the fulfillment of its obligations with respect to the
maintenance or restoration of international peace or security, or the protection of its
own essential security interests.” This clause can also be found in NAFTA and the
Energy Charter Treaty. Both of these adopted a “self-judging” approach that allows a
party to take any actions that it considers necessary for the protection of its essential
security interests.94 Similar wording can be found in other BITs. For example,
Article 18 of the China–South Korea–Japan BIT reads:
1. Notwithstanding any other provisions in this Agreement other than the provisions of
Article 12, each Contracting Party may take any measure:
(a) which it considers necessary for the protection of its essential security interests;
(i) taken in time of war, or armed conflict, or other emergency in that Contracting
Party or in international relations; or
(ii) relating to the implementation of national policies or international agreements
respecting the non-proliferation of weapons;
(b) in pursuance of its obligations under the United Nations Charter for the mainte-
nance of international peace and security.
2. In cases where a Contracting Party takes any measure, pursuant to paragraph 1, that
does not conform with the obligations of the provisions of this Agreement other than the
provisions of Article 12, that Contracting Party shall not use such measure as a means of
avoiding its obligations.
The national security exception has been invoked more often in recent years, and
the concept of national security exceptions has evolved from countering military
threats to tackling economic crises and protecting strategic industries and critical
infrastructure.95 National security is a common rationale for imposing restrictions on
92
Martini C (2019) Avoiding the planned obsolescence of modern international investment agree-
ments: can general exception mechanisms be improved, and how? Boston Coll Law Rev 59
(8):2877–2897, 2893
93
94
See Article 2102 of NAFTA and Article 24 of the ECT.
95
UNCTAD (2009) The protection of national security in IIAs. UNCTAD series on international
investment policies for development. United Nations, New York/Geneva. https://unctad.org/en/
Docs/diaeia20085_en.pdf
226 S. Zhang
data transfer in many countries, with some countries also viewing data sovereignty
as a matter of national security.96
Most BITs leave the term “national security” undefined, and its application depends
on the interpretation of the contracting parties and the related terms in their domestic
laws.97 A similar approach has been taken in WTO jurisprudence. The dispute panel in
the Russia–Traffic in Transit (DS512) case between Ukraine and Russia was the first to
rule on the nature of the national security exception in the GATT. When interpreting
the exception, the panel took the view that in general it is left to a WTO member to
define what it considers to be its essential security interests.98 The term “essential
security interests” could be interpreted as having evolved to encompass cybersecurity,
which would suggest that national security exceptions could provide broad justifica-
tion for measures requiring data localization.99 However, the panel in the Russia–
Traffic in Transit (DS512) dispute held that, although the chapeau of Article XXI(b)
allows a member to take action “which it considers necessary” for the protection of its
essential security interests,100 the invocation of the national security exception is
justifiable and subject to review by the Dispute Settlement Body (DSB).101 The
DSB will consider whether a member has interpreted and applied the provision of
“essential security interest” in good faith and whether the challenged measures are “not
implausible” as measures to protect those essential security interests.102 The United
Nations Conference on Trade and Development has also suggested the use of a good
faith requirement when interpreting and applying national security exception
clauses.103 The mere possibility of review will prevent States from invoking the
essential security exception in defense of a data localization measure, as it would
subject their national security interests to scrutiny by the WTO DSB or other
institutions.104
Necessity
The customary international law defense of necessity also provides States with some
flexibility in exceptional circumstances. In cases where a national security exception
96
97
UNCTAD (2009), p. xix
98
WTO (2019) Russia – measures concerning traffic in transit. WT/DS512/7, Panel Report,
para 7.131
99
Hodson S (2019) Applying WTO and FTA disciplines to data localization measures. World Trade
Rev 18(4):579–607, 596
100
Peng S-y (2015) Cybersecurity threats and the WTO national security exceptions. J Int Econ Law
18(2):449–478
101
WTO (2019), para 7.103
102
WTO (2019), paras 7.132–7.139
103
UNCTAD (2009), p. 129
104
Hodson (2019), p. 596
is expressly provided for BITs, States may have a double justification for invoking a
national security exception: treaty law and customary international law.105 However,
as mentioned by the tribunal in Enron v. Argentina, the application of customary
international law is subject to very strict conditions, as otherwise it would open the
door to eluding any international obligation.106 According to the International Law
Commission, the action taken by States must be the only way to safeguard an essential
interest against a grave and imminent peril, and it should not seriously impair an
essential interest of another State.107 A State wishing to invoke a defense of necessity
bears a more stringent burden of proof. Although the defense of necessity can coexist
with other treaty-based exceptions, it only removes a narrow range of State actions
from responsibility.108 It may cover economic crises resulting in extreme economic,
institutional and social disturbances, as upheld by the tribunal of Urbaser v. Argen-
tina,109 but it is difficult to invoke it as an excuse to protect strategic industries.110
Furthermore, the defense of necessity can only be invoked after the actual violation of
a particular legal obligation; it is inapplicable for use in preventing a treaty violation in
the first place.111 Such a high threshold for the defense of necessity makes it difficult
for States to invoke necessity to elude an IIA obligation.
Reform of the Investment Treaty Regime
The above discussion reveals the complexities involved in the application of IIAs to
CBDF. It is clear that the current investment law regime is ill-suited to the digital
economy. There is uncertainty as to whether data constitute a qualified investment
under IIAs, thus casting doubts on whether CBDF can be granted protection. In
addition, the current design of exception clauses makes it difficult for States to
maintain a balance between retaining the openness of the Internet and placing
restrictions on CBDF for the sake of national security, public morals, and privacy.
Reform of the investment treaty regime to facilitate data flows is thus necessary.
Furthermore, such reform should take into consideration the digital divide that has
occurred in recent years. Initially, BITs were designed to protect foreign investment
from developed countries into developing countries, and the international
105
UNCTAD (2009), p. 36
106
Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P.
v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, para 304.
107
ILC draft articles on the responsibility of States for internationally wrongful acts, with commen-
taries. United Nations General Assembly Official Records, Fifty-sixth session, Supplement No. 10,
Chapter 4, United Nations document A/56/10, art. 24, 25. Available at http://untreaty.un.org/ilc/
texts/instruments/english
108
UNCTAD (2009), p. 36
109
Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v.
Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, para 718.
110
UNCTAD (2009), p. 36
111
UNCATD (2009), p. 36
228 S. Zhang
investment law regime was dominated and characterized by a “North-South Divide.”

For the past two decades, the focus was on the conflict of interests between private
investors and States. At present, however, a more prominent issue seems to be the
digital divide between economies with comparative advantages in data-driven sec-
tors and smaller or less-advanced States.112 The USA, the EU, and China have
created distinct data realms with divergent approaches to data governance. These
distinctions will not only affect the relevant domestic legislation in smaller countries
through bilateral or regional talks pursued by these three economies but will also
hinder the formation of a global consensus on CBDF. To mitigate these challenges,
this section proposes the following reforms to international investment law:
First, BITs should be refined to support the development of the digital economy.
More than 2,000 investment treaties were concluded before the emergence of digitali-
zation and were therefore designed for the physical economy. As mentioned in Part II,
the definition of investment in these treaties and the related jurisprudence includes the
requirement for a “physical existence” in the host State. In the age of the digital
economy, the operation of multinational enterprises has been transformed and this
has created new ways to access foreign markets. Many companies only maintain a
digital presence in overseas markets, thus making physical presence in a host State less
fundamental.113 Although some tribunals have held that data could be protected under
BITs, the lack of precedent for this in international investment law suggests that an
update of treaty texts is required to bring more certainty. In this respect, the definition of
investment should be broadened to reflect the new patterns of digital operations. In
addition, exception clauses should be reviewed to help meet the goal of an open, secure,
and efficient Internet. In addition to the protection of labor and the environment,
significance should be attached to other objectives, including public morals and
privacy. Some treaties have already taken this step: the China–Canada BIT, for instance,
specifies that it should not “be construed to require the contracting parties to furnish or
allow access to information the disclosure of which would go against the Contracting
Party’s law protecting . . . personal privacy.”114 The protection of personal privacy is
increasingly significant amid the COVID-19 pandemic. Using digital technologies and
advanced analytics capabilities, many countries are now taking unprecedented mea-
sures to collect, process, and share personal data, some of which involve risks of
violating the right to privacy and other fundamental rights of citizens.115
Second, dialogues should be constructed between different stakeholders to main-
tain the dynamics of investment treaty law. Interest in BITs is not confined to the
contracting parties; they are instruments that are closely related to the interests of
foreign investors, the public and non-governmental organizations (NGOs). The
interests of different groups are not always consistent, and are sometimes in conflict.
112
Aaronson and Leblond (2018), p. 247
113
UNCTAD (2017), p. 158
114
Article 33(6) of the China-Canada BIT
115
OECD (2020) Ensuring data privacy as we battle COVID-10. https://read.oecd-ilibrary.org/view/?
ref¼128_128758-vfx2g82fn3&title¼Ensuring-data-privacy-as-we-battle-COVID-19
Therefore, a consensus-building mechanism involving various stakeholders is essen-

tial for the sustained development of international investment law. Dialogues could
be conducted in different forms and at different stages. For instance, at the treaty
negotiation stage, a working group could be established to discuss relevant technical
standards and consider how to incorporate clear disciplines of CBDF into the
proposed BIT. At the implementation stage, dialogue can take place between the
arbitral tribunals and NGOs through amicus curiae. This will help the tribunals to
understand relevant technologies, such as those relating to encryption, data pro-
cessing, and data security. Dialogue could also be established with reference to WTO
jurisprudence. International investment law is not a self-contained regime; it inter-
acts with other aspects of international law.116 As the exception clauses in IIAs are
modeled on WTO laws, some arbitral tribunals have found it appropriate to refer to
GATT and GATS when interpreting related terms. For instance, when interpreting
whether measures taken by Argentina were necessary under the essential security
clause included in the investment treaty, the tribunal of Continental Casualty v.
Argentina chose to look at GATT and WTO case law instead of the requirement of
necessity under customary international law.117 Furthermore, periodic reviews of
IIAs could be conducted between the contracting parties to review the content of
treaties and related governmental measures and ensure that IIAs keep pace with
social and economic developments. Finally, efforts should be made to ensure that
domestic laws are in line with international instruments. It is suggested that States
establish national legal frameworks to protect the data of private individuals and
enact transparent cybersecurity legislation.118 The domestic laws should be flexible
enough to ensure that they are future-proof and robust.119
Third, efforts should be made to close the digital divide. Although data gover-
nance has been dominated by the USA, the EU, and China, these three actors are
pursuing distinct data realms. Judging by the different degrees and types of govern-
ment intervention for CBDF, these three realms are liberalizing (the USA), regula-
tory (the EU), and mercantilist (China).120 Underling the tensions of the digital
divide is “the battle to retain or reduce the competitive advantage that US has
historically enjoyed in economies of scale for its internet signals intelligence capa-
bilities.”121 Two approaches are proposed to bridge the gap. On the one hand,
116
Zhang S (2019) Human rights and international investment agreements: how to bridge the gap?
Chin J Comp Law 7(3):457–483, 458
117
Continental Casualty Company v. Argentine Republic, ICSID Case No. ARB/03/9, Award, 5
September 2008, paras 192–195.
118
119
120
Hillman JE (2018) The global battle for digital trade: the US, EU and China back competing
rules. https://www.csis.org/blogs/future-digital-trade-policy-and-role-us-and-uk/global-battle-digi
tal-trade
121
Selby J (2017) Data localization laws: trade barriers or legitimate responses to cybersecurity risk,
or both? Int J Law Inf Technol 25(3):213–232
230 S. Zhang
consensus among the three data realms may serve as a template for further negoti-
ations at multilateral levels. The ongoing e-commerce negotiations at the WTO, with
over 75 countries participating, provide a significant opportunity to establish rules
that align the interests of the USA, the EU, and China with other States. For political
reasons, it will be difficult for participating countries to come up with a single
agreement on e-commerce at the current stage; nonetheless, the negotiations should
permit constructive dialogues among different positions and narrow the divide, and
some concrete solutions to strengthen data interoperability should be expected as the
negotiations continue. In addition, efforts should be undertaken to enhance the
capacity building of smaller and developing countries. This goal can be fulfilled in
each country through various training programs, the promotion of digital firms,
developments in Internet infrastructure, and the establishment of a digital develop-
ment strategy.122
Conclusion
Data flows have been the lifeblood of the Fourth Industrial Revolution, which is
marked by the rise of the digital economy. International investment law can provide
a platform for the protection of CBDF, as it offers the enjoyment of national
treatment, the prohibition of performance requirements, commitments to fair and
equitable treatment, and protection against indirect expropriation. Exception clauses
in the IIAs are also helpful for States to maintain the delicate balance between
securing the free flow of data and preserving legitimate policy goals. However,
most international investment agreements were concluded before the Fourth Indus-
trial Revolution, and there are uncertainties and complexities involved in applying
investment treaties to CBDF. In the absence of a more developed legal framework,
there is doubt as to whether data will be considered a qualified investment, which
poses a challenge to the basic assumptions of the current investment treaty regime. A
refined, balanced, and rule-based investment treaty framework to facilitate data
flows is essential to support growth in digital trade. States need to review the
coverage and treatment of new digital industries and data flows in IIAs, taking
into account the digital investment dimension, and maintain the balance between
the free flow of data and policy flexibility through clearly worded exceptions. In the
long run, a multilateral legal framework on CBDF is imperative to ensure an open,
efficient and secure Internet. Progress in the WTO platform through the currently
ongoing negotiations on e-commerce would facilitate the reform of the current
investment treaty regime to provide an enabling and inclusive environment for
CBDF.
122
UNCTAD (2017)
Cross-References
▶ Good Faith in International Investment Law and Policy

▶ Performance Requirement Prohibitions in International Investment Law
▶ The Standard of Most-Favored-Nation Treatment in Investor-State Dispute
Settlement Practice
Part III
Standards of Treatment, Promotion, and
Protection
The National Treatment Obligation: Law
and Practice of Investment Treaties 10
Manini Brar
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Historical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
National Treatment Under the WTO (GATT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Relevance of WTO Law in the Investment Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
National Treatment Under GATT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Likeness of Products Under Article III of the GATT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Less Favorable Treatment Under Article III of the GATT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Exceptions Under Article XX of the GATT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Extent of the Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
Pre-establishment and Post-establishment Models in Treaty Practice . . . . . . . . . . . . . . . . . . . . . . 246
Other Variations in Treaty Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Key Elements in Evaluating a Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Likeness of Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Factors to Evaluate Likeness of Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
Express Comparator Clauses in Treaty Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
Less Favorable Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Determining the Standard of Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
Standard of Treatment in Treaty Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
The Role of Policy Objectives of the Host State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Place of Policy Objectives in the Evaluation of a National Treatment Claim . . . . . . . . . . . . . 261
Standard of Review of Policy-Based Justifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Policy Objectives in Treaty Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
M. Brar (*)
Advocate, Delhi, India
Tribunal Secretary, Singapore, Singapore
e-mail: manineebrar@gmail.com

https://doi.org/10.1007/978-981-13-3615-7_5
236 M. Brar
Abstract
National treatment is an important standard of treatment under international
investment agreements today. Investment tribunals have clarified the extent
to which it protects foreign investors and/or investments with a degree of con-
sistency, although there are areas of uncertainty. Recent treaty practice among
countries belonging to the global south tends to detail the scope and content of the
protection, reflecting the particular concerns of negotiating parties. This chapter
discusses the present-day understanding of national treatment as an investor
protection as developed over the course of initiatives at the multilateral level,
WTO jurisprudence, decisions of investment tribunals, and State practice of
countries belonging to the global south. It aims to highlight some contemporary
trends and reflect on areas of overlap and divergence between State practice and
tribunal decisions.
Keywords
National treatment · State practice · Investment · Treaties · Global south
Introduction
The origin of national treatment as a concept of nondiscrimination between foreign

and local traders can be traced back to the trade treaties of the twelfth and thirteenth
centuries.1 Today, it finds place in major multilateral agreements on trade in goods,2
services,3 intellectual property,4 and human rights5 as a safeguard against the
protectionist tendency of governments to treat foreign goods, services, property,
entities, or people differently.6 As an investor protection, national treatment serves a
similar purpose: it restricts discrimination based on nationality between foreign
investors (and/or investments) and their domestic counterparts in a host State. The
protection has gained prominence since the late twentieth century with the rise in the
1
UNCTAD (1999) National treatment. In: UNCTAD series on issues in international investment
agreements, vol IV. United Nations, New York/Geneva, pp 15–24; Themaat P (1999) The changing
structure of international economic law. Martinus Nijhoff, The Hague/Boston/London, p 16
2
Art. III General Agreement on Tariffs and Trade (1994) (GATT)
3
Art. XVII General Agreement on Trade in Services (1994) (GATS)
4
Art. 3 Agreement on Trade-Related Aspects of Intellectual Property Rights (1994)
5
Several human rights treaties oblige States to extend equal treatment to all similarly situated
persons within their jurisdiction. See Art. 1 European Convention for the Protection of Human
Rights and Fundamental Freedoms (1950); Art. 1(1) American Convention on Human Rights
(1969); Art. 2 Universal Declaration of Human Rights (1948)
6
Bjorklund A (2008) National treatment. In: Reinisch A (ed) Standards of investment protection.
Oxford University Press, Oxford, p 29
10 The National Treatment Obligation: Law and Practice of Investment Treaties 237
standard of treatment offered by developing countries to their own investors and

increased opportunities for foreign investment in these countries.7 As of 1999, it was
identified by the UNCTAD as “the single most important standard of treatment
enshrined in international agreements.”8
The following two sections of this chapter set out the historical background of
important proposals at the multilateral level (section “Historical Background”) and
aspects of GATT jurisprudence (section “National Treatment Under the
WTO (GATT)”) which have influenced the present-day understanding of national
treatment as an investor protection. This is followed by an analysis of the extent of the
protection offered in recent treaties and common elements identified by investment tri-
bunals to evaluate a breach of national treatment (section “Extent of the Protection”):
the appropriate domestic comparator (section “Likeness of Circumstances”), the
appropriate standard of treatment (section “Less Favorable Treatment”), and the
policy-based justifications sometimes offered by responding States for their conduct
(section “The Role of Policy Objectives of the Host State”). It is seen that countries
belonging to the global south have favoured a detailed national treatment clause in
recent international investment agreements (IIAs). The language of the clause is
typically responsive to tribunal decisions on national treatment. In places, it is consis-
tent with the principles identified in these decisions. In others, it goes beyond and
indicates a deliberate preference of States. For instance, some IIAs emphasise greater
regulatory flexibility or exhibit a greater inclination for trade/GATT principles to be
applied in the investment context notwithstanding diverging views of tribunals on
these issues.
Historical Background
Several formulations of national treatment have been proposed at the multilateral

level over the years. At the 1929 Paris Conference, the Draft Convention on the
Treatment of Foreigners proposed “complete equality, de jure and de facto, with
nationals as regards. . . the conduct of all commercial, industrial and financial
operations, and in general any transactions of an economic character, without any
distinction being drawn in this connection between undertakings operating indepen-
dently and those which exist as branches, subsidiary undertakings or agencies of
undertakings situated in the territory of the. . .High Contracting Parties.”9 This broad
7
DiMascio N, Pauwelyn J (2008) Nondiscrimination in trade and investment treaties: worlds apart
or two sides of the same coin. Am J Int Law 102(1):48–89, 67
8
agreements, vol IV. United Nations, New York/Geneva, p 1
9
Art. 7 International Conference on the Treatment of Foreigners (1929) Draft convention prepared
by the Economic Committee of the League of Nations to Serve as a Basis for Discussion at the
International Conference. LN Doc. C.36.M.21.1929
238 M. Brar
formulation did not receive the consensus of the majority of participating govern-
ments; the Paris Conference eventually failed to adopt a convention.10 Almost
70 years later, as on 22 April 1998, the draft text of the Multilateral Agreement on
Investment (MAI) proposed that each contracting State accord to investors of other
States and their investments, “treatment no less favourable than the treatment it
accords [in like circumstances] to its own investors and their investments with
respect to the establishment, acquisition, expansion, operation, management, main-
tenance, use, enjoyment and sale or other disposition of investments.”11 Once again,
the MAI negotiations ran their course without a convention being adopted.12 Some
other noteworthy formulations in the intervening, post-world war, period were
included in the ICC’s International Code of Fair Treatment for Foreign Investments
1948,13 the OECD Draft Convention on the Protection of Foreign Property 1967
(precluding parties from “discriminatory measures,” intended to cover national
treatment),14 and the OECD Declaration on International Investment and Multina-
tional Enterprises 1976.15 No single formulation has been accepted as binding by a
significant majority of States at the multilateral level.
The purport of the national treatment protection has oscillated under the influ-
ences of the Calvo Doctrine and the Hull Rule. The Calvo Doctrine advocated that
host States should not grant foreigners any rights or benefits greater than those
accorded to their own nationals.16 It promoted an “anti-super-national-treatment”
standard and rejected any special privileges to foreign investors.17 It was widely
supported by the Latin American States as well as the newly independent States in
Africa and Asia after World War II.18 In contrast, the Hull Rule considered foreign
investors entitled to an “international minimum standard” of protection which was
10
International Law Commission (1947) United Nations documents on the development and
codification of international law. Am J Int Law 41(4 Suppl):61. See also Chaisse J, Marisi F
(2019) Is intellectual property “investment”? Formation, evolution, and transformation of the
intellectual property rights – foreign direct investment normative relationship. Ohio State J Disput
Resolut 34(1):97–152
11
Art. III Negotiating Group on the Multilateral Agreement on Investment (1998) Multilateral
agreement on investment: draft consolidated text. OECD Doc. No. DAFFE/MAI(98)7/REV1
12
Muchlinski P (2000) The rise and fall of the multilateral agreement on investment: where now? Int
Lawyers 34(3):1033–1053, 1033
13
Arts. 3, 4, 5, 6, 7 International Chamber of Commerce (1949) International code of fair treatment
for foreign investment. https://www.international-arbitration-attorney.com/wp-content/uploads/73-
volume-3.pdf. Accessed 21 Apr 2019
14
Arts. 1(a), 3 OECD (1968) Draft convention on the Protection of Foreign Property: text with
notes and comments. ILM 7:117. Also available at https://www.oecd.org/investment/
internationalinvestmentagreements/39286571.pdf. Accessed 21 Apr 2019
15
Art. II OECD (1976) Declaration on International Investment and Multinational Enterprises. ILM
15(4):967
16
Shan W (2007) Is Calvo dead? Am J Comp Law 55(1):123–163, 126–129
17
Ibid.
18
Ibid.
delinked from the domestic legal context of the host State.19 It was endorsed by the
United States and other developed countries and proposed, in the words of the then US
Secretary of State Cordell Hull, that “when aliens are admitted into a country the
country is obliged to accord them that degree of protection of life and property [which
is] consistent with the standards of justice recognized by the law of nations.”20 Under
these two opposing narratives, national treatment was variously invoked to limit the
rights of foreigners on the one hand and to expand those rights on the other.21
National Treatment Under the WTO (GATT)
Relevance of WTO Law in the Investment Context
Goods and services may be supplied by way of both trade and investment. In other
words both international trade law and international investment law may govern the
same activity or measure but with different obligations and norms.22 In one case
where Mexico imposed an excise tax on a certain class of drinks but not on others,
the measure was challenged both at the WTO level (between the United States and
Mexico) as a breach of Mexico’s multilateral trade commitment to accord national
treatment to imported products23 and at the investor-State level (between US
19
Sornarajah M (2004) The international law on foreign investment, 2nd edn. Cambridge University
Press, Cambridge, p 37. See also Chaisse J (2012) Promises and pitfalls of the European Union policy
on foreign investment – how will the new EU competence on FDI affect the emerging global regime. J
Int Econ Law 15(1):51–84. In fact, the international minimum standard of treatment is often discussed
as an element of the fair and equitable treatment (FET) protection.
20
For the entire correspondence between the Mexican Government and Secretary Hull on this issue
(in the context of the right of the United States to demand compensation for the agricultural lands of
its citizens expropriated by Mexico since 1927), see American Society of International Law (1938)
Mexico-United States: expropriation of the agrarian properties owned by American citizens. Am J
Int Law 32(Suppl):181–207. See also Borchard E (1940) Minimum standard of the treatment of
aliens. Mich Law Rev 38(4):445–461.
21
Kinnear M, Bjorklund A, Hannaford J (2006) Investment disputes under NAFTA: an annotated
guide to NAFTA Chapter 11. Kluwer Law International, Alphen aan den Rijn, pp 1102–1112;
Chaisse J (2015) Deconstructing the WTO conformity obligation: a theory of compliance as a
process. Fordham J Int Law 38(1):57–98
22
Mitchell A (2014) Introductory remarks by Andrew Mitchell. In: Hodgson M (speaker) The
effectiveness of international law. Proceedings of the annual meeting (American Society of Inter-
national Law), vol 108, pp 251–254, 251. See also Chaisse J, Nagaraj P (2014) Changing lanes –
trade, investment and intellectual property rights. Hastings Int Comp Law Rev 36(1):223–270.
23
WTO Appellate Body WT/DS308/AB/R Mexico: Tax Measures on Soft Drinks and Other
Beverages (adopted on 24 March 2006). This dispute arose inter alia out of Mexico’s imposition
of a “soft drink tax” on the importation of soft drinks and other beverages using any sweetener other
than cane sugar (cane sugar was domestically produced in Mexico) and a “distribution tax” on
services like brokerage, distribution, etc., levied on the transfer of soft drinks and other beverages
using any sweetener other than cane sugar (Mexico’s Measures). The United States, which was
exporting soft drinks and syrups containing beet sugar and high-fructose corn syrup (i.e., sweetener
other than cane sugar) to Mexico, alleged a violation of Article III, paras 2 and 4, of the GATT on the
ground that Mexico’s Measures treated imported products differentially.
240 M. Brar
investors and Mexico) as a breach of Mexico’s guarantee of national treatment with

respect to US investors and their investments under the NAFTA.24
Not surprisingly, some investment tribunals have been open to referring to WTO
jurisprudence to inform the scope of national treatment in the investment context.25
There are however others who have favored the development of investment law
principles independently of trade law.26 In either approach, WTO jurisprudence has
provided the comparative context to identify the contours of national treatment as an
investor protection. It has also become more relevant with an increasing number of
preferential trade agreements incorporating investor protections (commonly
guaranteed under separate bilateral investment treaties previously).27
National Treatment Under GATT
A key national treatment commitment under the WTO regime is contained in Article
III of the GATT.28 This provision inter alia precludes protectionism in the application
24
ICSID Case No. ARB (AF)/04/05 Archer Daniels Midland v. Mexico (Award, 21 November 2007);
ICSID Case No. ARB (AF)/04/01 Corn Products International Inc. v. Mexico (Decision on Respon-
sibility, 15 January 2008); ICSID Case No. ARB(AF)/05/2 Cargill, Incorporated v. Mexico (Award, 18
September 2009). In these cases, US investors challenged Mexico’s imposition of excise tax on soft
drinks and other beverages using any sweetener other than cane sugar inter alia on the basis that the tax
was designed to favor the predominantly Mexican-owned sugar producers (who produced cane sugar)
at the expense of foreign-owned manufacturers of high-fructose corn syrup (a sweetener other than
cane sugar). In each of the three, a breach of national treatment was found by the concerned tribunal.
25
UNCITRAL Pope & Talbot Inc. v. Canada (Award on Merits of Phase 2, 10 April 2001);
UNCITRAL S.D. Myers, Inc. v. Canada (Partial Award, 13 November 2000); UNCITRAL Cargill,
Incorporated v. Poland (Final Award, 29 February 2008), paras 311–312; Bjorklund A (2008) National
treatment. In: Reinisch A (ed) Standards of investment protection. Oxford University Press, Oxford, p
37; King AN (2018) National treatment in international economic law: the case for consistent
interpretation in new generation EU free trade agreements. Georgetown J Int Law 49:929–956
26
LCIA Case No. UN 3467 Occidental Exploration and Production Company v. Ecuador (Final
Award, 1 July 2004), paras 167–179
27
Miroudot S (2011) Investment, Chapter 14. In: Chauffour J, Maur J (eds) Preferential trade
agreement policies for development: a handbook. World Bank, Washington, DC; Crawford J,
Kotschwar B (2018) Investment provisions in preferential trade agreements: evolution and current
trends. https://www.wto.org/english/res_e/reser_e/ersd201814_e.pdf. Accessed 13 Mar 2019. See, for
instance, Ch. 8 Comprehensive Trade and Economic Agreement between Canada and the European
Union (2016); Ch. 9 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (2018)
28
Art. XVII(1) GATS contains the further commitment that “[I]n the sectors inscribed in its Schedule,
and subject to any conditions and qualifications set out therein, each Member shall accord to services
and service suppliers of any other Member, in respect of all measures affecting the supply of services,
treatment no less favourable than that it accords to its own like services and service suppliers.” It further
explains that “specific commitments assumed under this Article shall not be construed to require any
Member to compensate for any inherent competitive disadvantages which result from the foreign
character of the relevant services or service suppliers.” The Appellate Body has relied on GATT
jurisprudence while assessing the scope of this commitment, for instance, to ascertain “likeness”
among services and service suppliers. See WTO Appellate Body WT/DS453/AB/R Argentina- Mea-
sures Relating to Trade in Goods and Services (adopted on 9 May 2016), paras 6.31–6.34. For other
WTO commitments on national treatment see Art. 2.1 Agreement on Technical Barriers to Trade (1994);
Annex C Agreement on Application of Sanitary and Phytosanitary Measures (1994).
of internal tax and regulatory measures and, toward this end, obliges member States
of the WTO to provide equality of competitive conditions between imported prod-
ucts and domestic products.29 Evaluating a breach of national treatment under the
GATT requires identifying comparable imported and domestic products, determin-
ing whether there is differential treatment between the two, and evaluating whether
any of the exceptions contained in Article XX of GATT is successfully invoked by
the responding State.30
Likeness of Products Under Article III of the GATT
Article III of the GATT commits member States to the national treatment of “like”
products (in Article III.2, first sentence, or Article III.4) or “directly competitive or
substitutable” products (in Article III.2, second sentence).31 While the WTO Appel-
late Body views the latter as a broader category than the former, the determination of
“likeness” in either case is essentially based on the nature and extent of the
“competitive relationship” that exists between imported and domestic products.32
This is assessed by considering factors such as the end uses of the product, consumer
29
WTO Appellate Body WT/DS8/AB/R, WT/DS10/AB/R, and WT/DS11/AB/R Japan – Taxes
on Alcoholic Beverages (adopted on 1 November 1996), Section F. The dispute arose out of
Japan’s Liquor Tax Law No. 6 of 1953, which imposed a higher rate of tax on imported liquors
like vodka, whisky, rum, gin, etc. in comparison to shochu which was domestically produced in
Japan. It was challenged by the European Communities, the United States and Canada as violative
of Article III.2 of the GATT. The Appellate Body found Japan’s measures to be inconsistent with
Article III.2.
30
or two sides of the same coin. Am J Int Law 102(1):48–89, 62. See also Chaisse J (2013) Exploring
the confines of international investment and domestic health protections – general exceptions clause
as a forced perspective. Am J Law Med 39(2/3):332–361.
31
Gâlea I, Biris B (2014) National treatment in international trade and investment law. Acta Jurid
Hung 55(2):174–183
32
WTO Appellate Body WT/DS396/AB/R and WT/DS403/AB/R Philippines-Taxes on Distilled
Spirits (adopted on 20 January 2012), para 148. This dispute arose out of Philippines’ excise tax
system for distilled spirits. This system was challenged by the European Union and the United
States under Article III.2 of the GATT since it imposed a higher tax rate on imported spirits made
from non-designated materials than on domestic spirits made from the designated raw materials.
The Appellate Body confirmed the panel’s conclusion that the imported and domestic spirits
were “like” products within the meaning of Article III.2, first sentence, of the GATT and found
the Philippines’ measures to be inconsistent with Article III.2.
242 M. Brar
tastes and habits, physical characteristics, and tariff classification, with no particular
characteristic playing an overarching role.33
Less Favorable Treatment Under Article III of the GATT
A measure results in “treatment less favorable” (under Article III.4) for imported
products as compared to like domestic products if it modifies the “conditions of
competition” in the relevant market to the detriment of the imported products.34
There is no need to demonstrate how the measure specifically targets or affects the
rights of individual foreign traders or businesses.35 The mere fact of differential
treatment, or the aim or objective of the measure, is likewise in sufficient to establish
a breach. Rather, it is the effect of worsening competitive opportunities between
comparators.36 To this end, there must be a “genuine relationship” between the
measure at issue and the adverse impact on competitive opportunities for imported
products.37
Exceptions Under Article XX of the GATT
If a measure is found to be in breach of Article III, then the Appellate

Body/concerned panel recommends that it be brought into conformity with the
33
WTO Appellate Body WT/DS396/AB/R and WT/DS403/AB/R Philippines-Taxes on Distilled
Spirits (adopted on 20 January 2012), para 131
34
WTO Appellate Body WT/DS161/AB/R Korea-Measures Affecting Imports of Fresh, Chilled and
Frozen Beef (adopted on 10 January 2001), paras 133 and 144. This dispute arose out of certain
measures taken by Korea inter alia to support its beef industry and the agriculture sector more
generally as well as to separate the retail systems that existed for certain imported beef products as
compared to domestic products. Among other findings, the Appellate Body agreed with the panel’s
conclusion that the dual retail system (i.e., the separation of systems for the retail sale of imported
beef products and domestic beef products) was violative of Article III.4 of the GATT. According to
the Appellate Body, the consequence of this system was a drastic reduction of commercial
opportunity for imported products to reach, and hence to generate sales to, a certain marked of
consumers. It concluded that this established competitive conditions less favorable for the imported
products than for the like domestic products, thereby violating Article III.4 of the GATT.
35
36
Hudec RE (1998) GATT/WTO constraints on national regulation: requiem for an “aim and
effects” test. Int Lawyer 32(3):619–649, 932–933
37
WTO Appellate Body WT/DS400/AB/4 and WT/DS401/AB/R European Communities-Mea-
sures Prohibiting the Importation and Marketing of Seal Products (adopted on 18 June 2014), para
5.101
GATT unless one of the exceptions under Article XX is successfully invoked.38

Article XX contains a closed list of policy exceptions that can excuse a violation of
Article III.39
An examination under Article XX is two-tiered.40 First, a measure must be
excusable under at least one of the exceptions listed in the subparagraphs of Article
XX. These subparagraphs enumerate the policies or interests (such as public
morals, health, conservation of natural resources) which member States may
pursue.41 Different subparagraphs identify different degrees of nexus required
38
GATT Panel L/6439-36S/345 United States – Section 337 of the Tariff Act of 1930 (adopted on 7
November 1989), para 5.9. This dispute concerned the application of Section 337 of the US Tariff Act
1930. According to the European Community and other countries, US law made a distinction between
procedures applicable in litigation of patent disputes according to whether the goods alleged to
infringe US patents were imported or domestically produced. In the case of imported goods, the
complainant could take action under the procedures applied by the USITC under Section 337 or,
where product patents were concerned, in a federal district court. In the case of domestically produced
goods, the matter could not be raised in a proceeding brought under Section 337 but only in a federal
district court. The European Community considered that, as the procedures applied by the USITC
under Section 337 subjected imported goods to treatment that was radically different from, and less
favorable than, the treatment accorded by US federal district courts to domestic goods in patent
infringement suits, the procedures at issue constituted a violation of the national treatment rule set
forth in Article III:4 of the GATT 1947. The United States inter alia argued that the Section 337 was
exempted under Article XX(d) of the GATT as a measure aimed to secure compliance with US laws
relating to the protection of patents and did not create substantive law pertaining to protection of
patents in its own right. The Panel found Section 337 to be inconsistent with US obligations under
Article III.4 of the GATT 1947 and the inconsistency not justified under Article XX (d).
39
DiMascio N, Pauwelyn J (2008) Nondiscrimination in trade and investment treaties: worlds apart or
two sides of the same coin. Am J Int Law 102(1):48–89; Mitchell A, Munro M, Voon T (2017)
Importing WTO general exceptions in international investment agreements: proportionality, myths and
risks. In: Sachs L et al (eds) Yearbook on international investment law & policy. Oxford University
Press, Oxford, pp 305–355; Chaisse J (2013) Exploring the confines of international investment and
domestic health protections – general exceptions clause as a forced perspective. Am J Law Med 39(2/
3):332–361
40
WTO Appellate Body WT/DS332/AB/R Brazil – Measures Affecting Imports of Retreaded Tyres
(adopted on 3 December 2007), para 139. The dispute concerned inter alia certain Brazilian
measures prohibiting the marketing of, and/or imposing disposal obligations on the importers of,
imported retreaded tyres. Brazil submitted that its measures were justified under Article XX (b) of
the GATT as measures “necessary” to protect human or animal life or health. The Appellate Body
confirmed the panel’s finding that these measures were “necessary” for the stated policy objective,
although it found certain other measures to be in violation of the chapeau of Article XX and hence
inconsistent with Brazil’s obligations under the GATT; WTO Appellate Body WT/DS2/AB/R
United States – Standards of Reformulated and Conventional Gasoline (adopted on 20 May
1996), para 22. This dispute arose out of a legislation enacted by the United States to control
pollution caused by the combustion of gasoline manufactured in or imported into the United States.
This legislation, known as the “Gasoline Rule,” used a differential method for establishing baseline
figures for imported gasoline and domestic gasoline. The panel concluded that this differential
treatment was violative of Article III.4 and it could not be justified under Article XX because it was
an instance of “unjustifiable discrimination” when examined under the chapeau of Article XX.
41
WTO Appellate Body WT/DS2/AB/R United States – Standards of Reformulated and Conven-
tional Gasoline (adopted on 20 May 1996), paras 17–18
244 M. Brar
between the measure under appraisal and the State policy or interest: “necessary”
in paragraphs (a), (b), and (d); “essential” in paragraph (j); “relating to” in
paragraphs (c), (e), and (g); “for the protection of” in paragraph (f); “in pursuance
of” in paragraph (h); and “involving” in paragraph (i).42 A measure is “necessary”
if there is no “reasonably available,” WTO-consistent, alternative for achieving the
stated policy objective. This can be assessed by evaluating inter alia the possible
alternative measures available to the respondent State as well as the “relative
importance” of the interests or values furthered by the measure.43
Next, a measure must satisfy the requirements of the chapeau of Article XX, i.e.,
it must not be applied in a manner which “would constitute a means of arbitrary or
unjustifiable discrimination between countries where the same conditions prevail, or
a disguised restriction on international trade.”44 In practical terms, the role of the
chapeau is to ensure an alignment between the measure and the policy objective such
that discrimination resulting from the measure can be reconciled with, or is rationally
related to, the policy objective45 and protectionist conduct is not obliquely protected
through an abuse or misuse of Article XX.46 The focus of the inquiry under the
42
Art. XX GATT
43
WTO Appellate Body WT/DS285/AB/R United States – Measures Affecting the Cross-border
Supply of Gambling and Betting Services (adopted on 20 April 2005), paras 306–308. These
observations were made in the context of GATS Article XIV, which sets out general exceptions to
the GATS obligations in the same manner as GATT Article XX. The dispute arose out of US federal
and State laws which prohibited cross-border trade in gambling. Antigua and Barbuda challenged
these as violative of the obligation of “market access” under Article XVI of GATS. The United States
defended its actions as being “necessary” to “protect public morals or to maintain public order” under
Article XIV(a) of GATS. The panel found the US federal measures (the Wire Act, the Travel Act, and
the Illegal Gambling Business Act) to be “necessary” for the stated policy objective but their
application not justified when examined under the chapeau of Article XIV since remote betting
services could still be offered by domestic service suppliers in relation to horse racing under the
Interstate Horseracing Act, resulting in “arbitrary or unjustifiable discrimination.”
44
Art. XX GATT
45
Mitchell A, Munro M, Voon T (2017) Importing WTO general exceptions in international
investment agreements: proportionality, myths and risks. In: Sachs L et al (eds) Yearbook on
international investment law & policy. Oxford University Press, Oxford, pp 305–355
46
WTO Appellate Body WT/DS400/AB/4 and WT/DS401/AB/R European Communities – Measures
Prohibiting the Importation and Marketing of Seal Products (adopted on 18 June 2014), paras 5.297,
5.306. This dispute arose out of the “EU Seal Regime” which prohibited the placing of seal products on
the EU market unless they qualified under certain exceptions. According to the complainants (Canada
and Norway), the EU Seal Regime inter alia violated EU’s nondiscrimination obligations under Articles
I.1 and III.4 of the GATT since the exceptions thereunder accorded seal products from Canada and
Norway less favorable treatment than that accorded to like seal products of domestic origin, mainly from
Sweden and Finland, and those of other foreign origin, particularly from Greenland. EU defended its
measures as justified under Article XX(a) as “necessary” to “protect public morals.” The Appellate
Body confirmed the panel’s conclusion that EU Seal Regime was violative of Article I.1 of the GATT
but was “necessary” for the stated policy objective. However, it observed that the regime only banned
the importation and placing on the market of seal products derived from “commercial hunts” while
allowing the importation of seal products derived from hunts that satisfied certain criteria which were
ambiguously applied. Finding that the EU had failed to demonstrate how this (criterion for) discrimi-
nation (and their application) could be reconciled with the stated policy objective, the Appellate Body
held that the measure did not satisfy the requirements of the chapeau of Article XX.
chapeau is an examination of the design, architecture, and structure of a measure in

order to establish whether, in its actual or extended application, it constitutes a means
of arbitrary or unjustifiable discrimination between countries where the same con-
ditions prevail.47
WTO jurisprudence has oscillated between a permissive and intrusive
interpretation of the abovementioned elements over the years.48 In recent times,
a more permissive stance has led to an “aims-and-effects”-based evaluation of a
breach.49 The purpose (or aim) of a measure is considered alongside its effect to
determine, for instance, “likeness” among products,50 “less favorable treat-
ment,”51 or whether a measure otherwise protects domestic production (under
the overarching provision of Article III.1, which informs the scope of
Articles III.2 and III.4).52 This approach allows member States greater regulatory
flexibility as compared to an evaluation of policy goals strictly within the confines
of Article XX.
47
WTO Appellate Body WT/DS400/AB/4 and WT/DS401/AB/R European Communities –
Measures Prohibiting the Importation and Marketing of Seal Products (adopted on 18 June
2014), para 5.302
48
49
Ibid.
50
WTO Appellate Body WT/DS135/AB/R European Communities – Measures Affecting Asbestos
and Asbestos-Containing Products (adopted on 12 March 2001), paras 113–115. The Appellate
Body upheld the French Decree prohibiting the import of asbestos and asbestos-containing products
as consistent with the applicable WTO obligations. In doing so, it reversed the panel’s approach of
taking into account regulatory concerns only as part of an Article XX analysis but not as part of the
examination of “likeness” among products under Article III.4 of the GATT. It held that evidence
relating to the health risks associated with products need not be examined under a separate criterion,
because this evidence could be considered under the existing criteria of physical properties and of
consumers’ tastes and habits, which form part of the evaluation of “likeness” among products.
51
WTO WT/DS302/AB/R Dominican Republic – Measures Affecting the Importation and Internal
Sale of Cigarettes (adopted on 19 May 2005), para 96. The appeal concerned inter alia the
requirement by the Dominican Republic that importers and domestic producers of cigarettes post
a bond to ensure the payment of taxes. The Appellate Body confirmed the Panel’s finding that this
measure was not inconsistent with Article III.4 of the GATT. Rejecting Honduras’ argument that the
bond created conditions “less favorable” for imported cigarettes (in contrast with domestic ciga-
rettes), the Appellate Body observed that the existence of a detrimental effect on a given imported
product resulting from a measure does not necessarily imply that the measure accords less favorable
treatment to imports if the detrimental effect is explained by factors or circumstances unrelated to
the foreign origin of the product. In this case, importers bore a higher per-unit cost of the bond
requirement on their cigarettes because their market share was smaller than that of domestic
producers (and not because of the foreign origin of the imported cigarettes).
52
WTO WT/DS87/AB/R Chile – Taxes on Alcoholic Beverages (adopted on 12 January 2000), para
71. The Appellate Body observed that a “measure’s purpose, objectively manifested in the design,
architecture and structure of the measure, is intensely pertinent to the task of evaluating whether or
not that measure is applied so as to afford protection to domestic production.”
246 M. Brar
Extent of the Protection
In general, national treatment requires a host country to accord foreign investors

(and/or investments) treatment that is at least as favorable as that accorded to its
national investors (and/or investments) in like circumstances.53 National treatment is
however a treaty standard, and its exact scope varies by treaty.54
Pre-establishment and Post-establishment Models in Treaty Practice
Some IIAs guarantee national treatment only in the post-establishment phase, i.e.,
after a foreign investor has entered a host country and begun operations.55 Tradi-
tionally, many countries belonging to the global south followed the post-establish-
ment model so as to preserve greater regulatory flexibility over the kind and quantum
of foreign investment permitted within their borders.56 In contrast, national treatment
in the pre-establishment phase, i.e., when an investor is entering a host State (e.g., at the
time of “establishment” and/or “acquisition” of the investment), was available predom-
inantly in IIAs involving developed countries like the United States and Canada.57
While practice is still varied, more recent IIAs involving the global south tend to extend
national treatment to both the pre- and post-establishment phases.58 One notable
53
54
55
56
Art. 4 Niger-Tunisia BIT (1992); Arts. 2(1), 3(2) Egypt-Jamaica BIT (1999); Arts. 2(1), 3(2)
Argentina-Morocco BIT (2000); Art. II.2 Turkey-India BIT (1998). See Chaisse J, Bellak C (2015)
Navigating the expanding universe of investment treaties – creation and use of critical index. J Int
Econ Law 18(1):79–115.
57
Collins D (2014) National treatment in emerging market investment treaties. In: Sanders AK (ed)
The principle of national treatment in international economic law: trade, investment and intellectual
property. Edward Elgar, Cheltenham, p 169; UNCTAD (1999) National treatment. In: UNCTAD
series on issues in international investment agreements, vol IV. United Nations, New York/Geneva,
p 19; Chaisse J (2015) The issue of treaty shopping in international law of foreign investment–
structuring (and restructuring) of investments to gain access to investment agreements. Hastings
Bus Law Rev 11(2):225–306
58
Titi C (2018) The evolution of substantive investment protections in recent trade and investment
treaties. IDB and International Centre for Trade and Development, p 7. https://www.ssrn.com.
Accessed 14 Mar 2019; Crawford J, Kotschwar B (2018) Investment provisions in preferential
trade agreements: evolution and current trends. https://www.wto.org/english/res_e/reser_e/
ersd201814_e.pdf. Accessed 13 Mar 2019; UNCTAD (2015) World investment report: reforming
international investment governance. UNCTAD, New York/Geneva, p 110; For practice among
APEC countries, see UNCTAD (2008) Identifying core elements in investment agreements in the
APEC region. Doc. No. UNCTAD/DIAE/IA/2008/3. http://unctad.org/en/pages/PublicationArchive.
aspx?publicationid=415. Accessed 23 Apr 2018; Chaisse J (2015) The shifting tectonics of interna-
tional investment law – structure and dynamics of rules and arbitration on foreign investment in the
Asia-Pacific region. George Wash Int Law Rev 47(3):563–638.
exception to this trend is India’s revised model bilateral investment treaty (BIT) which
does not extend national treatment to the establishment, acquisition, or expansion
phases of an investment.59 Limitations on pre-establishment national treatment are
also found in some recent treaties involving emerging markets like Morocco,60
Egypt,61 UAE,62 and Korea,63 among others.64
Other Variations in Treaty Language
Other noteworthy variations in the formulation of the protection may exist, for
instance, as to whether it (i) contains an express comparator clause (discussed in
section “Express Comparator Clauses in Treaty Practice”); (ii) appears in the same
clause as the most favoured nation (MFN) treatment obligation (discussed in section
“Standard of Treatment in Treaty Practice”); (iii) applies to political subdivisions of
the contracting States (discussed in section “Standard of Treatment in Treaty Prac-
tice”); and, (iv) is subject to general or specific exceptions (discussed in section
“Policy Objectives in Treaty Practice”).65
Key Elements in Evaluating a Breach
The evaluation of a national treatment claim involves elements which can be

identified with a degree of consistency in tribunal decisions.66 Tribunals typically
(i) identify a domestic comparator (investor/investment) in the responding State
against which to measure the treatment accorded to the allegedly injured investor/
59
Art. 4 Department of External Affairs Government of India (2016) Model text for the Indian Bilateral
Investment Treaty. http://www.dea.gov.in/sites/default/files/ModelBIT_Annex_0.pdf. Accessed 17 Mar
2019. The Government of India letter accompanying the text of this BIT is dated on 28 December 2015.
60
Art. 3.2 Serbia-Morocco BIT (2013); Art. 3 Rwanda-Morocco BIT (2016); Arts. 6.1, 6.2
Morocco-Nigeria BIT (2016)
61
Arts. 1, 3, 5 Mauritius-Egypt BIT (2014); Arts. 2(1), 3(2) Egypt-Jamaica BIT (1999)
62
Arts. 1.1, 5.1 UAE-Thailand BIT (2015); Art. 3 Argentina- UAE BIT (2018); Art. 3 Japan-UAE
BIT (2018); Art 4.1 Kazakhstan- Singapore BIT (2018)
63
Art. 3 Republic of Korea-Myanmar BIT (2014); Art. 3 Republic of Korea-Kenya BIT (2014); Art.
3 Korea-Cameroon BIT (2013); Art. 3 Republic of Korea-Colombia BIT (2010)
64
China signed bilateral investment treaties with countries like Colombia (2008), Mexico (2008),
Uzbekistan (2011), and Tanzania (2013) which do not extend the national treatment protection to
the pre-establishment phase. Some Asian emerging markets such as Indonesia, Singapore, and the
Philippines have IIAs which do not grant the national treatment protection at all; see Collins D
(2014) National treatment in emerging market investment treaties. In: Sanders AK (ed) The
principle of national treatment in international economic law: trade, investment and intellectual
property. Edward Elgar, Cheltenham, p 173.
65
Newcombe A, Paradell L (2009) Law and practice of investment treaties: standards of treatment.
Kluwer Law International, The Netherlands, p 156
66
NAFTA decisions are a major constituent of the jurisprudence readily accessible to the public on
the national treatment protection in the investor-State dispute resolution context.
248 M. Brar
investment (in “like circumstances”), and (ii) determine whether the treatment
under appraisal was different (“less favorable”) from that given to the compara-
tor.67 Some tribunals have additionally considered whether there were any rea-
sons, for example, legitimate policy-based reasons, to excuse the conduct of the
host State.68 The order of addressing these elements and whether they are
considered separately or in combination may vary and affect the relative burden
of proof on a claimant investor as compared to a respondent State. The burden on
a respondent State is higher, for instance, if it is required to justify “any difference
in treatment” (between comparators proposed or ostensibly in “like circum-
stances”) by “showing that it bears a reasonable relationship to rational policies
not motivated by preference of domestic over foreign-owned investments” and
refute an allegation of breach.69 This may not be the case if the onus is on the
investor to first establish a prima facie breach, i.e., likeness of circumstances and
differential treatment, before the respondent State is required to defend its
conduct.70
Descriptive national treatment clauses in treaty practice. Recent IIAs tend to
specify the factors to be considered in assessing each of the above elements (see
sections “Likeness of Circumstances,” “Less Favorable Treatment,” and “The Role
of Policy Objectives of the Host State”). This is perhaps intended to limit the
interpretative discretion of investment tribunals and ensure that an exact burden of
proof is met by investors before succeeding in a national treatment claim.71
Likeness of Circumstances
National treatment is a comparative standard: a protection afforded in comparison

with a host state’s own nationals. If a claimant is unable to identify an appropriate
“national” comparator which has been treated more favorably, it can be fatal to a
national treatment claim (particularly in cases where the law or regulation under
67
Oxford University Press, Oxford, p 37; Dolzer R, Schreuer C (2012) Principles of international
investment law. Oxford University Press, Oxford, p 200; ICSID Case No. ARB/04/1 Total S.A. v
Argentine Republic (Decision on Liability, 27 December 2010), para 212
68
Ibid.; ICC Case No. 20355/MCP Olin Holdings Limited v State of Libya (Final Award, 25 May
2018), para 204; In UNCITRAL B.G. Group Plc. v. Argentina (Final Award, 24 December 2007),
para 356, the tribunal identified these elements as the “three-part” test to assess “discriminatory”
nature of measures.
69
Kinnear M, Bjorklund A, Hannaford J (2006) Investment disputes under NAFTA: an annotated
guide to NAFTA Chapter 11. Kluwer Law International, Alphen aan den Rijn, pp 1102–1140b,
referring to the approach in UNCITRAL Pope & Talbot Inc. v. Canada (Award on Merits of Phase
2, 10 April 2001), para 79
70
This was the approach adopted in UNCITRAL United Parcel Service of America v. Canada
(Award on Merits, 24 May 2007), para 83
71
appraisal is not discriminatory per se but is applied in a discriminatory manner).72

For instance, in ELSI, the International Court of Justice rejected the US’ claim that
Italy had breached its national treatment obligation by taking an inordinate time to
rule on ELSI’s administrative appeal (ELSI being an Italian company wholly
owned by US corporations) because the United States failed to establish that a
“national standard” for a more rapid determination of administrative appeals
existed in Italy.73
Factors to Evaluate Likeness of Circumstances
The choice of an appropriate comparator for a national treatment claim will depend
on the facts, context, and the totality of circumstances of the claim.74 It could vary
based on the following factors:
(a) The legal context of the national treatment protection, i.e., the framework under
which it is offered. In S.D. Myers, the tribunal explained that since the national
treatment protection under the NAFTA was at issue, “the legal context of the
NAFTA, including both its concern with the environment and the need to avoid
trade distortions that are not justified by environmental concerns” must be taken
into account in interpreting the phrase “like circumstances.”75 In Pope & Talbot,
72
73
ICJ Elettronica Sicula SpA (ELSI) (US v Italy) (20 July 1989) ICJ Rep. 15, para 112. The United
States brought the dispute in the exercise of diplomatic protection on behalf of ELSI under the
Treaty of Friendship, Commerce, and Navigation between the United States of America and the
Italian Republic (1948). See also ICSID Case No. ARB(AF)/98/3 The Loewen Group, Inc. v. USA
(Award, 26 June 2003).
74
Dolzer R (2005) Making the most of international investment agreements: a common agenda.
Paper presented at the ICSID, OECD, UNCTAD symposium on making the most of international
investment agreements, Paris, December 2005; UNCITRAL S.D. Myers, Inc. v. Canada (Partial
Award, 13 November 2000), para 244; UNCITRAL Pope & Talbot Inc. v. Canada (Award on
Merits of Phase 2, 10 April 2001), para 75; UNCITRAL Cargill, Incorporated v. Republic of
Poland (Final Award, 29 February 2008), para 310; UNCITRAL William Ralph Clayton, William
Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Canada (Award
on Jurisdiction and Liability, 17 March 2015), para 694
75
UNCITRAL S.D. Myers, Inc. v. Canada (Partial Award, 13 November 2000), para 250. The issue
before the tribunal was whether Canada had violated its obligations under Article 1102 of the
NAFTA (National Treatment) by closing its borders to the export of polychlorinated biphenyls
(PCB) waste. S.D. Myers, Inc., a US company, argued that these measures discriminated against US
waste disposal operators, who sought to operate in Canada, by preventing them from exporting
PCB-contaminated waste to the US for processing. Canada justified its measure on policy grounds
of the danger to health and environment caused by the export of PCBs without appropriate
assurance of safe transportation and destruction. While the tribunal accepted the general proposition
that policy considerations should form part of a national treatment evaluation, on facts it held that
Canada’s measure was not a valid means of accomplishing its stated policy goals.
250 M. Brar
the tribunal considered “the trade and investment liberalizing objectives of the
NAFTA” as well as “the entire background of [Canada’s] disputes with the
United States concerning softwood lumber trade between the two countries” as
part of the legal context of the national treatment protection.76
(b) The treatment in question, i.e., the reasons for the treatment and who or what is
affected.77 This factor emphasizes the importance of the regulatory context
in identifying appropriate comparators. As stated by the Grand Rivers tribunal,
“the identity of the legal regime(s) applicable to a claimant and its purported
comparators [is] a compelling factor in assessing whether like is indeed being
compared with like. . ..”78 For instance, if the treatment in question is the
expropriation of sugar mills pursuant to a program of nationalization, then
domestic sugar mills which were expropriated under the program could be
appropriate comparators.79 If the treatment in question is the legal requirement
to domestically procure steel (100% produced and fabricated in the host State)
for manufacture (including postproduction fabrication) and use in federally
aided highway construction projects, then domestic steel manufacturers (or
fabricators) bidding for such projects could be appropriate comparators.80 If
the treatment in question is an environmental assessment under a federal law,
then all enterprises affected by the environmental assessment process across
industries could be appropriate comparators.81 On the other hand, if the
treatment in question is the customs treatment of courier goods, then mailed
76
UNCITRAL Pope & Talbot Inc. v. Canada (Award on Merits of Phase 2, 10 April 2001), para 77.
See also UNCITRAL Methanex Corporation v. United States of America (Final Award on Juris-
diction and Merits, 7 August 2005) part IV, chapter B, paras 30–38.
77
Kluwer Law International, The Netherlands, para 4.12
78
UNCITRAL Grand River Enterprises Six Nations Ltd. v. United States (Award, 12 January 2011),
para 167. The claimants contended that actions taken by various States of the United States to
implement the 1998 Master Settlement Agreement (MSA), which settled litigation initiated against
certain major US cigarette manufacturers, were violative of the US’ obligations inter alia under
Article 1102 (national treatment) of the NAFTA. The tribunal rejected the claims of three of the four
claimants on jurisdictional grounds. With respect to the fourth claimant, Arthur Montour, the
tribunal found that the discriminatory treatment alleged was not made out from the record and
therefore dismissed its national treatment claim.
79
UNCITRAL GAMI Investments, Inc. v Mexico (Final Award, 15 November 2004), para 114
80
ICSID Case No. ARB (AF)/00/01 ADF Group Inc. v. United States of America (Award, 9 January
2003), paras 156–157
81
UNCITRAL William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel
Clayton and Bilcon of Delaware, Inc. v. Canada (Award on Jurisdiction and Liability, 17
March 2015), para 695
goods, subjected to a different customs treatment than courier goods, may not
be appropriate comparators.82
(c) The competitive relationship between potential comparators. This factor is in
part a legacy of WTO (GATT) jurisprudence where products are “like” if they
compete with each other even if they are not identical.83 Tribunals in cases like S.
D. Myers,84 Archer Daniels,85 Pope & Talbot,86 Feldman,87 Champion Trading
82
UNCITRAL United Parcel Service of America v. Canada (Award on Merits, 24 May 2007), para
119. UPS (a US investor) claimed that Canada Post (a State corporation established under a federal
act of Canada) received more favorable customs treatment in the import of international mail into
Canada as compared to UPS (investor) and UPS Canada (investment). According to UPS, as a result
of this treatment, Canada Post was able to reduce the cost of its non-monopoly postal services,
which avenue was not correspondingly available to it. The tribunal however found that Canadian
customs had designed separate processes for the clearance of mailed goods, imported by Canada
Post, and courier shipments, imported by UPS/UPS Canada, because of their different characteris-
tics. As a result, “UPS and Canada Post [were] not in like circumstances in respect of the customs
treatment of goods imported as mail and goods imported by courier.”
83
84
UNCITRAL S.D. Myers, Inc. v. Canada (Partial Award, 13 November 2000), paras 244–246. The
tribunal adopted a sectoral approach on the presumption that all investments in the same business or
economic sector raise similar public policy issues, regardless of their nationality.
85
ICSID Case No. ARB (AF)/04/05 Archer Daniels Midland v. Mexico (Award, 21 November
2007), para 199
86
UNCITRAL Pope & Talbot Inc. v. Canada (Award on Merits of Phase 2, 10 April 2001), para 78.
The investor challenged as violative of national treatment (under Article 1102 of the NAFTA)
Canada’s implementation of the Softwood Lumber Agreement (SLA) entered into with the United
States to suspend a trade dispute between the two countries. To implement the SLA, Canada put in
place export control measures inter alia imposing an export fee progressively on increased amounts
of softwood lumber exports from “covered provinces.” One of the questions before the tribunal was
whether producers of softwood lumber from “non-covered provinces” were in “like” circumstances
with the investor, a producer from a “covered province”. The tribunal answered this question in two
stages: first, it considered all producers belonging to the same business or economic sector as
comparators; second, it considered whether there were legitimate policy objectives which justified a
differentiation between these comparators. The tribunal found that Canada’s decision to implement
the SLA through a regime of effecting controls only against exports from “covered provinces” was
reasonably related to the rational policy of removing the threat of countervailing duty actions and
justified in the context of the dispute between the United States and Canada. As such, the producers
in “non-covered provinces” were not in like circumstances with those in the “covered provinces”
such as the investor.
87
ICSID Case No. ARB (AF)/99/1 Marvin Roy Feldman Karpa v. United Mexican (Award, 16
December 2002), paras 171–172. The claimant alleged inter alia that Mexico’s refusal to grant and
recognize CESMA’s (investment) entitlement to rebate of excise taxes on (purchased and resold) ciga-
rettes exported by it while permitting such rebates to similarly placed domestic producers and resellers
of cigarettes was a breach of Mexico’s national treatment obligation under Article 1102 of the NAFTA.
The tribunal found that all domestic companies that purchased Mexican cigarettes for resale/export were
in like circumstances with CESMA, but this comparison did not extend to domestic producers of
cigarettes because there was a rational basis for treating the latter differently (e.g., better control over tax
revenues, discourage smuggling, protect intellectual property rights).
252 M. Brar
Company,88 and Olin Holdings89 have considered entities belonging to the same
business or economic sector or industry to be in “like circumstances.” However,
this factor is neither essential90 nor conclusive91 to a finding of “like circum-
stances.” As explained by Ronald Cass in his separate opinion in UPS, while the
NAFTA purports to give substantial weight to competition between comparators,
“[i]t is possible for two investors or enterprises to be in the same sector or to be in
competition and nonetheless be quite unlike in respect of some characteristic
critical to a particular treatment.”92 The Occidental tribunal rejected the rele-
vance of a competitive relationship in identifying appropriate comparators
entirely.93 In this case Ecuador had denied Occidental’s entitlement to VAT
refunds as a producer of goods (oil) for export on the basis that only manufac-
turers, not producers, were entitled to such refunds under Ecuadorian law. In
response to Occidental’s claim that Ecuador had breached its national treatment
obligation by allowing such refunds to producers in other sectors, Ecuador
argued that comparisons could only be made with producers belonging the oil
sector, and not with producers in other sectors such as flowers, mining, and
seafood because “the whole purpose of the VAT refund policy is to ensure that
the conditions of competition are not changed, a scrutiny that is relevant only to
the same sector.”94 Rejecting this argument, the tribunal held that “the purpose of
national treatment is to protect investors as compared to local producers, and this
88
ICSID Case No. ARB/02/9 Champion Trading Co. and Anr. v. Arab Republic of Egypt (Award, 27
October 2006), paras 130–156. The investors claimed that the Egyptian government implemented a
program to settle outstanding dues with cotton companies (for the price support guaranteed to them
over the years) to benefit only certain enterprises, to the exclusion of the National Cotton Corpo-
ration in which the investors held shares, in violation of Egypt’s national treatment obligation under
the applicable BIT. The tribunal observed that all publicly or privately owned companies were
prima facie in similar situations: both purchased cotton from farmers, and both ginned their cotton
and sold it. It then revisited this analysis on the basis that since Egypt did not owe any dues towards
price support to NCC, NCC could not be compared to the other companies with which settlements
had been reached. Accordingly, no breach of national treatment was found.
89
ICC Case No. 20355/MCP Olin Holdings Limited v State of Libya (Final Award, 25 May 2018),
paras 205–207
90
91
UNCITRAL Pope & Talbot Inc. v. Canada (Award on Merits of Phase 2, 10 April 2001), para 78
92
UNCITRAL United Parcel Service of America v. Canada (Separate Opinion of Ronald Cass, 24
May 2007), paras 16–17
93
Award, 1 July 2004). “Like situations” was the wording used in the national treatment clause under
the US-Ecuador BIT applicable to the dispute (Article II).
94
Award, 1 July 2004), para 171
cannot be done by addressing exclusively the sector in which that particular

activity is undertaken.”95 The Occidental tribunal’s move away from the sectoral
approach has been criticized for potentially undermining a host state’s policy
reasons for treating investors in different economic sectors differently.96 Going
forward, it may become even more difficult to ignore sectoral considerations in
light of the increasing adoption of sector-based reservations to the national
treatment obligation by way of “negative lists,” as discussed in section “Policy
Objectives in Treaty Practice.”
(d) Proximity of the relationship with potential comparators. Where there is a choice
between two comparator groups, the group with the more proximate relationship
with the aggreived investor/investment is likely to be more appropriate. The
Methanex tribunal was confronted with a choice between domestic ethanol
producers and domestic methanol producers as comparators to assess allegedly
discriminatory treatment meted out to a methanol producer, Methanex. It found
domestic methanol producers to be the more appropriate comparators for
Methanex’ claim, explaining that it would be “perverse to ignore identical
comparators if they were available and to use comparators that were less
‘like’.”97 In doing so, the tribunal relied on Pope & Talbot which rejected a
comparison between an investor, a producer of softwood lumber in a “covered
province”, and domestic producers in “non-covered provinces” because simi-
larly placed domestic producers were present in the “covered provinces.”98
Conversely where no identical comparator (to the investor, a producer of
isoglucose) was available, the Cargill v. Poland tribunal chose the next imme-
diate comparator (domestic producers of sugar) from among the two alternatives
95
96
97
UNCITRAL Methanex Corporation v. United States of America (Final Award on Jurisdiction and
Merits, 7 August 2005) part IV, chapter B, para 17. Methanex (a producer of methanol) claimed that
the United States had violated its national treatment obligation under Article 1102 of the NAFTA
because the State of California banned the sale and use of the gasoline additive known as MTBE, for
which methanol was used as a feedstock, and in doing so protected US domestic producers which
produced the allegedly competitive ethanol (the latter was a gasoline additive). Methanex relied on
GATT/WTO jurisprudence to argue that it was in “like circumstances” with the producers of ethanol
since methanol and ethanol were in a competitive relationship with each other. The tribunal rejected
this argument inter alia on the basis that ethanol producers were not in “like circumstances” with
Methanex since there were identical comparators – other producers of methanol, owned by US
investors – available for the purpose of comparison. Methanex was not found to have received less
favorable treatment than these comparators, and its claim therefore failed.
98
UNCITRAL Methanex Corporation v. United States of America (Final Award on Jurisdiction and
Merits, 7 August 2005) part IV, chapter B, para 19
254 M. Brar
proposed by the disputing parties, reasoning that one (sugar) was “more ‘in like
circumstances’. . .” than the other (glucose).99
The Bilcon tribunal was influenced by similar considerations. The issue was
whether the investors were treated less favorably since their project was sub-
jected to a different evaluative standard, of “community core values,” as
opposed to the commonly adopted and legally mandated standard of “likely
significant adverse effects after mitigation,” for the purpose of environmental
assessment. To identify appropriate comparators, the tribunal first accepted that
the applicable federal legislation, i.e., the Canadian Environmental Assessment
Act, was one of very general application and its standards applied to a wide
range of modes and industries. It then reasoned that comparing all enterprises
affected by environmental assessment regulatory processes would be a “more
abstract and sweeping proposition than. . .necessary to decide the case.”100
Equally, comparing only those enterprises which were subjected to the same
mode of review as the investors (a review panel or a joint review panel) would
“unreasonably limit the examination of comparisons that are relevant in light of
the objects of Chapter Eleven.”101 Accordingly, it compared the project of the
complaining investors’ to five other domestic projects: three had a close sem-
blance on facts to the investors’ project, and two had additionally been assessed
by the same mode of review as the investors (a joint review panel). Finding these
projects to have received more favorable treatment than the investors, the
tribunal concluded that Canada had breached its national treatment obligation
under the NAFTA.102
99
UNCITRAL Cargill, Incorporated v. Poland (Final Award, 29 February 2008), para 328. Cargill,
a US investor, challenged as violative of national treatment measures taken by Poland which
imposed national and EU quotas on the domestic production of isoglucose. According to the
investor, the isoglucose quotas were highly restrictive while quotas on the domestic production of
sugar, which was a directly competitive product, were generous. As a result, Poland treated the
investor, as the sole producer of isoglucose in Poland, less favorably as compared to domestic sugar
producers who were in “like circumstances” with the clear aim of promoting its domestic industry
and in violation of its national treatment obligations under the applicable BIT between the United
States and Poland. Poland responded that the investor was not in like circumstances with domestic
sugar producers but with domestic glucose producers since glucose, not sugar, was a complimentary
and competitive product to isoglucose. The tribunal found domestic producers of sugar to be
appropriate comparators because sugar and isoglucose operated in the same economic or business
sector and were substitutable and competing products. The tribunal eventually upheld the investor’s
claim and found Poland to be in breach of its national treatment obligations.
100
Clayton and Bilcon of Delaware, Inc. v. Canada (Award on Jurisdiction and Liability, 17 March
2015), para 695
101
2015), para 701
102
2015), paras 696–716
Express Comparator Clauses in Treaty Practice
IIAs often refer to “like circumstances”103 or synonymous expressions104 to indicate

the comparative context of the national treatment protection. The legal significance
of such standalone comparator clauses, unaccompanied by an explanation, is not
clear. While one view is that the comparative context should be spelled out, another
view is that this is unnecessary since the national treatment protection implicitly
provides the comparative context and, as in all cases of discrimination, one can only
“compare like with like.”105 As the tribunal in Total held, “the absence of the term
‘like’ [in the national treatment clause] of the BIT is not decisive since this element is
inherent in an evaluation of discrimination.”106
Recent IIAs however provide greater clarity by detailing the factors to be taken
into account in determining “likeness” of circumstances. These factors appear
inspired by the decisions of investment tribunals discussed above. For instance,
IIAs involving Brazil,107 India,108 and some other emerging markets109 commonly
provide that “totality of circumstances” and/or “legitimate policy objectives” are to
103
Art. 3.1 ASEAN-India Investment Agreement (2014); Art. 3.1 Korea-Myanmar BIT (2014); Art.
9.4(1) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (2018); Art. 10.4
(1) Singapore-Sri Lanka FTA (2018)
104
For instance, Art. 11.2 Turkey-India BIT (1998) uses the expression “similar situations.”
UNCTAD has identified expressions such as “similar circumstances,” “like situations,” and “similar
situations” to be synonymous to “like circumstances.” See UNCTAD (1999) National treatment. In:
UNCTAD series on issues in international investment agreements, vol IV. United Nations, New
York/Geneva, p 33.
105
OECD (1998) Negotiating Group on the Multilateral Agreement on Investment: report by the
Chairman of the Negotiating Group. OECD Doc. No. DAFFE/MAI(98)8/REV1, p 11. Available via
http://www1.oecd.org/daf/mai/pdf/ng/ng988r1e.pdf. Accessed 17 Mar 2019; Newcombe A, Para-
dell L (2009) Law and practice of investment treaties: standards of treatment. Kluwer Law
International, The Netherlands, p 159; The Arbitration Institute of The Stockholm Chamber of
Commerce Nykomb Synergetics Technology Holding AB v Latvia (Award, 16 December 2003), para
34; ICSID Case No. ARB/00/6 Consortium RFCC v Morocco (Award, 22 December 2003), para 53
106
ICSID Case No. ARB/04/1 Total S.A. v Argentine Republic (Decision on Liability, 27 December
2010), para 213
107
Art. 5.3 Brazil-Chile Agreement on Cooperation and Investment Facilitation (2015); Art 2.3
Brazil-Peru Economic And Trade Expansion Agreement (2016); Art. 5.4 Brazil-Suriname Coop-
eration and Facilitation Investment Agreement (2018); Art. 5.2 Brazil-Ethiopia Agreement for
Cooperation and Facilitation of Investments (2018); Art. 8.5(3) Brazil-Chile FTA (2018); Art. 5.4
Brazil-Guyana Cooperation and Investment Facilitation Agreement (2018). Brazil has negotiated
similarly styled cooperation and investment facilitation agreements with several trade
counterparties in recent times, which contain a similarly worded national treatment clause. See
Volterra R, Madelli G (2017) India and Brazil: recent steps towards host state control in the
investment treaty dispute resolution paradigm. Indian J Arbitr Law 6(1):90–102, 90, 91.
108
Art. 3.4 ASEAN-India Investment Agreement (2014); Note on Art. 4 India-Bangladesh Joint
Interpretative Notes (2017)
109
Art. 9.4 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (2018); Art.
10.4 Singapore-Sri Lanka FTA (2018); Art. 3 Argentina-UAE BIT (2018); Art. 4 UAE-Uruguay
BIT (2018); Arts. 3.1, 3.2 Argentina-UAE BIT (2018)
256 M. Brar
be relevant factors, emphasizing the importance of the legal/regulatory context of the

treatment in question. Other IIAs similarly mention factors such as the “regulatory
process” generally applied in relation to the measure concerned110 and/or the “aim”
and/or “effect” of the measure (e.g., effect on third persons, local community,
environment).111 Reference to the aim and/or effect of the measure also echoes the
“aims-and-effects”-based evaluation of a national treatment claim under WTO
jurisprudence, referred to in section “National Treatment Under the WTO
(GATT).” Finally, the sector of the investor112 is an oft included factor and is another
reflection of WTO principles having been adopted by States in the investment
context.
Less Favorable Treatment
In addition to establishing likeness of circumstances with a domestic comparator, a

claimant must demonstrate discrimination, i.e., less favorable treatment than the
comparator, to prove a breach of the responding state’s national treatment obligation.
Determining the Standard of Treatment
Differential treatment can be de jure, i.e., meted out in national laws and regulations
of a host State, or de facto, i.e., resulting from the application of a law or regulation
which may not appear discriminatory per se but may in fact operate to the disad-
vantage of a foreign investor.113
The impact of the treatment on a claimant investor is key.114 In ADF, the claimant
investor challenged the United States’ measures mandating domestic procurement of
steel for federally aided highway construction projects (under the “Buy America”
110
Art. 17 COMESA Investment Agreement (2007); Art. 6.3 Morocco-Nigeria BIT (2016); Art. 3.4
ASEAN-India Investment Agreement (2014); Note on Art. 4 India-Bangladesh (2017)
111
Art. 17 Investment Agreement for the COMESA Common Investment Area (2007); Art. 6.3
Morocco-Nigeria BIT (2016); Note on Art. 4 India-Bangladesh Joint Interpretative Notes (2017);
Art. 4 Slovakia-Iran BIT (2017); Art. 4.1 India-Belarus BIT (2018); Art. 3.4 ASEAN-India
Investment Agreement (2014)
112
Art. 17 COMESA Investment Agreement (2007); Art. 6.3 Morocco-Nigeria BIT (2016); Art. 3.4
ASEAN-India Investment Agreement (2014); Note on Art. 4 India-Bangladesh Joint Interpretative
Notes (2017)
113
agreements, vol IV. United Nations, New York/Geneva, p 12; UNCITRAL Pope & Talbot Inc. v.
Canada (Award on Merits of Phase 2, 10 April 2001), para 78; ICSID Case No. ARB (AF)/99/1
Marvin Roy Feldman Karpa v. United Mexican (Award, 16 December 2002), paras 169, 184; ICC
Case No. 20355/MCP Olin Holdings Limited v State of Libya (Final Award, 25 May 2018), paras
212–214
114
Kluwer Law International, The Netherlands, p 183
policy) as designed to favor US steel, US steel manufacturers, and US steel fabrica-

tors over non-US steel, manufacturers, and fabricators (whose facilities were situated
outside the United States, in the investor’s case, in Canada).115 The tribunal however
considered that both foreign (Canadian) and domestic (US) investors were treated in
the same manner under the “Buy America” provisions: both had to fabricate steel in
the United States.116 The claimant could not show how it was treated differently as a
Canadian investor de jure in the policy or de facto in terms of any comparative
disadvantages suffered by having to fabricate its steel in the United States as opposed
to Canada (e.g., related to costs of fabrication, fabrication capacity, cost of transpor-
tation) and therefore no violation of national treatment was found.117
In general, every major investment tribunal decision has rejected trade law’s
emphasis on the alteration of conditions of competition (between domestic and
foreign investors) when assessing differential treatment in the investment context.118
Investors are not required to establish that a “domestic pool” of investors/invest-
ments was treated more favorably than an “imported pool.”119 It is sufficient to show
that only one investor/investment was adversely affected or that any one domestic
comparator was treated more favorably.120 Neither is there a requirement to show a
disproportionate disadvantage from the measure.121 It is sufficient to show that there
115
ICSID Case No. ARB(AF)/00/1 ADF Group Inc. v. United States of America (Award, 9 January
2003), paras 56–67
116
2003), paras 156–157
117
2003), paras 156–157
118
119
or two sides of the same coin. Am J Int Law 102(1):48–89, 78; An instance of departure from this
rule is seen in UNCITRAL Cargill, Incorporated v. Poland (Final Award, 29 February 2008), paras
334–338, 378, owing to its peculiar facts. In this case, to assess the investor’s claim that Poland’s
imposition of national and EU quotas on isoglucose production violated its national treatment
obligations, the tribunal compared the impact of production quotas imposed on the isoglucose
industry as a whole with impact of production quotas imposed on the sugar industry as a whole.
However, this was done because the claimant investor was the only producer of isoglucose and
represented the entire isoglucose industry in Poland. Therefore, industry-wide quotas limiting the
production of isoglucose directly limited the investor’s production (because the quotas were below
demand). In contrast, the industry-wide quotas on the production of sugar did not limit any specific
sugar producer’s production or sales (because the quotas were nearly equal to the demand, the
difference being insignificant). Accordingly, the tribunal concluded that comparing the claimant
investor to any specific domestic sugar producer would distort the comparison for the purposes of
the national treatment claim.
120
UNCITRAL Pope & Talbot Inc. v. Canada (Award on Merits of Phase 2, 10 April 2001), paras
36–38
121
36–38; UNCITRAL Cargill, Incorporated v. Poland (Final Award, 29 February 2008), para 410
258 M. Brar
was a difference of treatment irrespective of the magnitude of such difference.122 In

other words, investors/investments have been held entitled to the “best treatment”
accorded to their domestic counterparts. This is in keeping with the aim of invest-
ment law to protect individual interests and to provide remedies for direct harm to a
specific investor/investment.123
Point of departure in treaty practice. Some recent IIAs expressly provide that
modification/alteration of conditions of competition is to be a determinative factor in
evaluating less favorable treatment.124 This indicates a preference of States for
adopting a trade law approach (discussed in section “Less Favorable Treatment
Under Article III of the GATT”) in the investment context, deviating from the
abovementioned position adopted by investment tribunals.
Role of protectionist intent. A breach of national treatment is distinguishable as
a form of discrimination based on considerations of nationality.125 However, pro-
tectionist intent is practically difficult to prove for a claimant as the relevant evidence
is likely to be available with the responding State, if such evidence exists at all.126 As
such, investment tribunals have generally not treated proof of protectionist intent as
essential to the finding of a breach.127 Once a claimant establishes prima facie a
difference in treatment, as compared to similarly placed domestic investors/invest-
ments of the responding State, it is assumed to be motivated by nationality-based
considerations. The onus then shifts onto the responding State to provide an alter-
native explanation for the differential treatment and dispel the presumption of
nationality-based discrimination, for instance, by putting forward legitimate policy
reasons for its conduct.128 If the responding State was to adduce evidence that a
similarly placed domestic investor was treated in the same way as the claimant, this
122
UNCITRAL Cargill, Incorporated v. Poland (Final Award, 29 February 2008), para 410
123
124
Art. 5.1 Brazil-Colombia Agreement for Cooperation and Investment Facilitation (2015); Art.
5.1 Intra-Mercosur Protocol for Cooperation and Facilitation of Investments (2017)
125
2010), para 213
126
Dolzer R (2005) Making the most of international investment agreements: a common agenda.
Paper presented at the ICSID, OECD, UNCTAD symposium on making the most of international
investment agreements, Paris, December 2005
127
Oxford University Press, Oxford
128
ICSID Case No. ARB (AF)/99/1 Marvin Roy Feldman Karpa v. United Mexican (Award, 16
December 2002), paras 181–184. However, in this case, the tribunal did find evidence of a nexus
between the discrimination and claimant’s status as a foreign investor. It concluded, on facts, that
there was no other rational justification for the less favorable de facto treatment meted out to the
claimant. See also UNCITRAL Cargill, Incorporated v. Poland (Final Award, 29 February 2008),
paras 342, 345; UNCITRAL William Ralph Clayton, William Richard Clayton, Douglas Clayton,
Daniel Clayton and Bilcon of Delaware, Inc. v. Canada (Award on Jurisdiction and Liability, 17
March 2015), paras 719–725.
could also serve to dispel the presumption against it.129 In an instance of departure,
the Total tribunal held the investor to the higher standard of proof of establishing a
prima facie case that the alleged discriminatory treatment was nationality-based.130
The measures before the tribunal were however of general application, i.e., they
affected the energy sector (in which Total was invested) as a whole (as well as other
sectors in certain respects). In this context, the tribunal rejected Total’s argument that
the energy sector had been singled out for treatment because it was predominantly
owned by foreign interests and added “a foreign investor who is challenging
measures of general application as de facto discriminatory . . .has to show a prima
facie case of nationality-based discrimination.”131 Finding no evidence of national-
ity-based discrimination and noting that there were domestic investors in the energy
sector who were accorded the same treatment as Total the tribunal rejected Total’s
claim for breach of national treatment.132 Where protectionist intent is proven, it
does not automatically result in a successful national treatment claim if a claimant is
unable to show the adverse impact of the discriminatory measure in question.133
Tribunals have placed more weight on the impact of the measure as opposed to
intent. This approach has been summarized in Siemens A.G. v. Argentina as follows:
Whether intent to discriminate is necessary and only the discriminatory effect matters is a
matter of dispute. In S.D. Myers, the tribunal considered intent “important” but not “decisive
on its own.” On the other hand, the tribunal in Occidental Exploration and Production
Company v. Republic of Ecuador found intent not essential and that what mattered was the
result of the policy in question. The concern with the result of the discriminatory measure is
shared in S.D. Myers: “The word ‘treatment’ suggests that practical impact is required to
produce a breach of Article 1102, not merely a motive or intent.” The discriminatory results
129
2010), para 215; UNCITRAL GAMI Investments, Inc. v. Mexico (Final Award, 15 November 2004),
paras 112–115. GAMI, a US investor in the minority shares of a Mexican entity, GAM, argued that
Mexico had violated its national treatment obligations under Article 1102 of the NAFTA by
expropriating GAM’s sugar mills and by requiring GAM to fulfil export requirements which
treatment was not meted out to other similarly placed domestic investors. The tribunal found
inter alia that some sugar mills that were expropriated belonged to Mexican corporations which
had no foreign shareholders and held that GAM could not claim a protection better than those
corporations simply because it had foreign shareholders.
130
2010). This dispute was one in the series of investment arbitrations that arose out of Argentina’s
various measures to avert its economic crisis which originated in the early 2000s. Total challenged
as violative of national treatment Argentina’s Emergency Law and measures adopted thereunder
which provided inter alia for the forced conversion of dollar-denominated public utilities tariffs
(which included the transportation and distribution of gas, among other utilities) into pesos
(“pesification”) at a rate of one to one and for the de facto freezing of the gas consumer tariff.
According to Total, these measures breached protections guaranteed to its investments in the energy
sector.
131
2010), para 213; see also paras 214–215.
132
Ibid.
133
UNCITRAL S.D. Myers, Inc. v. Canada (Partial Award, 13 November 2000), para 254
260 M. Brar
appear determinative in Marvin Roy Feldman Karpa v. United Mexican States, where the
tribunal considered different treatment on a de facto basis to be contrary to the national
treatment obligation under Article 1102 of NAFTA.
. . . The Tribunal concurs that intent is not decisive or essential for a finding of discrim-
ination, and that the impact of the measure on the investment would be the determining
factor to ascertain whether it had resulted in nondiscriminatory treatment.134
Standard of Treatment in Treaty Practice
IIAs commonly State that foreign investors/investments will be entitled to “no less
favorable treatment” than nationals of a host State.135 In contrast with less popular
formulations such as “same” or “as favorable as” treatment, the phrase “no less
favorable treatment” is understood to leave room for the possibility that a host State
may be held to standards more favorable to foreign investors than its own nationals
such as the international minimum standard.136 However, tribunal decisions do not
provide clear interpretative guidance on this issue.
Some IIAs combine the national treatment protection and the MFN protection in
one clause such that an investor is entitled to the “more favorable” or “most favorable”
treatment between the two, i.e., treatment of a host state’s own nationals and treatment
of nationals of a third State.137 As a general rule, an investor is required to establish the
breach of any one protection available to it in order to succeed in an investor-State
dispute since the international obligations of States are cumulative. A “more favor-
able” clause is understood to merely clarify this position.138
134
ICSID Case No. ARB/02/8 Siemens A.G. v. Argentina (Award, 6 February 2007), paras 320–321;
see also, UNCITRAL Cargill, Incorporated v. Poland (Final Award, 29 February 2008), para 345
135
Art. 5.1 Brazil-Chile ACFI (2015); Art. 3.1 ASEAN-India Investment Agreement (2014); Art.
6.2 Morocco-Nigeria BIT (2016); Art. 5 Intra-Mercosur Protocol for Cooperation and Facilitation
of Investments (2017); Art. II.2 Turkey-India BIT (1998); Arts. 3.1, 3.2 Serbia-Morocco BIT
(2013); Arts. 3.1, 3.2 Rwanda-Morocco BIT (2016); Art. 5 Mauritius-Egypt BIT (2014); Art. 5
UAE-Thailand BIT (2016); Arts. 3.1, 3.2 Argentina- UAE BIT (2018); Arts. 3.1, 3.2 Republic of
Korea-Myanmar BIT (2014); Arts. 3.1, 3.2 Korea-Kenya BIT (2017); Arts. 3.1, 3.2 Republic of
Korea-Cameroon BIT (2018); Arts. 3.1, 3.2 Republic of Korea-Colombia BIT (2013); Art. 2.1
Japan-Myanmar BIT (2013); Art. 4 Japan-Iran BIT(2017); Art. 50.1 Japan-Indonesia EPA (2008);
Art. 4.1 Kazakhstan-Singapore BIT (2014)
136
agreements, vol IV. United Nations, New York/Geneva, pp 35, 37
137
Art. 3.1 Republic of Korea-Myanmar BIT (2014); Art. 5.1 UAE-Thailand BIT (2016); Art. 4.1
Singapore-Iran BIT (2016); Art. II.2 Turkey-India BIT (1998); Arts. 3.1, 3.2 Serbia-Morocco BIT
(2013); Arts. 3.1, 3.2 Rwanda-Morocco BIT (2016); Art. 5 Mauritius-Egypt BIT (2014); Art. 5
UAE-Thailand BIT (2016); Arts. 3.1, 3.2 Republic of Korea-Myanmar BIT (2014); Arts. 3.1, 3.2
Republic of Korea-Kenya BIT (2017); Arts. 3.1, 3.2 Republic of Korea-Cameroon BIT (2018);
Arts. 3.1, 3.2 Republic of Korea-Colombia BIT (2013); Art. 4 Japan-Iran BIT (2017)
138
Some IIAs specify that national treatment will apply to the political subdivisions of
contracting parties.139 The absence of such an express provision does not however
imply that subdivisions are excluded from the obligation.140 As a matter of customary
international law, States are responsible for the acts of their constituent units.141 Thus,
absent an exception or reservation, measures at the subdivisional level could result in
breaches of obligations of a State at the international level.142 Where a State wants to
preserve policy space for its subdivisions to treat their own residents differently it
could expressly provide that the national treatment obligation at the subdivisional level
means treatment at par with residents of other subdivisions of the State (and not those
of the subdivision in question).143 This language was not frequently found in the IIAs
surveyed for this chapter.
The Role of Policy Objectives of the Host State
Place of Policy Objectives in the Evaluation of a National Treatment

Claim
Where respondent States have sought to justify a measure challenged as violative of

their national treatment obligations on policy grounds, tribunals have considered
such justifications as part of the inquiry into the substantive breach or as an exception
once a prima facie breach is made out.
As part of an inquiry into the breach, policy reasons have figured in the evaluation
of “like circumstances” in S.D. Myers,144 Pope & Talbot,145 GAMI,146 and UPS.147
The S.D. Myers tribunal held that “[t]he assessment of ‘like circumstances’ must also
take into account circumstances that would justify governmental regulations that
treat [potential comparators] differently in order to protect the public interest.”148
139
Art. 3.2 ASEAN-India Investment Agreement (2014); Art. 4.1 Singapore-Iran BIT (2016); Art.
9.4(3) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (2018)
140
Muchlinski P (2000) The rise and fall of the multilateral agreement on investment: where now?
Int Lawyers 34(3):1033–1053, 684
141
Art. 4 International Law Commission Articles on the Responsibility of States for Internationally
Wrongful Acts (2001); I.C.J. Reports 1999 Difference Relating to Immunity from Legal Process of a
Special Rapporteur of the Commission on Human Rights (Advisory Opinion, 29 April 1999), p. 87,
para 62
142
143
Kluwer Law International, The Netherlands, pp 188–189
144
UNCITRAL S.D. Myers, Inc. v. Canada (Partial Award, 13 November 2000)
145
UNCITRAL Pope & Talbot Inc. v. Canada (Award on Merits of Phase 2, 10 April 2001)
146
UNCITRAL GAMI Investments, Inc. v. Mexico (Final Award, 15 November 2004), para 114
147
UNCITRAL United Parcel Service of America v. Canada (Award on Merits, 24 May 2007)
148
262 M. Brar
The Pope & Talbot tribunal held that Canada’s differential treatment149 of softwood
lumber producers from “covered provinces” was “reasonably related to the rational
policy of removing the threat of [counter-vailing duty] actions”150 by the United
States on exports from these provinces and concluded “[b]ased on that analysis, the
producers in the non-covered provinces were not in like circumstances with those in
the covered provinces.”151 In GAMI, Mexico’s expropriation of sugar mills operat-
ing in effective insolvency was considered justified based on its policy goal of
placing the sugar industry in the hands of solvent enterprises. Accordingly,
GAM’s circumstances (of operating in losses) were held not to be so “like” those
of non-expropriated mill owners that it was wrong to treat them differently.152 In
UPS, the more favorable treatment of Canada Post, as the only company permitted to
administer the Publications Assistance Program, was held justified by the policy goal
“to ensure the widest-possible distribution of Canadian publications to individual
Canadian consumers at affordable and uniform prices throughout the country” in
view of Canada Post’s uniquely extensive delivery system and universal service
obligations.153 Accordingly, Canada Post was not considered to be in like circum-
stances with UPS or UPS Canada or any other courier company, Canadian or
otherwise, for the purpose of the Publications Assistance Program.154 In summary,
if treating potential comparators differently could be justified on policy grounds,
tribunals in these cases did not consider them to be in “like circumstances.”
As exceptions to a prima facie breach of national treatment, policy-based justifi-
cations were considered in a manner akin to Article XX-type (GATT) exceptions by
the Bilcon tribunal.155 In the tribunal’s view, once a breach was made out “the onus
[was] on the host state to show that a measure [was] still sustainable within the terms
of Article 1102. It [was] the host state that [was] in a position to identify and
substantiate the case, in terms of its own laws, policies and circumstances, that an
apparently discriminatory measure [was] in fact compliant with the ‘national treat-
ment’ norm set out in Article 1102.”156 Finding that no justification had been offered
149
84, 85
150
77–82, 87
151
152
153
UNCITRAL United Parcel Service of America v. Canada (Award on Merits, 24 May 2007),
paras 175–177
154
UNCITRAL United Parcel Service of America v. Canada (Award on Merits, 24 May 2007),
paras 175–177
155
2015)
156
Ibid., para 724
by Canada for the discriminatory treatment accorded to Bilcon, the tribunal held it to
have breached its national treatment obligation under Article 1102 of the NAFTA.157
Similarly, the Olin Holdings tribunal found Libya to have offered no justification for
the less favorable treatment of the claimant as compared to its national competi-
tors.158 Accordingly, Libya was held to have breached its national treatment obliga-
tion under the applicable Cyprus-Libya BIT.159
There are also cases where policy-based justifications of the respondent State
have not formed part of the tribunal’s evaluation of a national treatment claim at all.
For instance, the Occidental tribunal considered producers from all sectors to be in
“like situations” with the claimant investor for the purposes of the VAT refund policy
in question, impliedly rejecting Ecuador’s argument that sectoral differences in law
and policy would preclude such a cross-sectoral comparison.160 Although Ecuador’s
domestic law may have supported the tribunal’s approach (the Ecuadorian Supreme
Court had previously held that all exporters were entitled to a VAT refund without
regard to the type of good produced since the imposition of VAT depended not on the
source of the good but rather its final destination),161 this case is remarkable for not
expressly dealing with Ecuador’s policy-based arguments in the context of a national
treatment claim.
Standard of Review of Policy-Based Justifications
The extent of review tribunals can exercise over policy-based justifications offered
by responding States is not clear.162 Ronald Cass, in his separate opinion in UPS,
cautioned against “an overly critical examination of governmental policy choices by
arbitral tribunals”163 but believed that the host State must not be “the sole arbitrator
157
2015), paras 723–724
158
ICC Case No. 20355/MCP Olin Holdings Limited v State of Libya (Final Award, 25 May 2018),
paras 205–215. According to claimant, Libya adopted expropriatory measures against it in com-
parison to the treatment accorded to its local competitors in the dairy and juice market. In particular,
two competitors, OKBA and Al-Aseel, located in the same industrial zone as the claimant’s factory
were exempted under the challenged expropriation order issued by Libya but claimant was not
granted the exemption and operated in 4.5 years of uncertainty until Libyan courts intervened to
cancel the order (which decision was subsequently challenged by Libya).
159
Ibid.
160
Award, 1 July 2004), paras 171–177
161
162
163
UNCITRAL United Parcel Service of America v. Government of Canada (Separate Opinion of
Ronald Cass, 24 May 2007), para 120
264 M. Brar
of its public policy rationale, encompassing both the selection of valid policy ends
and the determination that those were in fact the ends that brought about a discrim-
inatory treatment.”164 Drawing on the WTO’s experience, the following questions
could be relevant in the investment context 165:
(a) Should the challenged measure be “necessary,” i.e., the least-investment-restric-

tive alternative available for meeting a policy objective? S.D. Myers suggests an
affirmative answer to this question, but later decisions like Pope & Talbot and
GAMI indicate that a lower threshold than “necessity” could apply, simply
requiring a rational connection between the challenged measure and policy
objective. The S.D. Myers tribunal considered whether Canada’s ban on the
exportation of PCBs was a valid means of accomplishing the Canada’s stated
policy goal of ensuring a domestic capacity to remediate PCB wastes (which it
accepted as a legitimate goal, consistent with the policy objectives of the Basel
Convention).166 It concluded that Canada could have accomplished the same
result through alternative (presumably less-investment-restrictive) measures, for
example, by granting subsidies or sourcing all government requirements to the
domestic industries.167 In contrast, the GAMI tribunal required the challenged
measure to be “plausibly connected with a legitimate goal of policy”168 and the
Pope & Talbot tribunal referred to a measure’s “reasonable relationship with
rational policies.”169 The latter view is also reflected in Ronald Cass’ separate
opinion in UPS which rejects the “least restrictive means test” as a “construction
[which] would severely constrain NAFTA Parties in pursuit of their own objec-
tives and would greatly expand the power of NAFTA tribunals to evaluate the
legitimacy of government objectives and efficacy of governmentally chosen
means.”170 Overall, a strict “necessity” test seems unpopular.171
(b) Should the challenged measure be proportionate, i.e., should it be assessed in
light of the relative importance of the interests or values sought to be furthered?
The Pope & Talbot tribunal observed that a host state’s measure must not
164
UNCITRAL United Parcel Service of America v. Government of Canada (Separate Opinion of
Ronald Cass, 24 May 2007), para 132
165
166
UNCITRAL S.D. Myers, Inc. v. Canada (Partial Award, 13 November 2000)
167
168
169
170
UNCITRAL United Parcel Service of America v. Canada (Award on Merits, 24 May 2007), para
117
171
or two sides of the same coin. Am J Int Law 102(1):48–89, 88; Newcombe A, Paradell L (2009)
Law and practice of investment treaties: standards of treatment. Kluwer Law International, The
Netherlands, para 4.18
“unduly undermine the investment liberalizing objectives of NAFTA.”172 The

Parkerings-Compagniet tribunal further affirmed the general proposition (albeit
in the context of an alleged MFN violation) that “. . .to violate international law,
discrimination must be unreasonable or lacking proportionality, for instance, it
must be inapposite or excessive to achieve an otherwise legitimate objective of
the State.”173 These decisions point in the direction of a proportionality-based
evaluation.
(c) Is there a further (chapeau-like) requirement against protectionism? The Pope &
Talbot tribunal held that “rational government policies” must not “distinguish,
on their face or de facto, between foreign-owned and domestic companies.”174
This principle was reiterated by the GAMI tribunal which held that a measure
justified on policy grounds must be “applied neither in a discriminatory manner
nor as a disguised barrier to equal opportunity.”175 In Cargill v. Poland, the
tribunal rejected Poland’s policy-based justification that the impugned national
quotas (on the production of isoglucose) were imposed to protect its domestic
production (of sugar beet), agriculture, and national budget. The tribunal was
unable to conclude that “less restrictive quotas would necessarily have led to a
lower standard of living of farmers and a burden for the national budget. . .” or
that “the sale of isoglucose constituted such a threat to the sugar agricultural
sector that domestic quotas on isoglucose were to be imposed. . ..”176 These
decisions indicate that it is possible for a measure applied in a protectionist or
discriminatory manner to be struck down even if it is justified on policy
grounds.177
Policy Objectives in Treaty Practice
State practice indicates a trend of preserving regulatory flexibility for an increasing

number of policy objectives with respect to the national treatment obligation.
172
173
ICSID Case No. ARB/05/08 Parkerings-Compagniet AS v. Republic of Lithuania (Award, 11
September 2007), para 368. According to the claimant, a Norwegian company, Lithuania had
breached its MFN obligation under the applicable BIT between Lithuania and Norway by autho-
rizing a Dutch investor to construct a multistory car parking and denying the authorization to the
claimant in similar circumstances. The tribunal rejected the claim, holding that the two projects
were not in like circumstances inter alia since the car parks proposed by the claimant extended more
significantly into Vilnius’ Old Town, which was a UNESCO-protected site, and there were
differences in terms of size, historical and archaeological preservation, and environmental protec-
tion, between the two projects.
174
175
176
UNCITRAL Cargill, Incorporated v. Poland (Final Award, 29 February 2008), para 381
177
266 M. Brar
Explanations are being added to clarify the overall scope of the obligation 178 and its
specific elements such as “like circumstances” (discussed in section “Express Com-
parator Clauses in Treaty Practice”) to this effect. There has also been a broadening
of the general and specific exceptions to the obligation in similar terms.
General Exceptions. General exceptions are typically applicable to all the pro-
visions of an agreement or of the investment chapter. The scope of such exceptions
has expanded from traditional areas of public health, order and morals, and national
security179 to cover areas such as the environment180 and human rights,181 and in
some cases blanket reservations of the “right to regulate” or the right to adopt
measures “in the public interest. . ..” have also been made182,183 An impressive
number of IIAs incorporate elements of Article XX of the GATT or Article XIV of
the GATS (which sets out general exceptions to the GATS obligations in similar
terms as Article XX of the GATT).184
Specific Exceptions. Specific exceptions typically pertain to the national treat-
ment obligation (among other obligations) in particular and may be identified by
subject (e.g., taxation, intellectual property rights, prudential measures) or industry/
sector (e.g., transportation, telecommunication, energy, power).185
With respect to subject-specific exceptions, there is an increasing preference for
tailoring the exceptions to accommodate the particular social or regulatory concerns
of the contracting parties. These concerns include the environment186; the
178
Art. 9.16 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (2018); Note
on Art. 4 India-Bangladesh Joint Interpretative Notes (2017); Art. 4.4 Slovakia-Iran BIT (2017)
179
agreements, vol IV. United Nations, New York/Geneva, pp 44–47
180
Art. 10.11 Taiwan-Nicaragua FTA (2006); Art. 87 Japan-Chile EPA (2007); Art. 167 Trade
Agreement between the European Union and its Member States and Columbia and Peru (2012)
181
Art. 4.(4)(c) South Africa-Guinea BIT (2007)
182
Art. 85.4 EU-Ukraine Association Agreement (2014); Art. 6.10 India-Singapore CEPA (2005);
Art. 23 Morocco-Nigeria BIT (2016)
183
Crawford J, Kotschwar B (2018) Investment provisions in preferential trade agreements: evolu-
tion and current trends, pp 23–25. https://www.wto.org/english/res_e/reser_e/ersd201814_e.pdf.
Accessed 13 Mar 2019
184
Schill S, Bray H (2016) The brave new (American) world of international investment law:
substantive investment protection standards in mega-regionals. Br J Am Leg Stud 5(2):419–448;
Art. 6.11 India-Singapore CEPA (2005); Art. 11(2) Japan-Indonesia EPA (2007); Art. 12.18
Malaysia-Australia FTA (2012); Art. 19 Japan-Myanmar BIT (2013); Arts. 4, 11 Slovakia-Iran
BIT (2017); Art. 13 Japan-Iran BIT (2016); Art. 13 Singapore-Iran BIT (2018); Art. 5 Rwanda-
Turkey BIT (2016); Art 10.23 Singapore-Sri Lanka FTA (2018); Art. 19 Kazakhstan-Singapore BIT
(2018); Mitchell A, Munro M, Voon T (2017) Importing WTO general exceptions in international
investment agreements: proportionality, myths and risks. In: Sachs L et al (eds) Yearbook on
international investment law & policy. Oxford University Press, Oxford, pp 305–355
185
agreements, vol IV. United Nations, New York/Geneva, pp 44–47. On taxation exceptions, see
especially Chaisse J (2016) Investor-state arbitration in international tax dispute resolution – a cut
above dedicated tax dispute resolution? Va Tax Rev 41(2):149–222
186
Art. 3.5 ASEAN-India Investment Agreement (2014)
achievement of equality or the protection/advancement of disadvantaged persons187;

the acquisition of land, real estates, and real rights thereof188; labor rights, elimina-
tion of bribery, and corruption189; and developmental concerns.190
With respect to sector-specific reservations, recent IIAs (particularly preferential
trade agreements) tend to adopt a “positive list” approach,191 a “negative list”
approach,192 or a hybrid approach.193 With a positive list, a State limits core
obligations in the main agreement to the sectors, sub-sectors, industries, and activ-
ities identified in its schedule and the terms specified therein: the obligations do not
apply to sectors, etc., which do not appear in the schedule or are listed as
“unbound.”194,195 In these latter sectors, the investor has little visibility on the extent
of regulation or nonconformity (with obligations in the main agreement).196 With a
“negative list,” a State lists measures (with respect to sectors, sub-sectors, industries,
and activities) which are preserved from the application of the core obligations in the
main agreement. Only those nonconforming measures which are identified in the
negative list at the time of entering into the agreement can be maintained or adopted
(with the aid of standstill and ratchet mechanisms).197 Nonconforming measures that
do not appear in the negative list are automatically subject to the obligations under
the main agreement’s provisions, thereby restricting a state’s future regulatory
187
Art. 4.(4)(c) South Africa-Guinea BIT (2007)
188
Art. 4.4(d) Rwanda-Turkey BIT (2016)
189
Art. 11 Slovakia-Iran BIT (2017)
190
Art. 3.3 Morocco-Vietnam BIT (2012)
191
Art. 113 Trade Agreement between the European Union and its Member States and Columbia
and Peru (2012); Art. 6.3 India-Singapore CEPA (2005)
192
Art. 64 Japan-Indonesia EPA (2008); Art. 12.14 Malaysia-Australia FTA (2012); Art. 7 Japan-
Myanmar BIT (2013); Art. 79 Japan-Chile EPA (2007); Annex 10B, 10C Singapore-Sri Lanka FTA
(2018)
193
UNCTAD (2006) Preserving flexibility in IIAs: the use of reservations. UNCTAD, New York/
Geneva; UNCTAD (2015) World investment report: reforming international investment gover-
nance. UNCTAD, New York/Geneva, p 110; Australia-Chile FTA (2008); Japan-Brunei
Darussalam EPA (2007); Japan-Malaysia EPA (2005)
194
When a sector is listed as “unbound,” it means that a new measure in respect of that sector, that is
inconsistent with the core protections in the IIA, may be introduced in the future.
195
Park T (2017) Behavioral economics in international investment law: bounded rationality and the
choice of reservation list modality. Penn State J Law Int Aff 5(2):398–424
196
Houde M, Patil A, Miroudot S (2008) The interaction between investment and services chapters
in selected regional trade agreements. In: OECD (ed) International investment law: understanding
concepts and tracking innovations. OECD, Paris, pp 241–340, 275
197
Gallagher P (2016) Negative-list schedules of the TPP. Available via. http://law.unimelb.edu.au/
__data/assets/pdf_file/0003/1954155/Gallagher,-Negative-list-schedules-of-the-TPP.pdf. Accessed
16 Apr 2018; Park T (2017) Behavioral economics in international investment law: bounded
rationality and the choice of reservation list modality. Penn State J Law Int Aff 5(2):398–424;
UNCTAD (2006) Preserving flexibility in IIAs: the use of reservations. UNCTAD, New York/
Geneva; OECD Trade Committee (2002) The relationship between regional trade agreements and
the multilateral trading system. OECD, Paris
268 M. Brar
flexibility.198 Varying combinations of the “positive list” and “negative list”

approaches also exist. They seek to provide a higher degree of transparency to
investors than the “positive list” while preserving greater regulatory flexibility for
the host State than the “negative list” and are classified under the “hybrid”
approach.199
Some IIAs include a blanket reservation for the right to make exceptions in
accordance with their own legislation200 or to determine the sectors, spheres of
activity, or branches of the economy which will be precluded from the national
treatment obligation,201 thereby allowing for maximum regulatory flexibility.
Conclusion
The agreements reviewed in this chapter corroborate recent studies that national
treatment retains its place as a popular and key investor protection in IIAs.202
Investor protections which are drawn from the principles of national treatment,
such as the prohibition of performance requirements (obliging foreign investors to
meet certain specified goals with respect to their operations in a host State)203 and the
prohibition of nationality or residency requirements for senior management and
board of directors/members (of companies with foreign ownership/interest)204 are
also gaining popularity.205
198
Ibid.
199
Miroudot S (2011) Investment, Chapter 14. In: Chauffour J, Maur J (eds) Preferential trade
agreement policies for development: a handbook. World Bank, Washington, DC; See for example,
Japan-Malaysia EPA (2005)
200
Art. 3.3 Morocco-Vietnam BIT (2012)
201
Art. 4.2 Kazakhstan-Singapore BIT (2018)
202
tion and current trends, p 20. https://www.wto.org/english/res_e/reser_e/ersd201814_e.pdf.
Accessed 13 Mar 2019; Collins D (2014) National treatment in emerging market investment
treaties. In: Sanders AK (ed) The principle of national treatment in international economic law:
trade, investment and intellectual property. Edward Elgar, Cheltenham
203
selected countries. Doc No. UNCTAD/ITE/IIA/2003/7. https://unctad.org/en/Docs/iteiia20037_en.
pdf; An illustrative list of performance requirements which are incompatible with the national
treatment obligation under Article III of the GATT can be found in the Annex (read with Article 2)
of the Agreement on Trade-Related Investment Measures (1994)
204
WTO (2012) Service rules in regional trade agreements: how diverse and how creative as
compared to the GATS multilateral rules? Doc. No. ERSD-2012-19, pp 20–21. https://www.
econstor.eu/bitstream/10419/80081/1/729501507.pdf. Accessed 23 Sept 2018
205
tion and current trends, p 8. https://www.wto.org/english/res_e/reser_e/ersd201814_e.pdf.
Accessed 13 Mar 2019
Global trends in investment policies indicate an increasingly nuanced approach

toward foreign investment: while liberalization efforts continue, countries have
introduced new restrictions, regulations, and screening mechanisms for foreign
investment.206 State practice on national treatment can be understood in this context:
on the one hand, States are extending protection to the pre-establishment phase of
investments so that access to the market is easier for investors; on the other, they are
detailing and demarcating the scope of the protection to enable greater regulatory
flexibility and protect their particular development needs.
Alongside, States appear to have streamlined the national treatment protection in
response to developments in international investment law.207 An online database
maintained by UNCTAD shows that national treatment has been successfully
invoked by investors against host States in 9 of 126 disputes as of 31 December
2018.208 There is a degree of consistency in the interpretation of the national
treatment protection by tribunals in these 9 disputes (discussed in this chapter). In
some respects national treatment clauses in recent IIAs simply confirm tribunal
decisions, for instance, with respect to factors relevant to the determination of
“like circumstances.” On occasion State practice goes beyond and takes a concrete
position where tribunal decisions are divergent or inconsistent. The incorporation of
policy goals in the substantive protection or in an Article XX-type exceptions
(GATT) is one such example. Finally, there are a few instances where State practice
appears to have purposely departed from tribunal decisions, for example, by includ-
ing “conditions of competition” as an element of “less favorable” treatment. This
indicates a preference for WTO concepts over investment law’s traditional focus on
the protection of the individual interests contrary to the view taken by investment
tribunals.
On the whole while national treatment remains a popular protection, it appears
that countries belong to the global south are recalibrating the scope of the protection,
its relationship to regulatory flexibility, and its future interpretation by investment
tribunals.
206
UNCTAD (2018) World investment report: investment and new industrial policies. UNCTAD,
New York/Geneva, p xi
207
UNCTAD (2015) World investment report: reforming international investment governance.
UNCTAD, New York/Geneva
208
UNCTAD (2018) Breaches of IIA provisions alleged and found. https://investmentpolicy.unctad.
org/investment-dispute-settlement#. Accessed 28 June 2019
270 M. Brar
Cross-References
▶ Mapping the Investor State Dispute Settlement (ISDS) Regime of Bangladesh
▶ Performance Requirement Prohibitions in International Investment Law
Acknowledgments Research assistance was provided by Arpita Pande (NLIU, Bhopal) and
Yashodhara Chauhan (NLU, Delhi).
The Standard of Most-Favored-Nation
Treatment in Investor-State Dispute 11
Settlement Practice
James M. Claxton
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
A Brief History of MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Meaning of MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Purposes of MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Relevance to Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Relevance to States Hosting Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Relevance Within the International Investment Law System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
Relevance Within International Economic Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Source of MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Features of MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Based on Nationality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
Relative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
Reciprocal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Limited by Subject Matter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Limited by Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
Interpretation of MFN Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
Tribunal Decisions on MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
Early MFN Treatment Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283
MFN Treatment to Change Jurisdictional and Temporal Limitations . . . . . . . . . . . . . . . . . . . . . . 285
MFN Treatment to Gain Better Substantive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
MFN Treatment to Change Dispute Resolution Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Evolving Expressions of MFN Treatment in Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Interpretive Declarations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Circumscribing MFN Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
J. M. Claxton (*)
Rikkyo University, Tokyo, Japan
e-mail: jclaxton@claxtonidr.com

https://doi.org/10.1007/978-981-13-3615-7_8
272 J. M. Claxton
Abstract
Based on perceived national interests, States may discriminate among investors.
Most-favored-nation (MFN) treatment seeks to mitigate the effects of such
discrimination. An MFN clause in an investment treaty gives qualifying investors
the right to claim favorable treatment given by the States hosting their invest-
ments to other foreign nationals. As a consequence, MFN treatment encourages
competition among foreign investors by promoting equal investment opportunity
free of preferential treatment standards.
The right to MFN treatment can be triggered by laws or administrative acts,
but the most common source of claims is entitlements in outside investment
treaties. The right to claim outside treatment in this way unsettles treatment
standards in base treaties and extends the reach of standards of investor and
investment protection in third-party treaties. One consequence of this dynamic
has been greater harmonization of investment treaty protections.
The historically vague expression of MFN treatment in treaties has effectively
shifted interpretive authority from the State party to treaties to private arbitrators.
Meanwhile, different expressions of MFN treatment in treaties and the lack of
binding precedent in investment arbitration have enabled arbitral tribunals to
interpret similar MFN provisions differently. The extension of MFN treatment
to dispute resolution provisions has been especially controversial and has encour-
aged some States to include limits and exceptions to the scope of MFN treatment
in new and revised treaties.
Keywords
International investment law · International investment arbitration · Investor-
State dispute settlement · Most-favored-nation · MFN · Relative treatment ·
Discrimination · Ejusdem generis
Introduction
States may discriminate among foreign investors for perceived national interests.
Most-favored-nation (MFN) treatment aims to mitigate the effects of such discrim-
ination. Where States include an MFN clause in an investment treaty (basic treaty),
investors that qualify for protection under the treaty are not limited to entitlements in
the treaty. They are owed the best treatment granted by the treaty parties to outside
investors even where that treatment goes beyond the commitments in the basic
treaty. This normally includes existing treatment commitments and future measures
from the time the basic treaty takes effect. The most common source of claims to
beneficial treatment is treaties with third States (third-party treaties), but the right to
favorable treatment can also derive from regulations, laws, and administrative acts.
MFN treatment encourages competition among foreign investors by promoting
equal investment opportunity free of preferential treatment standards. Prevention of
11 The Standard of Most-Favored-Nation Treatment in Investor-State. . . 273
the effects of discrimination is the rationale behind both MFN treatment and national
treatment, considered in ▶ Chap. 10, “The National Treatment Obligation: Law and
Practice of Investment Treaties.” While national treatment concerns host State
discrimination in favor of its nationals, MFN treatment seeks to ensure equal
treatment among investors of different nationalities. Both provisions are contingent
in the sense that the treatment owed to investors varies according to State commit-
ments outside of the basic treaty. This represents an operational difference with
absolute standards of protection such as fair and equitable treatment (FET), consid-
ered that are invariable.
Despite their common purpose, MFN and national treatment raise different
concerns. Grants of national treatment may agitate local businesses and nationals
who consider that their government should prioritize their interests. MFN treatment,
by contrast, is not subject to the same sensitivity because it is concerned with
variable treatment of foreign investors. MFN treatment draws greater attention for
its effects on the stability of treaties. MFN treatment breaks down the walls of
bilateral investment treaties (BITs) that delimit normative standards in discrete
instruments and “multilateralizes” investment protections.1 While this dynamic
may favor equal investment opportunity, it destabilizes agreed treatment standards
and may waste sunken transaction costs spent negotiating treaties.
The tension between bilateralism and multilateralism belies the importance of
assuring that MFN provisions accurately reflect the intentions of treaty partners.
While MFN treatment clauses have historically been expressed in vague terms, the
rise in disputes over their meaning and the difficulty in predicting arbitration out-
comes have encouraged States to clarify their intended scope. MFN provisions in
many modern investment treaties circumscribe MFN clauses with limitations, excep-
tions, and precise expressions of attendant State obligations.
A Brief History of MFN Treatment
MFN treatment has its genesis in international commerce in the eleventh century. At
that time, European cities began introducing equal-treatment provisions in franchise
agreements with foreign partners to ensure that the same opportunities existed
among competitors in new markets. These commitments flowed in one direction
from the franchisor to the franchisee. French and Spanish cities thus pressed African
princes to grant their merchants the same treatment as traders from Venice.2
By the eighteenth century, conditional MFN provisions were being used in
commercial treaties. Conditional treatment obligated States to grant preferential
1
Schill SW (2009) Multilateralizing investment treaties through most-favored-nation clauses.
Berkeley J Int Law 27(2):496
2
Ustor E (1969) First report on the most-favored-nation clause. Yearb Int Law Commission 2:157,
159
274 J. M. Claxton
treatment to treaty partners only if those partners made the same concessions. Where
a State granted a favorable tariff rate, for example, it was only obliged to extend the
rate to States that made reciprocal tariff concessions. Conditional MFN treatment
was actively promoted by a new actor on the international stage at the time, the
United States of Amercia (United States), as it sought to cultivate its economy
through trade.3
Conditional provisions became the predominant form of MFN treatment by the
end of the eighteenth century, but the trend was largely abandoned by the nineteenth
century because the provisions were difficult to implement. They were replaced by
MFN commitments that were reciprocal between contracting States but that did not
obligate States benefitting from favorable treatment to respond in kind. This form of
MFN treatment, reciprocal and unconditional, has since become the archetype in
international investment relations.4
Grants of MFN treatment contracted after the global economic crisis that began in
1929 as States turned their attention inward and outwardly questioned the desirabil-
ity of a system that demanded equal treatment of close allies and States that were no
more than trading partners.5 After the Second World War, the use of MFN treatment
re-emerged on a wave of multinationalism inspired by the notion that peace could be
preserved through international trade and investment.
An important feature of the postwar economic order was the multilateralization of
trade policy and planning. The General Agreement on Tariffs and Trade (GATT),
signed in 1947, enshrined MFN treatment as the central principle of the international
trading system. Today the GATT is administered by the World Trade Organization
(WTO), founded in 1995 as a forum for international trade and dispute resolution.6
Attempts to create a similar organization for investment and to combine trade and
investment under the umbrella of a single institution failed leaving international
investment law to develop largely independently.7 As a result, international invest-
ment law has emerged as a comparatively fractured system of bilateral and multi-
lateral treaties. The majority of these instruments contain MFN provisions and
provide for ad hoc arbitration of investment disputes. This multiplicity of texts and
lack of a single, centralized forum for policy and dispute resolution have had lasting
effects on the development and interpretation of MFN treatment standards.
3
Snyder RC (1948) The Most-Favored-Nation Clause: An Analysis with Particular Reference to
Recent Treaty Practice and Tariffs. King’s Crown, New York, p 243
4
Ustor (1969, p. 161)
5
Ustor (1969, p. 162)
6
van den Bossche P (2013) The law and policy of the World Trade Organization. CUP, Cambridge,
p 81 and Chaisse J, Matsushita M (2003) “Maintaining the WTO” supremacy in the international
trade order – a proposal to refine and revise the role of the trade policy review mechanism. J Int
Econ Law 16(1):9–36
7
Vandevelde KJ (2005) A brief history of international investment agreements. UC Davis Int Law
Policy 12:157
Meaning of MFN Treatment
Most-favoured-nation treatment is treatment accorded by the granting State to the benefi-

ciary State, or to persons or things in a determined relationship with that State, not less
favourable than treatment extended by the granting State to a third State or to persons or
things in the same relationship with that third State.8
This definition of MFN treatment was included in draft articles on MFN treatment
prepared by the International Law Commission (ILC) in 1978 (ILC Articles) and
revised in a report in 2015 (ILC Report). The ILC Articles, which address MFN
treatment generally and not just in the investment context, were intended to be given
legal effect in a treaty on MFN treatment. Although the treaty was never concluded,
the articles have proven to be an influential guide about the principles governing the
scope and effect of MFN clauses.
In the investment context, MFN clauses enable investors to benefit from invest-
ment protections and treatment not proscribed in basic treaties. The most common
situation involves two BITs, a basic treaty and a comparator third-party treaty,
concluded between the same State and two different counterparties. The basic treaty
comprises investor entitlements and an MFN clause, while the third-party treaty
contains entitlements that are better for investors than those in the basic treaty. The
MFN clause empowers investors qualifying under the basic treaty to claim the
favorable entitlements.
In addition to third-party treaties, claims to beneficial treatment can be based on
laws, regulations, and decisions by administrative agencies. Contracts between
States and third-party investors are not normally covered by MFN clauses. Other-
wise, States might be obligated to conclude investor contracts with matching terms,
which would violate the doctrine of freedom of contract.9 By contrast, acts of
favorable treatment, as opposed to treatment standards written into instruments,
are within the purview of MFN treatment.
The scope of MFN protection varies according to the particular expression of
“treatment” in investment treaties. The ILC Articles identify six different types of
treatment that can be included in a single MFN clause. These include unqualified
MFN treatment, treatment with broad qualifiers such as “in all matters,” treatment
defined to cover specific aspects of investment activity such as the “establishment”
or “management” of investments, treatment that is linked to specific commitments
such as “fair and equitable treatment,” treatment that is limited by qualifiers such as
“in like circumstances,” and treatment that is restricted by territory.10
8
ILC (1978) Report on the most-favored-nation clause: report of the ILC on the work of its thirtieth
session. (2)21
9
UNCTAD (2010) Most-favored-nation treatment: UNCTAD series on issues in international
investment agreements. II:29
10
ILC (2015) Most-favored-nation clause: final report of the study group on the most-favored-
nation clause. 32
276 J. M. Claxton
Purposes of MFN Treatment
MFN treatment serves various interests:
Relevance to Investors
MFN treatment assures foreign investors that they will receive the best treatment
made available to all foreign investors by the States hosting their investments.
Discrimination in favor of another foreign investor will entitle an investor under
the basic treaty to the same treatment, even where that treatment is better than the
entitlements in the basic treaty. This should encourage competition among investors
by reducing political risk and by providing equal access to investment opportunities
in host States.
Relevance to States Hosting Investments
A state’s commitment to MFN treatment should encourage foreign investment,

though it is unclear whether it has this effect in practice. MFN treatment otherwise
preserves the value of transaction costs that result from concluding investment
treaties. The benefits of an investment treaty would be diminished if a treaty party
offered better treatment to foreign investors outside of the treaty without conse-
quence. MFN treatment aims to assure that time and resources spent negotiating
treaties and bringing them into force is worthwhile. The provision of MFN treatment
can also reduce the burden on treaty negotiators who would otherwise have to more
fully research the treaty practice of potential treaty partners.11
Relevance Within the International Investment Law System
A consequence of MFN treatment is to give commitments made in bilateral instru-

ment’s multilateral effect. This dynamic, sometimes called “upward harmonization,”
imposes greater coherency across the fragmented landscape of international invest-
ment treaties, which can aid in investment planning and risk assessment. While the
result is far from the degree of coherence achieved by MFN treatment in the
11
Caron D, Shirlow E (2015) Most-favored-nation treatment: substantive protection. In: Kinnear M,
Fischer GR et al (eds) Building international investment law: the first 50 years of ICSID. Kluwer,
Alphen aan den Rijn, pp 408–413. See also Chaisse J (2012) Promises and Pitfalls of the European
Union policy on foreign investment – how will the new EU competence on FDI affect the emerging
global regime. J Int Econ Law 15(1):51–84.
international trade system through the GATT, MFN represents an important means of
modulating variances across more than 3,000 treaties with investment provisions.
Seen from a different perspective, MFN treatment enables investors to handpick
treatment standards from outside treaties without submitting to other provisions
of those instruments as a whole. An investor benefitting from MFN treatment will
not normally be burdened by jurisdictional requirements, performance obligations,
or inferior standards of protection in the third-party treaties that are the source of
favorable treatment. Some commentators argue that this erodes the value of conces-
sions made during treaty negotiations and complicates conscious treaty-making by
rendering treaty commitments unstable.
Relevance Within International Economic Law
MFN treatment has the overarching purpose of promoting market access and
equality of opportunity for market actors. MFN treatment in the trade context aims
to reduce barriers to the free flow of goods and services, while MFN treatment in the
investment context seeks to reduce barriers to the flow of investment to States where
it can be allocated most efficiently.
Despite the common rationale, MFN treatment has different features in trade and
investment. MFN treatment is considered to be the cornerstone of the multilateral
system of trade, while its role is less central in international investment law. MFN
treatment did not feature importantly in early investment disputes and continues to
be less commonly invoked for substantive relief than other treaty standards.
The targets of MFN treatment are also different in investment and trade. MFN
applies to a wider range of circumstances in the investment context given the many
ways that investments can be regulated and impacted by government acts, whereas
the reach of MFN treatment is more discrete, and may be easier to evaluate, in the
trade setting. This difference is reflected in common expressions in treaties: MFN
treatment in trade instruments tends to refer to “like products or like services,” while
MFN treatment in investment instruments reaches all activity “in like circum-
stances.”12 The object of the treatment is also broader for investments because
State treatment extends over the lifetime of investments, whereas MFN treatment
in trade aims primarily at controls at national borders.
Source of MFN Treatment
MFN treatment obligations are created exclusively by treaties. States are not bound
to extend equal treatment to all foreign investors as a matter of law just as investors
have no legal basis for claiming rights granted by States to other investors absent
entitlements in treaties. MFN treatment is not recognized as international custom
12
UNCTAD (2010, p. 30)
278 J. M. Claxton
despite its long history and centrality to international trade. In the words of the
commentary to the ILC Articles:
[a]lthough the grant of most-favoured-nation treatment is frequent in commercial treaties,

there is no evidence that it has developed into a rule of customary international law. Hence it
is widely held that only treaties are the foundation of most-favoured-nation treatment.13
By contrast, international law prohibits discrimination in some circumstances.

The Charter of the United Nations and major human rights treaties prohibit distinc-
tions based on race and gender, for example, while international humanitarian law
prohibits State discrimination among civilians during times of conflict.14 These
norms are directed toward gross misconduct or arbitrary conduct and are absolute,
applying without the need to compare treatment standards. They do not extend to
preferential economic entitlements in investment treaties. The ILC has observed that:
[w]hile States are bound by the duty arising from the principle of non-discrimination, they
are nevertheless free to grant special favours to other States on the ground of some special
relationship of a geographic, economic, political or other nature.15
Features of MFN Treatment
MFN treatment has a number of distinctive features:
Based on Nationality
MFN treatment will not be owed unless the beneficial outside treatment is given to
an investor of a different nationality than both the claiming investor and the host
State. The nationality of legal persons and corporations is primarily determined by
domestic law.
The nationality of the beneficiary is not commonly disputed in arbitrations
because the source of the favorable treatment is most often treaties that clearly
circumscribe the nationality of beneficiaries. Where the beneficial treatment is a
governmental act – as opposed to text in a treaty or law – the nationality of the
beneficiary may be more open to dispute. At the time of this writing, the question of
nationality rarely arises in this way in arbitration although this could change in the
future if States limit the scope of MFN treatment to actual instances of treatment as
some have done already.
13
ILC (1978, p. 25)
14
For example, United Nations, Charter of the United Nations, 24 Oct 1945, Art 1(3); UN General
Assembly, International Covenant on Civil and Political Rights, 16 Dec 1966, Art 2(1)
15
ILC (1978, pp. 11–12)
Relative
MFN treatment is a relative treatment standard that does not impose an absolute
threshold to determine lawful behavior. In order to benefit from MFN treatment, an
investor must identify host State treatment of an investor from a third State and
demonstrate that this treatment is objectively better than the treatment granted under
the basic treaty. The MFN treatment obligation is not triggered so long as host States
treat foreign investors equally, no matter how bad that treatment may be.
Because the MFN treatment standard is relative, the treatment provisions in a
basic treaty are not settled and can effectively be replaced by outside grants of
treatment. While this introduces instability into a system that aims to mitigate risk,
the overall effect is better protection standards for investors and investments. This
dynamic can also be an advantage to States that lack bargaining power to secure
more favorable treatment standards. The inclusion of MFN clauses assures that
commitments in basic treaties are not eroded where a treaty party subsequently
grants better treatment to outside investors.16
The relativity of MFN provisions is based on treatment and not relationships. The
nature of the relationship between the State granting the MFN treatment and the State
recipient of beneficial treatment is irrelevant to the right to claim MFN treatment. A
host State cannot deny favorable treatment to an investor because that State has a better
relationship with the State that accorded the favorable treatment than the home state of
the investor. This is true even if the State that has been accorded favorable treatment
has made concessions to receive the favorable treatment.
The relative nature of MFN treatment, as with national treatment, contrasts with
absolute treaty standards such as FET and full protection and security considered
respectively in ▶ Chap. 13, “Full Protection and Security and Its Overlap with Fair
and Equitable Treatment”. A State may be liable for breaching an FET provision if
its treatment of an investor falls below a determined benchmark for treatment that is
fair and equitable. The liability of the State does not change based on how fairly and
equitably it treats other investors.
Reciprocal
The provision of MFN treatment is made for nationals of all treaty parties. The
benefits do not normally accrue to investors from some contracting States but not
others. While the earliest forms of MFN treatment flowed only in one direction, this
model is not a feature of contemporary investment treaties.
The first investment treaties were concluded between States that were capital-
exporters on balance and States that were capital-importers. The universe of
16
Salacuse J (2015) The law of investment treaties. OUP, Oxford, p 281
280 J. M. Claxton
investment treaties has diversified from these origins to include treaties between
States in various stages of development including treaties between capital-exporting
States and treaties between capital-importing States. Throughout this evolution,
MFN provisions in treaties have remained consistently reciprocal in nature regard-
less of differences in the degree of economic development of the State parties.
Unconditional
The right to MFN treatment extends to all qualifying investors by virtue of the MFN
clauses. There are no preconditions that qualifying investors must fulfil or conces-
sions that investors must make to claim this right. Likewise, the home States of the
investors are not obligated to make concessions to perfect the right of their nationals
to claim MFN treatment. The conditional form of MFN treatment that was prevalent
during much of the eighteenth century has not re-emerged since that time.
By contrast, many commentators agree that an investor must establish jurisdiction
under a basic treaty before it can claim the right to MFN treatment under that treaty.
This includes satisfying conditions on nationality (ratione personae), conditions on
covered investments (ratione materiae), and conditions related to the timing of the
investments (ratione temporis). An investor’s right to claim MFN treatment is
realized once these preconditions have been met. By contrast, where an investor
seeks benefits granted in a third-party treaty, the investor does not need to satisfy the
separate jurisdictional requirements of that treaty.
Limited by Subject Matter
The inclusion of an MFN clause in a treaty does not give an investor the absolute
right to supplement the terms of that treaty with any outside treatment granted by the
host State. There must be concordance between the subject of the MFN clause and
the subject of the outside treatment. This limitation, reflecting the principle ejusdem
generis, forms an inherent limit on the scope of MFN treatment.
Article 9.1 of the ILC Articles expresses this limitations in the following terms:
Under a most-favoured-nation clause the beneficiary State acquires, for itself or for the
benefit of persons or things in a determined relationship with it, only those rights which fall
within the limits of the subject-matter of the clause.
The stated object and purpose of a third-party treaty and its provisions will help to
determine whether it concerns the same subject as the MFN provision in the basic
treaty. A typical MFN clause in an investment treaty, for example, could not be
interpreted to support a claim to rights under an extradition treaty.17 There is,
17
ILC (1978, p. 27)
however, is no absolute rule that the categories of the basic and third-party treaties be
the same. The essence of the subject-matter limitation is simply that “the beneficiary
of a most-favoured-nation clause cannot claim from the granting State advantages of
a kind other than that stipulated in the clause.”18
Limited by Circumstances
The scope of MFN treatment is limited by the factual circumstances of the investor
and the investment. This condition is reflected in the ILC Articles:
Article 9.2.
The beneficiary State acquires [MFN rights] only in respect of persons or things which
are specified in the clause or implied from its subject-matter. . .
Article 10.2.
The beneficiary State acquires [MFN rights] in respect of persons or things in a
determined relationship with it only if they:
(a) belong to the same category of persons or things as those in a determined relationship
with a third State which benefit from the treatment extended to them by the granting
State and.
(b) have the same relationship with the beneficiary State as the persons and things referred
to in subparagraph (a) have with that third State.19
In other words, the investor and the investment subject to MFN treatment must be
sufficiently similar to the investor and the investment that are the object of beneficial
treatment. Investment treaties sometimes qualify MFN treatment with clauses such
as “in like circumstances” and “in similar situations” to leave no doubt that this
limitation exists. Even where such language is not included, however, many com-
mentators agree that MFN treatment will only extend to investors and investments in
like circumstances.
Interpretation of MFN Clauses
MFN clauses in treaties have historically been expressed in broad terms. Germany,
the State that has concluded the largest number of BITs, provides for MFN treatment
in the following terms in Article 3(1) of its model BIT template:
Neither Contracting State shall subject investments in its territory owned or controlled by
investors of the other Contracting State to treatment less favourable than it accords to
investments of its own investors or to investments of investors of any third State.20
18
ILC (1978, p. 30)
19
While the provisions identify the beneficiary as States, they are meant to include investors as well.
20
Germany Model Bilateral Investment Treaty (2008)
282 J. M. Claxton
The text goes on to exclude customs unions, trade unions, and tax benefits from
the scope of MFN treatment. Even with these precisions, however, the provision is
vague as neither the meaning of “treatment” nor the qualifier “less favorable” is
defined in the text. Such ambiguity is common in MFN provisions and underscores
the centrality of the interpretive process to the operation of MFN clauses. As the ILC
has observed, “[t]he fundamental questions about MFN clauses are matters of public
international law. The central issue is how should MFN clauses be interpreted.”21
Investment treaties are interpreted in accordance with customary international law
on treaty interpretation codified in the Vienna Convention on the Law of Treaties
(VCLT). Articles 31 and 32 provide the basic interpretive framework. Most com-
mentators agree that, apart from the provisions of the VCLT, there are neither special
rules for interpreting investment treaties nor legal presumptions about the operation
of MFN clauses in investment treaties.
Article 31 of the VCLT provides the general rule of interpretation:
1. A treaty shall be interpreted in good faith in accordance with the ordinary

meaning to be given to the terms of the treaty in their context and in the light
of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in
addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in
connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection with the
conclusion of the treaty and accepted by the other parties as an instrument
related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of
the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the
agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the
parties.
4. A special meaning shall be given to a term if it is established that the parties so
intended.
Article 32 provides for supplemental means of interpretation in identified cir-

cumstances. While there is agreement that the VCLT provides the applicable ana-
lytical framework to resolve questions of interpretation, commentators disagree
about the way that its provisions should be applied. Some argue, for example, that
arbitral tribunals should pay more attention to the role of general international law on
treaty interpretation in accordance with Article 31(3)(c).22 The application of general
21
ILC (2007) Most-favored-nation clause: report of the study group, para 34
22
For example, McLachlan C (2005) The principle of systemic integration and Article 31(3)(C) of
the Vienna convention. Int Comp Law Q 54(2):279
international law would encourage greater consideration of the way that MFN
treatment has been understood historically as a legal term of art.23 Other commen-
tators argue that tribunals rely too heavily on presumptions about the way MFN
treatment should operate to guide their interpretations. They should instead evaluate
MFN provisions on their terms without allowing presumptions about how MFN
treatment should operate to influence the interpretive exercise.24
Tribunal Decisions on MFN Treatment
Vague expressions of treaty standards create legal uncertainty and waste resources as
investors and States dispute how treaty language should be interpreted. The ambi-
guity also shifts control over treaty obligations from the States that conclude the
treaties to the arbitral tribunals that interpret them. The result of this dynamic can be
systemic. While the decisions of arbitral tribunals are not binding on future tribunals
as a matter of law, in practice arbitral decisions have shaped debates about the
features of MFN treatment and influenced subsequent tribunals as persuasive
authority.
Early MFN Treatment Cases
MFN clauses were subject to interpretation in a number of cases that predate modern
investment treaties. Three such cases that have been particularly relevant to invest-
ment disputes are Anglo-Iranian Oil Co., Rights of US Nationals in Morocco, and
Ambatielos.25
In Anglo-Iranian Oil, the United Kingdom sought to commence proceedings
against Iran before the International Court of Justice (ICJ) based on MFN clauses in
bilateral commercial treaties. The Court denied the request based on a separate
declaration by Iran that, according to the ICJ, precluded the application of MFN
treatment. The resulting judgment addressed the relationship between basic and
third-party treaties and the absence of a general legal duty on States to grant MFN
treatment. In words of the Court:
23
Douglas Z (2011) The MFN clause in investment arbitration: treaty arbitration off the rails. J Int
Dispute Settlement 2(1):99–100
24
For example, Batifort S, Heath, JB (2018) The new debate on the interpretation of MFN clauses in
investment treaties: putting the brakes on multilateralization. Am J Int Law 111(4):873
25
Anglo-Iranian Oil Co (UK v. Iran), Judgment on Jurisdiction, 1952 ICJ 93 (Jul 22) [Anglo-Iranian
Oil]; Case Concerning Rights of Nationals of the United States of America in Morocco (Fr v. US),
1952 ICJ Rep 176 (Aug 27) [Rights of US Nationals]; Ambatielos Case (Greece v. UK), 12 Rep
Int’l Arb Awards 83(6 Mar 1956) [Ambatielos]
284 J. M. Claxton
[t]he treaty containing the most-favoured-nation clause is the basic treaty upon which the
United Kingdom must rely. It is this treaty which establishes the juridical link between the
United Kingdom and a third-party treaty and confers upon that State the rights enjoyed by
the third party.26
In Rights of US Nationals in Morocco, the ICJ was asked to determine the legality
of the response of the United States to Moroccan import restrictions. The United
States sought to rely on MFN treatment in treaties to claim favorable rights to
consular jurisdiction and fiscal immunity. While the ICJ denied the request because
the applicable third-party treaties had been terminated or suspended, it affirmed the
rationale of MFN treatment to “establish and maintain at all times fundamental
equality without discrimination among all of the countries concerned.”27 The
Court also held that third-party treaties must be in force to bestow rights on investors.
The mere existence of favorable language in outside treaties did not by itself
establish an entitlement to MFN treatment.
In Ambatielos, Greece evoked an MFN clause in a treaty of commerce and
navigation with the United Kingdom to obtain better guarantees for the “adminis-
tration of justice.” Greece contended that a Greek shipowner was entitled to better
treatment concerning the admission of evidence and claims in dispute proceedings
based on British commitments in treaties with third-party States. The United King-
dom countered that the MFN clause applied only to matters belonging to the same
subject as the basic treaty, which would exclude the administration of justice because
the MFN clause was limited to “all matters relating to commerce and navigation.”
The arbitration commission deciding the dispute accepted that the scope of MFN
was limited to similar subjects but disagreed with the United Kingdom’s argument,
reasoning:
[i]t is true that ‘the administration of justice,’ when viewed in isolation, is a subject-matter
other than “commerce and navigation,” but this is not necessarily so when it is viewed in
connection with the protection of the rights of traders. Protection of the rights of traders
naturally finds a place among the matters dealt with by Treaties of commerce and
navigation.28
The forgoing cases have contributed to a better understanding of the features of

MFN treatment. Anglo-Iranian Oil affirmed its operation across treaties, while
Rights of US Nationals in Morocco and Ambatielos considered inner and outer limits
of its scope. Where MFN treatment is at issue in investment disputes, these cases are
often cited and relied on by tribunals to support their decisions.
26
Anglo-Iranian Oil, p. 109
27
Rights of US Nationals, p. 192
28
Ambatielos, p. 107
MFN Treatment to Change Jurisdictional and Temporal Limitations
Claimants in investment disputes have sometimes sought to use MFN treatment to

change preconditions to arbitration in basic treaties. This includes attempts to
broaden the temporal scope of treaties and to change the conditions necessary to
qualify as investors or investments under the treaties. Investors have also invoked
MFN clauses to change dispute resolution procedures, which may raise jurisdictional
issues. The relationship between MFN treatment and dispute resolution is considered
separately in this chapter.
MFN Treatment to Change the Definition of “Investor” or “Investment”

in a Basic Treaty
In Société Générale v. Dominican Republic, the Dominican Republic argued that the
arbitral tribunal did not have jurisdiction over claims because the investor’s activity
failed to satisfy the definition of “investment” in the basic treaty. The investor
contended that the MFN clause in the treaty empowered it to rely on a broader
definition in a third-party treaty. The tribunal rejected the investor’s argument on the
basis that:
[e]ach treaty defines what it considers a protected investment and who is entitled to that
protection, and definitions can change from treaty to treaty. In this situation, resort to the
specific text of the MFN Clause is unnecessary because it applies only to the treatment
accorded to such defined investment, but not to the definition of ‘investment’ itself.29
More recently, the tribunal in Metal-Tech v. Uzbekistan was faced with a similar
attempt to use MFN treatment to change the definition of “investment.” In denying
the request, the tribunal explained its rationale:
. . . one must fall within the scope of the treaty, which is in particular circumscribed by the
definition of investment and investors, to be entitled to invoke the treaty protections, of
which MFN treatment forms part. Or, in fewer words, one must be under the treaty to claim
through the treaty.30
MFN Treatment to Extend the Temporal Scope of a Basic Treaty

In addition to defined terms, investors have occasionally sought to change the
temporal scope of basic treaties by application of MFN treatment. In TECMED v.
Mexico, the investor challenged Mexico’s refusal to renew a license that was issued
before the basic treaty came into force. To bring its claim for renewal within the
jurisdiction of that treaty, the investor sought to use MFN treatment to give
29
Société Générale in Respect of DR Energy Holdings Limited and Empresa Distribuidora de
Electricidad del Este, SA v. The Dominican Republic, LCIA Case No UN 7927, Award on
Preliminary Objections to Jurisdiction (19 Sept 2008), para 41
30
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 Oct 2013), para
145
286 J. M. Claxton
retrospective effect to the basic treaty so that it would run concurrently with pro-
tections in a third-party treaty. The tribunal rejected this attempt because it consid-
ered the temporal scope of investment treaties to “go to the core of matters that must
be deemed to be specifically negotiated by the Contracting Parties.”31
The TECMED award, like the awards in Société Générale and Metal-Tech, dem-
onstrates a reluctance of tribunals to extend the scope of MFN treatment beyond
substantive standards of treatment that have been its historical object. Tribunals have
been most opposed where they consider that the exercise of MFN treatment would
circumvent preconditions to jurisdiction under basic treaties. In this situation, tribunals
commonly reason that the investor must establish jurisdiction under the basic treaty on
its own terms before seeking recourse to the MFN treatment provision in that treaty.
MFN Treatment to Gain Better Substantive Rights
Beyond preconditions to jurisdiction, investors more frequently invoke MFN treat-

ment to improve or expand their substantive entitlements in basic treaties in various
ways.
MFN Treatment to Avoid Substantive Provisions in a Basic Treaty

In a few cases, investors have attempted to free themselves of limitations in basic
treaties by virtue of the absence of the same limitations in third-party treaties. This
issue arose in the first known investment treaty arbitration, Asian Agricultural
Products v. Sri Lanka. The claimant argued that Sri Lanka was strictly liable for
damages to its shrimp farms caused by a military campaign by government forces.
According to the claimant, the inclusion of limitations on State liability for war and
civil disturbance in the basic treaty did not apply because a third-party treaty
contained no exceptions to strict liability. Although the tribunal rejected the request
on the basis that the claimant had not established that the third-party treatment was
actually favorable, it affirmed the general principle that a qualifying investor under a
basic treaty could rely on more favorable substantive treatment in a third-party treaty.
The tribunal did not discuss the use of MFN treatment to avoid limitations in basic
treaties in its decision.32
The issue was addressed more directly in CMS Gas Transmission v. Argentina.
The claimant investor in that case sought to avoid a treaty provision that permitted
Argentina to take measures in emergency situations that could otherwise violate its
treaty commitments. The tribunal rejected the investor’s argument that it could rely
on the absence of such emergency exceptions in third-party treaties to defeat
Argentina’s invocation of the emergency provisions in the basic treaty.33 Some
31
Técnicas Medioambientales Teemed, SA v. Mexico, Award (29 May 2003), para 69
32
Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, ICSID Case No. ARB/87/3,
Final Award (27 Jun 1990), para 54
33
CMS Gas Transm Co v. Argentina, ICSID Case No ARB/01/8, Award (12 May 2005), para 377
commentators have questioned the tribunal’s reliance on the principle of ejusdem

generis to support its decision. Many agree, however, with the conclusion that MFN
treatment cannot empower an investor to exclude a provision in a basic treaty based
on the absence of that provision in a third-party treaty.
MFN Treatment to Improve Substantive Rights in a Basic Treaty

Investors have had more success in using MFN treatment to broaden rights that
already exist in basic treaties. The issue notably arose in the early 2000s in a series of
cases brought under the North American Free Trade Agreement (NAFTA), a trilat-
eral trade pact between Canada, Mexico, and the United States that comprises some
investment protections. In Pope & Talbot v. Canada, the claimant argued that the
FET standard in the NAFTA should be interpreted in accordance with third-party
treaties that set lower standards for breach of the FET provision. The tribunal agreed
that MFN treatment could be used for this purpose in principle but concluded that
there was no need for recourse to MFN treatment because Canada had breached the
provision under either interpretation. In affirming this conclusion in its award on
damages, the tribunal rejected the relevance of a joint declaration by the NAFTA
contracting parties made after the award on the merits that affirmed their common
understating of the meaning of FET in the basic treaty. This statement could not fix
the meaning of FET in the treaty, according to the tribunal, because the FET
provision continued to be subject to the MFN clause.34
The use of MFN to improve rights in a basic treaty played a more decisive role in
determining damages in CME v. Czech Republic. The investor in that case sought
damages for interference with its television and radio broadcasting rights in the
Czech Republic. The basic treaty provided for damages for expropriation, a sub-
stantive provision considered in amounting to “just compensation. . . represent[ing]
the genuine value of the investments.” The investor argued that this provision should
be interpreted to mean “fair market value” by virtue of MFN treatment since the “fair
market value” standard was used in a third-party treaty. The applicable MFN
provision provided as follows:
If the provisions of law of either Contracting Party or obligations under international law
existing at present or established hereafter between the Contracting Parties in addition to the
present Agreement contain rules, whether general or specific, entitling investments by
investors of the other Contracting Party to a treatment more favourable than is provided
for by the present Agreement, such rules shall to the extent that they are more favourable
prevail over the present Agreement.35
The tribunal relied on this clause to support its decision that the investor was
entitled to damages calculated using the fair market value standard of valuation.36
34
Pope & Talbot Inc. v. Canada, Award in Respect of Damages (31 May 2002), para 12
35
CME Czech Republic BV v. Czech Republic, UNCITRAL, Final Award (14 Mar 2003), para 397
[CME Czech Republic]
36
CME Czech Republic, para 500
288 J. M. Claxton
MFN Treatment to Claim Substantive Rights Not in a Basic Treaty

Tribunals have also held that investors can invoke MFN treatment to access sub-
stantive standards of protection not in basic treaties where not prohibited by the
language of the MFN provisions. In MTD v. Chile, for example, the claimant argued
that it had been unlawfully denied permits for property development for an invest-
ment that had been approved by a Chilean investment authority. In support of its
claims, the investor sought to rely on an MFN treatment provision to engage
commitments by Chile in third-party treaties to grant necessary permits after invest-
ments had been approved. The tribunal agreed that MFN treatment extended to
outside commitments to grant permits even though there was no such provision the
basic treaty. In reaching this conclusion, the tribunal observed that the commitment
to grant permits was not among the exclusions to MFN treatment that had been
included in the text of that provision.37
Tribunals have reached the opposite conclusion where the MFN language at issue
was more restricted. In Paushok v. Mongolia, an investor invoked MFN treatment to
claim the benefit of an “umbrella clause,” a substantive provision considered in
▶ Chap. 16, “The Umbrella Revolution: State Contracts and Umbrella Clauses in
Contemporary Investment Law.” The tribunal refused the request because the MFN
clause in the treaty referred to a single provision of that treaty that provided for FET.
On this basis, the tribunal reasoned that MFN treatment could only provide investors
with favorable grants of FET and not other substantive protections.38
The tribunal in Teinver v. Argentina reached the same conclusion. As in Paushok,
the investor in Teinver sought the benefit of an umbrella clause contained in a third-
party treaty, and the tribunal rejected the request based on its interpretation of the
applicable MFN provision. The clause at issue in Paushok qualified MFN treatment
with the phrase “[i]n all matters governed by this Agreement.” The tribunal reasoned
that this provision limited the scope of MFN treatment to substantive standards
actually included in the basic treaty, which did not contain an umbrella clause.39
The decisions in MTD, Paushok, and Teinver demonstrate the importance of the
language used to express MFN treatment commitments. While the tribunals in those
cases were presented with a variety of arguments and referrals to past arbitral awards,
their decisions ultimately turned on the specific expressions of MFN treatment used in
the respective treaties. These cases also bear witness to the importance of subject matter
limitations on MFN treatment. In order to determine the scope of MFN treatment, the
tribunals were obligated to consider whether the subject matter of MFN provisions and
the subject matter of the grants of favorable treatment were the same.
37
MTD Equity Sdn Bhd v. Chile, Award (25 May 2004), paras 100–104
38
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The
Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability (28 Apr 2011), para
570
39
Teinver SA, Transportes de Cercanías SA and Autobuses Urbanos del Sur SA v. The Argentine
Republic, ICSID Case No ARB/09/1, Award (21 Jul 2017), para 884
Comparison of Treatment to Qualify for MFN Treatment

The source of favorable treatment in the previous cases was situated in the substan-
tive terms of third-party treaties. Tribunals have also been called on to compare
actual instances of treatment when determining the scope of MFN provisions.
In Parkerings v. Lithuania, the investor claimed the right to MFN treatment on the
basis that Lithuania treated foreign investors favorably in the construction and
management of parking garages. The arbitral tribunal compared the factual circum-
stances of the claimant and the third-party foreign investor and found that the
investors were in the different economic and business sectors. Based on the differ-
ence, the tribunal refused to extend MFN treatment to the investor. Although the
MFN clause did not contain the qualifier “in like circumstances” or similar language,
the tribunal treated the condition of like circumstances as inherent to the scope of
MFN treatment.40
Even where “in like circumstances” is written into treatment standards, tribunals
interpret that term differently. In Feldman v. Mexico, “in like circumstances” was
interpreted narrowly to mean the same business. The tribunal in that case identified
the business as “resellers of cigarettes for export” and reasoned that a business that
exported cigarettes alone would not be in like circumstances.41 By contrast, in
Occidental v. Ecuador, “in like circumstances” was interpreted to include exporters
across a variety of unrelated sectors in support of a claim for national treatment. The
tribunal in that case considered the exportation of oil to be a like circumstance to the
exportation of flowers, mining, seafood products, lumber, bananas, and African palm
oil.42
In a few cases, States have rejected the right of investors to rely on MFN
treatment where there has been no act of treatment. In Chemtura v. Canada, for
example, Canada argued that an investor must show actual favorable treatment, not
merely treatment commitments written into outside instruments, in order to benefit
from the MFN provision in the NAFTA. Canada argued that:
[t]here must be evidence of actual, not merely hypothetical, more favourable treatment. . .
The NAFTA MFN provision does not simply allow the investor to choose the language it
prefers from Canada’s various investment agreements.43
The United States and Mexico, the remaining NAFTA member States, filed
memorials in the arbitration in support of Canada’s interpretation of the MFN
provision. The tribunal did not rule on the operation of the provision in the award.
40
Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No ARB/05/8, Award (11 Sep
2007), p 371
41
Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No ARB(AF)/99/1, Award (6
Dec 2002), para 171
42
Occidental Exploration and Production Company v. Republic of Ecuador, LCIA Case No
UN3467, Final Award (1 Jul 2004), para 167–173
43
Chemtura Corporation v. Government of Canada, UNCITRAL, Canada’s Counter-Memorial (20
Oct 2008), para 239–240
290 J. M. Claxton
The tribunal in İçkale v. Turkmenistan, by contrast, dealt directly with the issue. In
that case, Turkmenistan argued that the following MFN clause required the claimant
to demonstrate an actual instance of favorable treatment in similar circumstances
before it could benefit from MFN treatment:
[e]ach Party shall accord to these investments, once established, treatment no less favourable
than that accorded in similar situations to investments of its investors or to investors of any
third country, whichever is the most favourable.44
The tribunal interpreted the clause “in similar situations” in this provision to mean
that MFN treatment “requires a comparison of the factual situation of the investment
of the investors of the home State and that of the investment of the investors of third
States”.45 According to the tribunal, where a claimant bases its claims on the
existence of different standards of treatment, there must be a factual showing of
favorable treatment to an investor in similar circumstances. Absent such a showing,
the investor cannot rely on the MFN provision.
MFN Treatment to Change Dispute Resolution Procedures
The most contentious application of MFN treatment in international investment law

concerns whether MFN clauses can be used by investors to improve access to
arbitration and the conditions of dispute resolution. Since the decision in Maffezini
v. Spain, tribunals and commentators have disagreed about this issue with little
consensus emerging over time. The disagreement is due to the novelty of the
application of MFN treatment to matters of procedure as well the potential, under-
stood by some tribunals, for MFN treatment to interfere with the basis of jurisdiction
of arbitral tribunals.
Maffezini v. Spain
The tribunal in Maffezini v. Spain considered the application of MFN treatment to
dispute resolution procedures in a case concerning a chemical production and
distribution venture in Galicia. The claimant sought to bypass a condition in the
basic treaty that obligated investors to pursue remedies in domestic courts for
18 months prior to initiating arbitration by relying on the following MFN clause:
[i]n all matters subject to this Agreement, this treatment shall not be less favourable than that
extended by each Party to the investments made in its territory by investors of a third country.46
44
İçkale İnsa̧at Limited Şirketiv v. Turkmenistan, ICSID Case No ARB/10/24, Award (8 Mar 2016),
para 320–321; 326 [İçkale]
45
İçkale, para 329
46
Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No ARB/97/7, Decision of the
Tribunal on Objections to Jurisdiction (25 Jan 2000), para 38 [Maffezini]
On the basis of this provision, the investor claimed the right to proceed under
the dispute resolution clause of a third-party treaty that provided a shorter 6-month
waiting period without the obligation to litigate the dispute in domestic courts. The
tribunal observed that the term “[i]n all matters” endowed the MFN clause with broad
scope and reasoned that “dispute settlement arrangements are inextricably related to
the protection of foreign investors.”47 The tribunal concluded that the investor could
proceed under the third-party treaty and, as a result, was able to shorten the waiting
period for arbitration and avoid recourse to local courts in the host State.
Given the novelty of its decision, the tribunal saw fit to expand on its under-
standing of the reach of MFN clauses in different circumstances related to dispute
resolution. It reasoned that MFN treatment could not be used to overcome a treaty
obligation to exhaust local remedies before commencing arbitration or to vitiate an
investor’s decision to litigate or arbitrate under a “fork-in-the-road” clause, a provi-
sion considered in [Walking the SADC Protocol on Finance and Investment Protocol
route—Of the Fork in the road and exhausting domestic remedies]. The tribunal also
concluded that MFN treatment could not be used to avoid a particular arbitral forum,
such as the International Centre for Settlement of Investment Disputes (ICSID), or a
“highly institutionalized system of arbitration that incorporates precise rules of
procedure” like the NAFTA.48
Plama v. Bulgaria
This applicability of MFN treatment to matters of dispute resolution was raised again
in Plama v. Bulgaria. The investor in that case sought to avoid a dispute resolution
procedure under the basic treaty that provided for ad hoc arbitration in favor of
arbitration administered by ICSID, which was provisioned in third-party treaties.
The applicable MFN clause in the basic treaty provided as follows:
[e]ach Contracting Party shall apply to the investments in its territory by investors of the
other Contracting Party a treatment which is not less favourable than that accorded to
investments by investors of third states.49
The tribunal found that this provision did not enable the investor to avoid the
limitations on forum in the basic treaty. This conclusion was based on the principle
that a clear and unambiguous arbitration agreement is a prerequisite to arbitration.
According to the tribunal, the language of the MFN clause:
[c]annot be said to be a typical incorporation by reference clause as appearing in ordinary

contracts. It creates doubt whether the reference to the other document (in this case the other
47
Maffezini, para 54
48
Maffezini, para 63
49
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No ARB/03/24, Decision on
Jurisdiction (8 Feb 2005), p. 11 [Plama]
292 J. M. Claxton
BITs concluded by Bulgaria) clearly and unambiguously includes a reference to the dispute
settlement provisions contained in those BITs.50
On this basis, the investor was not permitted to resort to ICSID arbitration. The
tribunal went on to reject the list of exceptions to the application of MFN to dispute
settlement articulated by the Maffezini tribunal in favor of a single rule:
[a]n MFN provision in a basic treaty does not incorporate by reference dispute settlement
provisions in whole or in part set forth in another treaty, unless the MFN provision in the
basic treaty leaves no doubt that the Contracting Parties intended to incorporate them.51
Maffezini and Plama are often treated as two poles in an ongoing debate about
whether MFN treatment extends to dispute resolution procedures. The controversy has
played out repeatedly in arbitrations and continues to divide tribunals and commen-
tators. The Maffezini and Plama decisions also figure into broader conversations about
the legitimacy of investor-State arbitration as they raise a number of issues central to
that controversy. These include inconsistent tribunal decisions, treaty interpretation,
the use of tribunal decisions as precedent, and conflicts that may arise where arbitrators
express opinions about issues that later arise in cases in which they are appointed.
Tribunal decisions about the applicability of MFN treatment to dispute resolution
differ in reasoning and points of emphasis. Even so, distinct approaches can be
identified. Where tribunals that consider the application of MFN treatment to dispute
resolution would interfere with jurisdiction, including the tribunal in Plama, they are
more likely to reject the requests. This may follow the rationale that dispute
resolution procedures set the conditions on which host States give their consent to
arbitration. MFN treatment is thus out of reach until an investor has first established
jurisdiction on those terms. By contrast, tribunals that view MFN treatment of
dispute resolution as a question of whether and when claims are admissible, like
Maffezini, tend to be more open to extending the reach of MFN treatment to dispute
settlement. This understanding of the issue presents a lower hurdle as it is removed
from the foundational question of tribunal jurisdiction.52
50
Plama, para 200
51
Plama, para 223
52
While these two general approaches commonly frame the terms of the debate among commen-
tators, there are other ways to conceptualize the issue. Rather than emphasize the effect of favorable
procedures on the dispute resolution clause in the basic treaty, the focus might instead be on whether
an MFN clause can itself serve as a title to jurisdiction. The root issue would then be whether MFN
treatment can empower an investor to accept a host state’s consent to arbitration in a third-party
treaty. See Shill S (2015) Maffezini v. Plama: reflections on the jurisprudential schism in the
application of most-favored-nation clauses to matters of dispute settlement. Most-favored-nation
treatment: substantive protection. In: Kinnear M, Fischer GR, et al (eds) Building international
investment law: the first 50 years of ICSID. Kluwer, Alphen aan den Rijn pp 255–256
Presumptions about MFN Treatment of Dispute Resolution Procedures

Tribunals have considered various aspects of the application of MFN treatment to
dispute resolution. In Gas Natural v. Argentina, the tribunal suggested that a
presumption exists in favor of the application of MFN treatment to dispute settle-
ment, reasoning that:
[u]nless it appears clearly that the state parties to a BIT or the parties to a particular
investment agreement settled on a different method for resolution of disputes that may
arise, most-favored-nation provisions in BITs should be understood to be applicable to
dispute settlement.53
Other tribunals have reached the opposite conclusion. The tribunal in Daimler v.
Argentina, for example, refused to extend MFN treatment to dispute resolution
procedures because:
it seems more likely that the Contracting State Parties, acting as they were prior to Maffezini,
did not explicitly exclude international investor-State dispute resolution provisions from the
scope of the MFN clauses simply because they never considered such an invocation of the
clause to be possible.54
Tribunals in more recent cases have refused to apply presumptions as a matter of

interpretation. In Kiliç v. Turkmenistan, the tribunal reasoned that:
[t]he relevant provisions of the VCLT which concern the interpretation of treaties do not
indicate that there is to be a presumption one way or the other as to the reach of an MFN
clause. That depends on the ordinary meaning of the words used in their context and having
regard to the objects and purposes of the relevant treaty.55
MFN Treatment and Unfavorable Conditions of Dispute Resolution

Tribunals have also reached different conclusions about whether an investor that
benefits from a favorable provision of dispute resolution is bound to accept the
provision in its entirety, including procedural aspects that are less favorable than
those in the basic treaty. The tribunal in Siemens v. Argentina, for example, found
that the bad did not follow the good. The investor in that case, as in Maffezini, sought
to reduce the applicable waiting period before commencing arbitration. The third-
party treaty that the investor relied on for this purpose contained a shorter waiting
period but also a fork-in-the-road clause not found in the basic treaty. Argentina
contended that the investor had invoked the fork-in-the-road provision and thus
could not establish jurisdiction under the third-party treaty.
53
Gas Natural SDG v. The Argentine Republic, ICSID Case No. ARB/03/10, Decision on Prelim-
inary Questions on Jurisdiction (17 Jun 2005), para 49
54
Daimler Financial Services AG v. The Argentine Republic, ICSID Case No ARB/05/1, Award (22
Aug 2012), para 239
55
Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan, ICSID Case No
ARB/10/1, Award (2 Jul 2013), para 7.6.5
294 J. M. Claxton
The tribunal reasoned that the investor could benefit from the shorter waiting
period without being bound by the fork-in-the-road provision. It reasoned that
provisions for favorable treatment are independent of other provisions of third-
party treaties, including unfavorable conditions on dispute resolution, because the
operation of MFN provisions is limited to treatment that is favorable. The tribunal
also noted that the purpose of the treaty was “to create favourable conditions for
investments and to stimulate private initiative.”56
The opposite conclusion was reached by the tribunal in Hochtief v. Argentina. In
that case, the investor sought to avoid a waiting period for arbitration based on a
third-party treaty that also contained a fork-in-the-road provision. The tribunal
reasoned that:
[t]he MFN provision does not permit the selective picking of components from each set of
conditions, so as to manufacture a synthetic set of conditions to which no State’s nationals
would be entitled. The Claimant in this case cannot rely upon the lack of an 18-month
litigation period in the Argentina-Chile BIT and ignore the fact that Article 10(2) of the
Argentina-Chile BIT imposes a ‘fork in the road’ provision: it must rely upon the whole
scheme as set out in either Article 10 of the Argentina-Chile BIT or Article 10 of the
Argentina-Germany BIT.57
MFN Treatment to Change Arbitral Systems

Changes to arbitral systems by virtue of MFN treatment, considered in Plama, have
been at the center of some arbitral decisions. The tribunal in Garanti Koza v.
Turkmenistan allowed the claimant to initiate arbitration under ICSID rules by
reliance on MFN treatment even though the basic treaty limited recourse to arbitra-
tion under the rules of the United Nations Commission on International Trade Law
(UNCITRAL). The majority of the tribunal was not persuaded by Turkmenistan’s
argument that MFN treatment could not permit the investor to import consent to a
different arbitration system. It instead considered that consent was established in the
basic treaty, while the MFN clause empowered the investor to “displace”
UNCITRAL arbitration in the basic treaty with ICSID arbitration.58
The same issue arose against a more complex factual background in Venezuela
US v. Venezuela. In that case, the dispute resolution provision in the basic treaty
provided for UNCITRAL arbitration in the event that Venezuela did not become a
contracting State party to the ICSID Convention and “for any reason” if ICSID
proceedings under the Additional Facility were not available. Venezuela became a
contracting State to the ICSID Convention after the treaty was concluded but
denounced the convention before the arbitration was initiated. On these facts, the
majority of the tribunal found that UNCITRAL arbitration was possible because the
56
Siemens AG v. Argentina, Decision on Jurisdiction (3 Aug 2004), para 81, 120
57
Hochtief Aktiengesellschaft v. The Argentine Republic, ICSID Case No ARB/07/31, Decision on
Jurisdiction (24 Oct 2011), para 98
58
Garanti Koza LLP v. Turkmenistan, ICSID Case No ARB/11/20, Decision on the Objection to
Jurisdiction for Lack of Consent (3 Jul 2013), paras 73–74
MFN provision in the basic treaty entitled the investor to invoke UNCITRAL
arbitration under third-party treaties. In reaching this conclusion, the tribunal
rejected the Venezuela’s argument that its consent to arbitrate was withdrawn
when it denounced the ICSID Convention.59
Evolving Expressions of MFN Treatment in Treaties
The arbitral decisions considered in the previous section reveal tendencies among
tribunals applying MFN treatment. Arbitrators are generally more willing to permit
MFN treatment to improve standards of investment protection, for example, than to
permit MFN treatment to change provisions of dispute resolution or redefine the
meaning investors and investments in a treaty to establish jurisdiction. While the
divergences can be explained by differences in treaty language in some instances,
they are also animated by decisions of tribunals in previous cases and differing
conceptions about the proper role of MFN treatment.
The lack of coherence in tribunal decisions and the rise in the number of
investment disputes have led some States to delimit the scope of MFN clauses
with greater precision in investment instruments. This coincides with a broader
tendency to clarify the meaning of investment protections in treaties in order to
confine investor rights and State responsibilities while limiting interpretive prerog-
ative by arbitral tribunals.
Interpretive Declarations
The conclusion of a new treaty or revision of an existing treaty gives States an

opportunity to be more deliberate in their expression of MFN treatment and its limits.
Such opportunities are uncommon since treaties may be difficult to conclude and
amend. In the case of existing treaties, contracting States occasionally make joint
declarations about how provisions should be interpreted where amendment is not
possible.
Joint declarations of understating do not amend the language of treaties, and they
are not binding on tribunals that interpret the treaties unless the treaties so stipulate,
which is rarely the case. They are legally relevant, however, because the VCLT
provides that “[a]ny subsequent agreement between the parties regarding the inter-
pretation of the treaty or the application of its provisions” “shall be taken into
account.” This legal norm should ensure that the understanding of State parties
about the meaning of treaty provisions is considered in the interpretive process.
59
Venezuela US, SRL v. Bolivarian Republic of Venezuela, PCA Case No 2013-34,
Interim Award on Jurisdiction on the Respondent Objection to Jurisdiction Ratione Voluntatis (26
Jul 2016), paras 83–89
296 J. M. Claxton
Argentina and Panama made an interpretative declaration in an exchange of

diplomatic notes confirming that they never intended for the MFN clause in their
1996 BIT to cover dispute resolution.60 Likewise, India circulated “joint interpretive
notes” to 25 BIT partners seeking agreement that “the MFN obligation is not
intended to alter the Agreement’s substantive content by, for example, permitting
piecemeal incorporation of and reliance on provisions found in other treaties,
investment or otherwise.”61 Bangladesh and India signed an interpretive note incor-
porating this language in 2017.62
Circumscribing MFN Treatment
Precise treaty drafting ensures with greater certainty that the scope of treaty pro-
visions reflects the intentions of treaty parties. The many ways that States can delimit
the scope of investment treaty standards including MFN treatment have been the
subject of various publications including reports by UNCTAD.63
Limiting the Scope of the Subject Matter of MFN Treatment

One way that States limit the reach of MFN treatment is by excluding substantive
treatment standards from its scope. This can be achieved by defining the terms
“investor” and “investment” restrictively in investment treaties. States can also
include exceptions to MFN treatment for designated sectors, industries, or policies.
Article 4.2 of the BIT between Japan and Kazakhstan is illustrative:
The provisions of [MFN treatment] shall not apply to:
(a) matters related to the acquisition of land property;

(b) any treatment accorded by a Contracting Party to investors of a non-Contracting
Party and to their investments on the basis of reciprocity; and
(c) any preferential treatment resulting from the memberships of any bilateral and
multilateral international agreement involving protection of new varieties of
plants, aviation, fishery and maritime matters.64
60
Nat’l Grid PLC v. The Argentine Republic, UNCITRAL, Decision on Jurisdiction, (20 Jun 2006),
para 85
61
Investment Division of the Department of Economic Affairs of India’s Ministry of Finance, Office
Memorandum on Issuance of Joint Interpretative Statements for Indian Bilateral Investment
Treaties, (8 Feb 2016), Note 9(2)(a)
62
Joint Interpretative Notes on the Agreement between the Government of the Republic of India and
the Government of the People’s Republic of Bangladesh for the Promotion and Protection of
Investments (2 Oct 2017)
63
UNCTAD (2010, pp 102–114); UNCTAD (2015) Investment policy framework for sustainable
development, pp 115–119
64
Agreement between Japan and the Republic of Kazakhstan for the Promotion and Protection of
Investment, signed 23 Oct 2014
Article 131(3) of the free trade agreement between China and Peru provides
another example:
Notwithstanding [provisions of MFN treatment], the Parties reserve the right to
adopt or maintain any measure that accords differential treatment:
(a) to socially or economically disadvantaged minorities and ethnic groups; or

(b) involving cultural industries related to the production of books, magazines,
periodical publications, or printed or electronic newspapers and music scores.65
Excluding Pre-Investment Activity from the Scope of MFN Treatment

The broad language of MFN clauses may create uncertainty about the moment in the
life cycle of an investment that MFN treatment becomes effective. This has led some
States to clarify whether the pre-establishment phase of investments, including the
steps an investor takes to gain entry into the host State and to make its investment
operational, is subject to MFN treatment. Where MFN treatment extends to this
period, the host State loses the ability to regulate the admission of investments free of
the possibility of claims to MFN treatment.
The most common approach to exclude pre-investment activity is to separate the
admission of investments by a State from the operation of the investments. The
Mexico-United Kingdom BIT provides an example:
Article 2
Admission of Investments
1. Each Contracting Party Shall Admit Investments in Accordance with its Laws and
Regulations. . .
Article 4
National Treatment and Most-Favoured-Nation Provision. . .
2. Neither Contracting Party Shall in its Territory Subject Investors of the Other
Contracting Party, as Regards the Management, Maintenance, Use, Enjoyment or Disposal
of their Investments, to Treatment less Favourable than that which it Accords, in like
Circumstances, to its Own Investors or to Investors of any Third State66
Another approach is to define the types of activities that can benefit from MFN
treatment to exclude the pre-establishment phase of the investment. Article 4.2 of the
Mexico-United Kingdom BIT, reproduced above, provides an example of language
that is directed toward the treatment of investments after they have been established.
Article 2.4 of the Investment Protection Agreement between the European Union
and Vietnam provide another illustration:
65
Agreement Between the Government of the People’s Republic of China and the Government of
the Republic of Peru Concerning the Encouragement and Reciprocal Protection of Investments,
signed 9 Jun 1994
66
Agreement between the Government of the United Kingdom of Great Britain and Northern
Ireland and the Government of the United Mexican States for the Promotion and Reciprocal
Protection of Investments, signed 12 May 2006
298 J. M. Claxton
1. Each Party Shall Accord to Investors of the Other Party and to Covered Investments, with
Respect to the Operation of the Covered Investments, Treatment no less Favourable than the
Treatment it Accords, in like Situations, to Investors of a Third Country and their
Investments67
The Energy Charter Treaty, the most significant instrument for the promotion of
cooperation in the energy sector, takes a different approach by providing for a
separate treaty to cover pre-establishment investment activity in the text of the
basic treaty. Article 10(4) of Part III stipulates:
A supplementary treaty shall, subject to conditions to be laid down therein, oblige each party
thereto to accord to Investors of other parties, as regards the Making of Investments in its
Area, [MFN treatment].68
Clarifying “like Circumstances”

A number of treaties qualify MFN treatment with the language “in like circum-
stances” or “in similar situations” in order to explicitly narrow the scope of MFN
treatment. Many tribunals and commentators consider this condition to be implicit in
the grant of MFN treatment. There is nevertheless a risk that “like circumstances,”
express or implied, will be interpreted differently than the contracting States
intended. For this reason, some States have identified factors meant to guide the
assessment of whether like circumstances exist.
The Draft Pan-African Investment Code, the first continent-wide model invest-
ment treaty elaborated by the African Union, provides an example in Article 7:
3. The concept of “in like circumstances” requires an overall examination, on a case by-case
basis, of all the circumstances of an investment, including, among others:
(a) its effects on third persons and the local community;
(b) its effects on the local, regional or national environment, the health of the populations, or
on the global commons;
(c) the sector in which the investor is active;
(d) the aim of the measure in question;
(e) the regulatory process generally applied in relation to a measure in question;
(f) company size; and.
(g) other factors directly relating to the investment or investor in relation to the measure in
question.69
Requiring an Act of Favorable Treatment

Some investment instruments limit the reach of MFN treatment to actual instances of
discrimination while excluding the mere existence of favorable standards in outside
agreements from the scope of treatment. The investment and trade agreement
67
Investment Protection Agreement between the European Union and its Member States, of the one
part, and the Socialist Republic of Vietnam, of the other part, signed 30 Jun 2019
68
The Energy Charter Treaty (Annex 1 To The Final Act Of The European Energy Charter
Conference), signed 17 Dec 1994
69
Draft Pan-African Investment Code (2016)
between Canada and the European Union, for example, qualifies the scope of MFN
treatment in Article 8.7 of the Investment Chapter:
4. . . . Substantive obligations in other international investment treaties and other trade

agreements do not in themselves constitute ‘treatment,’ and thus cannot give rise to a breach
of this article, absent measures adopted or maintained by a party pursuant to those
obligations70
Limiting the Temporal and Territorial Scope of MFN Treatment

Some States have tailored MFN treatment by limiting its geographic scope and by
excluding treatment obligations based on instruments concluded before the basic
treaty was concluded. The 1996 BIT between Italy and Jordan, for example, pro-
vides an example of a territorial limitation in Article 3.1:
Both Contracting Parties, within the bounds of their own territory, shall grant investments
effected by, and the income accruing to, investors of the other Contracting Party no less
favourable treatment than that accorded to investments effected by, and income accruing to,
its own nationals or investors of Third States.71
An example of a temporal limit can be found in Article 4.5 of the investment

agreement between Iran and Slovakia:
[MFN treatment] shall not apply to . . . treatment by the Contracting Party under any bilateral
or multilateral international agreement in force or signed by the Contracting Party prior to the
date of entry into force of this Agreement. . .72
Excluding Dispute Resolution from the Scope of MFN Treatment

A number of States have excluded dispute resolution from the scope of MFN
treatment in response to disputes over the uncertainty of this application. Article 4(5)
of the BIT between Georgia and Switzerland is illustrative:
It is understood that the most-favoured nation treatment referred to. . . does not apply to
investment dispute resolution mechanisms provided by this agreement or by other interna-
tional agreements made by the Contracting Party concerned.73
The effect of such exclusions is naturally amplified when the instrument impli-
cates multiple States with large economies. The Comprehensive and Progressive
70
Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and
the European Union and its Member States, of the other part, signed 30 Oct 2016
71
Agreement between the Government of the Hashemite Kingdom of Jordan and the Government of
the Italian Republic on the promotion and protection of investments, signed 21 Jul 1996
72
Agreement between the Slovak Republic and the Islamic Republic of Iran for the Promotion and
Reciprocal Protection of Investments, signed 19 Jan 2016
73
Agreement between the Swiss Confederation and Georgia on the Promotion and Reciprocal
Protection of Investments, signed 3 Jun 2014
300 J. M. Claxton
Agreement for Trans-Pacific Partnership (CPTPP), among the largest agreements on

trade an investment, excludes dispute resolution from the scope of MFN treatment.
Article 9.5(3) of Chap. 9 provides:
For greater certainty, [MFN treatment] does not encompass international dispute resolution
procedures or mechanisms, such as those included in Section B (Investor-State Dispute
Settlement).74
Excluding MFN Treatment

A small number of States have decided to exclude MFN treatment in all forms in new
and amended investment instruments. Treaties concluded by Singapore with Jor-
dan75 and the EU76 are examples. The decision to exclude MFN treatment can also
be seen in model treaties used as a basis for treaty negotiations and sometimes as a
public pronouncement of State policy. The model bilateral investment treaty of the
Southern African Development Community, for example, was issued with a com-
mentary that recommends that MFN treatment be excluded from investment
treaties.77 The text of the Indian model bilateral investment treaty likewise does
not include MFN treatment.
Conclusion
The MFN treatment standard seeks to negate the effects of discrimination among
foreign investors. Encouraging fair competition should facilitate the international
flow of investment capital, technology, and management experience. At the same
time, the MFN standard tests the limits of what the international investment law
system will tolerate. MFN treatment breaks down borders between treaties and can
unsettle the balance struck in instruments that have been carefully negotiated. The
exercise of MFN treatment empowers investors with protections that were allocated
to others and can remove barriers to arbitration that were purposefully raised against
those very investors.
Disagreement about whether MFN treatment should extend to dispute resolution
provisions predominates discourse about the MFN treatment standard in the inter-
national investment law context. The conflict is largely a disagreement about the
nature of party consent, the existential lifeblood of arbitration. The use of MFN
treatment to improve access to arbitration is a remarkable permutation of a substan-
tive standard of protection. If the MFN treatment standard is understood as a source
of jurisdiction, consent to arbitrate derived from a third-party treaty by application of
74
Comprehensive and Progressive Agreement for Trans-Pacific Partnership, signed 8 Mar 2018
75
Bilateral Investment Treaty Between the Government of the Hashemite Kingdom of Jordan and
the Government of the Republic of Singapore, signed 16 May 2004
76
Investment Protection Agreement between the European Union and its Member States, of the one
part, and the Republic of Singapore, of the other part, signed 15 Oct 2018
77
SADC Model Bilateral Investment Treaty Template with Commentary (Jul 2012)
MFN treatment is twice removed from traditional notions of consent. The investor
invoking the standard benefits both from a standing State offer to arbitrate as well as
more favorable terms of consent.
More broadly, the operation of the MFN treatment standard offers a petri-dish
view of concerns about investor-State arbitration. Stakeholders worry, for example,
about the lack of coherence in arbitral decisions. The extension of MFN treatment to
dispute resolution has remained largely unsettled in tribunal decisions for more than
20 years. The application of MFN treatment to arbitration also offers a clear window,
in arbitral decisions and awards, on how past awards influence tribunals and how
treaty provisions are interpreted by tribunals. This is because the application of MFN
treatment to access to arbitration is novel, polarizing, and free of past doctrine that
might lead to easy solutions. The MFN standard is also a good lens through which to
evaluate arbitrator selection and conflicts. Arbitrators have been chosen and chal-
lenged based on their views about MFN treatment and access to arbitration.
Cross-References
▶ Full Protection and Security and Its Overlap with Fair and Equitable Treatment
▶ The Umbrella Revolution: State Contracts and Umbrella Clauses in Contemporary
Investment Law
▶ Walking the SADC Protocol on Finance and Investment Protocol Route: Of the
Fork in the Road and Exhausting Domestic Remedies
The MFN Clause in Investment Law and
Arbitration: A Developing Countries 12
Perspective
Tanjina Sharmin
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
Operation of MFN in IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
MFN Experience of the Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Application of MFN to Substantive Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
Application of MFN to Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
MFN Reforms by the Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320
Illustrations of MFN Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
Reasons Behind the Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331
Can Narrow or no MFN Hamper the Interest of the Developing Countries? . . . . . . . . . . . . . . 332
Can the Recent Reforms Restore Trust in Investor-State Arbitral Tribunals? . . . . . . . . . . . . . 335
Responsibilities Associated with the Greater Regulatory Power . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
Abstract
Application of the most-favored-nation (MFN) clauses by investor-State arbi-
tral tribunals has given rise to various controversies. This chapter discusses the
experience of developing countries in this regard. While application of MFN to
the substantive and procedural standards in International Investment Agree-
ments (IIAs) has overly benefited investors from the developed countries, such
application has not been favorable to the developing host-States. Accordingly,
some developing countries have undertaken significant MFN reforms in their
recent IIAs. This chapter illustrates such reforms with reference to the specific
reforms undertaken by Argentina, India, and the Southern African Development
T. Sharmin (*)
Faculty of Law, Monash University, Monash, VIC, Australia
e-mail: tanjina.sharmin@monash.edu; tanjina00@gmail.com

https://doi.org/10.1007/978-981-13-3615-7_92
304 T. Sharmin
Community. The chapter argues that while restraining the scope of MFN clauses
may help the developing countries to preserve greater regulatory power in their
hands, complete omission of MFN from IIAs may be discouraging for the
foreign investors. Therefore, the developing countries should aim to maintain
a balance in reforming MFN in the future.
Keywords
MFN · Reforms · Developing countries · Investor-State arbitration
Introduction
Most-favored-nation (MFN) clauses have been included in International Investment

Agreements (IIAs) as a regular feature.1 MFN is supposed to protect investors from
any discriminatory treatment accorded by the host-State based on the nationality of
investors.2 In course of the proliferation of investor-State arbitration, MFN clauses
have been invoked by investors against various host-States in at least 97 cases.3 Some
investor-State arbitral tribunals have applied MFN extensively to accord investors
more favorable substantive and procedural benefits, while such application of MFN
was rejected by others.4 Application and rejection of MFN by the arbitral tribunals
1
MFN has regularly appeared in both the recent and older generation IIAs. However, a few States
are excluding MFN entirely from their recent IIAs. For example, India has excluded MFN from the
2015 Indian Model BIT as well as from the Treaty Between the Republic of Belarus and the Republic
of India on Investments (Belarus-India BIT), signed on 24 September 2018.
2
However, MFN and equal treatment are not exactly interchangeable concepts. In the context of
International Investment Law, MFN essentially ensures treatment to be accorded to the beneficiary
of the MFN which is no less favorable than that accorded to investors from any other State. On this
point, see the International Law Commission (ILC) (1978) Draft articles on MFN with commen-
taries. In: Yearbook of the International Law Commission, vol II, Part 2, Articles 4 and 5, at 16–73,
at 23. The ILC commented as follows:
[A]lthough a most-favoured-nation pledge does not oblige the granting state to accord to the
beneficiary state treatment more favourable than that extended to the third state, it does not
exclude the possibility that the granting state may accord to the beneficiary state treatment
more favourable than that extended to the third state, it does not exclude the possibility that
the granting state may accord to the beneficiary state additional advantages beyond those
extended to the most-favoured third state.
3
As it is demonstrated on the website of UNCTAD. Policy hub. https://investmentpolicyhubold.
unctad.org/ISDS/FilterByBreaches. Last visited on 28 May 2019.
4
For an example of the extensive application of MFN to substantive benefits, see the observation of
the Annulment Committee in MTD Equity Sdn Bhd. & MTD Chile S.A. v Republic of Chile (MTD v
Chile), ICSID Case No. ARB/01/7, Decision on Annulment, dated 21 March 2007, para 64. The
Annulment Committee observed that MFN can apply unconditionally to any more favorable
treatment. For an example of the extensive application of MFN to dispute settlement, see Siemens
A.G. v The Argentine Republic (Siemens v Argentina), ICSID Case No. ARB/02/8, Decision on
12 The MFN Clause in Investment Law and Arbitration: A Developing. . . 305
have given rise to many controversies regarding the scope of MFN in IIAs. Issues have
arisen whether MFN should apply only to substantive benefits or to dispute settlement
matters as well5; whether MFN can be applied to import entirely new substantive
benefits from other IIAs signed by the host-State not otherwise included in the basic
IIA6; and whether MFN should be applied to extend the jurisdiction of arbitral
tribunals.7 In the above context, some States have reformed MFN clauses in their
recent IIAs mainly by narrowing the scope of MFN.8 Although MFN reforms have
been undertaken by both the developed and developing countries,9 this chapter
examines and evaluates how the developing countries are dealing with the issues
related to MFN in IIAs.10 This chapter has six sections. Section “Introduction”
introduces the topic. Section “Operation of MFN in IIAs” explains how MFN operates
Jurisdiction, dated 3 August 2004, supra note 4, para 84–85. The Siemens tribunal observed that the
terms, “treatment no less favorable” are broad enough to include dispute settlement. However,
application of MFN to substantive as well as dispute settlement has been rejected in some cases.
For example, in Metal–Tech Ltd v Republic of Uzbekistan, (ICSID Case No. ARB/10/3, Award, 4
October 2013), para, 145, the tribunal rejected the application of MFN to import more favorable
definition of investments from other IIAs. Also see Wintershall Aktiengesellschaft v the Argentine
Republic (Wintershall v Argentina), ICSID Case No. ARB/04/14, Award, dated 8 December 2008,
paras 169–175. The Wintershall tribunal rejected to apply MFN to dispute settlement.
5
For example, the issue arose in White Industries Australia Limited v The Republic of India (White
Industries v India), UNCITRAL, Final Award, dated 20 November 2011, paras 11.2.1, 11.2.2,
5.4.1–5.4.4. The White Industries tribunal explicitly observed that there are controversies about the
scope of MFN to dispute settlement matters; however, there was no such controversy regarding the
scope of MFN to substantive benefits.
6
For example, invocation of MFN to import entirely new substantive benefits not otherwise
included in the basic IIA failed in Ickale Insaat Limited Sirketi v Turkmenistan (Ickale v Turkmen-
istan), ICSID Case No. ARB/10/24, Award, dated 8 March 2016, para 329. However, such a claim
succeeded in White Industries v India, ibid.; in this context, basic IIA means the IIA relied upon by
the claimant to commence arbitration.
7
Application of MFN to extend arbitral jurisdiction failed in Salini Costruttori S.P. A. and Italsrade
S.p.A. v The Hashemite Kingdom of Jordan (Salini v Jordan), ICSID Case No. ARB/02/13,
Decision on Jurisdiction, 9 November 2004. However, such a claim succeeded in Garanti Koza
LLP v Turkmenistan (Garanti Koza v Turkmenistan), ICSID Case No. ARB/11/20, Decision on the
Objection to Jurisdiction for Lack of Consent, 3 July 2013, Majority Decision.
8
For an example, see Article 8.7 of the Investment Chapter in the 2016 Comprehensive Economic
Trade Agreement between the European Union and Canada (CETA). This provision explicitly
limits the operation of MFN in “like situations” and excludes Investor-State Dispute Settlement
from the scope of the clauses. On EU treaty practice with respect to pre- and post-establishment
rights, see Chaisse J (2012) Promises and pitfalls of the European Union policy on foreign
investment – how will the new EU competence on FDI affect the emerging global regime. J Int
Econ Law 15(1):51–84.
9
For an example of MFN reform by the developed countries, see ibid., 2016, CETA. For an example
of MFN reform by the developing countries, see omission of MFN from the recent IIAs by India
mentioned in supra note 1.
10
For the identification of developing economies and economies in transition, this chapter has relied on
the UNCTAD Statistics (2019) Development status group and composition. https://unctadstat.unctad.
org/EN/Classifications/DimCountries_DevelopmentStatus_Hierarchy.pdf. Last visited on 28 May 2019
306 T. Sharmin
in IIAs. Section “MFN Experience of the Developing Countries” discusses the

experience of the developing countries regarding the application of MFN to substan-
tive and dispute settlement issues. Section “MFN Reforms by the Developing Coun-
tries” examines recent MFN reforms undertaken by some developing countries.
Section “Evaluation” evaluates the reforms, and section “Conclusion” concludes the
chapter.
Operation of MFN in IIAs
According to the definition given by International Law Commission, in the 1978

Draft Articles on MFN, MFN is a treatment provided by the granting State to the
beneficiary State or to the persons or things from the beneficiary State no less
favorable than that is provided by the granting State to any other State.11 As treaty
provisions, the scope and operation of MFN clauses in IIAs depend on the precise
drafting of the clause.12 However, it is often perceived by some scholars that unless
otherwise explicitly mentioned in the clause itself, IIA MFN clauses may succeed
to import any more favorably drafted provision from other IIAs signed by the host-
State be that substantive, procedural, or jurisdictional. MFN is perceived as an
instrument for creating a level playing field for foreign investors from different
countries.13 For example, Schill has argued that MFN in IIAs is an instrument of
multi-lateralizing IIA frameworks although the present IIA framework is dominated
by bilateral investment treaties. Therefore, MFN has huge power to multi-lateralize IIA
provisions generally.14 However, there are contrary views. For example, Douglas has
argued that MFN should not apply to dispute settlement because there is a fundamental
11
ILC, Draft Articles on MFN, supra note 2, Articles 4 and 5.
12
Ibid., Article 7. Article 7 of the ILC Draft Articles on MFN provides that MFN is not a principle of
customary international law. Therefore, the scope of MFN clauses in IIAs would depend on the
drafting of the clause. Also there is a general consensus among the arbitral tribunals that as treaty
provisions, IIA MFN clauses should be interpreted by Articles 31 and 32 of the Vienna Convention on
the Law of Treaties (VCLT), signed on 23 May 1969, United Nations Treaty Series, Vol. 1155–18232.
For example, see the arbitral decision in National Grid PLC v The Argentine Republic (National Grid
v Argentina), (UNCITRAL) Decision on Jurisdiction, 20 June 2006, para 80. The National Grid
tribunal affirmed that as a treaty provision, MFN should be interpreted by the VCLT provisions.
13
Schill SW (2010) Multi-lateralization through most-favoured nation treatment. In: The multi-
lateralization of international investment law. Cambridge University Press, pp 121–196. Schill has
argued that MFN:
clauses break with general international law and its bilateralist rationale that, in principle, permits
States to accord differential treatment to different States and their nationals, and instead ensure
equal treatment between the State benefiting from MFN treatment and any third State.
14
Ibid., pp. 121–196; Schill has argued the same in Schill SW (2009) Multilateralizing investment
treaties through most-favoured-nation clauses. Berkeley J Int Law 27:496–506. In this work also, the
role of MFN to multi-lateralize substantive as well as dispute settlement matters in IIAs has been
emphasised.
distinction between substantive obligations and the provisions creating jurisdictional

mandate for an international tribunal contemplated in investment treaties.15 Batifort and
Heath have argued that comparison of like circumstances prevailing between the
claimant of MFN and comparator investors is a precondition for the application of
MFN, and therefore, the power of MFN to import any benefit from other IIAs is not
universal.16
Mainly, there are two authorities that essentially determine application of MFN
clauses in IIAs. First, the host-State is primarily responsible to ensure that foreign
investors are receiving treatment no less favorable. How would the host-States
ensure observance of MFN should naturally depend on the mechanism they follow
to implement their IIA commitments in the domestic regulatory and other relevant
frameworks applicable to foreign investors. Second, if the host-State fails to accord
MFN to investors giving rise to an investment dispute, investors may take recourse
to the dispute settlement mechanisms agreed in the IIA. Most IIAs allow investors to
invoke MFN in investor-State arbitration.17 In that situation, investor-State arbitral
tribunals would need to determine the application of MFN in IIAs. Since MFN is
an obligation for the host-States but a privilege for the investors, any successful
application of MFN by investor-State arbitral tribunals benefits the investors.
How the host-States generally ensure observance of MFN in their domestic and
other relevant regulatory frameworks is a vast topic and not feasible to be accommo-
dated within the limited scope of this chapter. Instead, the rest of this chapter will explore
the experience of the developing countries regarding application of MFN by investor-
State arbitral tribunals and any corresponding MFN reform undertaken by them.
MFN Experience of the Developing Countries
This section will discuss the experience of developing countries regarding the
application of MFN by investor-State arbitral tribunals. However, as it is discussed
in the previous section that any successful application of MFN benefits the investors
15
Douglas Z (2011) The MFN clause in investment arbitration: treaty interpretation off the rails.
J Int Dispute Settl 2:97–113
16
Batifort S, Heath JB (2017) The new debate on the interpretation of MFN clauses in investment
treaties: putting the brakes on multilateralization. Am J Int Law 111(4):873–913
17
Whether investors would be able to invoke breach of an IIA MFN in an investor-State arbitral
proceeding depends on two factors: first, whether the IIA includes an MFN clause and, second,
whether the IIA allows investor-State arbitration as a means of dispute settlement. There are
examples of IIAs not allowing investor-State arbitration but including MFN. In that situation, it is
likely that the adjudicatory body that would be determining the application of MFN would be any
other forum agreed by the IIA parties which may sometimes be the domestic court of the host-State
because investment activities are most likely to be undertaken in the territory of the host-State where
the cause of action may arise. For an example of IIA containing no investor-State arbitration clause
but MFN, see, The Australia-United States Free Trade Agreement, signed on 18 May 2004 (entry
into force on 1 January 2005), Investment Chapter. Article 11.4 contains an MFN provision.
However, the Investment Chapter does not contain any investor-State arbitration clause.
308 T. Sharmin
and places obligations on the host-States, it is necessary to examine whether the

developing countries are presently playing the predominant role of capital importers
or capital exporters in their investment relationships.18 The first IIA was signed in
1959.19 In the initial phase of the evolution of IIAs, the developing countries
predominantly used to be the capital importers, while the developed countries used
to be the capital exporters.20 However, recently, the developing countries are not
only importing but also exporting capital to the developed and developing coun-
tries.21 According to a survey by UNCTAD, during 2016–2017, among the top 20
home economies based on the total amount of foreign direct investment (FDI) outflows,
eight economies belong to the group of developing countries, and the rest 12 were
developed countries.22 On the other hand, among the top 20 host economies, nine
countries belong to the group of developing and transitional economies, and the rest 11
were developed countries.23 The survey demonstrates that presently developing coun-
tries are not only importing but also exporting a significant amount of FDI capital. In the
above context, it is curious to investigate whether application of MFN in IIAs by
investor-State arbitral tribunals has evenly benefited the developing and developed
countries. The following discussion will investigate the issue under two parts. Part A
will discuss the experience of developing countries regarding application of MFN to the
18
The present framework of IIAs is dominated by bilateral investment treaties (BITs). In bilateral
investment relationships, each State party is likely to play both the roles of capital importers and
exporters to a certain extent, despite that, naturally, the predominant role of any State would mainly
depend (amongst others) on the availability of capital to export outward. Therefore, whether the
developing countries would be benefited by the extensive application of MFN should to a certain
extent depend on their predominant role as capital exporters or capital importers. Such a calculation
is generally made by the States while signing IIAs. For more details on this, see, Sharmin T (2017)
Should the MFN within IIAs exclude dispute settlement: an evaluation of the Australian approach.
Aust Yearb Int Law 35:123.
19
Treaty between the Federal Republic of Germany and Pakistan for the Promotion and Protection
of Investments (Germany-Pakistan BIT), signed on 25 November 1959 (entry into force on 28 April
1962).
20
UNCTAD WIR (2006) FDI from developing and transition economies: implications for devel-
opment. In: World investment report, p 7. https://unctad.org/en/Docs/wir2006_en.pdf. Accessed 7
July 2019. For more specific facts and figures relating to the amount of foreign direct investment
exported by the developing and developed countries in the course of evolution of IIAs from the
1960s to the 2000s, also see Congyan C (2007) Change of the structure of international investment
and the development of developing countries’ BIT practice-towards a third way of BIT practice.
J World Invest Trade 8:829. Based on a number of UNCTAD reports, Congyan has argued that
although developing countries are no longer pure capital importers presently, they still need to
import capital from the developed countries. This need should prompt IIA drafting in a way which
should support the development needs of the developing countries instead of drafting IIA provisions
in purely conservative or liberal ways.
21
UNCTAD (2018a) World investment report, pp 4–5. https://unctad.org/en/PublicationsLibrary/
wir2018_overview_en.pdf. Accessed 7 July 2019; also see Congyan, ibid.
22
Ibid.
23
UNCTAD WIR (2018a) supra note 21.
substantive standards included in IIAs.24 Part B will discuss their experience regarding
application of MFN to dispute settlement matters agreed in IIAs.25
Application of MFN to Substantive Standards
Until the end of 2018, in at least ten cases, application of MFN to substantive treatment
standards has been succeeded.26 An investor from Malaysia successfully invoked
24
This chapter uses the terms “substantive standards” to mean the material protections accorded by
IIAs. The terms were used in this sense in Vladimir Berschader v Russia, Arbitration Institute of the
Stockholm Chamber of Commerce, Case No 080/2004, Award, dated 21 April 2006) at para 179;
IIA substantive standards generally include fair and equitable treatment (FET), MFN, national
treatment (NT), full protection and securities, protection from expropriation, and umbrella clauses.
For more on this, see Giest A (2017) Interpreting public interest provisions in international
investment treaties. Chic J Int Law 18(321):326–327.
25
So far, MFN has been applied to dispute settlement in two ways: first, to bypass the procedural
prerequisite of domestic litigation before arbitration required by IIA dispute settlement clauses;
second, to extend jurisdiction of arbitral tribunals. Accordingly, this chapter uses the terms “dispute
settlement matters” to include both the abovementioned issues. For an example of application of
MFN to bypass procedural prerequisites to arbitration, see Emilio Agustin Maffezini v The Kingdom
of Spain, ICSID Case No ARB/97/7, (Decision on Objections to Jurisdiction) dated 25 January
2000. For an example of application of MFN to extend jurisdiction of arbitral tribunals, see
RosInvest Co UK Ltd v Russia (Final Award) (Arbitration Institute of the Stockholm Chamber of
Commerce Case No 079/2005, 12 September 2010).
26
The cases are identified by an extensive research undertaken by this author based on the
UNCTAD, ITALAW, and ICSID websites. The list does not include any pending case. Instead, it
includes cases in which a decision has been rendered about the application of MFN. The cases are as
follows: MTD v Chile, supra note 4; EDF International S.A. v Saur International S.A. and Leon
Participaciones Argentinas S.A. v Argentina Republic (EDF v Argentina), ICSID Case No. ARB/
03/23, Award, dated 11 June 2012; White Industries v India, supra note 5; Bayindir Insaat Turizm
Ticaret ve Sanayi A.S. v Islaimc Republic of Pakistan (Bayindir v Pakistan), ICSID Case No. ARB/
03/29, Award, dated 27 August 2009; Hesham Talaat M. Al-Warraq v The Republic of Indonesia
(Al-Warraq v Indonesia), UNCITRAL, Final Award (15 December 2014); Rumeli Telekom A.S. and
Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan (Rumeli Telekom and
Telsim Mobil v Kazakhstan), ICSID Case No. ARB/05/16, Award, dated 29 July 2008; Sergei
Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of
Mongolia (Sergei Paushok V Mongolia), UNCITRAL, Award on Jurisdiction and Liability, dated
28 April 2011; Mr. Franck Charles Arif v Republic of Moldova (Franck Charles Arif v Moldova),
ICSID Case No. ARB/11/23, Award, dated 8 April 2013; OAO Tatneft v. Ukraine, UNCITRAL,
Award on Merits, dated 29 July 2014; and L.E.S.I. S.p.A. and ASTALDI S.p.A. v. République
Algérienne Démocratique et Populaire, ICSID Case No. ARB/05/3, Award, dated 12 November
2008. However, Batifort and Heath, supra note 16, identified total 12 cases in which MFN
succeeded to import more favorable substantive benefits. Their list includes all ten cases listed
above. However, Batifort and Heath mentioned one more case, namely, ATA Construction, Indus-
trial and Trading Company v The Hashemite Kingdom of Jordan (ATA Construction v Jordan),
(ICSID Case No. ARB/08/2, Award dated 18 May 2010). This author has found that in ATA
Construction v Jordan, the MFN-based claim remained undecided. The list of Batifort and Heath
also includes Teinver S.A., Transportes de Cercanias S.A. and Autobuses Urbanos del Sur S.A. v
The Argentine Republic (Teinver v Argentina), ICSID Case No. ARB/09/1, Decision on
310 T. Sharmin
application of MFN to a substantive benefit in a claim against Chile in MTD v Chile.27 A

similar claim by a Russian investor against the government of Mongolia succeeded in
Sergei Paushok v Mongolia.28 Such a claim by a Spanish investor against the Argentine
government succeeded in Teinver v Argentina.29 The claim by investors from France
and Luxembourg against Argentina to apply MFN to substantive benefit succeeded in
EDF v Argentina.30 The same claim by an investor from Australia against the govern-
ment of India succeeded in White Industries v India.31 A Turkish investor succeeded to
claim the same against the government of Pakistan in Bayindir v Pakistan.32 In Al-
Warraq v Indonesia, an investor from Saudi Arabia succeeded its claim against the
government of Indonesia to apply MFN to substantive benefit.33 In Rumeli Telecom and
Telsim Mobil v Kazakhstan,34 two Turkish investors successfully claimed application of
MFN to substantive benefits against Kazakhstan. In Mr. Franck Charles Arif v Republic
of Moldova, such a claim by a French investor succeeded against the government of
Moldova.35 Lastly, the claim by a Russian investor for the application of MFN to
substantive benefit against the government of Ukraine succeeded in OAO Tatneft v
Ukraine.36 Thus, application of MFN to substantive benefit has benefited investors from
Malaysia (in one case), Russia (in two cases), Spain (in one case), France (in two cases),
Luxembourg (in one case), Australia (in one case), Turkey (in two cases), and Saudi
Arabia (in one case).
As of 2018, Malaysia, Argentina, Mongolia, Chile, Indonesia, Turkey, and Saudi
Arabia are listed by UNCTAD as developing economies, while Russia, Ukraine,
Moldova, and Kazakhstan are listed as transition economies.37 On the other hand,
Spain, France, Luxembourg, and Australia are listed as developed economies.38
Investors from four developing and transition economies, namely, Malaysia, Turkey,
Saudi Arabia, and Russia, have succeeded to apply MFN to substantive standards.39
Also, investors from four developed economies, namely, Spain, France,
Jurisdiction, dated 21 December 2012. However, this author has found that application of MFN in
the Teinver case is more relevant in the context of dispute settlement.
27
MTD v Chile, supra note 4.
28
Sergei Paushok, v. Mongolia, supra note 26.
29
Teinver v Argentina, supra note 26.
30
EDF v Argentina, supra note 26.
31
White Industries v India, supra note 26.
32
Bayindir v Pakistan, supra note 26.
33
Al-Warraq v Indonesia, supra note 26.
34
Rumeli Telekom and Telsim Mobil v Kazakhstan, supra note 26.
35
Franck Charles Arif v Moldova, supra note 26.
36
OAO Tatneft v. Ukraine, UNCITRAL, Award on Merits, supra note 26.
37
UNCTAD, Statistics, supra note 10.
38
Ibid.
39
Although, politically, Russia appears to be a super power, it is listed as a transition economy by
UNCTAD in its statistics, supra note 10. According to the World Bank, as of 2018, Russia is a
middle-income country. For more details, see https://dental.washington.edu/wp-content/media/
research/WorldBank_EconomyRanks_2018.pdf
Luxembourg, and Australia, have succeeded to apply MFN to substantive standards.

A total number of nine host-States against whom the claim has succeeded are Chile,
Mongolia, Argentina, India, Pakistan, Indonesia, Kazakhstan, Moldova, and
Ukraine. All these nine host-States belong to the category of developing or transition
economies.
The experience of the developing host-States regarding application of MFN to
substantive IIA standards can be illustrated in more detail by a discussion on the
arbitral decision in White Industries Australia v India.40 This case was commenced
by an Australian investor called White Industries against the government of India. In
the late 1980s, White Industries invested in an Indian entity called Coal India. An
investment dispute arose between White Industries and Coal India which was
resolved by an ICC tribunal with an award in favor of White Industries in 2002.41
Coal India commenced proceeding in the domestic court of India for setting aside the
arbitral award in 2002. The domestic courts in India failed to reach to a conclusive
decision on this issue, and the enforcement of the arbitral award remained pending.
White Industries waited until 2010 for a decision from the domestic courts of India.
In 2010, White Industries commenced another arbitral proceeding under the 1999
Australia-India BIT,42 challenging a delay of 9 years by the Indian courts to enforce
the previous arbitral award given by another arbitral tribunal in 2002.43 In the new
arbitral proceeding, White Industries argued that a delay of 9 years by the Indian
courts resulted in a denial of its access to any effective means of asserting investment
claims.44 However, the 1999 Australia-India BIT did not contain any substantive
provision guaranteeing effective means of asserting investment claims. Therefore,
White Industries invoked the MFN clause in the 1999 Australia-India BIT, to import
such a provision from Article 4(5) of the 2001 India-Kuwait BIT.45 The MFN clause
in the 1999 Australia-India BIT provided as follows:
1. Each Contracting Party shall, subject to its laws, regulations and investment
policies, grant to investments made in its territory by investors of the other
Contracting Party treatment no less favourable than that which it accords to
investments of its own investors.
40
41
Ibid., paras 3.2.29–3.2.26.
42
White Industries v India, supra note 5; Agreement between the Government of Australia and the
Government of the Republic of India on the Promotion and Protection of Investments (Australia-
India BIT), signed on 26 February 1999, (entry into force on 4 May 2000), (unilaterally denounced
by India on 23 March 2017).
43
Ibid., White Industries v India, para 2.1.1.
44
Ibid., para 4.4.5. The claimant cited the quote from, Chevron Corporation and Texaco Petroleum
Company v The Republic of Ecuador, PCA Case No. 34877, Partial Award on Merits, dated 30
March 2010.
45
Agreement between the State of Kuwait and the Republic of India for the Encouragement and
Reciprocal Protection of Investment (India-Kuwait BIT), signed on 27 November 2001, (entry into
force on 28 June 2006).
312 T. Sharmin
2. A Contracting Party shall at all times treat investments in its own territory on a
basis no less favourable than that accorded to investments of investors of any
third country.
3. In addition each Contracting Party shall accord to investors of the other
Contracting Party treatment, with respect to the management, maintenance, use,
enjoyment or disposal of investments, which shall not be less favourable than that
accorded to investors of any third state.
4. This Article shall not require a Contracting Party to extend to investments any
treatment, preference or privilege resulting from:
(a) any customs union, economic union, free trade area or regional economic
integration agreement to which the Contracting Party belongs; or
(b) the provisions of a double taxation agreement with a third country; or
(c) any legislation relating wholly or mainly to taxation.46
India protested such application of MFN as that could undermine the carefully
negotiated balance of the 1998 Australia-India BIT.47 The essence of India’s argu-
ment was that by including MFN in a bilateral treaty, it did not intend that investors
would be able to import any more favorably drafted provision from any other
investment treaty signed by India since each investment treaty constituted a separate
deal reached by specific negotiation between the treaty parties. However, the tribunal
held that the MFN in the Australia-India BIT could apply to import more favorable
provision from the India-Kuwait BIT. The tribunal explicitly observed that applica-
tion of MFN to dispute settlement provisions may encounter certain limitations;
however, since in this case, MFN was invoked to import a more favorable substan-
tive provision, application of MFN in this case would help to achieve the intended
result that MFN in an IIA is supposed to achieve.48 The tribunal thus rendered its
decision based on a presumption that IIA parties include MFN with an intention that
MFN would apply to import any more favorable substantive provision from any
other IIA signed by the host-State. Also, the tribunal did not compare whether the
investors protected under the India-Kuwait BIT and Australia-India BIT were in a
comparable like circumstances or not. In the opinion of International Law Commis-
sion, MFN provisions need to be interpreted in accordance with the ejusdem generis
principle of interpretation which requires to an arbitral tribunal to examine whether
the claimant and comparator investors are in like circumstances for the application of
MFN. Thus, application of MFN in this case benefited White Industries, an investor
from a developed country, while the decision was unfavorable to India, a developing
host-State. India’s reaction to this decision will be discussed more in section
“Reform by India.”
The White Industries decision seems to have given rise to another issue as to
whether MFN clauses in IIAs may import more favorable treatment standards
46
Australia-India BIT, supra note 42, Article 4.
47
White Industries v India, supra note 5, paras 5.4.1–5.4.4.
48
Ibid., para 11.2.4.
automatically. The question then arises as to whether MFN is supposed to be an

automatic instrument or remains subject to conditions negotiated and agreed by the
IIA parties. MFN obligation in general does not arise from the customary interna-
tional law.49 Accordingly, MFN clauses are by default negotiated instruments and
are included in international treaties as agreed by the treaty parties.50 Whether any
particular MFN clause would confer its benefit automatically, should depend on the
precise drafting of the clause in any treaty. Some scholars have commented that
MFN clauses in the context of modern International Trade Law may function as
automatic instruments.51 However, no IIA MFN clause has so far explicitly pro-
claimed to be automatic.52 Notably, the operation of MFN in the trade and invest-
ment regimes is not exactly the same.53 Some previous research have convincingly
demonstrated that while MFN in the trade law regime applies to quantifiable benefits
such as tariffs, potential benefits covered by MFN in the investment law regime are
not quantifiable as such.54 Instead, extensive application of MFN in the investment
law regime may significantly reduce the regulatory power of the host-States over
foreign investors.55 Therefore, applying MFN in IIAs as an automatic instrument for
importing more favorable advantages seems problematic unless otherwise explicitly
agreed by the IIA parties.
Another example of the successful application of MFN to substantive IIA stan-
dards can be found in Sergei Paushok v Mongolia.56 This arbitration was com-
menced by the claimants, Mr. Sergei Paushok, a Russian national, CJSC Golden East
Company, and CJSC Vostokneftegaz Company incorporated in Russia.57 The claim-
ants invested in the gold mining sector of Mongolia.58 The claimants, directly or
49
The ILC, the 1978 Draft Articles with Commentaries, supra note 2, Articles 7–8.
50
Ibid., Article 8.
51
Nikiema SH (2017) The most-favoured-nation clauses in investment treaties. International Insti-
tute for Sustainable Development, p 2. https://www.iisd.org/sites/default/files/publications/mfn-
most-favoured-nation-clause-best-practices-en.pdf. Accessed 7 July 2019. Nikiema explained as
to why and how MFN in the trade law regime is perceived as unconditional and automatic
obligation. Referring to the operation of MFN in the World Trade Organization, Nikieman
commented as follows:
MFN is said to be unconditional in WTO because there is no obligation of reciprocity. In

practice, when an advantage is granted by one member state, it has to be automatically and
unconditionally extended to similar products of other WTO member states.
52
Batifort and Heath, supra note 16 at 887.
53
Kurtz J (2004) The MFN standard and foreign investment: an uneasy fit. J World Invest Trade
5:861
54
Ibid., pp. 867–868.
55
Kurtz, supra note 53. Kurtz commented that investment measures would normally comprise part
of the vast universe of regulatory options open to the host-States.
56
Sergei Paushok V Mongolia, supra note 26.
57
Ibid., p. 1, paras 1–9.
58
Sergei Paushok V Mongolia, supra note 26, p. 1, para 6.
314 T. Sharmin
indirectly, owned 100% shares of KOO Golden East Mongolia (GEM), a gold
mining company incorporated in Mongolia.59 During 2006–2008, the Mongolian
Tax Authority undertook some tax enforcement measures against GEM as it failed to
pay all outstanding tax as assessed by the Mongolian Tax Authority.60 The tax
enforcement measures damaged the investments of the claimants. Accordingly, the
claimants commenced the present proceeding under the 1995 Mongolia-Russian
Federation BIT.61 The claimants alleged a breach of the FET provision contained in
Article 3(1) of the basic treaty. Mongolia argued that the FET clause was drafted in a
restrictive language which could only apply to claims related to the operation and
disposal of investments. Since the claim by the claimant was related to the tax
enforcement measures and not related to the operation and disposal of investments as
such, Mongolia argued that the FET-based claim was not well-founded. In reply, the
claimants invoked the basic BIT MFN provision in Article 3(2) of the treaty to
import broader FET provisions in Article 2(2) of the US-Mongolia BIT,62 and Article
3(3) of the Denmark-Mongolia BIT.63 The basic BIT did not include MFN as an
independent standard; instead, it was included to qualify the FET provision. The
tribunal held that the basic BIT MFN allowed for “the integration into it of the
broader provisions contained in the US-Mongolia BIT and Denmark-Mongolia
BIT.”64
Furthermore, the claimants invoked the basic BIT MFN clause to import umbrella
clauses in Article 2(3) of the Denmark-Mongolia BIT65 and 2(2) of the UK-Mongo-
lia BIT.66 The basic BIT did not have any umbrella clause. Mongolia argued that
MFN cannot import an entirely new obligation which is not included in the basic
treaty otherwise.67 The tribunal rejected the application of MFN to import umbrella
59
Ibid.
60
Sergei Paushok v Mongolia, supra note 26, pp. 15–28.
61
Agreement between the Government of the Russian Federation and the Government of Mongolia
About Encouragement and Mutual Protection of Investment (Mongolia-Russian Federation BIT)
(The title is originally in Russian, translated by this Author), signed on 29 November 1995, (entry
into force on 26 February 2006).
62
Treaty between the United States of America and Mongolia Concerning the Encouragement and
Reciprocal Protection of Investment (US-Mongolia BIT), signed on 6 October 1994, (entry into
force on 13 December 2001).
63
Sergei Paushok v Mongolia, supra note 26, p. 43, para 242; Agreement between the Government
of Mongolia and the Government of the Kingdom of Denmark Concerning the Promotion and
Reciprocal Protection of Investments (Denmark-Mongolia BIT), signed on 13 March 1995, (entry
into force on 2 March 1996).
64
Sergei Paushok v Mongolia, supra note 26, p. 46, para 254.
65
Denmark-Mongolia BIT, supra note 63; Ibid., Sergei Paushok v Mongolia, pp. 124–125, paras
514–518.
66
Ireland and the Government of the Mongolian People’s Republic for the Promotion and Protection
of Investments (UK-Mongolia BIT), signed on 4 October 1991, (entry into force on 4 October 1991);
Sergei Paushok v Mongolia, supra note 26, pp. 124–125, paras 514–518.
67
Ibid., Sergei Paushok v Mongolia, p. 125, para 518.
clause because the basic BIT included MFN only to qualify the FET provision. It
held that the claimants cannot use the MFN clause “to introduce into the treaty,
completely new substantive rights, such as those granted under an umbrella
clause.”68 It is curious to investigate whether the tribunal rejected importation of
umbrella clause by MFN because umbrella clauses are arguably broad and
encompassing provisions having an overreaching effect upon all other clauses in
IIAs. The tribunal expressly noted that there exist debates on the meaning and scope
of umbrella clauses in legal literature.69 However, the meaning and effect of
umbrella clause were only of “pure academic interest in the present case.”70
According to the tribunal, the drafting of the basic BIT MFN was quite clear not
to “introduce in the treaty completely new substantive rights, such as those granted
under an umbrella clause.”71
However, as discussed above, the MFN succeeded in this case to import more
favorable FET from other IIAs. Thus, this decision can be distinguished from the
arbitral decision in White Industries Australia v India. While the White Industries
tribunal applied MFN to import an entirely new substantive IIA provision, the Sergei
Paushok tribunal applied MFN to expand the scope of a treatment standard which
was already included in the basic BIT albeit in a less favorable form. The arbitral
decision in Sergei Paushok benefited an investor from Russia which is an economy
in transition, while the decision was unfavorable for the host-State, Mongolia which
is a developing economy.
Application of MFN to Dispute Settlement
Until the end of 2018, application of MFN to dispute settlement has succeeded in 13
cases.72 The first arbitral case, in which MFN was applied to dispute settlement, was
68
Ibid., pp. 137–138, para 570.
69
Ibid., para 568.
70
Ibid., para 570.
71
Ibid.
72
The cases are identified by an extensive research undertaken by this author based on the
UNCTAD, ITALAW, and ICSID websites. The cases are as follows: Maffezini v Spain, supra
note 25; Siemens v Argentina, supra note 4; Hochtief AG v The Argentine Republic (Hochtief v
Argentina), ICSID Case No. ARB/07/31, Decision on Jurisdiction, dated 24 October 2011; Suez,
Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A. v The Argentine Republic
(Suez v Argentina), ICSID Case No. ARB/03/19; AWG Group Ltd. v the Argentine Republic (AWG v
Argentina), In the Arbitration under the Rules of UNCITRAL, Decisions on Jurisdiction dated 3
August 2006; National Grid v Argentina, supra note 12; Impergilo S.p.A v Argentina (Impergilo v
Argentina), ICSID Case No ARB/09/1, Decision on Jurisdiction, dated 21 December 2012;
Camuzzi International S.A. v the Argentine Republic (Camuzzi v Argentina), ICSID Case No.
ARB/3/2, Decision on Objections to Jurisdiction dated 11 May 2005; Gas Natural SDG, S.A. v.
The Argentine Republic, ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary
Questions on Jurisdiction, dated 17 June 2005; Teinver v Argentina, supra note 26; Telefonica S.A. v
The Argentine Republic (Telefonica v Argentina), ICSID Case No. ARB/03/20, Decision of the
316 T. Sharmin
commenced by an Argentine investor against the government of Spain.73 Later, in

many cases, foreign investors have argued for the application of MFN to dispute
settlement in cases commenced against the government of Argentina. For example,
invocation of MFN to dispute settlement by a German investor against the Argentine
government succeeded in Siemens v Argentina74 and in Hochtief v Argentina.75
Similar invocations by investors from France and the UK against the Argentine
government succeeded in Suez v Argentina,76 AWG v Argentina,77 and in National
Grid PLC v Argentina.78 Such invocation by an Italian investor against Argentina
succeeded, in Impergilo v Argentina,79 by a Belgian investor against Argentina, in
Camuzzi v Argentina,80 and by an Spanish investors against Argentina in Autobuses
SA v Argentina and in Telefonica S.A. v Argentina.81 Claim to apply MFN to extend
jurisdiction of arbitral tribunals by an investor from the UK against the Russian
government succeeded in RosInvest UK v Russia.82 A similar claim by an investor
from Barbados against the government of Venezuela succeeded, in Venezuela US, S.
R.L Barbados v the Bolivarian Republic of Venezuela,83 and by an investor from the
UK against the government of Turkmenistan, in Garanti Koza LLP v
Turkmenistan.84
According to a survey by UNCTAD, as of 2018, Argentina, Barbados, and
Venezuela are developing economies, while Turkmenistan and Russia are transition
economies.85 As of 2018, Spain, the UK, France, and Italy are considered as
developed economies.86 Thus, among the 13 cases in which MFN has succeeded
to apply to dispute settlement, only in two cases investors from the developing
countries, namely, Argentina and Barbados, were benefited.87 In all other ten cases,
application of MFN has benefited investors from the developed countries, namely,
Tribunal on Objection to Jurisdiction, dated 25 May 2006; Garanti Koza v Turkmenistan, supra note
7; RosInvest v Russia, supra note 23; and Venezuela US, S.R.L Barbados v the Bolivarian Republic
of Venezuela (Venezuela US Barbados v Venezuela), PCA Case No. 2013-34, Interim Award on
Jurisdiction (on the Respondent’s Objection to Jurisdiction Ratione Voluntatis), 26 July 2016.
73
Ibid., Maffezini v Spain.
74
Siemens v Argentina, supra note 4.
75
Hochtief v Argentina, supra note 72.
76
Suez v Argentina, and AWG v Argentina, supra note 72.
77
Ibid.
78
National Grid v Argentina, supra note 12.
79
Impergilo v Argentina, supra note 72.
80
Camuzzi v Argentina, supra note 72.
81
Teinver v Argentina, supra note 26; Telefonica v Argentina, supra note 72.
82
RosInvest v Russia, supra note 24.
83
Venezuela US Barbados v Venezuela, supra note 72.
84
Garanti Koza v Turkmenistan, supra note 7.
85
UNCTAD Statistics, supra note 10.
86
Ibid.
87
The cases are Maffezini v Spain, supra note 25 and Venezuela US Barbados v Venezuela, supra
note 72.
the UK, France, Germany, Belgium, and Italy. The host-States against which appli-
cation of MFN to dispute settlement succeeded are Spain, Argentina, Russia,
Venezuela, and Turkmenistan. Except for Spain, the other four countries, namely,
Argentina, Russia, Venezuela, and Turkmenistan, are developing and transition
economies.
The first arbitral case in which application of MFN to dispute settlement
succeeded was Maffezini v Spain.88 In this case, an Argentine investor, Maffezini,
invoked the MFN provision of the 1991 Argentina-Spain BIT89 against the host-
State, Spain, to import a more favorable dispute settlement provision from the 1991
Chile-Spain BIT.90 Under the 1991 Argentina-Spain BIT, the investor was required to
litigate in the domestic court of the host-State for at least 18 months before
commencing investor-State arbitration. However, the dispute settlement provision
of the 1991 Chile-Spain BIT allowed direct arbitration without any such requirement
to litigate in the domestic court of the host-State. The Maffezini tribunal allowed
application of MFN to import a more favorable dispute settlement provision and,
consequently, to bypass the domestic litigation requirement in the dispute settlement
clause of the Argentina-Spain BIT. Interestingly, the 1991 Argentina-Spain BIT did
not include MFN as an independent treaty provision. Instead, it included MFN to
qualify the fair and equitable treatment (FET) provision requiring that the FET
provided by the host-State would be no less favorable than that accorded by the
host-State to any other investor.91 However, the Maffezini tribunal did not explain
whether more favorable dispute settlement provision had any connection with the
FET standard and whether non-application of MFN in this case would result in less
favorable FET for the investors. The decision benefited an investor from Argentina
which is a developing country, while the decision was unfavorable to the host-State,
Spain which is a developed economy.
An example of the successful invocation of MFN by investors from the developed
countries against the developing host countries can be found in Siemens v Argen-
tina.92 In this case, a German investor, Siemens, invoked the MFN clause of the
88
Ibid., Maffezini v Spain.
89
Agreement for the Promotion and Reciprocal Protection of Investments between the Kingdom of
Spain and the Republic of Argentina (Argentina-Spain BIT), signed on 3 October 1991, (entry into
force on 28 September 1992).
90
Agreement between the Republic of Chile and the Kingdom of Spain for Promotion and Recip-
rocal Protection of Investments (Chile-Spain BIT), signed on 2 August 1991, (entry into force on 1
January 1995).
91
Article IV of the 1991 Argentina-Spain BIT, supra note 89, provided as follows:
1. Each Party shall guarantee in its territory fair and equitable treatment of investments made by
investors of the other Party.
2. In all matters governed by this Agreement, such treatment shall be no less favourable than that
accorded by each Party to investments made in its territory by investors of a third country.
92
Siemens v Argentina, supra note 4.
318 T. Sharmin
1991 Germany-Argentina BIT 93 against Argentina to import a more favorable

dispute settlement provision from the 1991 Argentina-Chile BIT.94 While the basic
BIT required domestic litigation in the court of the host-State for a specific period as
a procedural prerequisite to commencing any investor-State arbitration, the 1991
Argentina-Chile BIT did not require any such procedural prerequisite to be complied
with. Unlike the basic BIT in the Maffezini case, the 1991 Germany-Argentina BIT
included an independent MFN clause which required treatment no less favorable to
be accorded to all activities related to investments.95 In this case, Argentina argued
that “activities related to investments” could not include dispute settlement mecha-
nisms as “investments” in plain English refer to assets, and the modalities for the
settlement of dispute could not be regarded as assets.96 However, the Siemens
tribunal held that the MFN could apply to import more favorable dispute settlement
procedure from the 1991 Argentina-Chile BIT because, the terminologies, “treat-
ment” and “activities” used in the basic BIT MFN provision were broad enough to
encompass dispute settlement.97 Thus, the Siemens tribunal interpreted some termi-
nologies frequently used to draft MFN clauses in IIAs to justify the application of
MFN to dispute settlement. In some other cases in which MFN was applied against
Argentina, the respective tribunals have heavily relied on the interpretative maxim
called expressio unius est exclusio alterius to suggest that unless explicitly excluded,
any matter would be deemed included within the scope of MFN be that substantive
or dispute settlement.98
In some instances, invocation of MFN by investors from the developed countries
has succeeded to bypass necessary consent of the developing host-State to investor-
State arbitration. For example, in Garanti Koza LLP v Turkmenistan, such a claim by
an investor from the UK succeeded against the host-State, Turkmenistan. The
93
Treaty between the Federal Republic of Germany and the Republic of Argentina on Promotion
and Reciprocal Protection of Investments (Argentina-Germany BIT), signed on 9 April 1991, (entry
into force on 8 November 1993).
94
Treaty between the Argentine Republic and the Republic of Chile on Promotion and Reciprocal
Protection of Investments (Argentina-Chile BIT), signed on 2 August 1991, (entry into force on 1
January 1995).
95
Article 3 of the Argentina-Germany BIT, supra note 93, provided as follows:
1. Neither Contracting Party shall subject investments in its territory by or with the participation of
nationals or companies of the other Contracting Party to treatment less favourable than it accords
to investments of its own nationals or companies or to investments of nationals or companies of
any third State.
2. Neither Contracting Party shall subject nationals or companies of the other Contracting Party, as
regards their activity in connection with investments in its territory, to treatment less favourable
than it accords to its own nationals or companies or to nationals or companies of any third State.
96
Siemens v Argentina, supra note 4, para 36.
97
Ibid., para 85.
98
For the definition of the maxim, see Hochtief v Argentina, supra note 72, para 74. For the
examples of cases applying this maxim, see Suez and AWG v Argentina, supra note 72; National
Grid v Argentina, supra note 12.
proceeding was commenced at ICSID under the 1995 UK-Turkmenistan BIT.99 The
BIT required that in the absence of any agreement between the host-State and
investor to refer any investment dispute to ICSID, the dispute should be submitted
to arbitration under the Arbitration Rules of UNCITRAL.100 The investor invoked the
MFN clause in Article 3 of the UK-Turkmenistan BIT to import more favorable
dispute settlement clauses from other IIAs which allowed options to investors to
choose between ICSID and ad hoc tribunals constituted pursuant to the Arbitration
Rules of UNCITRAL, without requiring any separate agreement.101 The majority
tribunal in Garanti Koza allowed such an application of MFN because the treaty
parties had ultimately consented to some form of international arbitration.102 The
tribunal held that the MFN provision would be deprived of the interpretative
principle, effet utile (requires effective interpretation of treaty clauses), unless it
could be used to override other IIA provisions.103 Thus, the majority tribunal
perceived MFN as an instrument which might potentially override any other provi-
sion in the basic IIA. However, Arbitrator Laurence Boisson de Chazournes pro-
vided a dissenting opinion in this case.104 The arbitrator opined that MFN could not
import consent from another treaty to establish the jurisdiction of an ICSID tribunal,
given that the basic BIT did not contain the necessary consent.105 However, the
majority of tribunal’s decision benefited an investor from the developed country
against the developing host-State, Turkmenistan.
It appears from the above discussion that arbitral decisions allowing application
of MFN to the substantive and dispute settlement matters have generally been
unfavorable for the developing host-States although in a few cases investors from
the developing countries have been benefited by the application of MFN as well. The
question arises as to how the developing countries are responding to their experience
regarding application of MFN by investor-State arbitral tribunals. The following
section will discuss the developing countries’ response in this regard.
99
Ireland and the Government of Turkmenistan for the Promotion and Protection of Investments
(the UK-Turkmenistan BIT), signed and entered into force on 9 February 1995.
100
Ibid.
101
Garanti Koza v Turkmenistan, Majority Decision, supra note 7, para 15. It was not clear from the
argument by the claimant as to why it considered ICSID arbitration more favorable. The decision of
the majority tribunal summarized the position taken by the claimant, with reference to other more
favorable IIAs referred by the claimant such as the Turkish BITs with Switzerland, France, Turkey,
and India and the Energy Charter Treaty (ECT), which allow either ICSID Arbitration or
UNCITRAL Arbitration, at the election of the investor.
102
Garanti Koza v Turkmenistan, Majority Decision, supra note 7, paras 37–38.
103
Ibid., para 54.
104
Garanti Koza v Turkmenistan, supra note 7, Dissenting Opinion by Arbitrator Laurence Boisson
de Chazournes, dated 3 July 2013.
105
Ibid., Dissenting Opinion, paras 1–4.
320 T. Sharmin
MFN Reforms by the Developing Countries
Some developing host-States are undertaking MFN reforms in their recent IIAs to
deal with the extensive application of MFN. This section will illustrate MFN
reforms undertaken by the developing States. Since a comprehensive examina-
tion of MFN reform by each and every developing country would not be feasible
within the limited scope of this chapter, the following discussion focuses mainly
on the MFN reforms undertaken by Argentina, India, and Southern African
Development Community. The reasons for selecting these countries are as fol-
lows: First, in a number of arbitral cases, application of MFN has succeeded
against the host-State, Argentina; therefore, it is curious to examine the Argentine
MFN reform in its recent IIAs. Second, the reforms by India are also noteworthy
because, in reaction to the arbitral decision allowing application of MFN in
White-Industries Australia v India, the country has unilaterally denounced the
1999 Australia-India BIT.106 That is the most extreme reaction by any country so
far in response to the application of MFN by investor-State arbitral tribunals.107
Third, the Southern African Development Community (SADC), in its recent
model IIA, has explicitly mentioned about the expansive application of MFN
by investor-State tribunals as a reason to include a narrow MFN clause in the
model IIA.108 While Argentina and India have been parties to the arbitral pro-
ceedings resulting in successful application of MFN, there is no such instance
regarding any member of the SADC.109 Therefore, it will be interesting to
106
1999 Australia-India BIT, supra note 42, unilaterally denounced by India on 30 August 2013. On
the point that India has narrowed down some of its IIA provisions including MFN in response to the
arbitral decision in White Industries v India, also see Volterra RG, Mandelli GF (2017) India and
Brazil: recent steps towards host state control in the investment treaty dispute resolution paradigm.
Indian J Arbitr Law 6:90, pp 96, 96–97; Ranjan P (2008) International investment agreements and
regulatory discretion: case study of India. J World Invest Trade 9:209.
107
Ibid., Volterra and Mandelli. The authors have compared IIA reforms by India and Brazil and
commented that
while India’s motivation for reform has been largely reactive, responding to its losing a spate
of investor-State arbitrations, Brazil’s motivations-as a State that has never ratified any of the
international investment agreements it has signed have been more preventive.
108
Southern African Development Community (SADC) Model Bilateral Investment Treaty Template
with Commentary, July 2012. https://www.iisd.org/itn/wp-content/uploads/2012/10/sadc-model-
bit-template-final.pdf. at 21, 22. Last visited on 31 May 2019.
109
The members of the SADC are as follows: Angola, Botswana, Comoros, Democratic Republic of
Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles,
South Africa, United Republic of Tanzania, Zambia, and Zimbabwe. For more details see, SADC
website: https://www.sadc.int/member-states/. Last visited on 31 May 2019. The countries involved
in the arbitral proceedings that allowed application of MFN in IIAs are mentioned in section “MFN
Experience of the Developing Countries.”
contrast the MFN reform by the SADC with Argentina and India.110 Discussions
under this section will be divided into two parts. Part A illustrates MFN reforms,
and Part B discusses the reasons behind the reforms as follows.
Illustrations of MFN Reform
Reform by Argentina
The older generation Argentine IIAs used to include MFN clauses drafted in broader
terms compared to the recent IIAs signed by the country. An example of MFN in the
older generation IIAs signed by Argentina can be found in the 1991 Argentina-
Sweden BIT.111 Article 3 of this BIT contained MFN as follows:
Article 3
Most-favoured-nation Provisions
1. Each Contracting Party shall apply to investments in its territory by investors of

the other Contracting Party a treatment which is no less favourable than that
accorded to investments by investors of third States.
2. Notwithstanding the provisions of Paragraph (1) of this Article, a Contracting Party
which has concluded an agreement regarding the formation of a customs union, a
common market, a free-trade area or an integration area shall be free to grant more
favourable treatment to investments by investors of the State or States which are
also parties to the aforesaid agreements, or by investors of some of these States.
3. The provisions of Paragraph (1) of this Article shall not be construed so as to
oblige one Contracting Party to extend to investors of the other Contracting Party
the benefit of any treatment, preference or privilege resulting from any interna-
tional agreement or arrangement relating wholly or mainly to taxation or any
domestic legislation relating wholly or mainly to taxation.
The above MFN clause in the 1991 Argentina-Sweden BIT requires treatment no
less favorable to be accorded to investments. The provision contains two main
exceptions to the MFN: first, privileges arising from custom union treaties and,
second, benefits given under any regional economic union treaties. The clause does
not clarify whether both the substantive IIA benefits and matters related to dispute
settlement would be covered by the scope of MFN; whether the MFN would allow
importing entirely new treatment standards from other IIAs; and whether for the
application of MFN, it would be necessary to compare like circumstances between
110
However, this chapter does not investigate MFN reforms undertaken by each and every member
of the Southern African Development Community. The chapter rather examines the MFN in the
recent Model IIA adopted by the Community which should naturally reflect the collective will of the
members of the community.
111
Agreement between the Government of the Kingdom of Sweden and the Government of the
Republic of Argentina on the Promotion and Reciprocal Protection of Investments (Argentina-
Sweden BIT), signed on 22 November 1991, (entry into force on 28 September 1992).
322 T. Sharmin
the beneficiary investor with that of the comparator investor from other countries
allegedly receiving more favorable treatment.
A similarly drafted MFN clause can be found in Article 4(1) of the 2000
Argentina-Thailand BIT as follows:
(a) Investments of investors of one Contracting Party in the territory of the other
Contracting Party, and also the returns therefrom, shall receive treatment which
is fair and equitable and not less favourable than that accorded in respect of the
investments and returns of the investors of the latter Contracting Party or of any
third State, whichever may be more favourable to the investors concerned.
(b) Each Contracting Party shall in its territory accord to investors of the other
Contracting Party as regards the management, use, enjoyment or disposal of
their investments, treatment which is fair, equitable, non-discriminatory and not
less favourable than that which it accords to its own investors or to the investors
of any third State, whichever may be more favourable to the investors
concerned.
(c) All the provisions of this Agreement relative to the grant of treatment not less
favourable than that accorded to the investors of any third State shall be
interpreted as meaning that such treatment shall be accorded immediately and
unconditionally.112
Thus the above provision also does not clarify whether the MFN should
apply to any treatment be that substantive or procedural; whether like
circumstances between investors need to be compared; or whether the MFN can
be used to import entirely new treatment standards from other IIAs not otherwise
included in this IIA.
In contrast, MFN clauses in the recent Argentine IIAs are drafted narrower than
the clauses in the older generation IIAs. For example, Article 4 of the 2016
Argentina-Qatar BIT contains a promise for treatment no less favorable to inves-
tors.113 Privileges arising from regional free trade agreements, tax treaties, and
economic and customs unions are excluded from the scope of MFN. This provision
also explicitly provides that the MFN should not apply in order to invoke FET and
the dispute settlement provisions included in other IIAs prior to the entry into force
of the basic treaty.114
Another example of MFN in the recent Argentine IIAs can be found in Article 3 of
the 2018 Argentina-Japan BIT.115 Article 3(1) of this BIT provides for treatment no
112
Agreement between the Government of the Kingdom of Thailand and the Government of the
Argentine Republic for the Promotion and Reciprocal Protection of Investments (Argentina-Thai-
land BIT), signed on 18 February 2000, (entry into force on 7 March 2000).
113
The Reciprocal Promotion and Protection of Investment between the Argentine Republic and the
State of Qatar (Argentina-Qatar BIT), signed on 16 November 2016.
114
Ibid., Article 4(4).
115
Agreement between the Argentine Republic and Japan for the Promotion and Protection of
Investment (Argentina-Japan BIT), signed on 1 December 2018.
less favorable to be accorded to investors and investments in like circumstances.116

Article 3(2) provides that the existence of “like circumstance” would depend on the
totality of circumstances.117 For the application of MFN, it would be necessary to
consider whether differentiated treatment is accorded to investors and investments on
the basis of legitimate public welfare objectives or not.118 Article 3(3) provides that the
MFN should not apply to “international dispute settlement procedures or mecha-
nisms.”119 Article 3(4) provides that the MFN should also not apply to regional free
trade treaties, tax agreements, and economic union.120 Article 3(5) provides that the
MFN should not oblige the host-State to grant any more favorable treatment agreed in
any other treaty prior to the entry into force of the basic treaty.121
Argentina included a similarly drafted MFN clause in the 2018 Argentina-United
Arab Emirates (UAE) BIT.122 Article 4(1) and (2) of this BIT requires treatment no
less favorable to be accorded to investors and investments in like circumstances with
respect to the management, conduct, operation, and dispositions of investments in
the territory of the host-State.123 Article 4(3) provides that the existence of “like
circumstances” would depend on all of the circumstances including distinctions
between investors and investments based on the legitimate objectives of public
welfare.124 Article 4(4) requires that the MFN clause should not apply to incorporate
any substantive treatment provision which is not contained in the basic treaty or to
exclude rights or powers of the host country which are provided in the basic
treaty.125 This is an additional feature compared to the MFN clause in the 2018
Argentina-Japan BIT discussed above. Article 4(5) of the 2018 Argentina-United
Arab Emirates (UAE) BIT provides that MFN would not apply to “procedural or
jurisdictional matters.”126 Article 4(6) provides that MFN should not apply to
regional trade treaties, common markets, tax agreements, and to the economic
union or integration mechanisms.127 Article 4(7) provides that the MFN should
not apply to invoke more favorable treatments accorded under treaties signed prior to
the entry into force of the basic treaty.128
116
Ibid.
117
Ibid.
118
Ibid.
119
Ibid.
120
Ibid.
121
Ibid.
122
Agreement for the Reciprocal Promotion and Protection of Investments between the Argentine
Republic and the United Arab Emirates [Argentina-United Arab Emirates (UAE) BIT)], signed on
16 April 2018.
123
Ibid.
124
Ibid.
125
Ibid.
126
Ibid.
127
Ibid.
128
Ibid.
324 T. Sharmin
Thus, MFN clauses in both the 2018 Argentina-Japan BIT and the 2018 Argen-
tina-UAE BIT are drafted in narrower formulation compared to the MFN clauses in
the older generation IIAs such as the 1991 Argentina-Sweden BIT and the 2000
Argentina-Thailand BIT discussed earlier.
Reform by India
The 2015 Model BIT of India129 does not contain any MFN clause. The Indian Law
Commission has mentioned that the extensive application of MFN by arbitral tribunals
to borrow more favorable IIA provisions was responsible for the omission of MFN
clauses in the 2015 Indian Model BIT.130 The Law Commission also commented that
the most probable reason for omitting MFN from the 2015 Indian Model BIT was to
ensure that investors are not able to use MFN for the purpose of treaty shopping.131
It is not hard to understand that the 2015 Indian Model BIT excluded MFN in
reaction to the arbitral decision in White Industries v India.132 As discussed in
detail in section “Application of MFN to Substantive Standards”, the White
Industries tribunal applied the basic BIT MFN provision to import an entirely
new more favorable standard from another IIA which was not otherwise included
in the basic BIT.133 India was dissatisfied with the decision as immediately after the
arbitral decision, it unilaterally denounced the 1999 Australia-India BIT.134 How-
ever, the question is whether a complete omission of MFN clauses from IIAs may
in the future prove to be a short-sighted and rash reaction. MFN standard has been
consistently included in IIAs for a long time. This practice indicates that States
have considered MFN as a potent instrument for protecting and promoting foreign
129
Law Commission of India (2015, August) Analysis of the 2015 draft model Indian bilateral
investment treaty. Report no 260, pp 1–24. http://lawcommissionofindia.nic.in/reports/Report260.
pdf. Accessed 7 July 2019. Generally for more on the provisions of 2015 Indian Model BIT, see
Hanessian G, Duggal K (2017) The final 2015 Indian model BIT: is this the change the world
wishes to see? ICSID Rev 32(1):216–226; Ranjan P, Anand P (2017) The 2016 model Indian
bilateral investment treaty: a critical deconstruction. Northwest J Int Law Bus 38(1):1.
130
Ibid., Law Commission of India, pp. 23–24; also see the Indian Statement at the 2014 World
Investment Forum organized by UNCTAD (2014) World investment forum. https://worldinvest
mentforum.unctad.org/wp-content/uploads/2014/10/Mayaram.pdf. Last visited on 7 July 2019. In
this statement, India has specifically mentioned about its dissatisfaction with the arbitral award in
White Industries Australia v India. India stated that
as policymakers in developing countries, we have found that IIAs can encroach upon the
policy space available to Governments in several ways. . . tribunals may use IIAs to rule on
their own jurisdiction. Because of this, often decisions can result in awards on cases which
otherwise would not have been brought before tribunals.
131
Law Commission of India, supra note 129, pp. 23–24. See also Chaisse J (2015) The issue of
treaty shopping in international law of foreign investment – structuring (and restructuring) of
investments to gain access to investment agreements. Hastings Bus Law Rev 11(2):225–306.
132
Reasons are explained in supra notes 130 and 131; White Industries v India, supra note 5.
133
Australia-India BIT, supra note 42.
134
See supra note 130.
investments. Critiquing the omission of MFN in the 2015 Indian Model BIT, the
Indian Law Commission commented that, to balance investment protection with
regulation, India should consider having such MFN provisions in IIAs whose
scope would be restricted so that the country can ensure no discrimination to
investors and the investors, at the same time, may not be able to indulge in treaty
shopping.135
The arbitral decision in White Industries v India was given in 2011.136 Initially
after the decision, India was open to retain MFN in their IIAs albeit in a restrictive
form. Such willingness by India can be illustrated by Article 5(1) of the 2014
ASEAN-India Investment Agreement which provides as follows:
If, after this Agreement enters into force, a Party enters into any agreement on investment
with a non-Party, it could give consideration to a request by another Party for the incorpo-
ration herein of treatment no less favourable than that provided under the aforesaid agree-
ment. Any such incorporation will be subject to mutual agreement and should maintain the
overall balance of commitments undertaken by each Party under this Agreement.137
India also retained MFN in Article 5(2) of the 2013 India-UAE BIT which
provided for treatment no less favorable to foreign investors.138 However, Article
5(3) of the BIT excluded procedural and jurisdictional matters from the scope of
MFN.139 Thus, it appears that the trend of omitting MFN from IIAs by India began
from the 2015 Model Indian BIT. Afterwards, India has also omitted MFN from the
2018 India-Belarus BIT.140 Application of MFN has succeeded against India only in
one arbitral decision, while the same has succeeded against Argentina in at least
seven cases.141 While Argentina is still retaining MFN in their recent IIAs, India has
taken a very restrictive approach about MFN by omitting it entirely from IIAs.
Section “Evaluation” will further evaluate the approaches taken by Argentina, India,
and SADC.
Reform by the SADC

Article 4(1) of the 2012 SADC Model BIT Template provides for treatment no less
favorable to investors and investments in like circumstances.142 The same provision
contains a detailed clarification on “like circumstances” as follows:
135
Law Commission of India, supra note 129.
136
137
Agreement on Investment under the Framework Agreement on Comprehensive Economic Coop-
eration between the Association of Southeast Asian Nations and the Republic of India (ASEAN-
India Agreement), signed on 12 November 2014.
138
Ibid.
139
Ibid.
140
Treaty between the Republic of Belarus and the Republic of India on Investments (India-Belarus
BIT), signed on 24 September 2018.
141
For details, see section “MFN Experience of the Developing Countries.”
142
The 2012 SADC Model BIT Template, supra note 108.
326 T. Sharmin
4.2. For greater certainty, references to “like circumstances” in paragraph 4.1 requires an
overall examination on a case-by-case basis of all the circumstances of an Investment
including, inter alia:
(a) its effects on third persons and the local community;
(b) its effects on the local, regional or national environment, including the cumulative
effects of all investments within a jurisdiction on the environment;
(c) the sector the Investor is in;
(d) the aim of the measure concerned;
(e) the regulatory process generally applied in relation to the measure concerned; and
(f) other factors directly relating to the Investment or Investor in relation to the measure
concerned.143
The SADC Model BIT Drafting Committee noted that the above clarification of
“like circumstances” was included “to ensure that a broad view is taken, rather than
simply a narrow question of whether the investors are in the same or a related or
competitive sector, an approach seen in a number of earlier arbitrations.”144 The
committee further noted that SADC bilateral investment treaties should not “establish
unintended multi-laterali[s]ation through the MFN provision.”145 It noted as follows:
The MFN provision has been very broadly, and on several occasions unexpectedly,
interpreted in arbitrations, making it very unpredictable in practice. This poses unnecessary
risks for States, especially developing countries.146
The above note by the SADC Model BIT Drafting Committee clarifies that the
SADC community has developed a realization that the present IIA network is
dominated by bilateral treaties and the inclusion of MFN in them may result in
unintended multi-lateralization. Therefore, if not omitted, the scope of MFN should
be restrained.
It appears from the above discussion that developing countries are eventually
preferring to have narrower or no MFN clauses in their recent IIAs. Although it is
apparent that such response mainly comes from the dissatisfaction with arbitral deci-
sions allowing extensive application of MFN, there could also be other factors contrib-
uting to the recent MFN reforms. The following discussion contains more nuanced
discussions on the reasons behind the recent MFN reforms by developing countries.
Reasons Behind the Reforms
Section “MFN Experience of the Developing Countries” has discussed the experi-
ence of the developing countries regarding application of MFN by investor-State
arbitral tribunals, and section “MFN Reforms by the Developing Countries”, Part A,
143
Ibid.
144
Ibid., p. 21.
145
Ibid., p. 22.
146
Ibid.
has illustrated the recent MFN reforms by some developing countries. Compared to
the older generation IIAs, MFN clauses in recent IIAs signed by these countries have
been drafted in a narrower formulation.
As mentioned before, application of MFN by arbitral tribunals in a manner not
desired by the IIA party States was the main reason behind the recent MFN reforms
undertaken by these States. For example, in White Industries v India, an entirely new
substantive IIA provision was imported by MFN which was not otherwise included
in the basic treaty.147 The host-State, India, involved in the White Industries case has
omitted MFN from its recent IIAs.148 Also, in a recent Argentine IIA, it is explicitly
mentioned that MFN should not be used to import entirely new substantive treatment
standards from other IIAs.149 Section “MFN Experience of the Developing Coun-
tries” has reviewed four arbitral cases, namely, White Industries, Sergei Paushok,
Maffezini, and Garanti Koza, that allowed application of MFN to substantive
benefits or dispute settlement.150 None of these arbitral tribunals undertook an
assessment as to whether the claimant and the comparator investors were in like
circumstances for the application of MFN.151 To address this problem, some Argen-
tine IIAs have explicitly mentioned that the assessment of like circumstances should
be a necessary condition for the application of MFN,152 while, the SADC BIT
template has also included a definition of like circumstances.153
After the Maffezini decision which allowed application of MFN to dispute
settlement for the first time, it appeared that MFN clauses could be applied to
override most IIA provisions, whether substantive or procedural, because some
tribunals were following the reasoning given by the Maffezini tribunal.154 As
147
White Industries v India, supra note 5; See discussions under section “MFN Experience of the
Developing Countries.”
148
For India’s reaction in detail, see section “MFN Reforms by the Developing Countries.”
149
Argentina-UAE BIT, supra note 122, Article 4(4).
150
White Industries v India, supra note 5; Sergei Pausho, v. Mongolia, supra note 26; Maffezini v
Spain, supra note 25; Garanti Koza v Turkmenistan, supra note 7; see discussions in section “MFN
Experience of the Developing Countries.”
151
Ibid.
152
Argentina-Japan BIT, supra note 115, Article 3(2); Argentina-UAE BIT, supra note 122, Article 4(3).
153
The 2012 SADC Model BIT Template, supra note 108, Article 4(2).
154
Some specific examples which confirm that the Maffezini approach has influenced the idea that
MFN can be interpreted expansively are as follows: in Gemplus S.A., SLP S.A., Gemplus Industrial
S.A. de C.V., and Talsud S.A. v The United Mexican States (Gemplus v Mexico), (ICSID Case No.
ARB (AF)/04/03 and ARB (AF)/04/4, Award, 16 June 2010), the claimant invoked the basic BIT
MFN to get more favorable substantive treatment. The claimant, in this case, specifically referred to
the Maffezini decision to strengthen its argument for the application of MFN (see Part X of the
decision). The main reason given by the Maffezini tribunal to apply the basic BIT MFN to dispute
settlement was an interpretative maxim called expressio unius est exclusio alterius which implies
that unless explicitly excluded, any matter would be deemed included within the scope of MFN.
This maxim was relied on in National Grid v Argentina, supra note 12, para 68, and in Suez v
Argentina and AWG v Argentina, supra note 72.
328 T. Sharmin
explained before, for many States, such consequences were unexpected.155 Some
States, reacting to the post-Maffezini jurisprudence, therefore, have changed their
approach and drafted MFN clauses narrowly in their recent IIAs. Most noticeably,
new MFN clauses often exclude dispute settlement from their scope. In a survey
conducted by UNCTAD, it transpired that 33% of BITs signed from 2012 to 2014
excluded dispute resolution from MFN provisions.156 Conversely, only 3% of the
BITs signed from the 1950s to 2011 contained such exclusions.157 This survey
portrays a significant shift in the drafting of MFN clauses in the post-Maffezini
phase.
Such reactions by States can be justified for other reasons as well. Firstly, in the
recent phase of the evolution of IIAs, IIA provisions, in general, are going through
several substantive reforms.158 If MFN clauses remained as broad as they were in
earlier phases, most substantive IIA reforms would become ineffective,159 since
broadly drafted MFN clauses could potentially override any provision, unless
accompanied by specific exceptions.160
According to UNCTAD, IIAs initially emerged during the period from 1950 to 1964,
offering a weak set of protections to foreign investments. This was later followed by an
era of enhanced protection and inclusion of Investor-State Dispute Settlement (ISDS)
systems in IIAs during 1965–1989.161 The period 1990–2007 was the most remarkable
era for the proliferation of IIAs. During that period, there was a significant increase in the
155
In the 2003 Draft Free Trade Agreement of the Americas, the Drafting Committee included a
note specifically addressing the Maffezini decision. In that note, the committee expressed its intent
to avoid the Maffezini like application of IIA MFN clauses. UNCTAD has commented that this note
was “the result of strong disagreement by many states in Latin America to the decision and
reasoning of the Maffezini v Spain tribunal.” See UNCTAD (2010) Most-favoured-nation treatment.
UNCTAD series on issues in international investment agreements II. UNCTAD/DIAE/IA/2010/1,
pp 13–53, at 60. http://unctad.org/en/Docs/diaeia20101_en.pdf. Accessed 7 July 2019.
156
UNCTAD (2016) 1 IIA issues note: taking stock of IIA reform. UNCTAD/WEB/DIAE/PCB/
2016/1, pp 1–19, at 9. https://unctad.org/en/PublicationsLibrary/webdiaepcb2016d3_en.pdf.
Accessed 7 July 2019
157
Ibid.
158
UNCTAD (2015) Reforming the international investment regime: an action menu. In: World
investment report. UNCTAD/WIR/2015, pp 120–171. http://unctad.org/en/PublicationsLibrary/
wir2015_en.pdf. Accessed 7 July 2019
159
Ibid., 130, 131. UNCTAD commented that selective adjustments of IIA provisions “compre-
hensively address the challenges posed by the existing stock of treaties” unless the selective
adjustments address the most-favoured-nation (MFN) clause. Without addressing MFN application,
selective adjustments may lead to “treaty shopping” and “cherry-picking” and thereby undermine
improved formulations of treaty provisions.
160
Siemens v Argentina, supra note 4, Decision on Jurisdiction, para 106. It was held that MFN
clauses can “eliminate the effect of specifically negotiated provisions unless they have been
excepted.”
161
investment report. UNCTAD/WIR/2015, pp 120–171, at 121. http://unctad.org/en/Publication
sLibrary/wir2015_en.pdf. Accessed 7 July 2019
number of IIAs concluded.162 The era is also marked by the increased trend of States
and investors accessing arbitral tribunals for settlement of investment disputes.163 The
last and present phase of IIA evolution began in 2008.164 UNCTAD remarked that this
had been a phase of reorientation.165 In this phase, some States sought to exit existing
IIAs, others continued with existing IIAs but sought to revise or refine them, and there
was a shift toward the execution of regional IIAs instead of BITs.166
Regarding policy, earlier IIAs aimed to protect and promote investments and
thus were focused only on the interests of investors, not on those of the host-
States.167 According to UNCTAD, these earlier IIAs were imbalanced instru-
ments.168 Recent IIAs aim to create a balance between investor and host-State
interests. Besides promoting foreign investments, they aim to preserve the reg-
ulatory rights for the host-States, as well as to ensure responsible investment.169 Thus,
in recent times, States have sought to refine and revise the contents of the IIAs.170
162
Ibid., at 121. During 1990–2007, total 2663 new IIAs were signed, and the total number of IIAs
by the end of 2007 was 3067.
163
Ibid., p. 121. During 1990–2007, the total number of Investor-State Dispute Settlement (ISDS)
cases was 291, and the total number of ISDS cases by the end of 2007 was 292. Thus the UNCTAD
report implies that only one ISDS case was commenced before 1990.
164
Ibid., p. 121. From 2008 to 2015, total 410 new IIAs were signed which made the number of total
IIAs by the end of 2015 to be 3271. During this period, total 316 new ISDS cases have been
commenced, and at the end of 2015, total number of ISDS cases was 608.
165
Ibid.
166
Ibid.
167
UNCTAD (2016) 1 IIA issues note: taking stock of IIA reform. UNCTAD/WEB/DIAE/PCB/
2016/1, pp 1–19. https://unctad.org/en/PublicationsLibrary/webdiaepcb2016d3_en.pdf. Accessed 7
July 2019
168
Ibid.
169
Ibid.
170
For example, the 2017 Free Trade Agreement between Argentina and Chile (Argentina-Chile FTA),
(signed on 2 November 2017), Burundi-Turkey BIT (signed on 14 June 2017), Agreement between
Japan and the State of Israel for the Liberalisation, Promotion, and Protection of Investment (Israel-
Japan BIT), signed on 1 February 2017, (entry into force on 5 October 2017), Turkey-Ukraine BIT
(signed on 9 October 2017), Agreement between the Government of Rwanda and the United Arab
Emirates on the Promotion and Reciprocal Protection of Investments (Rwanda-United Arab Emirates
BIT) (signed on 1 November 2017) contain references to the protection of health and safety, labor
rights, and environmental or sustainable development in the preamble. These treaties have also
included a refined FET clause by circumscribing FET with reference to customary international law.
The 2017 Turkey-Uzbekistan BIT (signed on 25 October 2017), Bilateral Agreement for the Promo-
tion and Protection of Investments between the Government of the Republic of Colombia and the
Government of the United Arab Emirates (Colombia-United Arab Emirates BIT), (signed on 13
November 2017), and Mozambique-Turkey BIT (signed no 24 January 2017) clarify what would
constitute an indirect expropriation. The 2017 ASEAN-Hong-Kong, China, Investment Agreement
(signed on 12 November 2017), Jordan-Saudi Arabia BIT (signed on 27 March 2017), and Pacific
Agreement on Closer Economic Relations Plus (signed on 14 June 2017) have provided limited access
to ISDS only for the breaches of some specific treaty provisions. For more details on these recent
developments, see UNCTAD (2018b) 1 IIA issues note recent developments in the international
investment regime. https://unctad.org/en/PublicationsLibrary/diaepcbinf2018d1_en.pdf. Accessed 7
330 T. Sharmin
From 1990 to 2007, following the proliferation of cases, and arbitral decisions
interpreting the earlier IIAs, States to some extent began to understand the true legal
implications of some IIA provisions.171 From the experience of IIAs signed in earlier
phases, States have come to learn that broadly drafted general IIA provisions can
result in unintended and unforeseen consequences.172 Those responsible for the
drafting of IIAs began to aim for clearer and detailed drafting of provisions.173
The most noticeable difference in recent IIAs is in relation to their MFN
clauses.174 It is clear that, because of their potential overriding effect, reform of
MFN clauses stands at the center of current IIA reforms. As mentioned before, the
reform of other IIA provisions may be futile without ensuring a similar reform of
July 2019, Table 1; also see UNCTAD (2015) Reforming the international investment regime: an
action menu. In: World investment report. UNCTAD/WIR/2015 p 136. http://unctad.org/en/
PublicationsLibrary/wir2015_en.pdf. Accessed 7 July 2019, supra note 161, in which UNCTAD
has emphasized on MFN reforms. It commented that “The MFN clause is a crucial provision for IIA
reform. Failure to take appropriate action with respect to MFN clause can undermine improved
formulations of treaty provisions.”
171
This trend of IIA reform became most visible in 2008. However, some States may have
undertaken IIA reform to preserve their regulatory right even before 2008. For more details, see
investment report. UNCTAD/WIR/2015, p 121. http://unctad.org/en/PublicationsLibrary/
wir2015_en.pdf. Accessed 7 July 2019, supra note 161, Figure IV: 1 where UNCTAD has identified
the year, 2008 as the beginning of an era of reorientation.
172
See UNCTAD Investment Policy hub, supra note 3. The UNCTAD website demonstrates that so
far 942 investor-State arbitral cases have been lodged; among them 460 cases concern the appli-
cation of FET clauses. As mentioned in supra note 158, some recent IIAs are narrowly drafting the
FET clauses. There seems to be an apparent logical connection between the high number of cases on
FET and the FET reforms undertaken in recent IIAs.
173
For example, some older generation IIAs did not contain any definition of indirect expropriation,
while some recent treaties are including such definitions. See supra note 42 for details. Generally,
for illustrations on how some of the older generation IIA clauses lacked clarity and the
corresponding IIA reforms, see UNCTAD (2018b) 1 IIA issues note recent developments in the
international investment regime. https://unctad.org/en/PublicationsLibrary/diaepcbinf2018d1_en.
pdf. Accessed 7 July 2019.
174
In addition to the MFN reforms discussed above, also see ASEAN Comprehensive Investment
Agreement (ACIA), signed on 26 February 2009, (entry into force on 24 February 2012), Article 6.
Article 6 contains an MFN clause with detailed exceptions. Article 6(3) contains two exceptions to
the MFN. First, any subregional arrangements between and among Member States and, second, any
existing agreement notified by Member States to the AIA Council pursuant to Article 8(3) of the
AIA Agreement. Also, footnote No. 4 on Article 6 of this Agreement contains more exceptions to
MFN as follows:
For greater certainty:
(a) This Article shall not apply to Investor-State dispute settlement procedures that are available in
other agreements to which member states are party; and.
(b) In relation to investments falling within the scope of this Agreement, any preferential treatment
granted by a member state or a non-member state and to their investments, under any existing or
future agreements or arrangements to which member state is a party shall be extended on a
most-favoured-nation basis to all member states.
MFN clauses.175 For example, if any recent IIA containing an MFN clause
requires investors not to hamper public health in the host-State176 and if the
host-State signs another IIA with a third State containing no such requirement,
the beneficiary of the first IIA may, by invoking the MFN, argue that the
obligation for not hampering public health constitutes a less favorable treatment,
and thus, it should not be bound by the obligation. In any such situation, the
implication would be that the IIA reform requiring investors not to hamper public
health or morality in the host-State would be futile.177 The above discussion has
identified the reasons for MFN reforms by IIA parties in general. The reasons
equally apply for developing countries. Accordingly, in light of the above
discussions, it can be deducted that the recent MFN reforms by the developing
countries were based on two main factors: first, to avoid unintended application
of MFN by investor-State arbitral tribunals and, second, to ultimately preserve
more regulatory power in the hands of the host-States.
Evaluation
Section “MFN Reforms by the Developing Countries” has found that the developing
and transition economies have undertaken MFN reforms to curb unintended appli-
cation of MFN by investor-State arbitral tribunals and to preserve more regulatory
power in the hands of the host-States. However, MFN has long been considered as an
instrument of investment promotion.178 The question arises as to whether narrowing
down MFN would promote the interest of the developing countries in international
investment relationships in the future. The following discussion will examine three
related issues in this regard: first, whether narrow or no MFN in IIAs may ultimately
hamper the interest of the developing States in the investment relationships although
such reforms apparently preserve more regulatory power in the hands of the host-
States, second, whether the reforms would be able to restore the trust of developing
countries in ISDS regarding application of MFN, and, third, whether the developing
host-States are supposed to assume some responsibilities to balance with the greater
regulatory power that comes from narrow MFN in IIAs.
175
Titi C (2016) Most-favoured-nation treatment, survival clauses and reform of international
investment law. J Int Arbitr 33(5):425–440. Titi has argued that, although reform of investment
law is in no way limited to the reform of MFN clauses, this may be a good place to start.
176
In some recent IIAs, parties have included an obligation on investors not to hamper public health
of the host-State. Inclusion of such obligation in IIAs is a recent trend. Such requirements were rare
in older generation IIAs. For illustrations, see supra note 170.
177
This example just illustrates a potential danger of not reforming MFN clauses. Any such attempt
by investors is less likely to succeed in practice as in MTD v Chile, supra note 4, the tribunal
observed that MFN cannot override the public policy of the host-State. Also in Maffezini v Spain,
supra note 25, the tribunal observed that the application of MFN should remain subject to the public
policy of the host-State.
178
See discussions under Part 2 of this chapter.
332 T. Sharmin
Can Narrow or no MFN Hamper the Interest of the Developing

Countries?
The recent global policy shift toward preserving more regulatory power in the hands
of the host-States obviously aims to limit the protections offered to foreign investors
by IIAs.179 If narrowing down MFN clauses in recent IIAs is considered as a part of
that general policy shift, it can be deducted that the reforms are supposed to limit the
protections offered to investors irrespective of the country they come from.180 The
question arises whether this arrangement would benefit the developing countries.
In the initial phase of the evolution of IIAs, IIAs were mainly signed to protect
investors from the developed countries while undertaking investment activities in the
territory of the developing host-States.181 Most of the IIAs signed during the initial
phase of IIA evolution were bilateral investment treaties between the developed and
developing countries.182 Until the end of the 1990s, a substantial amount of FDI
outward flow came from developed countries.183 IIAs in this phase were considered
to be the instruments by which developing countries intended to attract investors
mostly from their developed counterparts.184 However, the situation has gradually
changed to a certain extent. From the 1990s, the number of IIAs signed between the
developing countries has increased.185 Also, some of the developing countries are
presently exporting substantial amount of FDI capital to both the developed and to
other developing countries.186 However, it is still the developed countries which are
179
investment report. UNCTAD/WIR/2015, pp 120–171. http://unctad.org/en/PublicationsLibrary/
wir2015_en.pdf. Accessed 7 July 2019, supra note 161; the policy shift was discussed in detail in
section “Reform by India.”
180
As one of the main purposes of MFN is to ensure nondiscrimination based on nationality, for
more on the operation of MFN in IIAs, see section “Operation of MFN in IIAs.”
181
UNCTAD (2006) FDI from developing and transition economies: implications for development.
In: World investment report, p 7. https://unctad.org/en/Docs/wir2006_en.pdf. Accessed 7 July
2019, supra note 20. According to the UNCTAD report, the average percentage of outward FDI
from the developed countries was 97 percent of the total FDI inflow; Congyan, supra note 20, p.
830. Principles included in the older generation IIAs were historically objected by the developing
countries. However, various economic and political events left investors with no alternative but to
liberalize the investment regime to attract foreign investors. On this point, see Vandevelde KJ
(2000) Economics of bilateral investment treaties. Harv Int Law J 41:469–470.
182
The first BIT was signed in 1959; see Germany-Pakistan BIT, supra note 19. The IIA regime is
still dominated by the bilateral investment treaties. See UNCTAD Policy hub, supra note 3. The
website demonstrates that there are presently 2932 bilateral investment treaties while the rest 387
IIAs are treaties with investment provisions.
183
See supra note 181.
184
See supra note 179.
185
Congyan, supra note 20, pp. 831–837.
186
Choukroune L (2015) Indian and Chinese FDI in developing Asia: the standards Battle beyond
trade. Indian J Int Econ Law 7:89–116. Choukroune, referring to the UNCTAD (2015) Reforming
the international investment regime: an action menu. In: World investment report. UNCTAD/WIR/
2015. http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf. Accessed 7 July 2019. Investment
exporting more FDI capital compared to the amount of capital exported by the
developing countries.187 Accordingly, the developing countries are not in a position
to discourage investors from developed countries by imposing overly harsh regula-
tory requirements. Simultaneously, developing countries still need to compete for
attracting foreign investors. If any developing country imposes overly harsh regula-
tory mechanisms on foreign investors, investors may have options to choose an
alternative investment destination. For example, Coca-Cola closed its business in
India in the 1970s because of the overly harsh investment regulation policy adopted
by the then Indian government.188
Another option for investors from developed countries is to choose a developed
country as their investment destination. It is likely that the developed host-States
would maintain better rule of law situation in its territory.189 It was discussed in
section “Operation of MFN in IIAs” that in the case of White Industries v India, there
Trend Monitor No. 19, has illustrated how developing Asia has become the largest investor region
in 2015; for the latest data, see UNCTAD (2018a) World investment report, p 48. https://unctad.org/
en/PublicationsLibrary/wir2018_overview_en.pdf. Accessed 7 July 2019. UNCTAD reported that
“outward FDI flows from developing Asia declined by 9 per cent, from $385 billion in 2016 to $350
billion in 2017, due to a reversal in China for the first time since 2003. Despite this decline, the
region remained a major source of FDI worldwide, still accounting for nearly one-fourth of global
outflow.” Also see Sauvant KP (2005) New sources of FDI: the BRICS outward FDI from Brazil,
Russia, India and China. J World Invest Trade 6(5):639–710. Sauvant has illustrated how Brazil,
Russia, India, and China have gradually changed their primary role from capital importers to capital
exporters.
187
In 2018, FDI remained as the largest external source of finance for developing economies. See
UNCTAD, WIR (2018), Ibid., p. at xii; also see Congyan, supra note 20.
188
Volterra, Mandelli, supra note 106, p. 92. The authors have explained how the Indian Foreign
Exchange Regulation Act 1973 is made mandatory for companies with a foreign-held interest
greater than 40% operating in India to dilute their holdings, and Coca-Cola decided to leave India
refusing to dilute their foreign shareholdings.
189
Rule of Law is a principle of governance. See United Nations General Assembly (2012)
Delivering justice: programme of action to strengthen the rule of law at the national and interna-
tional levels. Report of the secretary general UN Doc A/66.749. http://archive.ipu.org/splz-e/
unbrief12/sg-report.pdf. Accessed 7 July 2019, para 2. The report defines the Rule of Law in
general as a principle of governance, “in which all persons, institutions, and entities, public and
private, including the State itself, are accountable to laws that are publicly promulgated, equally
enforced and independently adjudicated.” For more details on the definition of the Rule of Law, also
see Bingham T (2010) The rule of law, p 8. Penguin Press. Bingham’s definition of thick Rule of
Law considers it as a principle of governance which requires all persons, institutions, and entities,
public and private, including the State itself to be accountable to laws and their measures to adhere
to the principle of supremacy of law, fairness, avoidance of arbitrariness, and procedural and legal
transparency.
However, it is not necessary that the developed countries will always have better rule of law
situation compared to the developing and transition economies. It is generally accepted that the
developed countries have well-equipped economic and political systems and advanced rule of law
to attract foreign investments. See Congyan, supra note 20, p. 839. Achieving better rule of law has
been an agenda for the developing countries. On this point, see Daniels RJ, Trebilcock M (2004)
The political economy of rule of law reform in developing countries. Mich J Int Law 26:99;
Erbeznik K (2011) Money can’t buy you law: the effects of foreign aid on the rule of law in
developing countries. Indian J Global Leg Stud 18:873.
334 T. Sharmin
was a delay of 9 years to resolve an investment dispute in the domestic court of India.
The delay certainly does not make a good impression about the rule of law situation
in India.
However, some scholars have convincingly argued that the decision of foreign
investors to invest in any specific host-State does not depend much on the level of
regulation adopted by that host-State.190 Instead, there are other important micro
factors like the availability of resources and geographical location which have a
stronger influence over investors’ decision.191 However, the level of regulation
may matter, especially, if the sociopolitical situation of any host country is highly
unstable. In that situation, the privileges granted in IIAs are the safeguards that
keep the confidence of foreign investors intact regarding their decision to invest in
a host country.192 Therefore, the developing countries should aim to strike a
balance between investment promotion and regulatory power of the host-States
in IIAs.
It is necessary to refer to the main function of MFN as a principle of International
Investment Law to clarify the connection between MFN and regulation of foreign
investments. MFN evolved in the context of international trade law regime. In the
trade treaties, MFN ensures treatment no less favorable mainly in respect of tariffs
and sometimes in respect of other trade-related regulations. However, MFN in IIAs
aims to ensure nondiscrimination in respect to investment-related regulations based
on the nationality of investors. Ensuring equal tariff is not the focus of the IIA MFN
clauses. The main rationale of IIA MFN clauses is to ensure that investors from
different nationalities in like circumstances are regulated equally, to ultimately
ensure that they do not receive differentiated treatment. Therefore, in the absence
of MFN clause in IIAs, there remains no requirement for the host-State to treat or
regulate investors from different nationalities alike.193 Thus, differentiated treatment
based on the nationality of investors remains as a possibility. It is not a favorable
arrangement for investors from the developing countries if they are required to invest
in a host-State that retains the right of according differentiated treatment based on the
nationality of investors. Also, if a developing State, when acting as a host-State,
treats investors from different countries differently, investors receiving less favorable
treatment may seek for alternative investment destination. Accordingly, the omission
of MFN from IIAs does not benefit the developing countries in anyway.
190
A number of studies have found that there is no apparent connection between signing of IIAs and
increased FDI capital inflow. For example, see Gallagher KP, Birch MBL (2006) Do investment
agreements attract investment-evidence from Latin America. J World Invest Trade 7:961. Gallagher
and Birch found that the size of the domestic economy and the ability to serve as an export platform
are the key drivers of FDI inflows.
191
Ibid.
192
Also, some scholars have argued that BIT protections help to receive more FDI inflow. On this
point, see Salacuse JW, Sullivan NP (2005) Do BITs really work: an evaluation of bilateral
investment treaties and their grand bargain. Harv Int Law J 46:67.
193
Unless any similar or comparable obligation is included in that IIA otherwise.
On the other hand, drafting MFN in narrower formulation still retains the
obligation on the host-State not to provide differentiated treatment to investors in
like circumstances based on their nationality. How beneficial a narrowly drafted
MFN clause can be for investors from the developing countries will depend on the
precise drafting of the clause. If MFN is narrowed in an overly complex wording,
then such MFN may not benefit investors from the developing countries undertaking
investments in the developed or developing countries, for example, defining
like circumstances in a way that it becomes almost impossible for any investor
to establish that it stands in similar circumstances like that of the comparator
investor.194 It is important that MFN is not restrained in a way that makes it
nonfunctional.
Apparently, by narrow MFN, the developing host countries would be able to
retain greater power to accord differentiated treatment to investors based on their
nationality. However, investors from the developing or marginal economies
investing in another developed or developing country would be most vulnerable to
such narrow MFN. It is likely that under the above arrangement, investors from the
developed countries with a capacity to invest more FDI capital, generally, would be
receiving more favorable treatment from the host-States compared to the investors
from developing countries. It may thus result in unfair competition between inves-
tors from developed and developing countries.
Can the Recent Reforms Restore Trust in Investor-State Arbitral

Tribunals?
It seems from the discussions in sections “MFN Experience of the Developing

Countries” and “MFN Reforms by the Developing Countries” that the recent MFN
reforms undertaken by the developing countries came in response to some arbitral
decisions that allowed expansive application of MFN without properly taking into
consideration of the intent of IIA parties. For example, the arbitral decision in White
Industries v Australia has been widely criticized for promoting illegitimate treaty
shopping by investors.195 It is required that, to claim through an IIA MFN clause, the
claimant must remain under the basic IIA in the first place.196 For the proper
application of MFN, it is necessary that the arbitral tribunals consider whether
MFN clauses in IIAs are included to override the treaty which includes them by
importing entirely new standards from other IIAs.
Also, application of MFN to expand the jurisdiction of arbitral tribunals can give
rise to issues relating to the conflict of interest on the part of arbitrators and arbitral
194
See discussions under the SADC Model BIT in section “Reform by the SADC.”
195
Kalnina I (2013) White industries v. the Republic of India-a tale of treaty shopping and second
chances. Yearb Int Arbitr 3:285
196
Ibid.; generally on treaty shopping by MFN, also see Rodriguez AF (2008) The most-favored-nation
clause in international investment agreements: a tool for treaty shopping? J Int Arbitr 25(1):89–102.
336 T. Sharmin
tribunals.197 MFN has been applied to dispute settlement mainly in two ways: to
bypass procedural prerequisites to arbitration198 and to extend various dimensions of
arbitral jurisdiction.199 Jurisdiction is the power of courts and tribunals to resolve
any legal dispute.200 Investor-State arbitral tribunals have no inherent jurisdiction
(power); therefore, it is supposed to be conferred to them by the consent of IIA
parties.201 Thus, the arbitral tribunals are supposed to function within the power
conferred to them by the IIA parties. If MFN is applied by arbitral tribunals to extend
their jurisdiction with insufficient reasons, that ultimately empowers them to adju-
dicate more cases and increases the chance of further employment for the arbitra-
tors.202 While applying MFN to dispute settlement, some arbitral tribunals have
heavily relied on the interpretative maxim, expressio unius est exclusio alterius.203
These tribunals, based on this principle, have assumed that unless IIA parties have
explicitly excluded jurisdictional issues from the scope of MFN, it would be deemed
that the IIA parties have intended to apply MFN for conferring expansive jurisdic-
tion.204 Thus, the application of MFN to dispute settlement has been largely based on
assumptions such as expressio unius est exclusio alterius. However, arbitral tribunals
are supposed to interpret MFN provisions in good faith as it is required under Article
31 of the VCLT.205 In some instances, investor-State arbitral tribunals have explicitly
emphasized on interpreting jurisdictional clauses in good faith. For example, in
Inceysa v El Salvador, the tribunal held that according to the principle of good
faith applicable for treaty interpretation, determination of jurisdiction by arbitral
197
Franck SD (2005) The legitimacy crisis in investment treaty arbitration: privatizing public
international law through inconsistent decisions. Fordham Law Rev 73:1521. Franck generally
criticized expansive interpretation of standards included in IIAs, with a specific reference to the
application of MFN clauses to jurisdictional issues at pp. 1571 and 1578. On the point of potential
misapplication of MFN clauses to override consent of States to investor-State arbitration, also see
Blyschak PM (2009) State consent, investor interests and the future of investment arbitration:
reanalysing the jurisdiction of investor-state tribunals in hard cases. Asper Rev Int Bus Trade Law
9:99. For abuse of process which can arise from the expansive exercise of jurisdiction by investor-
state tribunals, see Gaffney JP (2010) Abuse of process in investment treaty arbitration. J World
Invest Trade 11:515.
198
For an example, see Siemens v Argentina, supra note 4. The case is discussed in detail in section
“MFN Experience of the Developing Countries.”
199
For an example, see Garanti Koza v Turkmenistan, Majority Decision, supra note 7. The case is
discussed in detail in section “MFN Experience of the Developing Countries.”
200
Generally, on the definition and details understanding of the jurisdiction of investor-State arbitral
tribunals, see Reinisch A (2017) Jurisdiction and admissibility in international investment law. Law
Pract Int Courts Tribunals 16:21; Douglas Z (2012) The international law of investment claims.
Cambridge University Press. 4th printing. Investor-state arbitral tribunals derive their jurisdiction
from the consent of the IIA parties. On this point, see Shany Y (2015) Questions of jurisdiction and
admissibility before international courts. Cambridge University Press, pp 7–8.
201
Shany, ibid..
202
See supra note 197.
203
See supra note 98.
204
Ibid.
205
See supra note 12.
tribunals should not be based on an assumption.206 Therefore, application of MFN to

dispute settlement without any solid reason remains problematic. As demonstrated in
section “MFN Experience of the Developing Countries”, some developing countries
have reformed MFN to exclude its application to import entirely new substantive
treatments and, in some instances, to exclude dispute settlement from the scope of
MFN. The reforms demonstrate that there was a loss of trust by some IIA parties
regarding the application of MFN by arbitral tribunals. The question arises whether
the recent reforms would be able to restore that trust.
The developing countries that have omitted MFN entirely from their recent IIAs
have demonstrated extreme reaction toward the arbitral decisions interpreting MFN
expansively. Such reaction indicates that these States are no more willing to trust the
arbitral tribunals regarding the interpretation of MFN. For the others who are still
retaining MFN but excluding dispute settlement and importation of entirely new
substantive standards from the scope of MFN, there is a good chance that these
reforms would help to restore the trust between these States and arbitral tribunals.
However, it ultimately depends on how the future tribunals respect the intent of the
treaty parties as reflected in the drafting of the recent IIA MFN clauses. In light of the
recent reforms, future tribunals should abstain from applying MFN to dispute
settlement and to import entirely new substantive provisions from other IIAs.
Also, some IIA parties have saved their regulatory power for protecting the legiti-
mate public interest from the scope of MFN.207 There is a chance that the future
tribunals may find it challenging to comply with this exception because the terms
“legitimate public interest” are not often defined and, therefore, remain open-ended.
To remain trustworthy to the host-States and investors, future arbitral tribunals
would need to interpret such open-ended exceptions objectively. While it would be
necessary to respect the legitimate public interest of the host-States, it would be also
necessary to protect investors from any potential misuse of this legitimate public
interest exception by the host-States.
Responsibilities Associated with the Greater Regulatory Power
As explained before, by omitting or narrowing MFN clauses in recent IIAs, the host-
States are retaining greater regulatory power in their hands. The question then arises
whether the States should also assume some corresponding responsibilities to make
balance with this greater regulatory power retained in their hands. For example,
India’s reaction to omit MFN in their recent IIAs is not hard to understand in the
context of the arbitral decision in White Industries v India.208 However, it should not
206
Inceysa Vallisoletana S.L. v Republic of El Salvador (Inceysa v El Salvador), ICSID Case No.
ARB/03/26, Award, dated 2 August 2006, paras 230, 175–176.
207
For example, Argentina-Japan BIT, supra note 115, Article 3(2). For more on the recent reforms,
see section “MFN Reforms by the Developing Countries.”
208
India’s MFN reform was discussed in section “MFN Reforms by the Developing Countries.”
338 T. Sharmin
be forgotten that in White Industries v India, MFN was applied to provide the
investor with an access to the effective means of asserting investment claim in a
situation when the investor was trying to enforce a previous arbitral award in its
favor through the domestic courts of India for 9 years. The question is whether it is
desirable to allow the host-States to delay enforcing an arbitral decision in favor of
any foreign investor for such a long time.209 While it is necessary that more
regulatory power is reserved in the hands of the host-States than that was the case
in the older generation IIAs, it is also necessary that the recent IIAs aim to make a
balance between the interest of the host-States and investors instead of promoting the
interest of the host-States only.
For example, MFN has been omitted in the recent 2018 India-Belarus BIT.210
Simultaneously, exhaustion of all administrative and judicial remedies in the host-
State for a period of at least 5 years has been included in this BIT as a condition
precedent for transmitting a notice from the investor to the host-State to notify its
intent to commence international arbitration.211 The BIT also requires that after any
such notice is transmitted, disputing parties must try to resolve the dispute amicably
for a period of at least 6 months.212 Only after that, the investor may commence
international arbitration subject to a further set of conditions such as not more than
7 years can be elapsed since the claimant first acquired knowledge of the dispute, not
more than 12 months can be elapsed from the conclusion of domestic proceeding if
any, and a notice expressing intent of arbitration should be served at least 90 days
before submitting the dispute to arbitration.213 Article 13(4) of the India-Belarus BIT
also provides that “in addition to other limits on its jurisdiction, the [arbitral] tribunal
constituted under this Chapter shall not have jurisdiction to review the merits of a
decision made by a judicial authority of the parties.”214 Thus, apparently, access to
arbitration, in the India-Belarus BIT, has been subjected to a number of hurdles
which is not very favorable for investors. Especially, if the host-State fails to ensure
that the domestic court would be fair and transparent at all stages of adjudicating
investment disputes, investors under this BIT may not be in a position to challenge
the domestic court decision in arbitration since arbitral tribunals would lack juris-
diction to review the merits of that decision. Additionally, the investor may not be
209
Paul P (2013) Legal and constitutional justification of white industries. Indian J Arbitr 2:76. In
the context of White Industries case, Paul commented as follows:
It is also clear that once White approached the Supreme Court of India, the Government of
India could have done nothing to expedite or resolve the dispute under the Constitution of
India. But it is equally true that if a country wants to be economically competitive in a
globalised world, it must keep an efficient mechanism to resolve the disputes.
210
India-Belarus BIT, supra note 140.
211
Ibid., Article 15.3.
212
India-Belarus BIT, supra note 140, Article 15.4.
213
Ibid., Article 15.5.
214
India-Belarus BIT, supra note 140, Article 13.4.
able to take recourse to MFN to get access to the effective means of asserting
investment disputes since the treaty does not contain MFN at all.215
On the other hand, as discussed in section “MFN Reforms by the Developing
Countries”, Argentina is still retaining MFN clauses in its recent IIAs albeit in a
narrower formulation. For example, the 2018 Argentina-Japan BIT includes an
independent MFN clause in Article 3 which excludes dispute settlement from its
scope. Simultaneously, this IIA includes an interesting feature in Article 5 as
follows:
Access to the Court of Justice

Each Contracting Party shall in its area accord to investors of the other Contracting Party
treatment no less favourable than the treatment which it accords in like circumstances to its
own investors or investors of a non-Contracting Party with respect to access to the courts of
justice and administrative tribunals and agencies in all degrees of jurisdiction, both in pursuit
and in defence of such investors’ right.216
Thus Article 5 of this IIA essentially provides for MFN in respect of access to
justice in the domestic judicial and administrative forums in the host-State. Appar-
ently, this clause assures the investors that they would not be subjected to any
discrimination in the domestic court of the host-State. The assurance is encouraging
for foreign investors. Furthermore, the Investor-State Dispute Settlement clause in
Article 25 of Argentina-Japan BIT does not require domestic litigation as a condi-
tion-precedent to arbitration.217 However, it requires attempts to an amicable settle-
ment in the first place.218 Thereafter, investors remain free to choose between
domestic litigation and international arbitration although Article 25(9) includes a
fork-in-the-road provision requiring a waiver of the right to litigate in the domestic
forum if international arbitration is chosen and vice versa.219 The fork-in-the-road
provision is neutralized by Articles 25(10) which provides that the waiver would
cease in case investor-State tribunals reject any claim on any procedural or jurisdic-
tional ground. Article 25(11) provides that irrespective of the fork-in-the-road
provision, investors may seek interim injunctive relief before the domestic court of
the host-State provided that the claim does not involve payment of monetary
damages.220 Thus, the 2018 Argentina-Japan BIT is making a better balance of the
interests of investors and host-State compared to that in the 2018 India-Belarus BIT.
Such a balance is necessary to reach an equilibrium in respect of protecting interests
of both investors and host-States.
215
Ibid.
216
Argentina-Japan BIT, supra note 115, Article 5.
217
Ibid.
218
Argentina-Japan BIT, supra note 115, Article 25.
219
Ibid.
220
Argentina-Japan BIT, supra note 115, Article 25 (11).
340 T. Sharmin
Conclusion
MFN reforms in recent IIAs have been a global phenomenon. This chapter has
discussed MFN experience of the developing States and found that application of
MFN by investor-State arbitral tribunals has overly benefited investors from the
developed countries. Most of the cases in which application of MFN succeeded were
decided against the developing host-States. Some developing countries have accord-
ingly omitted MFN, as well as, narrowed MFN by excluding dispute settlement and
other matters from the scope of the clause. Narrow or no MFN in IIAs would help to
preserve more regulatory power in the hands of the developing host-States. At the
same time, the reforms would help future arbitral tribunals to decide on the scope of
MFN since clearer drafting would be an aid for the tribunals to interpret the clauses.
Between two major approaches of MFN reforms, namely, no MFN and limited
MFN, limited MFN would be better for the developing countries. While it is
important for developing countries to preserve their interests as host-States, it is
equally important that they remain attractive as investment destinations. Therefore,
overregulation should be avoided. At the same time, in some cases application of
MFN to dispute settlement has aided foreign investors to access international
arbitration faster and thereby to resolve investment disputes faster as well. Speedy
resolution of investment dispute is necessary. While omitting MFN from IIAs or
excluding dispute settlement from the scope of MFN, the developing countries
should make sure that investors can in some way access to effective means of
asserting investment claims. It is understandable that the experience of the develop-
ing host-States regarding the application of MFN clauses in IIAs has been poor.
However, they should respond to this issue instead of reacting. The investor-State
arbitral tribunals should also be respectful to the recent reforms undertaken by the
developing countries. Thus the trust between arbitral tribunals and developing host-
States regarding the application of MFN would be restored.
Full Protection and Security and Its Overlap
with Fair and Equitable Treatment 13
Romesh Weeramantry
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
Diverse Formulations of FPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
Physical Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
Legal Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
Differences Between FPS and FET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Overlaps Between FET and FPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352
Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
Abstract
The full protection and security (FPS) standard is one of the most common
substantive provisions contained in investment treaties. Complexity arises in
this area of investment law because the language expressing the FPS standard
varies from treaty to treaty and the separation point between the fair and equitable
treatment standard (FET) and FPS is difficult to identify. Consequently, a diver-
gent body of arbitral decisions has grown around the FPS standard. The aim of
this Chapter is to examine the overlap between FET and FPS. It seeks to
determine – through a survey of the different formulations of FET provisions
and the wide-ranging interpretations given to them by investment tribunals –
whether and to what extent FPS may be equated with FET. It concludes that (i)
FET and FPS are distinguishable (despite the close interrelationship between the
two standards), and (ii) under well-established treaty interpretation principles, an
The views expressed in this Chapter are those of the author’s alone. The author is grateful for
comments on earlier drafts of this Chapter by Audley Sheppard QC and for the assistance of Promit
Chatterjee and Joel Sherard-Chow.
R. Weeramantry (*)
Clifford Chance, Singapore, Singapore
e-mail: Romesh.Weeramantry@CliffordChance.com

https://doi.org/10.1007/978-981-13-3615-7_53
342 R. Weeramantry
FET provision should not be applied in a way that renders an FPS provision
superfluous.
Keywords
Full protection and security · Protection of investors and investments from
physical harm · Legal security of investors and investments · Protection from acts
of third parties · Overlaps with fair and equitable treatment · Treaty
interpretation · Effet utile · Minimum standard of treatment
Introduction
1. The full protection and security (FPS) standard is one of the most common
substantive provisions contained in investment treaties. Complexity arises in
this area of investment law because the language used to express the FPS standard
varies from treaty to treaty and the separation point between the fair an equitable
treatment standard (FET) and FPS is difficult to identify. Consequently, a diver-
gent body of arbitral decisions has grown around the FPS standard. The aim of
this Chapter is to examine the overlap between FET and FPS. It seeks to
determine – through a survey of the different formulations of FET provisions
and the wide-ranging interpretations given to them by investment tribunals –
whether and to what extent FPS may be equated with FET.1
Diverse Formulations of FPS
2. A review of the different formulations of FPS provisions in investment treaties is

a necessary starting point in any analysis of the FPS standard.
3. Early expressions of FPS provisions were contained in treaties of friendship,
commerce, and navigation (FCN). For example, Article V(1) of the 1949 FCN
treaty between the United States and Italy provides that nationals of each
contracting State shall receive “the most constant protection and security for
their persons and property, and shall enjoy in this respect the full protection and
security required by international law.”2 Notable invocations of FPS provisions
1
Significant analyses of FPS provisions and case law are found in Cordero-Moss G (2008) Full
protection and security. In: Reinisch A (ed) Standards of investment protection. Oxford University
Press, pp 131–150; Schreuer C (2010) Full protection and security. J Int Dispute Settl 1–17;
Miljenić O (2019) Full protection and security standard in international investment law. Pravni
Vjesnik 35(3–4):35–62; and Reinisch A & Schreuer C (2020) International protection of invest-
ments: the substantive standards. Cambridge University Press, pp. 358–362, 536–586.
2
Treaty of friendship, commerce and navigation between the United States of America and the
Italian Republic, 2 February 1948, 63 Stat. 2255, T.I.A.S. No. 1965, 79 U.N.T.S. 171 (entered into
force 26 July 1949). Article I, Abs-Shawcross Convention, and Article 1, 1967 Draft OECD
Convention, also provide that property is to receive the “the most constant protection and security.”
13 Full Protection and Security and Its Overlap with Fair and Equitable Treatment 343
in FCN treaties were made before the International Court of Justice (ICJ) in the
Tehran Hostages case3 and the ELSI case.4
4. The inclusion of an FPS clause in Article 3 of the 1959 Germany-Pakistan BIT,
the first ever bilateral investment treaty (BIT), was therefore not a novel
development. A common modern treaty formulation refers to both FET and
FPS in the same sentence but as separate standards. For example, Article 3(1) of
the Bangladesh-Thailand BIT provides that “Investments of investors of either
Contracting Party shall at all times be accorded fair and equitable treatment
and shall enjoy full protection and security.”5 The two standards may also be
located in different articles within a BIT.6
5. A variation in FPS language uses the qualifier “legal” to modify “security.” For
instance, Article 4(1) of the Germany-Argentina BIT provides that “Investments
shall enjoy full protection and legal security” (emphasis added). This language
difference has been relied on by some tribunals to extend FPS protection beyond
physical assets to intangible property.
6. Other textual variations that have influenced tribunal interpretations involve FPS
provisions that indicate that the standard forms a part of or is species of FET:
a. Investments [. . .] shall be accorded full and complete protection and security [. . .] in

accordance with the principle of fair and equitable treatment (emphasis added).7
b. [. . .] Each Contracting Party shall ensure fair and equitable treatment to the
investments of investors of the other Contracting Party and shall not impair,
by unreasonable or discriminatory measures, the operation, management, main-
tenance, use, enjoyment or disposal thereof by those investors.
[. . .]
More particularly, each Contracting Party shall accord to such investments full
security and protection [. . .] (emphases added).8
7. Certain treaties offer FPS not as an independent treaty standard but package it as
forming a part of international law: “Each Party shall accord to a covered
investment treatment in accordance with the customary international law min-
imum standard of treatment of aliens, including fair and equitable treatment and
full protection and security.”9
8. Treaty language may also specify that international law is a floor that a State’s
FPS obligations cannot fall below: “Investments shall at all times be accorded
3
United States Diplomatic and Consular Staff in Tehran, Judgment, I.C.J. Reports 1980, p. 3.
4
Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989, p. 15.
5
See also Art 2(2)(i) Czech Republic-Slovak Republic BIT, Art 2(2) UK-Egypt BIT, Art II(2)(a)
UK-Sri Lanka BIT.
6
In the Bangladesh-Denmark BIT, for example, the FPS and FET provisions are located, respec-
tively, in Arts 2 and 3.
7
Art 5(1) France-Argentina BIT.
8
Art 3(1) and 3(2) Netherlands/Czech and Slovak Republic BIT, and Art 3(1) and 3(2) Netherlands-
Poland BIT.
9
Art 6(1) Canada-Hong Kong BIT.
344 R. Weeramantry
fair and equitable treatment, shall enjoy full protection and security and shall in
no case be accorded treatment less favorable than required by international
law.”10
9. Alternatively, some treaties narrow FPS by providing that international law is a
ceiling and the obligation to provide FPS does not require protection more than
that required by international law: “The concepts of ‘fair and equitable treat-
ment’ and ‘full protection and security’ do not require treatment in addition to
or beyond that which is required by [the customary international law minimum
standard of treatment of aliens], and do not create additional substantive
rights.”11
10. Adjectival qualifiers (or their absence) in FPS provisions may also lead to
different interpretations and applications. For example, there may be an
absence of the term “full.”12 In this context, the tribunal in Biwater Gauff
held that when the terms “protection and security” are qualified by “full,” the
content of the standard may extend to matters other than physical security.13 In
contrast, the Parkerings v. Lithuania tribunal held that “it is generally accepted
that the variation of language between the formulation ‘protection’ and ‘full
protection and security’ does not make a difference in the level of protection a
State is to provide.”14
11. Aside from “full,” other qualifiers may also be included, such as “full legal
protection and security” (emphasis added), as mentioned above, or “full and
adequate protection and security”15 or “full and complete protection and
security.”16 Article 10(1) of the Energy Charter Treaty speaks of “most constant
protection and security” (emphasis added).
12. To complete this survey, it should be noted that a handful of treaties do not
contain an FPS provision, as is the case with the India-Bangladesh BIT.17
13. Given the various formulations of FPS provisions, it is not altogether surprising
that a divergent line of case law (as noted in paragraph 10 above and discussed
10
Art II(3)(a) Lithuania-United States BIT.
11
Chapter 9, Art 9.6(2) Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
12
See, for example, Art 2(2) Argentina-United Kingdom BIT and Art II Zaire-United States BIT.
13
Biwater Gauff Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, para 729. See
also Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentina,
Award, 30 July 2010, ICSID Case No. ARB/03/19, para 175.
14
Parkerings-Compagniet AS v. Republic of Lithuania, Award, 11 September 2007, ICSID Case
No. ARB/05/8, para 354. See also Al Warraq v. Republic of Indonesia, UNCITRAL, Final Award,
15 December 2014, para 630 (‘full protection and security is not a higher standard than adequate
protection and security’).
15
Art 3(2) Singapore-Bangladesh BIT (emphasis added).
16
Art 5(1) France-Argentina BIT (emphasis added).
17
See also Newcombe A, Paradell L (2009) Law and practice of investment treaties: standards of
treatment. Kluwer, p 309.
in more detail later) has developed as to the scope and effect of FPS provisions.
Before discussing the circumstances that have led to this divergence, the next
section will examine an area of FPS case law that is relatively uniform and free
from controversy: a State’s FPS obligation to exercise due diligence to prevent
physical harm to investors and their investment, even if that harm (or threat
thereof) emanates from third parties.
Physical Protection
14. FPS has its origins in international law as an obligation on States to protect the
physical safety of aliens and prevent damage to their property. This traditional
role of the FPS standard is well settled. Indeed, a recent trend in treaty drafting
has been to specify explicitly that FPS relates only to physical damage: Article
8.10(5) of the Comprehensive Trade and Economic Agreement between Canada
and the European Union, for example, qualifies its FPS provision by providing
that it “refers to the Party’s obligations relating to the physical security of
investors and covered investments.”18
15. Even in cases where the FPS provision does not contain such explicit limiting
language, a number of tribunals have emphasized that FPS should be confined to
physical security. The Saluka tribunal, for example, made a special note that the
FPS standard was “not meant to cover just any kind of impairment of an
investor’s investment, but to protect more specifically the physical integrity of
an investment against interference by use of force.”19
16. It is also uncontroversial that a major role of FPS is to protect investors and their
assets from third party violence. As the tribunal in Eastern Sugar v. Czech
Republic observed in relation to the FPS provision in the Czech-Netherlands
BIT:
the criterion [. . .] concerns the obligation of the host state to protect the investor from
third parties, in the cases cited by the Parties, mobs, insurgents, rented thugs and others
engaged in physical violence against the investor in violation of the state monopoly of
18
Emphasis added. Similarly see Article 3.2 of the new Indian Model BIT: “For greater certainty,
‘full protection and security’ only refers to a Party’s obligations relating to physical security of
investors and to investments made by the investors of the other Party and not to any other obligation
whatsoever” (emphasis added). Contrast this to Article 7 of the ASEAN-China Investment Agree-
ment, which provides that FPS relates to “full protection and security requires each Party to take
such measures as may be reasonably necessary to ensure the protection and security of the
investment of investors of another Party.” This provision arguably does not limit the protection
mandated to physical security and may apply to legal security as well. The extension of FPS to legal
security is discussed below.
19
Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para
484. See also Spyridon Roussalis v. Romania, Award, 7 December 2011, ICSID Case No. ARB/06/1
and Rumeli v. Kazakhstan, Award, 29 July 2008, ICSID Case No. ARB/05/16, para 668.
346 R. Weeramantry
physical force. Thus, where a host state fails to grant full protection and security, it fails
to act to prevent actions by third parties that it is required to prevent.20
17. In addition to the protection from acts by private third parties enumerated in the
Eastern Sugar case, the FPS standard “also extends to actions by organs and
representatives of the State itself.”21 Nonetheless, this responsibility to prevent
physical harm resulting from a State's own acts and those of third parties is
limited to an obligation of due diligence and does not place a State under any
form of strict liability for any harm caused.22 The El Paso v Argentina tribunal
provided an insightful exposition on this unique FPS obligation (albeit in
relation to injuries caused only by third parties):
The BIT requires that Argentina provide ‘full protection and security’ to El Paso’s
investment. The Tribunal considers that the full protection and security standard is no
more than the traditional obligation to protect aliens under international customary
law and that it is a residual obligation provided for those cases in which the acts
challenged may not in themselves be attributed to the Government, but to a third party.
The case-law and commentators generally agree that this standard imposes an obliga-
tion of vigilance and due diligence upon the government. [. . .]
The minimum standard of vigilance and care set by international law comprises a
duty of prevention and a duty of repression. A well-established aspect of the interna-
tional standard of treatment is that States must use ‘due diligence’ to prevent wrongful
injuries to the person or property of aliens caused by third parties within their territory,
and, if they did not succeed, exercise at least ‘due diligence’ to punish such injuries. If a
State fails to exercise due diligence to prevent or punish such injuries, it is responsible
for this omission and is liable for the ensuing damage. It should be emphasised that the
obligation to show ‘due diligence’ does not mean that the State has to prevent each and
every injury. Rather, the obligation is generally understood as requiring that the State
take reasonable actions within its power to avoid injury when it is, or should be, aware
that there is a risk of injury. The precise degree of care, of what is ‘reasonable’ or ‘due,’
depends in part on the circumstances.23
18. The discussion in this section covered uncontentious aspects of FPS and its role
in requiring States to exercise due diligence to prevent physical harm to inves-
tors and their assets (resulting from its own acts or those of third parties). After
harm to an investment has occurred, the obligation to diligently prosecute those
20
Eastern Sugar v. Czech Republic, Partial Award, March 27, 2007, SCC Case No. 088/
2004, para 203.
21
Biwater Gauff Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 23 July
2008, para 730.
22
Asian Agricultural Products Ltd. v. Sri Lanka, Award, 21 June 1990, ICSID Case No. ARB/87/3,
paras 46–53; and Cordero-Moss G (2008) Full protection and security. In: Reinisch A (ed)
Standards of investment protection. Oxford University Press, p 139.
23
El Paso Energy International Company v. The Argentine Republic, Award, 31 October 2011,
ICSID Case No. ARB/03/15, paras 522–523.
who are responsible relates more to the subject matter of the next section,
which addresses how FPS extends beyond physical protection to legal security.
Legal Security
19. The above cases that have applied the FPS standard to oblige a State to exercise
due diligence to prevent acts of its organs or private third parties from harming
covered investors and damaging their property is relatively straightforward.
More complex issues are associated with a line of cases holding that FPS also
requires a State to provide an investor with legal security.
20. A logical basis for extending FPS beyond physical protection was provided by
the tribunal in Siemens v. Argentina when it held that its interpretation was also
derived from the BIT’s definition of a covered investment, which included both
tangible and intangible assets.24
21. Where a BIT such as the Germany-Argentina BIT expressly provides for “full
protection and legal security” (Article 4(1), emphasis added), the conclusion
that FPS in this context reaches beyond physical protection should not raise
much controversy. This FPS provision was at issue in Siemens v Argentina.
Given the inclusion of the qualifier “legal,” the tribunal in that case had a
special basis for holding that FPS extended beyond physical security to legal
security.25
22. But in many other cases, the absence of a reference to “legal” security in the
applicable FPS still has not prevented tribunals from holding that the FPS
standard requires the provision of nonphysical security. These cases may be
categorized into two groups.
23. The first group has interpreted FPS provisions as requiring the State to make
available a judicial and administrative system that enables an investor to
protect its interests through, for example, prosecution of those responsible
for the harm caused. This is based on the more traditional line of reasoning
endorsed in the ELSI case, where the Chamber of the ICJ saw the availability to
an alien of a legal mechanism to verify the lawfulness of the requisition made
in that case as an element of the FPS standard.26
24. In Lauder, the tribunal affirmed an FPS duty to keep the judicial system
available to the investor27 and in Saluka, that duty was interpreted to include
the obligation to make available appeal mechanisms.28 However, in both these
cases, the tribunals found that the FPS standards had not been violated, which
24
Award, 6 February 2007, para 303.
25
Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January 2007,
para 303.
26
ELSI case, para 111.
27
Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award, 3 September 2001, para 314.
28
Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006,
paras 493, 496.
348 R. Weeramantry
draws attention to the difficulties in proving a breach of an FPS obligation to

provide legal security. In Frontier Petroleum Services, even though the FPS
provision’s wording was standard, i.e., “full protection and security”,29 the
tribunal held that “the duty of protection and security extends to providing a
legal framework that offers legal protection to investors – including both
substantive provisions to protect investments and appropriate procedures
that enable investors to vindicate their rights.”30 Often, FPS require-
ments also impose a positive obligation on a State to diligently prosecute
those who have wrongfully injured an investor or its investments, as is evident
from the quotation at paragraph 17 above by the El Paso tribunal.31
25. The second group of cases sees FPS as requiring the State to provide stability
for investments and certainty in the legal system.32 For example, in Azurix v.
Argentina, the tribunal held that
full protection and security was understood to go beyond protection and security
ensured by the police. It is not only a matter of physical security; the stability afforded
by a secure investment environment is as important from an investor’s point of view.33
26. Similarly, the Biwater Gauff tribunal emphasized the need for a stable invest-
ment environment when it observed that FPS:
implies a State’s guarantee of stability in a secure environment, both physical, com-

mercial and legal. It would in the Arbitral Tribunal’s view be unduly artificial to confine
the notion of ‘full security’ only to one aspect of security, particularly in light of the use
of this term in a BIT, directed at the protection of commercial and financial
investments.34
27. In contrast to this approach, the tribunal in Eureko v. Poland held that the
obligation to provide a stable investment climate forms part of the FET
29
Art 3(1) Canada-Czech Republic BIT (1990).
30
Frontier Petroleum Services Ltd v. Czech Republic, UNCITRAL, Final Award, 12 November
2010, para 263.
31
See also Wena Hotels Ltd. v. Arab Republic of Egypt, Award, 8 December 2000, ICSID Case No.
ARB/98/4, paras 82, 84, 94, 95 (holding that Egypt's failure to impose sanctions on reponsible third
parties who had seized an investment constituted a breach of an FPS obligation).
32
Cordero-Moss G (2008) Full protection and security. In: Reinisch A (ed) Standards of investment
protection. Oxford University Press, p 145.
33
Azurix Corp. v. The Argentine Republic, Award, 14 July 2006, ICSID Case No. ARB/01/
12, para 408.
34
Biwater Gauff Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 23 July
2008, para 729.
standard, and did not enter into a discussion as to whether this obligation was a
part of the FPS standard.35 As the following passage by Newcombe and
Paradell illustrates, stability of the legal framework may form an essential
part of the FET standard:
Tribunals have found that the stability and predictability of the legal framework is an
essential element of fair and equitable treatment. When investors acquire rights under
domestic law, the fair and equitable treatment standard will protect legitimate expec-
tations about the use and enjoyment of these rights. This requires a basic level of
stability and predictability in the legal framework. Fundamental changes in the legal
framework that eviscerate legitimately acquired rights are likely to violate fair and
equitable treatment.36
28. However, this description of FET may be distinguishable from FPS as the
former relates not to providing a stable environment but to a State refraining
from making changes that will undermine the legal framework that the investor
depended on and expected to continue.
29. As is discussed below, cases extending FPS beyond physical protection and into
legal security raise complex issues as to the boundary between FET and FPS and
when it is appropriate to invoke FPS when arguably FET may provide the
relevant protection, or vice versa.
Differences Between FPS and FET
30. In the early days of investment arbitration, the issue as to whether an overlap
existed between FPS and FET was not the subject of much debate. Two of the
most prominent cases that were forerunners in applying the FPS standard were
Asian Agricultural Products Ltd. v. Sri Lanka37 and American Manufacturing
& Trading, Inc. v. Zaire.38 These cases related to physical destruction caused
by the respondent State’s armed forces. Liability under FPS in these cases was
therefore relatively straightforward, with no real need to engage FET.
31. Another notable early case is Wena Hotels v. Egypt. That case has been viewed
as an instance of a tribunal equating FPS and FET.39 However, a closer
examination of this case does not show this to be correct. A problematic
issue associated with the Wena Hotels award is that it refers to the two
35
Eureko B.V. v. Republic of Poland, Partial Award, 19 August 2005, paras 240, 248, 250, 251, 253.
36
Kluwer, p 286.
37
Asian Agricultural Products Ltd. v. Sri Lanka, Award, 21 June 1990, ICSID Case No. ARB/87/3.
38
American Manufacturing & Trading, Inc. v. Zaire, Award, 21 February 1997, ICSID Case No.
ARB/93/1.
39
Schreuer C (2010) Full protection and security. J Int Dispute Settl 13.
350 R. Weeramantry
standards without identifying any difference between them. For example, the
award frequently makes reference Egypt’s failure to “accord Wena’s invest-
ments ‘fair and equitable treatment’ and ‘full protection and security’” in a
way that may indicate they were combined into a unified standard. But the
absence of any explanation as to what the tribunal considered to be the
difference between FET and FPS does not necessarily mean that the tribunal
actually conflated the two standards and treated them as the same.
32. The wrongful acts in Wena Hotels related not only to physical damage and
failure to prevent physical damage but also concerned wrongful conduct in
issuing hotel licences.40 The latter relates to conduct that would more appro-
priately classify as an FET violation. Accordingly, it is not accurate to say that
Wena Hotels solely concerned physical damage and that the tribunal deployed
both FET and FPS in respect of that damage when only FPS should have been
applied. The factual matrix also concerned regulatory abuse, an independent
BIT violation that more logically fits within the contours of FET rather than
FPS.41 It may be concluded therefore that a specific role existed for both FET
and FPS in Wena Hotels and the tribunal did not equate the two.
33. The passing of time saw more complex disputes tease out FPS issues that were
not present in the earlier cases. Claimants started to assert that a breach of the
FET standard ipso jure resulted in a failure to accord FPS, an argument which
had varying degrees of success. The tribunals that rejected this type of argu-
ment and held that the two standards were separate and independent (i.e., a
breach of one does not automatically lead to a breach of another) have offered
different reasons for this view.
34. Some tribunals have emphasized the different location of the two standards in
the body of the BIT. In Arif v. Moldova,42 for example, the tribunal held that it
is not persuaded by Claimant’s argument that if a State breaches the FET standard, it is
ipso facto also in breach of the FPS standard. The standard of FPS is clearly addressed
in a separate article in the BIT. The Tribunal therefore finds that FPS is a separate and
independent standard to that of FET.43
35. Other tribunals, such as Mamidoil v. Albania, have reasoned through deploy-
ment of the treaty interpretation rules in Article 31 of the Vienna Convention
40
Wena Hotels Ltd. v. Arab Republic of Egypt, Award, 8 December 2000, ICSID Case No. ARB/98/
4, para 92.
41
See Cordero-Moss G (2008) Full protection and security. In: Reinisch A (ed) Standards of
investment protection. Oxford University Press, p 147.
42
Franck Charles Arif v. Moldova, Award, 8 April 2013.
43
Franck Charles Arif v. Moldova, Award, 8 April 2013, para 505. Likewise, in Jan de Nul N.V. v.
Arab Republic of Egypt, Award, 6 November 2008, ICSID Case No. ARB/04/13, para 269 the
tribunal held that “The notion of continuous protection and security is to be distinguished here from
the fair and equitable standard since they are placed in two different provisions of the BIT, even if
the two guarantees can overlap.”
on the Law of Treaties (Vienna Convention) that FPS and FET

are distinguishable:
[. . .] The Tribunal first notes that the obligation to provide constant protection and
security must not be confounded with the obligation to provide fair and equitable
treatment. The distinction between the standards in treaties such as the ECT is of
relevance. It would violate the principles of treaty interpretation under the Vienna
Convention on the Law of Treaties to confuse the meaning of protection and security
with that of a fair and equitable treatment.
[. . .] The Tribunal concludes therefore that both claims have to be examined
separately. The fact that the Tribunal rejected the FET claim does not imply the
rejection of the claim for a violation of protection and security.44
36. In Electrabel v. Hungary, the tribunal relied on the principles of treaty inter-
pretation, but more particularly on the principle of effectiveness (which is not
specified in the Article 31 of the Vienna Convention). The tribunal took the
view that FET and FPS are two distinct standards and “must have, by applica-
tion of the legal principle of ‘effet utile’, a different scope and role.”45
37. Substantive differences have also been raised to accentuate the independence
of the two standards, for example, the ability under the FPS standard (but not
under FET) to hold a State responsible for failing to prevent damage caused by
third parties.
38. In this context, the Oxus Gold v. Uzbekistan tribunal distinguished FPS from
FET by stressing that FPS serves to complement FET by providing investor
protection in relation to acts by third parties (which protection FET was not
able to provide), with the caveat that FPS did not go as far as to oblige the State
to require that third parties treat the investor fairly and equitably:
the general FPS standard complements the FET standard by providing protection
towards acts of third parties, i.e. non-state parties, which are not covered by the FET
standard. Thus, where an incriminated act is done by a State-organ, the applicable
standard is the FET standard, whereas where such act is done by a non-state entity, the
applicable standard becomes the FPS standard. [. . .] The question thus arises whether
the ‘obligation of vigilance and due diligence’ of the FPS standard is of the same nature
and scope as the obligations arising out of the FET standard, i.e. whether the FPS
standard prescribes to ensure investors ‘fair and equitable’ treatment by non-state
entities. It seems obvious that a State is not in a position to ensure the level of
commitment with regard to the conduct of non-state entities, including commercial
entities which are State-owned but operated independently according to commercial
law and practice, compared with the conduct of its own organs. As such, under the FPS
standard, an investor may not expect a State to ensure that the investor be treated ‘fairly
and equitably’ by any third party, but instead the investor has the right to expect that the
44
Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. Republic of Albania, Award, 30 March
2015, ICSID Case No. ARB/11/24, para 819–820.
45
Electrabel S.A. v. Republic of Hungary, Award, 25 November 2015, ICSID Case No. ARB/07/19,
para 7.83.
352 R. Weeramantry
State takes reasonable measures within its power to prevent wrongful injuries by third
parties, and where such injuries have already happened, to punish them.46
39. Tribunals have also held that FPS is different to FET because the former requires
the taking of positive action to protect and also covers action by private persons,
which the FET obligation does not. For example, in Frontier Petroleum v. Czech
Republic the tribunal observed that
full protection and security obliges the host state to provide a legal framework that
grants security and protects the investment against adverse action by private persons as
well as state organs, whereas fair and equitable treatment consists mainly of an
obligation on the host state’s part to desist from behaviour that is unfair and
inequitable.47
Overlaps Between FET and FPS
40. As seen above, the deployment of FPS to provide remedies for damage to
physical property generally does not overlap with the FET standard when that
damage is caused by third parties. However, the distinction between FPS and
FET often begins to erode when the FPS standard is interpreted as obliging
States to provide legal (and not physical) security. Newcombe and Paradell take
the view that generally the concept of legal security under FPS is absorbed by
the FET standard:
In practice, since most [investment treaties] already accord fair and equitable treat-
ment, whether protection and security obligations extend to legal security and the
stability and predictability of the regulatory framework is unlikely to affect the outcome
of a case. Further, since fair and equitable treatment includes treatment in accordance
with the minimum standard, it would appear that a general fair and equitable treatment
clause includes the protection and security obligation.48
41. An authority frequently cited by commentators as an example of a tribunal

equating the FET and FPS standards is Occidental v. Ecuador.49 The tribunal in
that case held that Ecuador had breached its obligations to accord FET under the
USA-Ecuador BIT. Immediately thereafter, the tribunal continued:
46
Oxus Gold v. Uzbekistan, UNCITRAL, Award, 17 December 2015, para 353.
47
Frontier Petroleum Services Ltd v. Czech Republic, UNCITRAL, Final Award, 12 November
2010, para 296 (emphasis added).
48
Kluwer, p 314.
49
Occidental Exploration and Production Company v. Ecuador, Final Award, LCIA Case No.
UN3467, 1 July 2004.
In the context of this finding the question of whether in addition there has been a breach
of full protection and security under this Article becomes moot as a treatment that is not
fair and equitable automatically entails an absence of full protection and security of the
investment.50
42. Occidental is therefore a case in which the tribunal considered that FET overlaps
with the FPS standard to such an extent that the breach of the former automat-
ically constitutes a breach of the latter. But note must be made that the FET issue
in Occidental concerned Ecuador’s failure to provide “stability of the legal and
business framework.”51 So it was not the FPS standard in general that was moot
in Occidental. The FPS element that was considered by the tribunal to have no
practical relevance was limited to legal security.
43. A number of other tribunals have likewise held that their determination of an
FET claim is also dispositive of a separate FPS claim. These cases typically
are associated more with legal security rather than physical protection. For
example, in Achmea BV v. Slovak Republic the FET breach concerned the
impact of government policy on an insurance company. The tribunal considered
that there was no need to deal with the “claim under [the FPS provision]
separately from the claim under [the FET provision]. It regards its decision in
respect of the claim under [the FET provision] as disposing of both claims.”52
Similarly, in Impregilo SpA v. Argentina, Argentina's conduct in relation to the
claimant's contractual rights was held to be in breach of its FET obligations.
Consequently, the tribunal found that “where, as in the present case, there has
been a failure to give an invesment fair and equitable treatment, it is not
necessary to examine whether there has also been a failure to ensure full
protection and security.”53
44. A more cautious position was taken by the PESG v. Turkey tribunal, which noted
that FPS:
has developed in the context of the physical safety of persons and installations, and only
exceptionally will it be related to the broader ambit noted in CME [i.e. legal security].
To the extent that there is such an exceptional situation, the connection with fair and
equitable treatment becomes a very close one.54
50
para 187.
51
para 183.
52
Achmea B.V. v. Slovak Republic, UNCITRAL Final Award, 7 December 2012, para 284.
53
Impregilo S.p.A. v. Argentina, Award, 21 June 2011, ICSID Case No. ARB/07/17, para 334. See
also Azurix Corp. v. Argentina, Award, 14 July 2006, ICSID Case No. ARB/01/12, para 408; and
Spyridon Roussalis v. Romania, Award, 7 December 2011, ICSID Case No. ARB/06/1, para 321.
54
PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve
Ticaret Limited Sirketi v. Republic of Turkey, Award, 19 January 2007, ICSID Case No. ARB/02/5,
para 258.
354 R. Weeramantry
45. In contrast to the approaches taken in the Occidental, Achmea and Impreglio
cases, the position of the PESG tribunal displays more fidelity to the indepen-
dent nature of an FPS provision despite its close interrelationship with FET.
Concluding Remarks
46. The review of the FPS standard in this Chapter shows that its expression in
treaties lacks uniformity and its application by tribunals varies widely. The case
law discussed above indicates little (if any) controversy in the notion that FPS is
a distinct and separate standard to FET when it obliges States to act with due
diligence to prevent physical damage to investors and their property, even as a
result of acts of private parties. However, arbitral tribunals have struggled to
develop a consistent approach when a claimant seeks to extend FPS beyond
physical protection to legal security.
47. As discussed, a number of tribunals have considered this wider role of FPS as
overlapping with FET and have absorbed FPS into FET or effectively rendered
FPS’s role in relation to legal security redundant. Nonetheless, despite the close
interrelationship between FET and FPS, the two are still distinguishable. The
continued inclusion by States of both FPS and FET standards in treaties suggests
that these standards are intended to give rise to different substantive obligations.
Otherwise, FPS would find no place a treaty that contans a FET provision.
48. Due recognition and fidelity must be given to a treaty’s text. That is a bedrock
principle of treaty interpretation that must be applied to FPS and FET provisions.
Moreover, any approach that treats – without proper justification – FPS and FET
as one and the same is subject to the criticism that it ignores the important
principle of effet utile. That well-settled principle requires meaning to be given
to every treaty provision and prevents the interpretation of FET provisons in an
manner that renders FPS provisions in the same treaty superfluous.
49. Problems also arise in tribunal decisions that simply conclude that a breach of
either FPS or FET also ipso jure amounts to a breach of the other. Whether or not
this is a pragmatic method of judicial economy in award writing, it is important
for the legitimacy of the decision-making process that dedicated reasons are
provided for each standard that is claimed to have been breached.
50. One technique that appears to be underused but may serve to solve some of the
problems encountered in the application of both FPS and FET is to consider FPS
as the lex specialis where the claim alleges that the respondent State should have
taken positive steps to protect either tangible or intangible property (especially
where harm has been caused by private parties), whereas FET is the lex specialis
where the claim alleges that the State caused harm by wrongfully changing its
prior conduct or assurances.
51. From the persective of a State's FPS or FET obligations, some factors that may
assist in prioritizing or distinguishing one or the other standard are set out in the
table below.
State’s FPS obligations State’s FET obligations

1. A positive obligation to take reasonable 1. An obligation to refrain from changing a
steps to protect investors or their State’s own conduct or assurances on which an
investments (either tangible or intangible) from investor’s decision to invest or legitimate
wrongful harm by a State’s organs or agencies expectations is based
2. A positive obligation to provide a legal or 2. An obligation to desist from
administrative system that grants legal fundamentally changing the legal framework
security to the investor (e.g., by enabling the in which an investor legitimately acquired
investor to make claims or appeals in respect of rights or expectations
domestic law violations before impartial and
effective courts or tribunals)
3. A positive obligation to exercise due 3. There appears to be no FET obligation
diligence to protect investors and investments to take positive steps to ensure a
from wrongful physical harm by private private person treats an investor fairly or
persons equitably
4. If physical harm has resulted from a 4. There appears to be no FET obligation
wrongful act, a positive obligation to diligently to prosecute or sanction a private person who
prosecute or sanction a State representative or has - through unfair or inequitable treatment -
private person responsible for the harm caused harm to an investor
52. The final remark to be made in this examination of the FPS standard’s interre-
lationship with FET concerns two statistics that are derived from data-mining
relevant arbitral awards. First, FPS is invoked far less frequently by investors
than FET in investment treaty cases. An UNCTAD study indicates that FET-
based claims are made in 50 per cent more cases when compared to claims based
on FPS.55 Second, the rate of success of FET claims is far higher than FPS
claims. The same UNCTAD study found that out of 401 cases in which FET
claims were alleged, the investor succeeded in 103 cases. A very different result
was found in relation to FPS allegations, which were made in 206 cases. The
investor prevailed in only 20 of these cases. In other words, the chances of
success of FET claims are approximately one in four, whereas for FPS, it is only
one in ten.
53. This difference in FET and FPS success rates may be explained by the difficulty
in establishing that a State had a positive obligation to provide a stable or secure
legal system or that it failed to exercise due diligence to prevent third parties
from causing harm. This appears to be a more onerous task than proving that a
respondent State changed its behavior in a way that produced unfairness or
inequity. In the latter, the change can be measured against conduct that in
fact occurred at a prior point in time. In the former, it is difficult to assess
what precisely had to be provided, and also to establish a lack of diligence in
complex or chaotic situations that lead to property damage.
55
This UNCTAD study examined approximately 550 investment treaty arbitrations and found that
FET, indirect expropriation and FPS were alleged in 401, 359, and 206 cases, respectively. IIA
Issues Note, Issue 3, November 2017, Special Update on Investor-State Dispute Settlement: Facts
and Figures, p. 6.
356 R. Weeramantry
54. This disparity in the frequency of use and the success rates of FPS and FET will
likely continue. But while FET stands to be the more popular basis on which to
make a claim, this should not mean that FPS should lose its relevance or
importance, especially because – as this Chapter has shown – FPS has distinct
characteristics and roles, which should not be equated with FET.
Performance Requirement Prohibitions in
International Investment Law 14
David Collins
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
Performance Requirements in International Trade Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Agreement on Trade-Related Investment Measures (TRIMs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
Other WTO Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
Performance Requirements in International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
International Investment Agreements (IIAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366
Domestic Foreign Investment Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Digital Trade Rules asPerformance Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376
Abstract
This chapter explores the way performance requirements have been restricted in
international investment law, commencing with a discussion of the investment-
oriented aspects of WTO law (the most important of which is the TRIMs Agree-
ment) and continuing with an examination of the prohibition on performance
requirements contained in international investment agreements (IIAs). It notes
that the established understanding of performance requirements as conditions
placed on foreign investors to structure their behavior in a manner that serves the
interest of the host State but which is often discriminatory and harmful to a firm’s
competitiveness may need to be expanded as the types of conditions imposed on
foreign firms have changed. In particular this chapter draws attention to rules
prohibiting forced technology transfer and, even more innovatively, data localiza-
D. Collins (*)
International Economic Law, City, University of London, London, UK
e-mail: david.collins@utoronto.ca; david.collins.1@city.ac.uk

https://doi.org/10.1007/978-981-13-3615-7_3
358 D. Collins
tion requirements in relation to digital trade. It suggests that the developmental

potential of performance requirements must not be ignored as new disciplines
governing their use are developed in line with changes to the modern global
economy.
Keywords
Performance requirements · Local content · Trade-related investment measure ·
Technology transfer · Digital trade · Data localization
Introduction
Host States sometimes impose conditions on foreign investors for them to be granted
admission into their territory for the purposes of conducting their commercial
activities. If there is an international investment agreement (IIA) in place between
the home State of the investor and the host State, the fulfillment of these conditions
will also affect the investor’s ability to access the legal protections available under
that treaty. Many such conditions fall under the general heading of “performance
requirements,” and, because they place additional obligations on foreign investors
which are typically not borne by domestic ones, their use tends to be highly
circumscribed in international investment law as embodied in IIAs and in invest-
ment-oriented trade agreements, such as those of the World Trade Organization
(WTO).
A largely unexplored topic by legal academics,1 performance requirements may
take the form of a specific business structure, such as a mandatory joint venture with
a local partner. More traditionally, performance requirements may specify that the
foreign investor must use a given percentage of local products, hire local workers, or
engage in knowledge exchange (or more recently, technology transfer) with local
firms. Performance requirements are often associated with domestic industries which
are the least able to withstand foreign competition from larger, well-resourced
multinational enterprises. As tools of economic development, the use of performance
requirements is reflected in the concept of “infant industries,” in which special
treatment toward underdeveloped but promising domestic firms is justified because
it is designed to allow the firm to reach maturity and thrive in a globalized market,
enhancing the health of the domestic economy in the longer term. Many developed
States implemented strategies like this during their process of industrialization in the
twentieth century. This is precisely why the prohibition of performance requirements
today is associated with some resentment by developing States.2
Performance requirements imposed on foreign firms as a condition of entry may
further be regarded as an instrument through which the host State can better control
1
For example, Collins D (2016) Performance requirements and investment incentives under
international economic law. Edward Elgar.
2
Trebilcock M (2011) Understanding trade law, Ch. 16. Edward Elgar.
14 Performance Requirement Prohibitions in International Investment Law 359
the nature of the foreign direct investment (FDI) which it receives, allowing the host
State to assert a degree of autonomy over the influence of foreign enterprises in its
domestic markets much as it maximizes the overall benefits of FDI to its economy.
This is an acute concern for many capital-importing States in terms of perennial
issues such as the loss of economic sovereignty, dependency, and the risk of capital
flight associated with FDI. In some cases, performance requirements will be used to
structure FDI in a manner that is more socially desirable, for example, by requiring
the use of environmentally sustainable equipment, as in the energy sector3, or by
hiring workers from disadvantaged groups, as in the extractive sector.4 Performance
requirements are often tied to investment incentives, meaning advantages accorded
to foreign investors beyond that which are available to local firms.5
This chapter will examine the extent to which performance requirements in their
many forms are controlled under international investment law. It will approach the
topic in Part II by introducing restrictions placed on performance requirements in
international trade law where they were originally conceived as trade-related invest-
ment measures, essentially tools designed to compel foreign investors to purchase
local parts as inputs. Other aspects of international trade law which curtail the use of
less-traditional forms of performance requirements will be examined, including
those relating to the patentability of intellectual property and conditions imposed
on foreign firms bidding for procurement contracts. Part III of this chapter will turn
to international investment law itself, exploring the prohibitions on performance
requirements contained in IIAs, noting how the concept has expanded to address the
controversial issue of technology transfer more directly, which appears in the
domestic foreign investment laws of some countries. From here the chapter will
move more tentatively into the nascent field of digital trade, suggesting that the
understanding of performance requirements must be expanded yet further to encom-
pass rules on data localization and disclosure of source code. It will suggest that
efforts to liberalize digital trade through regional trade agreements (RTAs) restricting
the imposition of these types of performance requirements are in keeping with the
prohibition against local content rules which characterized twentieth industrializa-
tion but may be antithetical to the developmental agenda of modern international
economic law.
Performance Requirements in International Trade Law
Performance requirements are tightly controlled by international trade law at both

the multilateral and bilateral (or regional) level. This section will consider the extent
to which they are regulated by the law of the WTO. Coverage of this issue under
3
United States – Certain Measures Related to Renewable Energy, Request for Consultations by
China, WT/DS563/1, G/L/1258 G/TRIMS/D/43, G/SCM/D120/1 (14 August 2018).
4
Roeder R (2016) Foreign investment mining law. Springer, pp 95–107.
5
See Collins, above n 1.
360 D. Collins
RTAs tends to fall within the scope of international investment law because disci-
plines relating to performance requirements in RTAs usually appear in the invest-
ment rather than the trade chapters of these instruments. They will be accordingly
considered in Part III.
Agreement on Trade-Related Investment Measures (TRIMs)
The most important sphere of international trade law dealing with performance
requirements is the WTO Agreement on Trade-Related Investment Measures
(TRIMs). The TRIMs Agreement prohibits a range of performance requirements
which a host State might otherwise attempt to impose on the admission of foreign
investor. More specifically, the TRIMs Agreement prohibits a subset of performance
requirements which it terms “trade-related investment measures” or TRIMs. These
are conditions that impact foreign firms by imposing direct or indirect quantitative
restrictions on their use of imports or exports. In other words, TRIMs are restrictions
on the use of certain kinds of performance requirements as conditions placed on
foreign investors. The TRIMs Agreement is therefore primarily intended to control
distortions to international trade, not international investment.
The TRIMs Agreement provides that no WTO member may apply a trade-
restrictive investment measure that is inconsistent with the GATT’s commitment to
National Treatment under Article III (essentially prohibiting discrimination against a
product based on its foreign origin) or which is inconsistent with GATT Article XI’s
prohibition on quantitative restrictions.6 For example, a requirement that a foreign
manufacturer of machinery may be allowed to establish in a host State only if it uses
raw materials that were mined in that country would be TRIMs-illegal. While “trade-
related investment measures” themselves are not defined under the TRIMs Agree-
ment, an illustrative list of trade-related investment measures is contained in an
Annex to the TRIMs Agreement itself. The most important of these is the mandatory
use of local materials, a classic trade-distorting measure imposed on foreign manu-
facturers designed to advantage local producers of parts for assembled products.
The TRIMs Agreement has been the subject of limited jurisprudence under the
WTO dispute settlement system, probably because it merely reaffirms the applica-
tion of GATT Article III.4 (National Treatment for all kinds of regulations) to certain
forms of FDI.7 Furthermore, many developing country members of the WTO had
already adopted an approach to the admission of FDI that was consistent with the
TRIMs Agreement by the time it was concluded.8 Most of the WTO disputes citing
TRIMs Agreement provisions have been related to the automotive industry which is
not surprising given the significant role that the automotive manufacturing sector has
6
TRIMs Agreement Art 2 (1) and (2).
7
Trebilcock, above n 2 Ch 11.
8
Mosoti V (2005–2006) Bilateral investment treaties and the possibility of a multilateral framework
on investment at the WTO. Northwest J Int Law Bus 26:95 at 201.
played in the economy of many developed countries. Foreign investment in the

automotive industry has also traditionally been subjected to conditions imposed by
host States such as quantitative restrictions and local content rules, in some cases
designed to stimulate the local economy for purely protectionist aims. As will be
seen below, the TRIMs Agreement has become relevant more recently in relation to
high-technology manufacturing in the pharmaceutical industry.
The European Communities (EC), Japan, and the USA requested consultations
through the WTO dispute settlement procedure against Indonesia regarding its
allegedly restrictive investment policies toward its automotive sector on the basis
of TRIMs Agreement violations.9 Indonesia provided firms (both local and foreign)
with import duty exemptions or reductions on required levels of imports on auto-
motive parts based on the percentage of local content that they used in their
manufacturing. It also offered tax and import duty exemptions as incentives to
firms based on the degree of local content, effectively constituting a breach of
National Treatment against foreign-produced components. The complainants argued
that Indonesia’s measures were also inconsistent with various provisions of the
GATT as well as Article 2 of the TRIMs Agreement – the substantive prohibition
on National Treatment and quantitative restrictions being used in conjunction with
foreign investment laws. The panel agreed with most of these claims, ruling that the
relevant measures implemented by Indonesia constituted local content requirements
that were TRIMs-prohibited trade-related investment measures.
The EC and the USA brought TRIMS-based proceedings against India through
the WTO dispute settlement procedure in response to India’s industrial indigeniza-
tion policies.10 The EC and the USA complained that several regulations instigated
by the Indian government in relation to its automobile industry violated GATT
National Treatment and the prohibition on quantitative restrictions as well as Article
2 of the TRIMS Agreement. The relevant Indian laws required that imports of
complete automobiles and of certain parts and components were subjected to a
system of nonautomatic import licenses. Such licenses would be granted only to
approved local joint venture manufacturers. This arrangement obliged manufacturers
to conform to specified local content as well as export-balancing requirements. The
panel ruled that India’s imposition of these requirements on automotive manufac-
turers violated its commitments under the GATT, and having reached this conclu-
sion, it decided that it was not necessary to consider whether the measures also
violated Article 2 of the TRIMs Agreement. The panel chose not to elaborate on the
way in which the TRIMs Agreement would be interpreted; however it did note that
the agreement should not be viewed as a more specific version of the GATT, and as
such it was not compelled to consider the TRIMs before the GATT as in standard
dispute settlement practice.
9
Indonesia – Certain Measures Affecting the Automobile Industry, Panel Report, WT/DS54/R, (23
July 1998).
10
India – Measures Affecting the Automotive Sector, Panel Report, WT/DS146/R, (5 April 2002).
362 D. Collins
Canada faced a complaint under the TRIMs Agreement from the EU in relation to
its feed-in-tariff program through which it imposed restrictions on the sale and
distribution of equipment for renewable energy generation (including wind and
solar) facilities.11 The EU (along with Japan) alleged that Canada accorded less
favorable treatment to foreign suppliers of the equipment than it did to local ones, in
violation of the National Treatment obligation of the GATT as well as Article 2.1 of
the TRIMs Agreement. The measure in question required that the renewable energy
equipment had to be supplied with a minimum content (25% for wind and 60% for
solar power) from local firms. These were effectively domestic content requirements,
affording protection to local producers of this kind of equipment. The Canadian
government had maintained that the local content measures were necessary to
promote the use of clean energy. The panel upheld the EU’s claims under Article
2.1 of the TRIMs Agreement, as well as under the GATT, ruling that the measure fell
within the type of trade-related investment measure described in Article 1(a) of the
agreement’s illustrative list, namely, a local content requirement. The panel consid-
ered also whether Canada could rely upon Article III:8(a) of the GATT’s National
Treatment provision (which excluded government procurement activities from the
scope of the National Treatment obligation) to justify breach of Article 2.1 of the
TRIMs Agreement, ultimately ruling that Canada could not do so because the feed-
in-tariff program covered the procurement of electricity that was undertaken with a
view to commercial resale, which fell outside the rubric of procurement which
contemplated governmental use. The panel’s recommendation was appealed to the
Appellate Body which upheld the panel’s determination that the local content
features of the feed-in-tariff measure contravened Article 2.1 of the TRIMs Agree-
ment, further confirming that Article III:8 of the GATT was not applicable to the
feed-in-tariff measures because they involved commercial sales rather than procure-
ment activities.
Japan recently brought a TRIMs Agreement claim against Brazil in relation to
taxes and other charges in the automotive sector and in the electronics/technology
sector. Under Brazil’s scheme, lower taxes were granted on automobiles which were
manufactured in Brazil or which invested in facilities in Brazil. To receive the lower
tax treatment, the company must satisfy a set of requirements, including a minimum
number of manufacturing activities in Brazil and/or minimum levels of expenditure
in Brazil on research and development and capacity building of actual and potential
suppliers. Japan argued that these measures were a violation of Article 2.1 of the
TRIMs Agreement in conjunction with Article 2.2 and with paragraph 1(a) of the
agreement’s illustrative list, because the tax breaks were TRIMs that were inconsis-
tent with GATT National Treatment and because they required the use of automotive
products from domestic sources in order to obtain tax advantages. Regarding
Brazil’s tax incentives in the electronics/technology sector, again, to receive the
special treatment, companies must produce relevant products in Brazil in accordance
11
Canada – Certain Measures Affecting the Renewable Energy Generation Sector, Canada –
Measures Relating to the Feed-in-Tariff Program, Panel Report-WT/DS426/R (19 Dec 2012).
with a particular process involving minimum manufacturing steps to be conducted in

Brazil and/or the use of certain raw materials and components to be produced in
Brazil. A separate “digital inclusion program” required that the electronic goods be
produced or developed in Brazil in order to benefit from the tax advantages. Japan
argued that these requirements breached Article 2.1 of the TRIMs Agreement in
conjunction with Article 2.2 and paragraph 1(a) of the illustrative list of the TRIMs
Agreement. This is because the program and related legal instruments were TRIMs
that were inconsistent with GATT National Treatment and because they required the
use of products from domestic sources in order to obtain tax advantages.12 The panel
concluded that the programs in both sectors imposed tax and regulatory discrimina-
tion inconsistently with GATT National Treatment and Article 2.1 of the TRIMs
Agreement. The panel further ruled that the Brazilian incentive programs were local
content requirements that detrimentally modify the conditions of competition for like
imported input products, inconsistently with GATT National Treatment, and Article
2.1 of the TRIMs Agreement.13 The Appellate Body upheld the panel’s findings in
relation to the discriminatory treatment of foreign producers, including those which
fell within the scope of the TRIMs Agreement.14
In August 2018 China requested consultations through the WTO dispute settle-
ment system with the USA concerning measures allegedly adopted by the govern-
ments of certain US States and municipalities in relation to alleged domestic content
requirements in the energy sector. The measures concerned involved rebates and tax
credits for energy generated from renewable sources, with additional incentives
available for those produced using equipment manufactured within the territory of
certain US States. In addition to various other claimed breaches of WTO law, China
claims that the measures appear to be inconsistent with Articles 2.1 and 2.2 of the
TRIMS Agreement. China asserts that they are in breach of Article 2.1 of the TRIMs
Agreement because the measures appear to be investment measures related to trade
in goods that are inconsistent with National Treatment under the GATT. China
further believes that the incentive packages are in breach of Article 2.2 of the
TRIMs Agreement because the measures appear to be investment measures related
to trade in goods which are mandatory or enforceable under domestic law and
compliance with which is necessary to obtain an advantage. They also require the
purchase or use by an enterprise of products of US origin, as provided for in
paragraph 1(a) of the TRIMs illustrative list.15 This case is currently in consultations.
In April 2019 the EU instigated consultations through the WTO dispute settle-
ment with Turkey regarding various measures it imposes concerning the production,
12
Brazil – Certain Measures Concerning Taxation and Charges, Request for the Establishment of a
Panel by Japan, WT/DS497/3 (18 September 2015).
13
Brazil – Certain Measures Concerning Taxation and Charges, Report of the Panel, WT/DS497/3
(4 October 2017).
14
Brazil – Certain Measures Concerning Taxation and Charges, Reports of the Appellate Body, WT/
DS497/3/AB/R (13 December 2018).
15
United States – Certain Measures Related to Renewable Energy, Request for Consultations by
China, WT/DS563/1 (16 August 2018).
364 D. Collins
importation, and marketing of pharmaceutical products. The EU argues that the

localization requirement for the production of pharmaceutical products is inconsis-
tent with Article 2.1 of the TRIMS Agreement. This is because Turkey requires
foreign producers to commit to locate their production of certain pharmaceutical
products in Turkey. If such commitments are not fulfilled, the pharmaceutical
products concerned are excluded from the scheme for the reimbursement of the
pharmaceutical products sold by pharmacies to patients operated by Turkey’s social
security system which covers the vast majority of sales of pharmaceutical products
by pharmacies to patients. Consequently, if an imported pharmaceutical product is
excluded from the reimbursement scheme, its competitive opportunities in the
Turkish market are significantly impaired as compared with domestically pro-
duced-like products.16 This dispute is currently in consultations.
Other WTO Agreements
Several of the WTO’s other agreements also touch upon performance requirements
in relation to foreign investment. Measures resembling performance requirements
are found in the Trade-Related Aspects of Intellectual Property (TRIPS) Agreement.
In particular, the TRIPS Agreement restricts the use of conditions imposed on
foreign investors by WTO members as host States through its provisions on patent-
able subject matter. The agreement specifies that patents are to be made available
without discrimination and whether products are imported or locally produced.17 In
the absence of this provision, a host State would be able to compel foreign investors
to use local products, or else the benefits of intellectual property protection under the
agreement would be unavailable. The EU raised a complaint regarding Turkey’s
breach of this aspect of the TRIPS Agreement in the pharmaceuticals case noted
above. It asserts that Turkey imposes mandatory technology transfer obligations on
foreign producers as a condition of the patentability of the pharmaceutical products.
This allegedly violates Article 27.1 of the TRIPS Agreement because the technology
transfer requirement, which covers patent rights, does not apply to domestic pro-
ducers of pharmaceutical products. This means that patent protection is not made
available without discrimination as to whether products are imported or locally
produced. As noted above, this case is currently in consultations.
There are some potential performance requirement issues found in the provisions
of the GATT which were designed to assist developing countries, which comprise
two-thirds of WTO membership. GATT Article XVIII contains an “infant industry”
protection for developing countries members, allowing them to impose protective
measures to assist in the establishment of an industry which would otherwise be
unable to withstand global competition, as mentioned earlier. Although Article
16
Turkey – Certain Measures Concerning the Production, Importation and Marketing of Pharma-
ceutical Products, WT/DS583/1 (10 April 2019).
17
Art 27.
XVIII(3), which references support for particular industries, speaks only of tariffs
and quantitative restrictions (arguably not performance requirements), Article XVIII
(4)a) refers to developing countries’ ability to “deviate temporarily from the pro-
visions of the other Articles of this Agreement” in order to achieve further develop-
ment. This provision may be construed to permit performance requirements, such as
local content or technology transfer rules which might otherwise violate the TRIMs
Agreement or the TRIPS Agreement. Together, along with various other aspects of
WTO law including GATT Article XXXVII, these provisions reveal the underlying
developmental agenda of the WTO – the benefits of globalization should be enjoyed
by all countries. Measures such as performance requirements should therefore be
approached with a degree of leniency as these may facilitate the participation of
lesser developed countries in the global economy.
Some mention should be made of the investment-oriented provisions of the
WTO’s Government Procurement Agreement (GPA) and related performance
requirement controls. The GPA is a plurilateral WTO Agreement with 19 signatory
parties as well as all EU Member States. It is of relevance to international
investment law because of the requirement that locally established suppliers
must not be treated more favorably with respect to procurement rules, essentially
a prohibition against discrimination based on whether a foreign supplier has
established an investment presence in the procuring State.18 The GPA also contains
provisions which are designed to prevent the use of performance requirements,
although that term is not used. Rather, in the context of the GPA, performance
requirements take the form of “offsets.” Offsets are conditions imposed by gov-
ernments on supplying firms to ensure a degree of local content or local participa-
tion. For supplying firms, offsets constitute additional conditions set out in tender
documentation that are not directly related to the relevant procurement. Offsets
may be viewed as discriminatory in that they provide an advantage to firms using
domestic goods and services instead of those which are produced internationally.19
Article 1 (l) of the GPA defines offset to mean: “any condition or undertaking that
encourages local development or improves a Party’s balance-of-payments
accounts, such as the use of domestic content, the licensing of technology, invest-
ment, counter-trade and similar action or requirement.” Article IV goes on to
prohibit offsets in the following manner: “With regard to covered procurement, a
Party, including its procuring entities, shall not seek, take account of, impose or
enforce any offset.” The same provision appears in the procurement chapter of
some RTAs, notably Chapter 15 of the Comprehensive Progressive Trans-Pacific
Partnership (CPTPP).20 There is no case law under the GPA with respect to offsets
or their prohibition. While the prohibition of offsets should be welcomed by many
18
Art IV (2).
19
Collins D (2018) Government procurement with strings attached? The uneven control of offsets
by the World Trade Organization and regional trade agreements. Asian J Int Law 8(2):301–321.
20
Art 15.4 (6).
366 D. Collins
suppliers from industrialized countries which are able to compete globally, the
denial of offset provisions as a way of strengthening the contribution of foreign
firms to the economies of host States, especially in the developing world, may be
viewed as unequal at best and potentially harmful at worst. It is noteworthy that the
prohibition on offsets in the GPA does not apply to developing countries, in the
event any accede to the GPA.21
A final method by which WTO law circumscribes the use of performance
requirements may be found in members’ accession protocols that of China in
particular. Accession protocols apply a specialized system of rules to newly joining
WTO members, typically designed to cushion the shock of adaptation to the WTO
Single Undertaking and to accommodate countries which do not have market-
oriented economies where some of the WTO rules are more problematically
applied.22 In this regard, China’s WTO Accession Protocol prohibits performance
requirements under the Article 7 nontariff measures section (Art 7.3): “China shall
eliminate and cease to enforce trade and foreign exchange balancing requirements,
local content and export or performance requirements made effective through laws,
regulations or other measures.” This is framed as a fulfillment of the TRIMS: “China
shall, upon accession, comply with the TRIMs Agreement.” Interestingly this does
not go as far as imposing a restriction on mandatory technology transfer, a concept
which will be returned to below. Rather, it is a more conventional prohibition on
manufacturing-oriented, trade-distorting measures, as performance requirements
have been traditionally understood. Having introduced performance requirements
in their trade context, this chapter will now turn to the way in which they are handled
in international investment law.
Performance Requirements in International Investment Law
This section will explore the main aspect of the chapter – the potential for perfor-
mance requirements to impact on international investment, meaning the location of
the facilities of an enterprise from one State into the territory of another State.
International Investment Agreements (IIAs)
As discussed throughout this volume, international investment agreements (IIAs) are

the dominant source of international investment law in the twenty-first century,
having displaced customary international law in that role for the most part, although
customary international law retains some force in many areas. There are now many
thousands of IIAs, with many of the modern agreements consisting of investment
chapters in RTAs. Newer IIAs tend to cover more material than their earlier forms
21
Art V.3 (b).
22
Geraets D (2018) Accession to the World Trade Organization. Edward Elgar.
and are typically somewhat more nuanced in terms of the balancing of obligations
between investors and host States.23 This is partially true in terms of their approach
to performance requirements.
Generally speaking, performance requirements are prohibited in most IIAs. As
dedicated obligations within IIAs, prohibitions on performance requirements oper-
ate to preclude host States from imposing a range of conditions on foreign
investors as a condition of entry or as a condition of enjoying the protections of
the IIA. In that sense they accord equality of competitive conditions between
national and domestic investors, as captured in the National Treatment provisions
found in most IIAs. Performance requirement prohibitions prevent host States from
creating a situation in which foreign firms are required to bear more onerous
obligations than local ones, even where this might be used as an aid to develop-
ment or industrialization.
The performance requirement prohibitions found in many older IIAs simply
consist of an incorporation of the TRIMs Agreement’s prohibitions on the use of
classic TRIMs, such as mandatory local content rules.24 For example, the ASEAN
Comprehensive Investment Agreement (ACIA) affirms the TRIMs Agreement in its
provision on performance requirement prohibitions.25 Some IIAs do not refer to
performance requirement prohibitions at all, affording the host State the ability to use
them as tools of structuring their inward FDI. Where IIAs are silent on the use of
performance requirements, then the TRIMs Agreement will govern (at least where
the State is a WTO member). Modern IIAs between developing States (concluded
within the last 5 years) tend not to include any reference to the use of performance
requirements, reflecting the long-held view that these instruments can help stimulate
productivity, or so it is believed.26
Wider performance requirement prohibitions in IIAs are sometimes referred to as
TRIMs+ obligations because they encompass more conditions than the trade-related
investment measures specified in the TRIMs Agreement. Such broad prohibitions on
admission qualifications for foreign investors are found in numerous RTAs
containing investment chapters.27 For example, the Japan-Singapore Economic
Partnership Agreement contains prohibitions on performance requirements includ-
ing those which are based on labor and environmental standards.28 The prohibition
on performance requirements in NAFTA was perhaps the first example of an
enlarged or TRIMs+ prohibition.29 It has been retained in the new United States-
23
Lim CL, Ho J, Paparinskis M (2018) International investment law and commentary, Chapter 3.
Cambridge University Press.
24
For example, New Zealand – China FTA Art 140 (7 April 2008).
25
Art 7(2).
26
For example, Richardson M (1991) The effects of a content requirement on a foreign duopsonist. J
Int Econ 31(1–2):143.
27
For example, Korea- Australia FTA Art 11.9 (17 February 2014).
28
13 January 2002.
29
Art 1106.
368 D. Collins
Mexico-Canada (USMCA), Article 14.10 of which provides a definitive list of

prohibited performance requirements which goes beyond upon the trade-based
approach reflected in TRIMs. The provision reads as follows:
1. No Party shall, in connection with the establishment, acquisition, expansion, manage-

ment, conduct, operation, or sale or other disposition of an investment of an investor of a
Party or of a non-Party in its territory, impose or enforce any requirement, or enforce any
commitment or undertaking:
(a) to export a given level or percentage of goods or services;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use, or accord a preference to a good produced or a service supplied in its
territory, or to purchase a good or a service from a person in its territory;
(d) to relate in any way the volume or value of imports to the volume or value of exports
or to the amount of foreign exchange inflows associated with the investment;
(e) to restrict sales of a good or a service in its territory that the investment produces or
supplies by relating those sales in any way to the volume or value of its exports or
foreign exchange earnings
(f) to transfer a technology, a production process, or other proprietary knowledge to a
person in its territory;
(g) to supply exclusively from the territory of the Party a good that the investment
produces or a service that it supplies to a specific regional market or to the world
market
(h) (i) to purchase, use, or accord a preference to, in its territory, technology of the Party
or of a person of the Party,13 or (ii) that prevents the purchase or use of, or the
according of a preference to, in its territory, a technology; or
(i) to adopt: (i) a given rate or amount of royalty under a license contract, or (ii) a given
duration of the term of a license contract,
in regard to any license contract in existence at the time the requirement is imposed or
enforced, or any commitment or undertaking is enforced, or any future license
contract freely entered into between the investor and a person in its territory, provided
that the requirement is imposed or the commitment or undertaking is enforced in a
manner that constitutes direct interference with that license contract by an exercise of
non-judicial governmental authority of a Party. For greater certainty, paragraph 1(i)
does not apply when the license contract is concluded between the investor and a
Party.
Also, like NAFTA, the USMCA continues with a prohibition on the use of
performance requirements in conjunction with investment incentives. Much as
performance requirements themselves, some believe that investment incentives are
ultimately harmful to host States.30
The prohibition on technology transfer performance requirements in Article
14.10 of the USMCA is perhaps the most noteworthy in terms of the enlargement
of the prohibition beyond that which is addressed in the TRIMs Agreement. It
prevents signatory States from imposing, as a condition of investing in its territory,
to require an investor from another party “to transfer a technology, a production
30
For example, Charles H, Oman P, Charlton A (2003) Incentives-based competition for foreign
direct investment: the case of Brazil’ OECD working papers on international investment
2003/01.
process, or other proprietary knowledge to a person in its territory.”31 Like the

USMCA, Article 9.10 of the CPTPP specifies the prohibition of the following
measures: “(h) (i) to purchase, use or accord a preference to, in its territory,
technology of the Party or of a person of the Party; or (ii) that prevents the purchase
or use of, or the according of a preference to, in its territory, a particular technology.”
Perhaps best viewed as the opposite of forced technology transfer requirement, this
kind of performance requirement compels the foreign investor to use local technol-
ogy instead of its own.
The China-Hong Kong Closer Economic Partnership Agreement (CEPA) con-
tains prohibition on performance requirements which closely resembles language in
the USMCA (again, inspired by NAFTA). Interestingly it also contains a prohibition
on technology transfer requirements.32 This provision is key because it touches on
one of the main criticisms that the USA has of China’s policy toward FDI and which
is arguably one of the main drivers of the ongoing “trade war” between the two
economic superpowers. It is also worth noting in relation to China-Hong Kong
CEPA, the restriction on performance requirements is limited by Art 7.3 (also similar
to the USMCA) which states that parties can impose performance requirements if
they have a purpose of training employees or expanding facilities or for the purpose
of research and development. These are a narrow set of circumstances relating to
economic development in underdeveloped areas which would likely have limited
impact on China and HK, meaning that the essential prohibition of performance
requirements would remain intact. Still, this does disclose sensitivity to the role that
performance requirements could play in stimulating sectors of the economy which
might be welfare enhancing in the long term were they to receive special treatment in
the shorter term.
It would appear as though that prohibitions on technology transfer (as a modern
iteration of performance requirements) are becoming standard features of IIAs. It
could be argued that technology transfer requirements are justifiable in the case of a
developed/developing country IIA because knowledge exchange is thought to be
one of the main advantages of FDI to developing countries.33 It would appear as
though the acquisition of technology is one of the main drivers for the signing of
IIAs by developing (or emerging countries). Indeed some commentators have
suggested that this may be the primary reason for IIAs in the absence of clear
evidence that these agreements lead to increases in FDI in terms of pure monetary
flows.34 The restriction on technology transfer-oriented performance requirements
must be viewed in light of the obligation which appears in the WTO’s TRIPS
31
Art 14.10 (f).
32
Art 7 (vi).
33
Sanders AK (2018) Incentives and obstacles for innovation. In: Prévost D, Alexovicova I, Pohl JH
(eds) Restoring trust in trade. Hart.
34
Peled H, Harpaz MD (2019) Innovation as a catalyst in the China-Israel investment relationship: the
China-Israel BIT (2009) and the prospective FTA. In: Chaisse J (ed) China’s international investment
strategy: bilateral, regional and global law and policy. Oxford University Press, at 144.
370 D. Collins
Agreement in relation to the encouragement of technology transfer from developed

countries to developing ones (another example of an investment-oriented trade
regulation). The relevant article of TRIPS Agreement reads:
Developed country Members shall provide incentives to enterprises and institutions in their
territories for the purpose of promoting and encouraging technology transfer to least-
developed country Members in order to enable them to create a sound and viable techno-
logical base.35
It could be argued that denying host States the capacity to structure the admission
requirements placed on foreign investors so as to encourage the dissemination of
technological innovations undermines one of the central advantages of FDI, as well
as arguably one of the principles of WTO law and investment treaties, namely, the
achievement of development of the world’s lesser developed States through the more
equal distribution of the benefits of economic globalization.
There have been a handful of investment arbitration cases which have dealt with
the imposition of performance requirements in violation of IIA provisions, most of
which related to claims brought under NAFTA. In Mobil Investments Canada and
Murphy Oil v Canada,36 the tribunal determined the provincial government’s impo-
sition of a requirement on foreign investors to spend several million CDN dollars per
year in research and development as well as education and training was a breach of
NAFTA’s prohibition on performance requirements. The tribunal in CPI v Mexico37
held that an excise tax that was imposed by Mexico on drinks using sweeteners that
were not made from sugar cane effectively forced suppliers to switch from foreign
corn syrup sugars to local cane-based ones. As such it violated NAFTA’s prohibition
on performance requirements. Cargill v Mexico38 was a dispute instigated by a US
sugar company because of alleged tax-based mistreatment at the hands of the
Mexican government. Here the tribunal held that Mexico breached its obligations
under NAFTA through the imposition of a production tax which amounted to a
performance requirement. It determined that Mexico conditioned the tax advantage
on the use of domestically produced cane sugar instead of corn syrup-based sugar for
the very purpose of affecting the sale of local sugar. In ADF v United States,39 a
Canadian construction company argued that the US imposition of a domestic content
requirement violated the performance requirement prohibition of NAFTA. ADF was
obliged to purchase only US steel and either to fabricate that steel in the USA itself or
35
Art 66.2.
36
ICSID Case No. ARB(AF)/07/4 (20 February 2015).
37
Corn Products International, Inc. (Claimant) v United Mexican States (Respondent) ICSID Case
No. ARB(AF)/04/1 – Decision on Responsibility (15 January 2008).
38
Cargill, Incorporated (Claimant) v United Mexican States (Respondent) ICSID Case No. ARB
(AF)/05/2 (Award) (18 September 2009).
39
ADF Group Inc. (Claimant) v United States of America (Respondent) ICSID Case No. ARB(AF)/
00/1 (Award) (9 January 2003).
to subcontract the fabrication to US steel fabricators rather than to its Canadian

parent. The tribunal denied the claim, noting that the investor knew that the relevant
State authority was not subject to NAFTA’s prohibition on performance require-
ments (because it was an exempted procuring entity) and as such was permitted to
enact local content requirements in government construction contracts.
One of the few non-NAFTA investment arbitrations which considered perfor-
mance requirements was Lemire v Ukraine.40 In this dispute the claimant argued
that the host state’s requirement that the investor, a radio broadcaster, play 50%
songs that had Ukrainian content violated the prohibition of performance require-
ments found in the IIA between the USA and Ukraine. Rejecting the investor’s
claim, the Lemire tribunal held that Ukraine had the right to safeguard its national
identity. The tribunal went on to explain that the performance requirement prohi-
bition in the US-Ukraine IIA should be interpreted according to its object and
purpose, which was linked to the overall purpose of improving economic cooper-
ation between the parties, which was not incompatible with protecting Ukraine’s
cultural heritage.
There have been other investment arbitration disputes in which performance
requirements were discussed in terms of their status as conditions imposed on
licensing arrangements.41 In most of these cases, the tribunal rejected the claims of
the investors that the nonrenewal of licenses based on the failure to fulfill these
conditions entitled the investor to be paid damages. Such performance requirements
concerned matters such as the productivity and output of the investing firm as a
contractual obligation and would likely not have been caught by conventional
performance requirement prohibitions in the relevant IIA.
Although this chapter was not intended to address the issue of investment
incentives, often used alongside performance requirements, some comments
should be made regarding the potential of this strategy to draw tax matters into
the realm of international investment law. Generally, IIAs do not apply to tax
measures, as tax tends to be handled through dedicated treaty instruments. This
means that host countries appear to retain total discretion to exercise their tax
incentive policies irrespective of the obligations they have made in their IIAs. Still,
many countries do not appreciate that the prohibition of performance requirement
provisions found in most IIAs does restrict certain forms of tax incentives that are
contingent on host States imposing performance requirements on investors as a
condition of entry or receipt of favorable treatment under domestic laws. For
example, Article 21 the US model BIT of 2012 notes that measures relating to
taxation are in fact covered by the prohibition on performance requirements found
in Article 8 of the same agreement. In other words, tax-oriented performance
40
ICSID Case No. ARB/06/18 (28 March 2011).
41
CMS Gas Transmission Co v Argentina (ICSID Case No ARB/01/8), Award, (12 May 2005) and
Gemplus SA, SLP SA and Gemplus Industrial SA de CV v United Mexican States (ICSID Case Nos
ARB(AF)/04/3 and ARB(AF)/04/4)), Award, (16 June 2010)
372 D. Collins
requirements are often illegal in many IIAs.42 The capacity of performance

requirement prohibitions in IIAs to curtail tax-oriented investment incentives is
particularly important given the observed links between a state’s tax regime and its
capacity to attract FDI. Several studies have shown that the location of FDI tends to
be affected by the average tax rate of the host country.43
Domestic Foreign Investment Laws
Many States maintain foreign investment laws, enacted as domestic statutes, which
can have a significant impact on the activities of foreign investors who will be required
to satisfy these rules as a condition of entry. They may have an even greater impact
than an applicable IIA. Few, if any, of these statutes refer to performance requirements
directly by that term; however some of the more economically important varieties of
performance requirements are sometimes mentioned. For example, the new Foreign
Investment Law of the People’s Republic of China44 lacks a provision on performance
requirements; however it does mention “technology transfer,” which, as noted earlier,
falls within the umbrella of performance requirements in some IIAs. The relevant
provision of the Chinese statute states as follows (translated into English):
. . .The State encourages technological cooperation to be conducted in the course of foreign

investment and on the basis of the principle of voluntariness and business rules. The
conditions for technological cooperation are to be determined through consultation by the
various parties to the investment on the basis of equality and the principle of fairness.
Administrative organs and their employees must not force the transfer of technological [sic]
through administrative measures.45 [emphasis added]
This provision was likely designed to assuage some of the concerns raised by
developed States, including the USA and the EU, in relation to their FDI activities in
China. It is unclear what is meant by the phrases “business rules,” “technological
cooperation,” or the “principle of fairness.” It would appear to suggest that although
foreign investors will never be forced to transfer their technology, they may well be
asked to do so. It may be that failure to respond affirmatively to such requests may
carry informal consequences. This article will now proceed from its discussion of the
more conventional understanding of performance requirements to that which may be
contemplated by some of the emerging rules covering digital trade.
42
Collins D, Park TJ (2017) Interaction of tax incentives and performance requirements in bilateral
investment treaties: its role in implementing right institutions in developing countries. Fordham Int
Law J 41(1):207–226.
43
Wamser G (2011) Foreign (In)Direct investment and corporate taxation. Can J Econ/Revue
Canadienne d’économique 44:1497.
44
15 March 2019.
45
Art 22.
Digital Trade Rules asPerformance Requirements
The rules on digital trade have become the focus of intense discussion in recent
years as the global digital economy has grown enormously. So far, the WTO has
failed to develop multilateral disciplines on this vital aspect of global commerce,
and some RTAs have filled the gap. While it is impossible to discuss the issue in
any depth here, the legal framework governing digital trade is highly relevant to
this chapter in that some of the nascent rules appear to contemplate performance
requirements. Indeed some of the core legal principles in the sphere of digital trade
represent the coming of age of performance requirements, conditionally perceived
as impediments to global production in manufacturing. A study by the OECD
showed that performance requirement-related issues (such as local content or
technology transfer requirements) were reported by a relatively small number of
firms (6%) engaging in digital trade, ranking just ahead of intellectual property
issues but well below the major concerns of nondiscriminatory information flow
and consumer protection.46 Another study by the US International Trade Commis-
sion (USITC) on digital trade identified data localization requirements as one of the
chief barriers to digital trade.47
In terms of its coverage of digital trade issues, the CPTPP is among the most
innovative RTAs in existence.48 One of the most important features of the
CPTPP’s e-commerce chapter relates to the prohibition of data localization
rules, which are arguably a form of performance requirement. Data localization
laws include both the explicit prohibition of and restrictions on the cross-border
movement of data. They include de jure restrictions such as local data storage
requirements which mandate that the physical storage of data must be in data
centers within the local geographical territories of a State, local content, or
production requirements. They also consist of de facto restrictions like privacy
and data protection laws.49 Since they compel private parties engaged in digital
trade to establish a business presence in a particular territory or to include a local
element as an aspect of their handling of data, these measures are rightly
described as performance requirements, effectively requiring the foreign firm to
engage in a certain kind of conduct. Forced data localization rules may be
justified on the basis of security and data protection – they may also impose
unfair, protectionist burdens on foreign firms.
In this regard, Article 14.13 of the CPTPP on Location of Computing Facilities
reads as follows:
46
“Digital Trade and Market Openness,” OECD, (9 August 2018) at 33.
47
Porges A, Enders A (2016) Data moving across borders: the future of digital trade policy. E15
Initiative, at 4.
48
Abe Y, Collins D (2018) The CPTPP and digital trade: embracing E-Commerce opportunities for
SMEs in Japan and Canada. Transnatl Dispute Manage.
49
Sen N (2018) Understanding the role of the WTO in international data flows: taking the
liberalization or the regulatory autonomy path? J Int Econ Law 21(2):323.
374 D. Collins
1. The Parties recognise that each Party may have its own regulatory requirements regarding
the use of computing facilities, including requirements that seek to ensure the security
and confidentiality of communications.
2. No Party shall require a covered person to use or locate computing facilities in that
Party’s territory as a condition for conducting business in that territory.
3. Nothing in this Article shall prevent a Party from adopting or maintaining measures
inconsistent with paragraph 2 to achieve a legitimate public policy objective, provided
that the measure: (a) is not applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination or a disguised restriction on trade; and (b) does
not impose restrictions on the use or location of computing facilities greater than are
required to achieve the objective.
These broad prohibitions on data localization should help provide certainty to

businesses seeking to optimize investment decisions, allowing the investors to
locate in certain countries only when it is profitable to do so, preventing the costs
of redundant data centers. Since data from around the world is often stored in the
USA, restrictions on data localization requirements tend to be a key US demand
in its trade agreements. Economies of scale and comparative advantage in the
data-intensive industries are relatively concentrated in countries with superior
digital infrastructure, which tend to be developed economies. This dominance
can be further entrenched through data localization measures.50 Still, data local-
ization requirements remain common around the world, possibly evincing
smaller economies’ attempt to catch up in terms of the establishment of digital
infrastructure.
It is important to recognize that the general prohibition on data localization in the
CPTPP is subject to certain exceptions including government data and financial
services data. The governmental data exception is essentially noncommercial, allo-
wing signatory governments to retain the rights for data localization for government
data that it holds or that is held by third parties under contract. Their financial
services data exception carves out a wide area of commercial activity on the basis
of national security and consumer protection. Clearly the object of some data
localization measures is to secure compliance with specific policy objectives relating
to particular types of data. In this sense, a framework for future rule-making in the
area of digital trade requires an understanding of different types of data to ascertain
which ones require more regulatory autonomy in line with national policy objec-
tives.51 These debates, which are beyond the focus of this chapter, should be viewed
in line with the historic parallel with traditional performance requirements as aids (or
barriers to) industrialization.
Other features of digital trade rules which may be construed as performance
requirements (prohibitions) are those which relate to the mandatory disclosure of
source code. Article 14.17 of the CPTPP is illustrative in this regard. It reads:
50
Ibid.
51
Ibid.
1. No Party shall require the transfer of, or access to, source code of software owned by a
person of another Party, as a condition for the import, distribution, sale or use of such
software, or of products containing such software, in its territory.
2. For the purposes of this Article, software subject to paragraph 1 is limited to mass-market
software or products containing such software and does not include software used for
critical infrastructure.
3. Nothing in this Article shall preclude: (a) the inclusion or implementation of terms and
conditions related to the provision of source code in commercially negotiated contracts;
or (b) a Party from requiring the modification of source code of software necessary for
that software to comply with laws or regulations which are not inconsistent with this
Agreement.
4. This Article shall not be construed to affect requirements that relate to patent applications
or granted patents, including any orders made by a judicial authority in relation to patent
disputes, subject to safeguards against unauthorised disclosure under the law or practice
of a Party
This aspect of the CPTPP effectively prevents technology transfer as it relates to a

specific kind of digital trade. Although this provision does not reference investment
directly, it is highly likely that the protection of source code in this manner will be of
vital importance to foreign investors. Forced disclosure of source code as a condition
of entry could severely impair the profitability of a foreign firm, much as it could
advantage local firms seeking to gain a foothold in a fast-moving global market.
It is clear that rules on digital trade, including those which might be termed
performance requirements, are in need of much further discussion and, much like the
original local content rules of conventional performance requirements, sensitivity in
terms of their role as developmental tools. It may be that some digital trade
performance requirements are effective instruments for developing States to gain
ground in this important sphere of economic activity. Data localization and require-
ments to transfer technology could assist the establishment of digital infrastructure,
for example, making such host States more attractive to foreign investors operating
in these sectors. Commentators have accordingly suggested that the digital trade
agenda, as taken up by the WTO, must keep in mind the developmental objective at
the heart of its role in global governance. As with most aspects of economic
liberalization, the drivers of the digital trade agenda have been the developed
countries. In 2016, the USA proposed a set of rules designed to liberalize digital
trade, covering issues such as the enabling of cross-border data flows, basic non-
discrimination principles, and the prevention of data localization and forced tech-
nology transfer.52 Japan followed shortly thereafter with a report outlining common
digital trade provisions in its recent FTAs.53 An EU-led group that included Canada,
Chile, South Korea, and Cote d’Ivoire submitted an even more comprehensive report
on their aims for a liberalized global framework for digital trade. Each of these
52
General Council, Work Programme on Electronic Commerce. Non-Paper from the USA, JOB/
GC/94, (4 July 2016).
53
General Council, Work Programme on Electronic Commerce. Reinvigorating Discussions on
Electronic Commerce. Circulated at the request of Japan, JOB/GC/96/Rev 1, (14 July 2016).
376 D. Collins
reflects the approach in the CPTPP to varying degrees.54 Some commentators feel
that these proposals could consolidate the dominance of developed countries and
their multinational enterprises over the twenty-first-century digital economy, much
as the USA did with intellectual property rights and services in the Uruguay round.55
Conclusion
This chapter presented performance requirement prohibitions in three interrelated

legal contexts: international trade law under the WTO, international investment law
under IIAs, and digital trade rules under new RTAs. These settings each evince an
attempt to restrict the protectionist, discriminatory element of some performance
requirements, whether classic local content TRIMs, forced technology transfer
requirements, or modern restrictions on international data flows. The chapter has
attempted to illustrate that the traditional understanding of a performance require-
ment must be recalibrated to reflect changes in the world economy away from
assembly line manufacturing to patentable technology and ultimately to today’s
most valuable commodity, data itself. With performance requirements coming of
age in the era of digital trade, this chapter has suggested that it is important to keep in
mind the developmental focus behind performance requirements, recognizing that
they are sometimes implemented to ensure that foreign investment is structured in a
manner which best serves the interests of host States, even though it may yield
distortive outcomes in certain contexts. Although the nature of the commodities to
which performance requirements are applied has transformed, their underlying
purpose has not, and rules designed to control their usage must remain as responsive
as ever to these needs if they are to serve the interests of the modern economy as they
did in the past.
54
General Council, Work Programme on Electronic Commerce, Trade Policy, the WTO, and the
Digital Economy, JOB/GC/97, (14 July 2016).
55
Kelsey J (2018) How a TPP-style E-commerce outcome in the WTO would endanger the develop-
ment dimension of the GATS acquis (and potentially the WTO). J Int Econ Law 21(2):273.
Local Content Policies and Their
Implications for International Investment 15
Law
Damilola S. Olawuyi
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
The Rise of LCRs: Underlying Values and Motivations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
LCRs and Contemporary International Investment Law: Contentions and Challenges . . . . . . . 385
Addressing Conflicts Relating to LCRs: The Need for a Collaborative Approach . . . . . . . . . . . . 393
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396
Abstract
The rise of local content requirements (LCRs) in resource-rich countries across
the world presents new and contemporary challenges to international investment
law. While LCRs generally aim to boost domestic value creation and long-term
economic growth, inappropriately designed LCRs could result in a misalignment
of a country’s fiscal policies and international investment law and may ultimately
serve as disincentive to foreign investment.
This chapter develops a profile of the critical intersections and tensions
between domestic-level LCRs and international investment law. It identifies
innovative legal strategies to reform and address these misalignments and incon-
sistencies. A clear, comprehensive, and transparent set of horizontal and collab-
orative policies targeted at creating a supportive regulatory and business-friendly
economic environment for investors to deliver greater value in the host country
can advance both immediate and longer-term local content objectives with fewer
potential investment distortions.
Keywords
Local content · Investment · Global South · Africa and Middle East
D. S. Olawuyi (*)
College of Law, Hamad Bin Khalifa University, Doha, Qatar
e-mail: dolawuyi@qf.org.qa; dolawuyi@hbku.edu.qa

https://doi.org/10.1007/978-981-13-3615-7_78
378 D. S. Olawuyi
Introduction
The rise of local content requirements (LCRs) in resource-rich countries across

the world presents new and contemporary challenges to international investment
law. This chapter examines the critical intersections and tensions between domes-
tic-level LCRs and international investment law. It demonstrates how inappro-
priately designed and implemented LCRs could result in misalignments with
international investment law obligations to provide fair and equitable treatment
and may ultimately serve as disincentive to foreign investment. It then identifies
innovative legal strategies to reform and address these misalignments and
inconsistencies.
Determined to maximize the gains of foreign direct investment (FDI) in
critical sectors, particularly oil, gas, and solid minerals sectors, many resource-
rich countries have increasingly introduced LCRs – laws and policies that require
foreign companies to give priority to nationals, domestic companies, and locally
produced materials, in the procurement of goods and services used for petroleum
operations.1 As defined by the International Petroleum Industry Environmental
Conservation Association (IPIECA), LCRs refer to the share of local resources a
project or business utilizes or develops along its value chain while investing in a
host country.2 Generally, LCRs are designed to increase the degree of local
benefits from the foreign investment or project, beyond what it would be in the
absence of such policies, through the promotion of local employment, skills
development, and national industry participation.3 LCRs are utilized by govern-
ments, especially in resource-rich countries, to generate broader economic ben-
efits for the local economy, beyond fiscal benefits.4 These economic benefits may
include employment of nationals, procurement of goods and services from
companies resident in the host country, partnerships with local entities, develop-
ment of endogenous technology and infrastructure, and the improvement of the
1
Olawuyi D (2018) Extractives Industry Law in Africa. Springer, Cham, pp 233–234; Organisation
for Economic Co-operation and Development (OECD), Working Party of the Trade Committee
(2017) Local content policies in minerals-exporting countries, pp 6–7; Heum P, Kasande R, Ekern
OF, Nyombi A (2011) Policy and regulatory framework to enhance local content: yardsticks and
best practice, SNF working paper no. 02/11
2
International Petroleum Industry Environmental Conservation Association (IPIECA) (2011) Local
content strategy: a guidance document for the oil and gas industry. IPIECA, London
3
OECD (2017) Local content policies in minerals-exporting countries, pp 6–7; Levett M, Chandler
A (2012) Maximising development of local content across industry sectors in emerging markets.
Center for Strategic and International Studies, Washington DC. Groupo FARO, ACODE 1–5
4
Ramdoo I (2015) Unpacking local content requirements in the extractive sector: what implications
for the Global Trade and Investment Frameworks? E15Initiative. International Centre for Trade and
Sustainable Development (ICTSD) and World Economic Forum, Geneva; Gbedi D, Adebisi J
(2013) Managing local content policies in the extractive industries. Res J Financ Account 4(7):90
15 Local Content Policies and Their Implications for International Investment Law 379
skills and capacity of local businesses and the domestic workforce.5 Approxi-
mately over 90% of resource-rich countries have at least one form of LCR as
regards their extractive industries, 50% of which impose quantitative perfor-
mance targets to achieve certain threshold of local participation and utilization
of human and material resources indigenous to that economy.6
LCRs have become even more important, especially in Middle East and African
(MEA) countries, following the global fall in oil prices.7 Since 2014, the price of a
barrel of oil has fallen more than 70%, wiping out more than $360 billion of revenue
from members of the Organization of the Petroleum Exporting Countries (OPEC)
block.8 With official forecasts by OPEC showing that a return to $100 per barrel
price of oil may not be until after 2040,9 countries have to, more than ever, rethink
how to diversify their domestic economies and create new jobs in manufacturing and
the emerging technology and innovation sectors in order to sustain current economic
growth.10 The introduction of more robust LCRs is a positive attempt by MEA
countries to utilize oil and gas production as a key to add value to, and unlock the
robust development of, other important sectors of their domestic economies.11
For example, in 2019, Qatar’s national oil company, Qatar Petroleum, launched
its Localization Program for Services and Industries in the Energy Sector
5
IPIECA (2016) Local Content: A Guidance Document for the Oil and gas Industry. http://www.
ipieca.org/resources/goodpractice/local-content-a-guidance-document-for-the-oil-and-gas-indus
try-2nd-edition/ (acessed December 12, 2019); Nwapi C (2015) Defining the “Local” in local
content requirements in the oil and gas industry in developing countries. Law Dev Rev 8
(1):187–216
6
OECD (2017) Local content policies in minerals-exporting countries, pp 6–7; McKinsey Global
Institute (2013) Reversing the curse: maximizing the potential of resource-driven economies
7
Hvidt M (2011) Economic and Institutional Reforms in the Arab Gulf countries. Middle East J 65
(1):85–102; Hvidt M (2013) Economic diversification in the GCC countries: past record and future
trends. Research paper no.27. Kuwait Programme on Development, Governance and Globalization
in the Gulf States
8
International Monetary Fund (IMF) (2015) Global implications of lower oil prices. International
Monetary Fund. https://www.imf.org/external/pubs/ft/sdn/2015/sdn1515.pdf. Accessed 21 Apr 2019;
Ghafar A (2016) Will the GCC be able to adjust to lower oil prices. https://www.brookings.edu/blog/
markaz/2016/02/18/will-the-gcc-be-able-to-adjust-to-lower-oil-prices/. Accessed 21 Apr 2019
9
Organization of Petroleum Exporting Countries (OPEC) (2015) World oil outlook. http://www.
opec.org/opec_web/static_files_project/media/downloads/publications/WOO%202015.pdf. Acc-
essed 21 Apr 2019; Business Insider (2017) OPEC: oil won’t be worth $100 a barrel until after
2040. http://uk.businessinsider.com/opec-oil-wont-be-worth-100-a-barrel-until-after-2040. Acc-
essed 21 Apr 2019
10
Ulrichsen KC (2011) Insecure Gulf: the end of certainty and the transition to the Post-Oil Era.
Columbia University Press, New York; Ghafar A (2016) Will the GCC be able to adjust to lower oil
prices. https://www.brookings.edu/blog/markaz/2016/02/18/will-the-gcc-be-able-to-adjust-to-lower-
oil-prices/. Accessed 21 Apr 2019
11
Koren M, Tenreyro S (2010) Volatility, diversification and development in the Gulf Cooperation
Council Countries. Kuwait Programme on Development, Governance and Globalization in the Gulf
States. Research paper no. 9, 2010
380 D. S. Olawuyi
(TAWTEEN), which sets the target of localizing Qatar’s oil and gas supply chain to
provide growth opportunities for indigenous small and medium enterprises.12 The
program aims to add 15 billion Qatari riyals of “in-country economic investment
value” to the local economy. The program aims to reward suppliers and contractors
who comply with the TAWTEEN program.13 Similarly, in 2015, Saudi Arabia’s
national oil company, Saudi Aramco, launched its In-Kingdom Total Value Add
(IKTVA) program, aimed at driving, measuring, and monitoring the “added value”
brought to the Kingdom by a contractor.14 Participation in, and compliance with,
the IKTVA program is required for doing business with Saudi Aramco.15 The
IKTVA program uses a complex formula to assess local content in terms of dollar
amount of localized goods and services used; amount of salaries paid to Saudis;
amount spent on, or allocated for, training and development of Saudis; and amount
spent on local suppliers.16 Similarly, United Arab Emirates, Oman, Kuwait, Nige-
ria, Angola, Ghana, Gabon, and Equatorial Guinea all have comprehensive legis-
lative frameworks that require extractive companies to give priority to nationals,
domestic companies, and locally produced materials, equipment, consumables,
and other goods.17 Governments across MEA favor LCRs as policy tools for
maximizing the degree of local benefits from the extractive sector through local
employment, skills development, and national industry participation.18 LCR
clauses in extractive contracts could also provide investors some form of auton-
omy, transparency, and efficiency in sourcing goods and services for their
operations.19
However, while LCRs could provide a tool for governments to generate economic
benefits for the local economy, LCRs may be incompatible with international
investment treaty obligations, especially the obligations to remove unilateral and
12
Qatar Petroleum (2019) Qatar Petroleum to launch the localization program for services and
industries in the energy sector (TAWTEEN). https://www.tawteen.com.qa/News-Media/Press-
Releases/News-Qatar-Petroleum-to-launch-the-Localization-Pr. Accessed 21 Apr 2019
13
Ibid. Also Qatar Petroleum (2018) Qatar’s Strategic Qatarization Plan. www.qp.com.qa/en/
Careers/Qatarization/Pages/Qatarization.aspx. Accessed 15 April 2019
14
See In-Kingdom Total Value Add (IKTVA) program (2016) Program brochure: creating value in
the kingdom. https://www.iktva.sa/wp-content/uploads/2016/04/IKTVA-brochure_EN.pdf.
Accessed 21 Apr 2019.
15
Ibid.
16
Ibid.
17
See the Nigerian Oil and Gas Industry Content Development Act (2010), Chapter P10 Laws of the
Federation of Nigeria (LFN) 2004; also Mexico’s Hydrocarbons Act 2014 (Ley de Hidrocarburos);
Ghana’s Petroleum (Local content and Local Participation in Petroleum Activities) Regulations
2013; Angola’s Decree-Law No. 17/09; Brazil’s Law No. 12.351 of 2010. For a summary and
overview of these laws, see Columbia Centre on Sustainable Investment Investment. Local Content
Laws & Contractual Provisions. http://ccsi.columbia.edu/work/projects/local-content-laws-contrac
tual-provisions/. Accessed 10 Oct 2017.
18
Ibid.
19
Olawuyi D (2018) Extractives Industry Law in Africa. Springer, Cham
restrictive investment-related measures.20 LCRs may conflict with national policies

on FDIs and sustainable development, especially in emerging countries with unclear
and unspecific legal framework on LCRs.21 For example, while LCRs may specify
the portion of total expenditures that must be comprised of locally sourced goods and
services, lack of available capacity and material at local level may delay projects and
may ultimately result in loss of FDIs to less restrictive jurisdictions.22 Such an
outcome may ultimately stifle a country’s path to sustainable development.23
The undertone of conflict between domestic-level LCRs and international invest-
ment rules raises fundamental questions of policy and practice. Are the two mutually
supportive or in tension with one another? To the extent that conflicts arise, how
should they be addressed? Can the objectives of LCRs and international investment
law be reconciled, or are conflicts inevitable? And if the latter, what is the appro-
priate balance between the two?
This chapter contributes to these debates by examining the legal interactions and
fundamental tension points between international investment law and domestic-level
LCRs. It also discusses innovative legal strategies to reform and address the critical
intersections and trade-offs between domestic-level LCRs and international invest-
ment law.
After this introduction, Section II examines the rise of LCRs in frontier energy
markets and their implications for the conceptualization of international investment
law. Section III discusses the tension points between LCRs and international invest-
ment law. Section III examines how national authorities can evolve holistic and
adaptive LCRs that balance domestic economic and investment concerns with the
goals of international investment law.. Section IV is the conclusion.
20
Sustainable Development (ICTSD) and World Economic Forum, Geneva
21
See Trade Arabia (2015) Big boost to Saudi industries as Aramco to double local market sourcing.
http://www.tradearabia.net/news/IND_295936.html. Accessed 10 Apr 2019; Tordo S, Warner M,
Manzano O, Anouti Y (2013) Local content policies in the oil and gas sector. World Bank,
Washington, DC; Darling R (2011) Beyond taxation: how countries can benefit from the extractive
industries through local content. Revenue Watch Institute, New York, pp 1–10, also Shared Value
Initiative (2014) Extracting with purpose creating shared value in the oil and gas and mining
sectors’ companies and communities, pp 27–32. https://sharedvalue.org/sites/default/files/resource-
files/Extracting%20with%20Purpose_FINAL_Full%20Report_Single%20Pages.pdf. Accessed 10
Oct 201827-32
22
Olawuyi D (2015) Legal strategies and tools for mitigating legal risks associated with oil and gas
investments in Africa. OPEC Energy Rev 39(3):247–265. Olawuyi D, Mercier T (2015) Local
content and procurement requirements in frontier African oil and gas jurisdictions – one size does
not fit all. Norton Rose Fulbright. http://www.insideafricalaw.com/blog/local-content-and-procure
ment-requirements-in-frontier-african-oil-and-gas-jurisdictions-one-size-does-not-fit-all. Accessed
10 Apr 2019
23
Sustainable Development (ICTSD) and World Economic Forum, Geneva
382 D. S. Olawuyi
The Rise of LCRs: Underlying Values and Motivations
Since the 2008 economic recession that hit the global economy, several countries
in the Global North and South have introduced and promoted LCRs as fiscal tools
for maximizing and retaining the benefits of FDIs.24 There are five key drivers of
the increased adoption of LCRs.25 First is the desire by host governments to
increase the level of domestic capabilities and competencies over time. In many
resource-rich countries, foreign investors are often brought in mainly because local
industries do not have the experience and technological capacity to effectively
undertake petroleum operations.26 LCRs proceed from the premise that domestic
workforce and industries should over time develop the capacities to supply the
goods, services, and human resources needed to drive the oil and gas value chain,
by substituting domestically produced goods for imported goods, and to create
more local employment by substituting domestic labor for imported or foreign-
based labor. LCRs therefore emphasize the desire and need for investors to
adopt practices that foster the development of a better-trained, qualified domestic
workforce over the term of the contract.27 Virtually all of the surveyed regimes
mandate preference for local goods, services, consumables, works, or enterprises.
In all of the jurisdictions examined, the international oil company (IOC) has an
obligation to give due and proper consideration to preferring locally sourced
services and goods when their price, quality, time of delivery, and other terms
24
For comprehensive surveys of LCRs, see Olawuyi D (2019) Local content and procurement
requirements in oil and gas contracts: regional trends in the Middle East and North Africa. Nat
Resour Law 37(1):93–117, Acheampong A, Ashong M, Svanikier VC (2016) An assessment of
local-content policies in oil and gas producing countries. J World Energy Law Bus 9:282; Tordo S,
Warner M, Manzano O, Anouti Y (2013) Local content policies in the oil and gas sector. World
Bank, Washington, DC; Columbia Center on Sustainable Investment; Heum P (2008) Local content
development – experiences from oil and gas activities in Norway. SNF working paper no 02/08.
Institute for Research in Economics and Business Administration, Bergen; and Nwapi (2016) A
survey of the literature on local content policies in the oil and gas industry in East Africa. School of
Public Policy Technical paper. University of Calgary, 9(16).
25
These are extensively discussed in Olawuyi D (2019) Local content and procurement require-
ments in oil and gas contracts: regional trends in the Middle East and North Africa. Nat Resour Law
37(1):93–117.
26
Muller T, Schitzer M (2003) Technology transfer and spillovers in International Joint Ventures.
Munich discussion paper no. 2003–22; also Levett M, Chandler A (2012) Maximising development
of local content across industry sectors in emerging markets. Center for Strategic and International
Studies, Washington DC. Groupo FARO, ACODE 1–5
27
See, for example, ss1-2 Iran’s Maximum Utilization of Production and Services Potency in
Providing Country’s Needs and Promotion of Exports (2012); see also Art. 23 Jordan Model
Production Sharing Agreement (2007); also Art. 19.1 of Oman Model Exploration and Production
Sharing Agreement (2004); Iraq (Federal) 2009 Technical Service Contract for Oil Field; Iraq
Production Sharing Contract (2007) Kurdistan Region; Art. 17 INA Contract (1998) for the
Exploration, Development and Production of Petroleum Between the Government of the Syrian
Arab Republic and Syrian Petroleum Company and INA-Industrija Nafte dd.- NAFTAPLIN;
Algeria’s Law No 05-07 dated 28 Apr 2005.
are comparable to internationally available ones. They also mandate the IOC to
prepare plans and programs for training and educating nationals during the term of
the contract. The aim is to ensure that the capabilities of the local workforce are
enhanced over time.
A second driver is the desire to create a level playing field for citizens, residents,
and home-based industries to participate in resource production activities. Without
creating a level playing field for new or emerging local industries and workforce to
participate in oil exploration activities, and compete with international suppliers of
goods and services, the cycle of excessive dependence on foreign goods and services
may never be broken.28 Countries have therefore promoted LCRs as a deliberate
program and policy aimed at ensuring that local industries are given a chance to
compete with foreign suppliers. For example, the Saudi Arabia IKTVA program
emphasizes the goal of creating a level playing field for local participation by
adopting uniform evaluation processes in sourcing services and materials and by
promoting uniform access to project information for local suppliers.29 Similarly, the
ultimate goal of Oman’s In-Country Value Strategy (ICV), launched in December
2013, is to increase the country’s total spend retained in order to benefit business
development, contribute to human capability development, and stimulate productiv-
ity in Oman’s economy.30 Like the Saudi IKTVA program, the Oman ICV program
introduces a joint supplier registration system as a single-window system for regis-
tering suppliers in a “common pool.” 31 The aim is to provide equal opportunities for
local industries to participate in oil and gas activities.
A third driver of LCRs is the desire to maximize economic benefits to citizens
through job and employment opportunities. Virtually all of the surveyed regimes
mandate investors to prioritize the employment of suitably qualified nationals.32 By
mandating the employment of nationals, the aim is to create opportunities for
domestic employment, thereby contributing to growth in income, capacity develop-
ment of nationals, and overall increased economic growth of an oil-producing
country. Local employment is consistently among the topmost concerns of nationals
28
See Tordo S, Warner M, Manzano O, Anouti Y (2013) Local content policies in the oil and gas
sector. World Bank, Washington, DC, pp 115–117
29
See IKTVA program, Program brochure: creating Value in the Kingdom, n. 14. https://www.iktva.
sa/wp-content/uploads/2016/04/IKTVA-brochure_EN.pdf. Accessed 21 Apr 2019
30
Sultanate of Oman. The oil and gas industry in-country value development strategy: 2013–2020,
pp 1–5. http://www.incountryvalueoman.net/getattachment/fc8254ec-0c1e-496a-84c1-2f841f42fbe
4/ICV-Brochure. Accessed 24 Apr 2019
31
Ibid.
32
See, for example, Art. 26 Republic of Yemen Model Production Sharing Agreement (2006); Art.
23 State of Qatar Model Development and Production Sharing Agreement (2002); Art. 23 Jordan
Model Production Sharing Agreement (2007); Art. 19.1 Oman Model Exploration and Production
Sharing Agreement dated April 24, 2004; and Art. 17 INA Contract (1998) Exploration, Develop-
ment and Production of Petroleum Between the Government of the Syrian Arab Republic and
Syrian Petroleum Company and INA-Industrija Nafte dd.- NAFTAPLIN.
384 D. S. Olawuyi
and often a central issue driving disputes, grievance, and conflict.33 More local jobs
could result in more support for projects. Employing more citizens and community
members can also help improve company-community relations, enabling foreign
investors to obtain the social license to operate.34 Given the negative impacts of
resource development on surrounding communities, local content can help compen-
sate the afflicted communities through job creation and value addition in the
communities.35
A fourth driver is the desire by countries to improve national technological
capacity. All of the surveyed petroleum contracts mandate IOCs to give preference
to locally manufactured equipment, machinery, and consumables when their price,
quality, time of delivery, and other terms are comparable to internationally available
ones. They also include requirements to bring some level of technology or perform
research and development (R&D) into the country, so local companies can boost
their competitiveness through access to state-of-the-art technology or benefit from
technology transfer.36 By mandating IOCs to utilize locally made technology in
petroleum operations, this directly reduces the importation of technology for petro-
leum operations. This could in turn compel IOCs, as well as service companies, to
invest in technologies and facilities for local manufacturing and service provision.37
For example, some IOCs operating in MEA countries have opened technology
venture arms of their operations in order to speed up the development and deploy-
ment of innovative technologies that could complement oil and gas exploration
activities.38 By opening up technology ventures, IOCs can facilitate the domestic
production and availabilities of technologies required for oil and gas exploration.
33
Ovadia J (2015) The role of local content policies in natural resource-based development.
Österreichische Entwicklungspolitik. Rohstoffe und Entwicklung, pp 37–38; Tordo S, Warner M,
Manzano O, Anouti Y (2013) Local content policies in the oil and gas sector. World Bank,
Washington, DC, 7–15
34
Tordo S, Tracy B, Arfaa N (2011) National Oil Companies and Value Creation. World Bank Working
Paper no 218. Washington, DC, pp 1–10; World Bank (2014) Human capital for the oil, gas and
minerals industries. Science, Technology, and Skills for Africa’s Development, pp 1–4; Esteves AM,
Barclay MA (2011) Enhancing the benefits of local content: integrating social and economic impact
assessment into procurement strategies. Impact Assessment and Project Appraisal, p 205
35
Ado R (2013) Local content policy and the WTO rules on Trade-Related Investment Measures
(TRIMS): the Pros and Cons. Int J Bus Manag Stud 2(1):142
36
See n. 32.
37
Muller T, Schitzer M (2003) Technology transfer and spillovers in international joint ventures.
Munich discussion paper no. 2003–22; also Coe D, Helpman E, Hoffmaister AW (2008) Interna-
tional R&D spillovers and institutions. International Monetary Fund IMF working paper no. WP/
08/104, Washington, DC; also Glass A, Saggi K (2008) The role of foreign direct investment in
international technology transfer. In: Dutt A, Ros J (eds) International handbook of development
economics. Edward Elgar Publishing, Cheltenham/Northampton
38
For example, IOCs such as Conoco Philips, General Electric, Shell, and ExxonMobil have opened
up technology innovation centers and programs at the Qatar Science and Technology Park to
discover sustainable technologies for their oil and gas operations in Qatar. See Qatar Science and
Technology Park (QSTP) (2019). https://qstp.org.qa/companies/conocophillips/. Accessed 12 Apr
2019.
Fifth, LCRs are also used to redistribute the benefits of resource investment
activities, particularly to manage social and political risks that may result from rising
domestic expectations for better and more equitable distribution of wealth and
authority.39 Despite the diverse programs designed to increase the direct financial
flows of oil wealth to nationals through subsidy programs, individuals may not
perceive what they may consider commensurate benefits. This can lead to pressure
from the population to increase the more tangible benefits.40 Although these prob-
lems could be addressed by specific policies designed to consider the exact griev-
ance, governments utilize LCRs as a tool for bringing jobs and income to a specific
group, area, or group where there is considerable dissatisfaction with the presence of
the oil and gas operations.41 By introducing detailed LCRs, countries can ensure that
access to the control of oil wealth is evenly distributed among the interest groups and
tribes across the country. For example, Qatar’s petroleum agreement stipulates that
the Deputy Manager of the petroleum operation shall be an individual appointed by
the national oil company.42 Such a provision allows the host country to at all times
control and ensure that a greater spectrum of the society have direct access to
petroleum operations.
Despite the clear and uniform overall policy objectives of LCRs, their design and
practical implementation have raised several debates and criticisms on the compat-
ibility of LCRs and international investment law. The next section discusses key
contentions that arise in the design and implementation of LCRs.
LCRs and Contemporary International Investment Law:

Contentions and Challenges
The overall aims and drivers of LCRs are clear-increasing host government revenue,
creating a level playing field for local industries, maximizing economic benefits to
citizens through job and employment opportunities, and improving national techno-
logical capacity among others.43 However, LCRs can present major inconsistencies
and risks to the application of international investment law, particularly if not well
designed to balance domestic development priorities and goals with international
39
See Cook M, Mahdavy H (1970) The pattern and problems of economic development in Rentier
States: the case of Iran. In: Cook M (ed) Studies in the economic history of the Middle East: from
the rise of Islam to the present day. Oxford University Press, pp 435–436 and Krueger A (1974) The
political economy of the Rent-Seeking Society. Am Econ Rev 64(3):291–303.
40
Hanlin C (2011) The drive to increase local procurement in the mining sector in Africa: myth or
reality? MMCP discussion paper no. 4. Making the Most of Commodities Programme (MMCP);
Ovadia J (2015) The role of local content policies in natural resource-based development.
Österreichische Entwicklungspolitik. Rohstoffe und Entwicklung, pp 37–38
41
Ovadia, Ibid.
42
Art. 23 Qatar Model Development and Production Sharing Agreement (2002)
43
See Olawuyi D (2019) Local content and procurement requirements in oil and gas contracts:
regional trends in the Middle East and North Africa. Nat Resour Law 37(1):93–117.
386 D. S. Olawuyi
investment law obligations. This section explores four key areas of conflict between
domestic LCRs and international investment law.
First, several bilateral and multilateral international investment treaties expressly
prohibit the use of certain performance requirements – especially those related to local
content, export controls, foreign exchange restrictions, purchase of raw materials,
domestic equity/ownership, technology transfer, R&D, employment, and domestic
equity/ownership – that can cause trade restriction or price distorting effects.44 For
example, the World Trade Organization’s (WTO) Trade-Related Investment Measures
(TRIMs) Agreement expressly prohibits measures related to local content, trade
balancing, export controls and certain foreign exchange restrictions, and certain
bilateral treaties limit the use of other performance requirements.45 Article 2.1 of the
TRIMs Agreement requires WTO members to refrain applying any TRIMs (Trade-
Related Investment Measures) that are inconsistent with the national treatment obli-
gation under Article III or XI of the GATT Treaty (1994).46 Paragraph 1 of the
Illustrative List in the Annex of the TRIMs Agreement itemizes incompatible
TRIMs to include measures which are “mandatory or enforceable under domestic
law or under administrative rulings.”47 This specifically includes domestic measures
that require an investor to purchase or use products of domestic origin, or from any
domestic source, whether specified in terms of particular products, in terms of volume
or value of products, or in terms of a proportion of volume or value of its local
production, or purchase or use imported products be limited to an amount related to the
volume or value of local products that it exports.48 These TRIMs provisions expressly
prohibit WTO members from applying LCRs that mandate investors to make use of
domestic goods, raw materials, and products that have a local origin.
Under the TRIMs Agreement, developed country members are required to eliminate
the domestic application of all TRIMs within 2 years after the entry into force of the
WTO Agreement of 1994.49 Similarly, “developing country” members are required to
eliminate the application of TRIMs within 5 years after the entry into force of the WTO
Agreement, while “least-developed country” members are required to eliminate the
application of TRIMs within 7 years after the WTO Agreement has entered into force.50
44
See United Nations Conference on Trade and Development (UNCTAD) (2003) Foreign direct
investment and performance requirements: new evidence from selected countries, p 2. Retrieved
from http://unctad.org/en/docs/iteiia20037_en.pdf. Accessed 12 Apr 2019, which defines PRs as
“stipulations, imposed on investors, requiring them to meet certain specified goals with respect to
their operations in the host country.” In other words, they are measures requiring investors to behave
in a particular way or to achieve certain outcomes in the host country. Preamble to the TRIMs
Agreement.
45
Trade-Related Investment Measures (TRIMs) Agreement. Agreement on Trade-Related Invest-
ment Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization,
Annex 1A, 1868 U.N.T.S. 186
46
General Agreement on Tariffs and Trade (GATT) (1994) TS 56 (1996) Cm 3282; 33 ILM 28
47
Trade-Related Investment Measures (TRIMs) Agreement
48
See Para 1, Illustrative List, Annex to the TRIMs Agreement.
49
See Article 5.2 TRIMs Agreement.
50
WTO members are however able to request for an extension of the transition period
where prevailing domestic economic circumstances did not allow for a smooth elimi-
nation of existing TRIMs within the timeframes stipulated under the Agreement.51 The
overall application of these provisions shows that many existing LCRs are well outside
the transition period and are out rightly in direct conflict with obligations under the
TRIMs.52 The WTO Dispute Settlement Body (DSB) has concluded in a number of
cases that LCRs violate obligations under the TRIMs Agreements. For example, in the
matter of Indonesia – Certain Measures Affecting the Automobile Industry,53 a WTO
Panel addressed issues relating to the application of local content requirements in
Indonesia’s automobile industry within the framework of the TRIMs Agreement. The
key question was whether Indonesia’s 1993 car program which provided luxury tax
exemptions and import duty exemptions to Indonesian car companies, as well as import
duty reductions and exemptions on imports of automotives based on the local content
percent, was in violation of Article 2 of the TRIMs Agreement and Articles I and III of
the GATT.54 The Panel concluded that Indonesia’s 1993 car program violated Article 2.1
of the TRIMs Agreement because the measure constituted LCR falls within inconsistent
TRIMs under paragraph 1 of the list of TRIMs in the Annex to the TRIMs Agreement.55
This case, and many other, emphasizes that LCR measures that require the use of
domestic products over similar imported products or provide mandatory performance
targets in order to obtain a governmental advantage are all “trade-related investment
measures” that are in breach of Articles II.4 and XI.1 of the GATT.56
51
52
Article 3 of the TRIMs Agreement provides for the application of “all exceptions under GATT
1994” which includes the general exceptions, the security exception, and exemptions relating to
restrictions for the purpose of safeguarding domestic industries from “serious injury” as a result of
importation. See Article XIX, XX (a) and (b), and XXI, GATT (1994).
53
See Indonesia – certain measures affecting the automobile industry, Panel report (2 July 1998);
WT/DS54/R, WT/DS55/R; WT/DS59/R; WT/DS64/R.
54
See WTO Legal Affairs Division (2012) WTO dispute settlement one page case summaries
1995–2011. WTO, Geneva, p 25.
55
See WTO Panel Report (1998) Indonesia – automobiles, Panel report (2 July 1998), paras
14.71–14.72.
56
Indonesia – Automobiles, Panel Report (2 July 1998), paras 14.71–14.72. See also India – Certain
Measures Relating to Solar Cells and Solar Modules stating that local content measures under
India’s Jawaharlal Nehru National Solar Mission (NSM) program constituted trade-related invest-
ment measures which is in violation of TRIMs obligations as identified in paragraph 1(a) of the
Illustrative List in the Annex to the TRIMs Agreement and therefore inconsistent with Article III: 4
of the GATT and Article 2.1 of the TRIMs Agreement. See WTO Panel Report (2016) India –
certain measures relating to solar cells and solar modules, WT/DS456/R/Add.1 (24 February, 2016).
See also WTO Panel Report (2012) Canada – certain measures affecting the renewable energy
generation sector, WT/DS412/R (19 December, 2012) at para 7.167 where the WTO Panel stated
that the Province of Ontario’s Feed-in Tariff Program’ (FIT Program), which required renewable
energy generation facilities to use domestically produced equipment for energy generation in order
to receive guaranteed prices under the FIT Program, constituted local content requirements and
violates the national treatment obligation under Article III: 4 of GATT and Article 2.1 of TRIMS.
See WTO Panel Report (2012) Canada – certain measures affecting the renewable energy gener-
ation sector, WT/DS412/R (19 December, 2012) at para 7.167.
388 D. S. Olawuyi
Furthermore, a number of BITs prohibit or discourage the use of LCRs mostly by

reference to the TRIMs Agreement. For example, the 2012 China-Canada treaty
reaffirms and incorporates the parties’ obligations under the TRIMs which will
include prohibitions on the use of LCRs.57 Similarly, Article 1106 of the NAFTA
Agreement between Canada, Mexico, and the United States provides that no Party
may impose or enforce requirements that mandate an investor to “achieve a given
level or percentage of domestic content.”58
Despite the prohibitions, LCRs remain widely used at national levels, especially
in developing countries, to promote local industries, generate employment, and
improve government revenues from key sectors.59 Also, many of the treaties that
prohibit LCRs include limits and restrictions on that prohibition. For example, the
prohibition in the TRIMs Agreement covers trade in goods only and does not include
services. Because of this, LCRs continue to be widely used in the services sector.
Similarly, Article 1106.6. I of NAFTA contains exceptions that allow the use of
LCRs, especially when such use is not applied in an arbitrary or unjustifiable manner.
The exceptions mean that questions as to whether a certain LCR is permissible
and compliant with international investment law vary from case to case which has
not fostered a coherent understanding of the relationship between domestic-level
LCRs and international investment law. While international investment law tries to
establish a level playing field by emphasizing fair and equitable treatment of foreign
investments and investors at national levels, such obligations can conflict with
national development priorities to maximize the benefits of FDIs for the local
population and industries.60
Second, restrictive LCRs can be detrimental to international investment and the
flow of FDIs.61 One of the leitmotifs of international investment law is to promote
57
See also Article 10 of the Belgium–Guinea treaty, as well as India–Kuwait BIT (2001), Article
4.4; Japan–India Comprehensive Economic Partnership Agreement (CEPA 2011), Article 89; El
Salvador–Peru (1996); Bolivia–Mexico (1995); Dominican Republic–Ecuador (1998);
Chile–Mexico FTA (1999); Chile–South Korea FTA (2003); United Kingdom–Kenya (1999);
and Burundi–Comoros (2001) all of which limit or prohibit use of LCRs.
58
North American Free Trade Agreement, 32 I.L.M. 289 and 605 (1993)
59
For example, Iran’s legal framework expressly provides that failure to achieve a 51 percent local
content could lead to contract termination or reduction in remuneration fee. See Iran’s Maximum
Utilization of Production and Services Potency in Providing Country’s Needs and Promotion of
Exports 2012. Similarly, participation in, and compliance with, Saudi Arabia’s IKTVA program
(70% local content by the year 2030) is required for doing business with the national oil company
Saudi Aramco. Similarly, Section 10 (1) of Nigeria’s local content law declares that an operator’s
local content plan “shall contain provisions intended to ensure that first consideration shall be given
to. . .goods manufactured in Nigeria.” See the Nigerian Oil and Gas Industry Content Development
Act 2010.
60
For example, Brazil’s policy of “Tudo que pode ser feito no Brasil, tem que ser feito no Brasil”
(everything which can be done in Brazil should be done in Brazil) which aims to generate local
productivity and jobs for local populations in Brazil.
61
Jensen J, Tarr D (2008) Impact of local content restrictions and barriers against foreign direct
investment in services: the case of Kazakhstan’s accession to the World Trade Organization. East
Eur Econ 46(5):5–26
and streamline foreign investment, specifically by addressing legal risks and barriers
which may hinder States from attracting more FDIs.62 While LCRs can help
countries to grow the local economy, they may equally pose challenges to investors,
thereby worsening a country’s competitiveness and investment climate. According
to a study by the Organisation for Economic Co-operation and Development
(OECD), total imports and total exports have declined in every region of the world
as a result of LCR policies and have shrunk world imports and exports, respectively,
by USD 12 billion and USD 11 billion.63 Furthermore, according to the study, almost
all cases where LCRs are introduced, final goods exports have been reduced from
0.05% to as much as 5.0%.64 For example, complying with product mandating
requirements could mean project delays or higher costs on the part of the IOC,
especially when suitable and reasonably priced alternatives are not immediately
available locally.65 This can have a distorting effect on the profitability and viability
of a project from the investor’s standpoint or affect the timeline for investment
activities. The imposition of domestic-level LCRs in the absence of required
supporting capacity, institutional resources, or adequate technological capabilities
could ultimately reduce the attractiveness of a country as desirable location for
FDIs.66 Similarly, LCRs can significantly reduce and limit the pool of eligible
investors or entrants to a country. Investors that are unable to meet a country’s
LCRs may seek alternate and less restrictive markets for their investments. Further-
more, mandatory LCRs imposed after an investment is made may breach the host
state’s commitments and obligations under a BIT and under international investment
law and could result in complex litigation and/or investor-State arbitration.67
A third area of emerging concern is how LCRs, especially data storage require-
ments that mandate investors to process and store investment data locally, can
conflict with transparency and accountability tenets of international investment
law.68 Domestic-level data storage requirements that aim to restrict how information
obtained locally are transferred, stored, or moved have been increasingly introduced
62
Dolzer R, Schreuer C (2012) Principles of International Investment Law, 2nd edn. Oxford
University Press, Oxford, p 22; also Bernasconi-Osterwalder N, Cosbey A, Johnson L, Vis-Dunbar
D (2012) Investment treaties & why they matter to sustainable development: questions and answers.
http://www.iisd.org/pdf/2011/investment_treaties_why_they_matter_sd.pdf. Accessed 21 Apr
2019
63
Stone S, Messent J, Flaig D (2015) Emerging policy issues: localisation barriers to trade. OECD
Trade Policy papers, no 180, pp 10–11
64
Ibid.
65
Peek P, Gantès P (2008) Skills shortages and local content in the Sub-Saharan African oil and gas
industry: how to close the gap. Centre de recherches enterprises et societies (CRES)
66
See UNCTAD (2007) Elimination of TRIMS: the experience of selected developing countries.
United Nations, New York/Geneva, pp 9–10.
67
University Press, Oxford
68
See National Board of Trade (NBT) (2014) No transfer, no trade: the importance of cross-border
data transfers for companies based in Sweden, January. https://unctad.org/meetings/en/Contribu
tion/dtl_ict4d2016c01_Kommerskollegium_en.pdf. Accessed 13 Feb 2019.
390 D. S. Olawuyi
mainly to address privacy and national security concerns by requiring investors to

establish local servers in every jurisdiction in which it operates.69 However, the
increasing tendency of some countries to access and utilize investor data in a manner
that undermines competitiveness has lately attracted a great deal of attention.70
While national authorities undertake that locally stored data are protected and
many only be assessed for national security reasons, recent studies have compiled
instances of how data localization can be utilized by national authorities for invest-
ment decision analysis and to promote the domestic industry.71 Transparency, and
the investor’s legitimate expectation for their activities to be protected in accordance
with a country’s legal framework, is a core pillar of international investment law.72
This includes the obligation of host States to handle and utilize investment informa-
tion and data in a fair, equitable, and transparent manner. International investment
law reinforces the idea that investors should be able to rely on the representations of
national authorities that locally stored data will be handled and protected in a
transparent and predictable manner. However, clear guidance and robust interna-
tional legal framework have yet to be fully articulated that clarify the scope and
contours of the transparency obligations of host States with respect to utilizing
localized data in a fair, equitable, and transparent manner and in accordance with
the terms of the investment agreement with the investor. Furthermore, overly
restrictive data localization requirements can impose huge operating and compliance
costs for investors, especially in countries where data storage infrastructure are
unavailable.73 As the OECD notes, such data localization requirements can affect
an investor’s ability to adopt the most efficient technologies, increase an investor’s
operational cost, and may ultimately lead to missed business opportunities.74 For
example, recent studies show that compliance costs can increase an investor’s
information technology expenditure by as much as 40%.75 In light of the rise in
data localization requirements as part of LCRs, it is essential for investors to
69
Ibid.
70
Kuntze J, Moerenhout T (2013) Local content requirements and the renewable energy industry – a
good match? International Centre for Trade and Sustainable Development, Geneva, Switzerland;
Kwon C, Chun BG (2009) Local content requirement under vertical technology diffusion. Rev Dev
Econ 13(1):111–124
71
72
University Press, pp 149–152
73
74
Ibid. at 70–71
75
NBT (2014) No transfer, no trade: the importance of cross-border data transfers for companies
based in Sweden, January. https://unctad.org/meetings/en/Contribution/dtl_ict4d2016c01_
Kommerskollegium_en.pdf. Accessed 13 Feb 2019; Ponemon Institute (2011) The true cost of
compliance: a benchmark study of multinational Organizations. Research report, January. https://
www.ponemon.org/local/upload/file/True_Cost_of_Compliance_Report_copy.pdf. Accessed 21
Apr 2019
carefully understand and factor in the cost implications of such requirements during
the contract negotiation phases. Furthermore, the tensions between how localized
data are processed and utilized by host States call for robust international legal
framework that ensures a clear and transparent balance is achieved between legiti-
mate concerns about privacy and proprietary information on the one hand, and
protecting market competitiveness on the other hand.
A fourth debate is the role of the State in procurement processes. While LCRs
may specify the portion of total expenditures that must be comprised of locally
sourced goods and services, procurement procedures are frequently not well
established and could raise concerns on excessive and illegal host State interfer-
ence.76 Under international investment law, host States have an obligation to protect
investors against illegal interference or adverse actions by national authorities and
entities.77 However, the extent to which State authorities can legitimately participate
in procurement processes without constituting excessive State interference may be a
subject of complex debates and litigation.78 Generally, in some countries, LCRs
have been applied to include an obligation to inform national authorities, through
yearly statements, audits, or mandatory performance standards that demonstrate
compliance with LCRs and procurement requirements (Oman, Iran, Saudi Arabia,
UAE); in others, procurement plans must be submitted prior to the commencement
of petroleum operations (Lebanon, Iraq (Federal)).79 A variation arises where the
national oil company or a management committee is directly involved in an advisory
capacity (Qatar), and, in more extreme cases, government must be informed and may
participate in procurement activities above certain financial thresholds (Nigeria,
Libya, Egypt).80 Clarifying and understanding the variations in the designated role
of the national oil company or government in the procurement processes is critical to
avoiding disputes. As governments increasingly seek to exercise some form of
influence in contractors’ procurement processes to ensure total value in terms of
76
The duty of States to protect investors and their investments against unlawful interference and acts
of State agencies was affirmed in Amco v Indonesia, Award 20 November 1984.
77
University Press, Oxford, p 226, stating that in BITs, this standard is either described as full
protection and security or interpreted as part of the fair and equitable treatment standard in
international investment law
78
Olawuyi D (2019) Local content and procurement requirements in oil and gas contracts: regional
trends in the Middle East and North Africa. Nat Resour Law 37(1):93–117
79
See, for example, ss 1–2 of Iran’s Maximum Utilization of Production and Services Potency in
Providing Country’s Needs and Promotion of Exports (2012); see also Art 23 of the Jordan Model
Production Sharing Agreement of February (2007); Art 19.1 of the Oman Model Exploration and
Production Sharing Agreement (2004); Iraq (Federal) 2009 Technical Service Contract for Oil
Field; Production Sharing Contract (2007) Kurdistan Region; Art 17 of the INA Contract (1998)
Exploration, Development and Production of Petroleum Between the Government of the Syrian
Arab Republic and Syrian Petroleum Company and INA-Industrija Nafte dd.- NAFTAPLIN;
Algeria’s Law No 05-07 dated 28 Apr 2005; the Nigerian Oil and Gas Industry Content Develop-
ment Act (2010), Chapter P10 Laws of the Federation of Nigeria (LFN) 2004.
80
Ibid.
392 D. S. Olawuyi
local content, it is important for IOCs to clarify, from the outset, the level of
government involvement in the process. A common approach in Europe, for exam-
ple, is to mandate the contractor to submit a LCR compliance and procurement plan
within 60 days from the effective date of the petroleum agreement.81 This allows the
IOC to design and develop its own procurement practices while providing the State
with an early opportunity to make inputs. Government participation in procurement
processes, as a way of monitoring LCRs and transparency, poses significant risks and
delay for petroleum operations, especially in several MEA countries where govern-
ment approval processes could be slow and bureaucratic.82 What constitutes exces-
sive interference by State authorities in an IOC’s procurement processes will vary on
a case-by-case basis on the scope and content of the investment contract. IOCs can
minimize contentions and risks in this area by eliminating as far as possible, or
restricting to large projects with significant financial threshold, government partic-
ipation in procurement processes.
The diversity of LCR regimes and the unclear scope of local content obliga-
tions highlight the ongoing challenges and contemporary backlash against inter-
national investment law. These tensions highlight on the broader level the need
for reform of international investment law to clarify the general relationship
between domestic law and international law. Specifically, they accentuate the
need for the international investment regime to better clarify and address the
growing contentions between LCRs and international investment law, specifi-
cally the need to prevent misuse of LCRs at the domestic level. States will also
need to do more to ensure that LCRs are clear, specific, and aligned with
international investment law in order to minimize contentions and misalignments
with FDI goals. Without a strong regulatory and institutional foundation that
provides clarity and certainty for investors, it will be difficult to compete with
jurisdictions that provide clearer and more realistic terms and requirements for
IOCs. The next section discusses innovative legal strategies to reform and address
these misalignments and inconsistencies.
81
For example, many European Union member countries align their financial thresholds with EU
legislation (in which government notification and participation are required for procurements above
414,000 euros for supply and service contracts), while some countries impose more stringent
national procurement rules where the procurement contract exceeds the EU financial threshold
(Norway). Outside the EU, thresholds ranging from $100,000 (Liberia, Azerbaijan, Nigeria) to
$20m (Mexico) have been stipulated. See Directive 2014/25/EU on procurement by entities
operating in the water, energy, transport, and postal service sectors and repealing Directive 2004/
17/EC (Utilities Directive) Official Journal of the European Union L 94 (2014) 243–374, also
Cyprus Model Exploration and Production Sharing Contract (2012); Norway’s Act 29 November
1996 No 72 Relating to Petroleum Activities; Brazil’s Production Sharing Contract for Exploration
and Production of Oil and Natural Gas (undated); Mexico’s Contract for the Exploration and
Extraction of Hydrocarbons under Production Sharing Modality (2014); also the Nigerian Oil and
Gas Industry Content Development Act (2010), Chapter P10 Laws of the Federation of Nigeria
(LFN) 2004.
82
Olawuyi D (2019) Local content and procurement requirements in oil and gas contracts: regional
trends in the Middle East and North Africa. Nat Resour Law 37(1):93–117
Addressing Conflicts Relating to LCRs: The Need for a

Collaborative Approach
The growing tensions and conflicts between LCRs and contemporary international
investment law do not necessarily mean that LCRs are intrinsically incompatible, or
cannot be reconciled, with the goals of international investment law. Rather these
conflicts demonstrate that LCRs can be misguided and misused at the domestic level
in a manner that conflicts with and undermine the key goals of international
investment law, which are to eliminate barriers to FDIs and to provide robust legal
protections for FDIs. The fact that the TRIMs Agreement, as well as many BITs that
prohibit LCRs, also includes a wide range of exceptions for their use strongly
suggests that when designed and implemented within the frame of permissible
limits, LCRs can be compatible and reconciled with the goals of international
investment law and can help countries to substantially increase the economic, social,
and environmental benefits of FDI. It is therefore essential for countries stipulating
LCRs to avoid misuse and misalignments that undermine the goals and success of
LCRs.
As can be seen in jurisdictions such as Brazil, Ghana, Mexico, Nigeria, and
Norway, where LCRs have been implemented with varying levels of success, LCRs
must be backed by a clear, specific, and transparent legislative framework, including
a robust performance monitoring mechanism.83 While setting national requirements
and targets for local content reflects a political commitment toward ensuring domes-
tic value creation and long-term economic growth, LCRs must be accompanied by
comprehensive and holistic legal frameworks that clarify and simplify LCRs that
support the attainment of such goals. Rather than approaching LCRs from a com-
pliance or mandatory project requirement mindset, which demands more local
content or introduces more punitive enforcement measures, national authorities
should adopt a more collaborative approach built on clear, transparent, and attainable
LCRs, with adequate institutional support for IOCs to achieve those goals.
First, LCRs that are primarily targeted at restricting the abilities of investors to
participate in investment activities or to freely procure goods for approved projects –
rather than focusing primarily on value-added and capacity development – are
misguided and could ultimately hinder FDIs.84 The starting point therefore is for
national authorities to realign the goals of LCRs to focus mainly on creating high
83
See Acheampong A, Ashong M, Svanikier VC (2016) An assessment of local-content policies in
oil and gas producing countries. J World Energy Law Bus 9:282; also Nwapi C (2016) A survey of
the literature on local content policies in the oil and gas industry in East Africa. School of Public
Policy Technical paper. University of Calgary, 9(16); OECD (2017); Olawuyi D (2019) Local
content and procurement requirements in oil and gas contracts: regional trends in the Middle East
and North Africa. Nat Resour Law 37(1):93–117.
84
selected countries. Retrieved from http://unctad.org/en/docs/iteiia20037_en.pdf. Accessed 12 Apr
2019, UNCTAD (2014) Local content requirements and the green economy. United Nations,
Geneva, pp 10–12
394 D. S. Olawuyi
domestic value addition by providing full and fair opportunities for investors,
irrespective of the source of the raw materials and goods, nationality of the
employees, or anti-competitive or storage location of investment data. It is essential
for countries to establish clear, transparent, and comprehensive local content laws
that clarify the scope, content, and goals of a country’s LCRs. Such laws could,
among other things, provide clear and expansive definitions of key concepts such as
local, local content, local company, project sum, and in-country value.85 There is
also a need to clearly identify the skills, competencies, technologies, and economic
activities that a country wants to improve or build upon as part of local content
implementation. Such clear definitions will reduce ambiguities with respect to the
scope and content of LCRs. Local content laws can also be very helpful in
addressing overlaps and limitations in other domestic laws that could hinder the
successful implementation of LCRs. For example, procurement laws that have
elaborate provisions on State participation in bid processes may result in unneces-
sary delays in an investor’s procurement processes and may impact the competitive-
ness and ease of doing business in a country. A less restrictive approach on the hand
will focus on providing as much flexibility to the investor to achieve domestic value
maximization while ensuring oversight through periodic procurement reports by the
investor. By realigning LCRs to focus on the ultimate goals of domestic value
addition, countries can better align and reconcile LCRs with key tenets of interna-
tional investment law on fair and equitable treatment of investors.86
Second, without addressing domestic barriers to the attainment of LCRs, such as
lack of domestic capacity, shortage of raw materials, and weak infrastructure, among
others, investors face an unrealistic task of complying with national expectations
which may result in failures and contentions. It is therefore essential for national
authorities to work collaboratively with investors to evolve realistic local content
targets that take cognizance of domestic capabilities and also develop supportive
regulatory and institutional frameworks for the delivery of the agreed targets. A
collaborative approach to LCR is built on creating a supportive regulatory and
business-friendly economic environment for investors to deliver greater value in
the host country. Under this approach, governments have a prominent role to play in
reducing regulatory and administrative barriers to domestic investments; providing
fiscal incentives for investors to establish or support small and medium enterprises in
the host country; updating intellectual property laws to provide greater protection for
domestically produced technology; simplifying approval processes and fees for
licenses and permits; and providing and ensuring greater interministerial coordina-
tion among key ministries and agencies that have roles to play in the employment,
training, and education components of LCRs. A well-designed set of horizontal and
collaborative policies and legislation targeted at creating a supportive regulatory and
85
Nwapi C (2016) A survey of the literature on local content policies in the oil and gas industry in
East Africa. School of Public Policy Technical paper. University of Calgary, 9(16)
86
University Press, Oxford
business-friendly economic environment for investors to deliver greater value in the

host country can advance both immediate and longer-term local content objectives
with fewer potential investment distortions. Apart from the fact that governments
and the public will ultimately benefit more when LCRs are achieved by an investor,
improperly designed LCRs could carry significant financial, legal, and reputational
risks for national authorities, especially when LCRs become subjects of extensive
litigation or investor-State arbitration. Such risks may also manifest themselves in
project disruptions due to disputes, such as community protests over a perceived lack
of benefits from a project, including potential harm to employees due to such
protests. Furthermore, in highly competitive sectors such as oil and gas, a country’s
ability to attract investors and technologies (including financial institutions and
lenders) needed to develop oil resources will depend on the processes, procedures,
practices, and approaches put in place to reduce contractual risks, such as those that
could result from misaligned LCRs.
Third, many of the conflicts relating to LCRs and international investment law are
traceable to failure of investors and host States to fully clarify key terms of the LCRs,
as well as reporting obligations, at negotiation phase. Key questions on what
constitutes local content and value addition, the role of national authorities in
procurement processes, timelines for reporting local content compliance, and the
flexibility provided to the investor to develop its compliance plans and proce-
dures amongst others, require detailed clarification. Without clear and documented
agreement on these issues, LCRs may result in misalignment and contentions which
may ultimately affect investor-State relations. To avoid ambiguities and misalign-
ments, the scope of objectives must be specific, measurable, and achievable. Invest-
ment agreements should clearly clarify the expectations of the host government
while providing the investor with the flexibility to develop its local content plans and
procurement procedures. This could include providing adequate flexibility for the
investor to source goods and services abroad where when suitable and reasonably
priced alternatives are not immediately available locally. For example, this flexible
model is found in the Qatari production sharing contract (PSC), which provides that
the contractor shall, when possible, give first consideration or preference to locally
manufactured or locally available goods.87 This provides some flexibility for an IOC
to consider other categories of goods and services if the IOC so decides for
operational reasons or in cases when suitable domestic goods or service providers
are not available. The negotiation stage is also a great opportunity for an IOC and the
government to agree up front on data storage requirements, especially how the cost
of local data storage will be shared. As earlier noted, for example, complying with
data localization requirements could mean project delays or higher costs on the part
of the investor, especially when local IT infrastructure is not well developed or
immediately available. This can change the profit margin of a project or affect the
timeline for operation activities. These trade-offs must be very well considered
during contract negotiation stages to avoid long-term misalignments and contentions
87
Art 23 of the State of Qatar Model Development and Production Sharing Agreement (2002)
396 D. S. Olawuyi
and to achieve a mutually beneficial and realistic contractual framework. For

example, if the government insists on data localization, fiscal terms, such as cost
recovery, among others, could be amended to protect the margins of the investor
while achieving the localization requirement stipulated by the government.
Fourth, successful LCR implementation cannot be achieved by regulation and
legislation alone. Providing adequate institutional support and supervision for inves-
tors to achieve LCRs and goals is also a crucial element. It is therefore essential for
countries to establish a focal institution, committee, or administrative unit that will
coordinate the design, approval, and implementation of local content plans across the
life cycle of a project. While such a focal institution can be established as a
supervisory committee of a petroleum contract, a more long-term approach is to
establish a national local content agency or unit that will oversee LCRs in multiple
sectors of the economy. Apart from serving as a one-stop shop that will streamline
the approval processes for local content implementation, such an institution would
also provide methodologies and tools for operators to report and monitor their
compliance with LCRs so as to minimize disputes. By empowering and establishing
a focal institution on projects, investors across multiple sectors can obtain relevant
information and develop a standardized approach to tracking, monitoring, and
complying with LCRs. A coordinated approach can also reduce duplication and
overlap, conflicting regulations, increased administrative costs, and delays.
Conclusion
While LCRs generally aim to boost domestic value creation and long-term economic
growth in host countries, inappropriately designed LCRs can have major negative
effects on the ability of a country to attract and retain foreign investment and can
ultimately result in conflicts with international investment law. Misguided and
restrictive LCRs that focus on targets and mandates can inhibit a country’s compet-
itiveness and may result in complex litigation and disputes. Furthermore, data
localization requirements can place additional cost burden on investors and could
raise significant questions on the transparency and accountability of host countries in
the handling and use of localized data.
To align LCRs with the international investment law, the chief focus of local
content measures should be to promote domestic value addition, irrespective of the
nationality, source, or location of sourced goods and services. Rather than
approaching LCRs from a compliance or mandatory project requirement mindset,
which demands more local content or introduces punitive enforcement measures, it
is essential for national authorities to adopt a more collaborative approach built on
clear, transparent, and attainable LCRs, with adequate institutional support for IOCs
to achieve those goals. A well-designed set of horizontal and collaborative policies
targeted at creating a supportive regulatory and business-friendly economic envi-
ronment for investors to deliver greater value in the host country can advance both
immediate and longer-term local content objectives with fewer potential investment
distortions.
As for the role of lawyers representing companies and investors in negotiating

investment agreements, it is important to clarify and clearly document the expecta-
tions of the host State with respect to reporting, LCR measurement, role of State
agencies in procurement processes, as well as how cost implications of data local-
ization requirements are to be allocated. Nearly all cases of conflict over incompat-
ibility of LCRs with international investment law arise from lack of clarity and
guidelines on practical expectations of the host State with respect to LCRs. Interna-
tional investors, and their business and legal advisers alike, can avoid such uncer-
tainty and backlash by fully clarifying and understanding host country expectations
on LCRs, and the risks embodied within such expectations and requirements, for the
countries within which they seek to operate and to structure their projects accord-
ingly. There is a strong business case, in terms of cost, reputation and effectiveness
for investors, and host countries alike, to do so.
The Umbrella Revolution: State Contracts
and Umbrella Clauses in Contemporary 16
Investment Law
Olga Boltenko
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400
State Contracts and Their Role in the “Umbrella Revolution” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Umbrella Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Umbrella Clauses in Chinese Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406
MFN and Umbrellas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407
State Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409
Evolution of Umbrella Clauses in Investment Protection Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410
Current State of Law on the Interpretation and Application of Umbrella Clauses . . . . . . . . . . . . 413
Conclusions and Policy Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416
Abstract
This chapter provides an overview of umbrella clauses in investment protection
treaties; it also seeks to set out the evolution of umbrella clauses in investment
treaties and explores the treaty tribunals’ interpretative process in umbrella
clauses-related treaty disputes.
Keywords
Umbrella clauses · State contracts · Investment protection treaties · FDI · Foreign
property · Investment protection
The views of the author do not represent the views of Fangda Partners or of the Hong Kong
University; all mistakes and omissions are mine. I am grateful for the invaluable contribution to this
paper by my colleagues at Fangda Partners in Hong Kong John Zhou and Junqing Chao.
O. Boltenko (*)
Fangda Partners Hong Kong, The University of Hong Kong, Hong Kong, Hong Kong SAR PRC
e-mail: boltenko@hotmail.com

https://doi.org/10.1007/978-981-13-3615-7_54
400 O. Boltenko
“But such a tiny and trivial thing as an umbrella can deprive you of the sight of such a
stupendous fact as the sun.” – Meher Baba
“You have to close down your umbrella when you are under a canopy.” – Israelmore Ayivor
On 11 August 2019, a yellow umbrella unfolded its cloth-covered spikes at the

Hong Kong International Investment Arbitration and Mediation Academy, where an
entire day’s lecture was dedicated to umbrella clauses in investment protection
treaties.
Academy’s delegates – hailing predominantly from African States and
representing predominantly African governments – took suspicious, incredulous
interest in the functioning of umbrella clauses in investment treaties. For a host of
developing nations, it appeared unfair that a treaty with an umbrella clause would
expose the State to a range of what seems to be contract claims – in addition to the
existing hefty exposure to treaty claims. The delegates’ suspicions over the fairness –
or even functionality – of umbrellas were further exacerbated as it became apparent
through the Academy studies that the umbrella clauses-related case law is inconsis-
tent; that the tribunals tend to interpret umbrella clauses differently, and that, in the
worlds of Jonathan B Potts, “investors looking for consistency in pursuing claims
and states contemplating new BITs have been placed in a quandary.”1
This chapter seeks to explain the philosophical and conceptual underpinnings of
umbrella clauses in investment protection treaties; it also offers policy observations
based on the views expressed by developing States.
Introduction
A significant majority of foreign direct investment in developing States flows

through State contracts.2 UNCTAD reports that “State contracts have played a
major role in the foreign direct investment process, especially in developing coun-
tries that are dependent upon the exploitation of natural resources for their
1
See, Potts JB (2011) Stabilizing the role of umbrella clauses in bilateral investment treaties: intent,
reliance, and internationalization. Va J Int Law 51:1005; see also Duke Energy, ICSID Case
No. ARB/04/19, } 319–320
2
See, UNCTAD report on State Contracts: “A “State contract” can be defined as a contract made
between the State, or an entity of the State, which, for present purposes, may be defined as any
organization created by statute within a State that is given control over an economic activity, and a
foreign national or a legal person of foreign nationality. State contracts can cover a wide range of
issues, including loan agreements, purchase contracts for supplies or services, contracts of
employment, or large infrastructure projects, such as the construction of highways, ports or
dams. One of the commonest forms of State contracts is the natural resource exploitation contract,
sometimes referred to as a “concession agreement”, though this is not a strict term of art (Brownlie,
2003, p. 522). Such agreements feature prominently in the natural resource sectors of developing
countries. Historically, these sectors have provided the most important source of income for the
domestic economy and have often been State controlled, so that foreign entrants into the sector had
to make contracts with the State entity in control.”
16 The Umbrella Revolution: State Contracts and Umbrella Clauses in. . . 401
economic welfare. Often, operation in a sector, such as petroleum, is open only to a

State entity or through the making of a contract with the relevant State entity.”3
While the statistics accuracy in support of this proposition might be challenging to
assess, given the predominantly confidential nature of State contracts, ICSID reports
that of all ICSID cases registered by the first quarter of 2019, 16% claims were brought
under State Contracts.4 This is an indication of how frequently foreign investors resort
to structuring their investment through individual agreements with host States.
Traditionally, host States have insisted on submitting their State contracts with
foreign investors to the known safety of their own domestic laws, unwilling to
relinquish control over strategic investments within their territory. This, however,
exposed foreign investment to the risks of nationalization and undue government
interference without providing a credible neutral avenue to resolving investment
disputes. This, in turn, made foreign investment more expensive, in particular in
those jurisdictions where sovereign risks are traditionally high. Ironically, it is those
jurisdictions that need foreign investment the most.
By way of a hard-fought compromise, in particular where there is no investment
treaty in place between the State where the investment originates and the host State,
the parties sought to address the protection gap by subjecting State contracts to
international law or to neutral domestic legal systems, often selecting either ICSID
with its delocalized procedure or a seat in a neutral jurisdiction for the resolution of
their disputes.5
This phenomenon – an investor-State negotiated compromise that allows a
foreign investor to subject its State contract to international law or to a neutral
legal system – is known as “internationalization of State contracts.” Professor
Sornarajah has explored the subject in a number of comprehensive treatises that
have since their publication become the leading authority. Sornarajah’s disciples
carried his studies of internationalization of State contracts further.
One of Sornarajah’s disciples, Professor Jean Ho, explains in her latest treatise on
internationalization of State contracts that
the idea of internationalisation likely surfaced in the 1930 arbitral award in Lena Goldfields v
USSR, and gained more defined contours in the 1950s to the 1970s in the innovative
proposal to prevent Iran from interfering with concessionary rights of the Anglo-Iranian
Oil Company, as well as a string of arbitral awards on termination of concessions in the
Middle East. The proposal called for the inclusion of a non-interference clause in the
concession, and its incorporation by reference into a treaty concluded between Iran and
the United Kingdom, thereby elevating every breach of contract into a breach of treaty.6
3
State Contracts, UNCTAD Reports (2004) Available at https://unctad.org/en/docs/iteiit200411_
en.pdf
4
See, ICSID Case Load Statistics (2019) Available at https://icsid.worldbank.org/en/Documents/
resources/ICSID%20Web%20Stats%202019-1(English).pdf
5
Ibid.
6
Ho J (2018) State responsibility for breaches of investment contracts. CUP Press EBA Program,
p 238 and footnotes
402 O. Boltenko
The compromise that the investment community has found, thus, was to incor-
porate umbrella clauses into investment protection treaties such that a breach of the
State contract might be elevated to the breach of the underlying treaty between the
two States, in appropriate circumstances.7
Umbrella clauses are described as “international law obligations created by
treaty that a host State shall (1) ‘observe any obligation it may have entered into’,
(2) ‘constantly guarantee the observance of the commitments it has entered into’,
(3) ‘observe any obligation it has assumed’, and other variants, with respect to
investors having the nationality of another Contracting State, or with respect to the
investments of such investors.”8 In other words, umbrella clauses seek to achieve the
international sanctity of private law contracts.9
Typically, treaty tribunals tasked with resolving claims brought under umbrella
clauses would first see if the alleged breach of the underlying contract is attributable
to the State and then see if the breach amounts to a violation of the umbrella clause.
In performing this two-stepped exercise, the tribunal would be guided by the
attribution rules on the one hand and then by the wording of the umbrella clause
in the underlying treaty on the other hand.10
Whether an investment treaty extends its protection to State contracts depends on
a number of factors, including the availability of the umbrella clause in the under-
lying treaty, the wording of the jurisdictional clause in the State contract, the
definition of investment that the treaty itself contains, as well as on whether the
7
Depending on the wording of the umbrella clause, it is at least arguable that umbrella clauses might
extend treaty coverage not only to State contracts, but also to non-contractual obligations: “the
language of the provision is so broad that it could be interpreted to cover all kinds of obligations,
explicit or implied, contractual or non-contractual, undertaken with respect to investment gener-
ally. A provision of this kind might possibly alter the legal regime and make the agreement subject to
the rules of international law,” – UNCTAD (1998) Bilateral investment treaties in the mid-1990s.
United Nations, p 56
8
Sinclair A (2004) The origins of the umbrella clause in the international law of investment
protection, a speech delivered at BIICL Third Conference of the Investment Treaty Forum on
10 September 2004.
9
Lim CL. Is the umbrella clause not just another Treaty Clause? – Essays in honour of Professor
Sornarajah.
10
At this juncture, it is important to note the tension between contract claims and treaty claims that
umbrella clauses bring about. This tension becomes of paramount importance when it comes to
applicable law issues. As the Vivendi Annulment Committee found, “Each of these claims will be
determined by reference to its own proper or applicable law—in the case of the BIT, by interna-
tional law; in the case of the Concession Contract, by the proper law of the contract, in other words,
the law of Tucumán. For example, in the case of a claim based on a treaty, international law rules of
attribution apply, with the result that the state of Argentina is internationally responsible for the acts
of its provincial authorities. By contrast, the state of Argentina is not liable for the performance of
contracts entered into by Tucumán, which possesses separate legal personality under its own law
and is responsible for the performance of its own contracts.” - Compañiá de Aguas del Aconquija
SA and Vivendi Universal v Argentina, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July
2002, para 96.
treaty contains a carve-out to explicitly exclude State contracts from its protective
scope, as well as on the treaty’s dispute resolution clause.11
State Contracts and Their Role in the “Umbrella Revolution”
State contracts are entered into between a foreign investor and a State agency or
other creation of statute, often on the basis of a public procurement process that often
leaves no scope for the investor to negotiate the terms and conditions of the contract.
State contracts may be terminated by the State through what the State may
consider to be its sovereign legitimate act or policy, not necessarily driven by
commercial considerations, and not necessarily giving rise to the standard contrac-
tual remedies for wrongful termination.
State contracts have therefore often been regarded as vulnerable to the changing
domestic policy of the host State, to the Government changes, and just generally to
the ever evolving political landscape of the host States. Against this backdrop, it is
only natural that investors seek to secure more viable protection for their interests in
their commercial relationship with the host States.
Umbrella Clauses
One of the most powerful mechanisms to ensure investment protection of State

contracts is an umbrella clause in an investment protection treaty between the State
where the investment originates and the host State.
Typically, investment protection treaties are not designed to protect individual
contracts, but to “ensure the stability of the operating structure of the investment
within the host country (which may include investments covered by State
contracts).”12
Individual investors have no say in the structure and content of investment
protection treaties between their States of origin and the host States. It is a matter
of inter-State negotiations to grant umbrella protection to foreign investment.
Against this backdrop, umbrella clauses have gained in popularity since the first
mention of the construct in the Abs-Shawcross Draft Convention in 1958 – a
veritable “umbrella revolution.”
Since then, umbrella clauses were used extensively in the first generation of
Bilateral Investment Treaties (BITs) concluded between 1980s and 1990s (Fig. 1).
By 2019, however, with the host States attempting to limit their exposure to treaty
claims, contemporary treaty-making practice has seen a steady decline in the number
of treaties with umbrella clauses in them.
11
State Contracts (2004) UNCTAD series on issues in international investment agreements
12
Ibid., IIA issues paper series, p 6.
404
200
150
100
Without umbrella clause With umbrella clause
50
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
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1983
1984
1985
1986
1987
1988
1989
1990
1991
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1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
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2007
2008
2009
2010
2011
2012
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2014
2015
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Fig. 1 Evolution of BITs with umbrella clause, signed between 1959 and 2016. (Source: UNCTAD Investment Policy Hub available at https://
investmentpolicyhub.unctad.org/Pages/mapping-of-iia-clauses)
O. Boltenko
For example, ASEAN has seemingly decided to do away with the umbrella
clauses in its latest FTAs, eliminating the umbrella texts from the ACIA and from
the AANZFTA. Other contemporary investment treaties, such as SADC, Canadian
treaties, and others, also chose to eliminate the umbrella clauses.13
Conversely, the EU-Vietnam FTA does contain a rather elaborate umbrella clause,
providing, in article 14, as follows:
“Where a Party has entered into a written agreement with investors of the other Party or
their investments referred to in article 13 [Scope of section II Investment Protection] that
satisfies all of the following conditions, that Party shall not breach the said agreement
through the exercise of government authority. The conditions are:
(a) The written agreement is concluded and takes effect after the date of entry into force of
this Agreement;
(b) The investor relies on that written agreement in deciding to make or maintain an
investment referred to in article 13 . . . other than the written agreement itself and the
breach causes actual damage to that investment;
(c) The written agreement creates an exchange of rights and obligations in connection to
the said investment, binding on both parties; and
(d) The written agreement does not contain a clause on the settlement of disputes between
the parties to that agreement by international arbitration.”14
In other words, the EU-Vietnam FTA sets out a number of conditions for an
investment agreement to fulfill in order to be covered by the protective umbrella of
the treaty.
The EU-Singapore FTA, on the other hand, takes a somewhat different approach.
Instead of setting out positive requirements for an agreement to fulfill in order to
benefit from the treaty, it sets out a negative requirement (the agreement will not
benefit from the treaty protection unless there is a specific undertaking):
“Where a Party, itself or through any entity mentioned in paragraph 5 of Article 9.1
(Definitions), had given a specific and clearly spelt out commitment in a contractual written
obligation towards a covered investor of the other Party with respect to the covered
investor’s investment or towards such covered investment. That Party shall not frustrate
or undermine the said commitment through the exercise of its governmental authority either:
(a) Deliberately; or
(b) In a way which substantially alters the balance of rights and obligations in the
contractual written obligations unless the Party provides reasonable compensation to
restore the covered investor or investment to a position which it would have been in had
the frustration or undermining not occurred.”15
13
See, de Souza Fleury RP (2017) Closing the umbrella: a dark future for umbrella clauses? Kluwer
Arbitration Blog, 13 October. Available at http://arbitrationblog.kluwerarbitration.com/2017/10/13/
closing-umbrella-dark-future-umbrella-clauses/
14
See, EU-Vietnam FTA, Chapter 8, Article 14.
15
See, EU-Singapore FTA, Chap. 9, Art. 9.4.
406 O. Boltenko
Of other latest investment protection instruments, the Austria-Kyrgyzstan BIT

and the Japan-Iran BIT contain umbrella clauses. The umbrella clause in the Austria-
Kyrgyzstan BIT is yet again a creative product of the latest attempts to do away with
the interpretative uncertainty. Article 11.1 of the treaty provides as follows:
Each Contracting Party shall observe any obligation it may have entered into with regard to
specific investments by investors of the other Contracting Party. This means, inter alia, that
the breach of a contract between the investor and the host State will amount to a violation of
this treaty.16
The trend to eliminate the umbrella clauses in the latest treaty-making prac-
tice, or to qualify what comes under the treaty umbrella quite significantly,
reflects the uncertainty that the clauses bring along – in terms of what breaches
may be elevated to treaty breaches, what the thresholds are, whether attribution
issues come into play, and many other uncertainties, exacerbated by the incon-
sistent case law.
Umbrella Clauses in Chinese Treaties
Looking at China – a jurisdiction that has treated investment protection treaties with
considerable suspicion since inception – umbrella clauses make appearance in a
large number of second and third generation of China’s BITs.
To date, the Chinese umbrella clauses have not been tested by a treaty tribunal,
thus leaving it to the future case law to determine how Chinese umbrellas would
operate.
A large majority of Chinese umbrella clauses are modeled after European umbrellas.
Article 2(2) of the China-UK BIT contains the following – rather standard –
formulation:
Each Contracting Party shall observe any obligation it may have entered into with regard to
investments of nationals or companies of the other Contracting Party.17
These clauses are, however, in decline. In 2009–2019, China very rarely included
umbrella clauses in its BITs. The latest umbrella appears in the China-Mali BIT:
Chaque Partie Contractante doit tenir tout engagement qu’il aura pris avec les investisseurs
de l’autre Partie Contractante concernant leurs mvestlssements.
[Each contracting Party shall observe all obligations it has undertaken with the investors
of the other Contracting Party with respect to their investments.]18
16
See, Kyrgyzstan-Austria BIT, Art. 11.1.
17
See, China-UK BIT, Article 2(2).
18
See, China-Mali BIT, Article 10(2).
Again, the existing Chinese umbrella clauses are largely modeled after the
European umbrellas, suggesting that potentially, tribunals tasked with deciding
disputes under such clauses might be guided by the existing SGS umbrella-related
case law, as described below.
MFN and Umbrellas
A nowadays rarity – treaties with umbrella clauses – might be utilized through MFN
clauses in other treaties. That would, potentially, allow a claimant investor to import
a broadly worded umbrella clause from another treaty through an MFN provision.
After all, an MFN clause typically opens up the country’s entire treaty network to an
ailing investor.
In EDF v Argentina, a tribunal sitting under the France-Argentina BIT allowed
the investor to import an umbrella clause from the Luxembourg-Argentina BIT
through an MFN clause. In that regard, the tribunal found that
[t]he Tribunal concludes that the MFN clause does in fact permit recourse to the umbrella
clauses of third-country treaties, which leads to arbitration rather than the administrative
courts of the City of Mendoza.19
In the recently revealed award in Magdaleni v Kazakhstan, the tribunal found that
the claimant investor could not benefit from the umbrella clause in the Turkey-
Kazakhstan BIT, because Kazakhstan has not undertaken any obligations with
respect to the investor in the underlying contract:
Kazakhstan had not undertaken any obligation with respect to the Association Agreement.
Whereas the latter mentioned at some point that “guarantees” were given by the state to the
investor, the tribunal had found in its award on jurisdiction that these guarantees were not
substantiated.20
Further on that, in Hamester v Ghana (a 2010 award penned by an impressive

panel of Toby Landau, Brigitte Sterne, and Bernanrdo Cremades), the tribunal found
that Ghana’s responsibility as a State cannot be engaged under the draft Articles of
Attribution of State Responsibility for Internationally Wrongful Acts for breaches of
a joint venture agreement concluded between a Ghanaian SOE – an entity separate
from Ghana – and a foreign investor:
19
See, EDF and others v Argentina (ICSID Case No. ARB/03/23), Award dated 11 June 2010,
para 929.
20
See, reporting by IAReporter available through subscription at https://www.iareporter.com/
articles/revealed-tribunal-hearing-claims-against-kazakhstan-refuses-to-construe-local-litigation-
requirement-as-binding-but-shows-deference-to-states-need-for-post-soviet-transition-and-sees-no-
breach-of/
408 O. Boltenko
the contractual commitments of Cocobod, being a separate entity from the State, cannot be
considered as elevated – and transformed in nature – by Article 9(2) of the BIT, into treaty
commitments of the State itself. It follows that a violation by Cocobod – if such a violation
had been found – could not have constituted a violation of the BIT.21
The Hamester tribunal left a note of caution in the award, stating that:
As a concluding remark, the Tribunal wishes to point out that the consequence of an
automatic and wholesale elevation of any and all contract claims into treaty claims risks
undermining the distinction between national legal orders and international law.260 In the
Tribunal’s view, this is not a result that is in line with the general purpose of the ICSID/BIT
mechanism for the international protection of foreign investments.22
Curiously, another treaty tribunal dealing with a similarly worded case reached a
completely different conclusion, also in 2010. In Kardassopoulos v. Georgia, an
equally impressive tribunal (Yves Fortier, Francisco Vicuna, and Vaughan Lowe)
found that contractual commitment undertaken by two Georgia SOEs could be
attributed to Georgia under the ECT’s umbrella clause:
whether one applies the principles of attribution set forth in the ILC Articles on State
Responsibility or the tests developed in arbitral jurisprudence to ascertain whether the acts
or omissions of a particular entity are attributable to a State, the answer in these arbitrations
is the same. The relationship between SakNavtobi and Transneft, on the one hand, and the
Georgian State, on the other hand, bears all of the hallmarks of attribution under international
law. The Tribunal is therefore satisfied that, for the purpose of determining a breach of the
applicable treaties, any acts or omissions of SakNavtobi and/or Transneft constituting such
breach may be attributed to the Respondent and it so finds.23
The usage of the treaties’ umbrella clauses, either directly or through MFN, has
been objectively inconsistent in the reported jurisprudence. Some scholars, however,
attempt to find consistency where there appears to be none. In his article “Attribution
and the Umbrella Clause – is there a way out of the deadlock,” Dr Michael Feit
ascertains that the case law inconsistency may be reconciled by taking “the under-
lying motives of the tribunals into account.”24 Others suggest that the interpretative
differences are irreconcilable.
UNCTAD reports that from 1987 to 2017, of all known ISDS cases, umbrella
clauses were invoked in 114 disputes, which is less than modest compared to the
often used expropriation and FET standards, but still significant.25
21
See, Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No. ARB/07/24,
Award dated 18 June 2010, para 348.
22
Ibid., para 349
23
See, Ioannis Kardassopoulos and Ron Fuchs v Republic of Georgia, ICSID Case Nos. ARB/05/18
and ARB/07/15, Award dated 3 March 2010, paras 273–280.
24
See, Feit M. Attribution and the umbrella clause – is there way out of the deadlock? Available at
http://minnjil.org/wp-content/uploads/2015/07/Feit.docx.pdf
25
See, https://unctad.org/en/PublicationsLibrary/diaepcb2017d7_en.pdf
State Contracts
Umbrella clauses would not have existed without the underlying contractual obliga-
tions between foreign investors and host States or their agencies – in other words,
without the State contracts. It is only if the underlying contractual obligation in a
State contract is broken that the umbrella clause mechanism is engaged.
Thus, a foray into the umbrella clause universe would be impossible without a brief
discussion of State contracts and the theory of internationalization. Traditionally,
umbrella clauses have been viewed as treaty mechanisms that internationalize State
contracts by rendering them effective under international law. This construct of umbrella
clauses, however, has created a major conceptual controversy in international law.
First, State contracts typically have their own proper applicable law, as well as
their own dispute resolution mechanism. In other words, State contracts exist in the
domestic law plane – a legal environment that does not seek, typically, to overlap
with public international law or investment treaties concluded between two or more
States.
Second, interpretation that allows turning purely contractual obligations into
equivalent international law obligations under investment protection treaties – if
accepted – would allow private parties to expand indefinitely the undertakings that
contracting States make when negotiating and concluding investment protection
treaties. Such dramatic outcome could not have been intended by the majority of
negotiating States, in particular the developing, capital-importing States.
The primary criticism of the “internationalization of contracts” through
umbrella clauses – as advocated by Professor Sornarajah – is that the “interna-
tionalization” of State contracts is a myth.26 He argues that contracts are valid by
virtue of domestic legal systems to which they are subjected, not by virtue of
international law. Nothing, in his view, including the controversial umbrella
clauses, would allow State contracts to “levitate” in the international law plane
detached from the domestic legal system that brought the contract into the world in
the first place.27
A way to address that criticism is offered by one of Sornarajah’s disciples – Prof
C. L. Lim – who suggests that umbrella clauses are not designed to elevate State
contracts and the commitments thereunder to international plane. Instead, it is not the
contractual obligation itself, but a breach of that obligation that might be a breach of
the underlying treaty, through an umbrella clause:
viewed in this way, umbrella clauses should be treated like any other garden-variety treaty
clause, requiring only the ordinary methods of treaty interpretation to be applied to their
construction.28
26
Sornarajah M. International law on foreign investment, 3rd edn., p 304
27
Sornarajah M. (1992) Law of international joint ventures. Longman, Spore, p 298
28
Lim CL. Is the umbrella clause not just another treaty clause? – Essays in honour of Professor
Sornarajah
410 O. Boltenko
Prof Lim’s position, while intellectually appealing, does not resolve the main
controversy surrounding the concept of umbrella clauses. The main question here
should be not in the semantics of the controversy – or whether it is the contractual
obligation itself that is elevated to the international level or the breach thereof – but
whether contractual obligations in private contracts may be enforced through an
investment treaty against the host State directly. The key question there would be
whether the umbrella clause elevates any contract breach to a treaty breach, and if
not, then what is the threshold of the breaches.
In his essay on umbrella clauses in Sornarajah’s Alternative Visions of the
International Law, Professor Lim does not give a simple, straightforward answer to
the question of enforcement of contractual obligations through treaty’s umbrella
mechanisms. Instead, he conditions the “breach threshold” upon the wording of the
underlying treaty, ascertaining whether the treaty commits to protect “specific”
obligation, or “any” obligations: “Thus, one starts with the treaty clause itself.”29
Another prominent critic of the notion of internationalization of State Contracts
is, unsurprisingly, Brownlie. In his Principles of Public International Law, he finds
that “the view that the contractual selection of public international law as the
applicable law places the contract on the international plane cannot be correct.”30
Rather, he argues, the rules of public international law accept the normal operation of
rules of private international law and when a claim for a breach of contract between an
alien and a government arises, the issue will be decided according to the applicable
system of municipal law designated by the rules of private international law.31
The controversy is being fed by the ever increasing number of State contracts
concluded between investors and host States. One has not better solution to the
umbrella clause question but to accept Professor Sornarajah’s and Lim’s views that a
contractual obligation exists on the domestic law plane, and that umbrella clause
does not render a contractual obligation valid under international law. Rather, a
breach of that contractual obligation, under certain circumstances, and depending on
the wording of the treaty, might be a breach of the applicable treaty.
With that premise in mind, the chapter moves on to the analysis of the evolution
of umbrella clauses in international law.
Evolution of Umbrella Clauses in Investment Protection Law
Umbrella clauses made their debut in the Abs-Shawcross Draft Convention, an attempt
at establishing a universal substantive investment protection framework, undertaken by
Lord Hartley Shawcross and the former Deutsche Bank chairman Hermann Abs:
29
Sornarajah, p 357
30
Brownlie I (2008) Principles of public international law, 7th edn. Oxford University Press,
Oxford, pp 549–550
31
Ibid.
Each Contracting Party shall at all times ensure the observance of any undertakings, which it
may have given in relation to investment made by nationals of any other Party.32
While the Abs-Shawcross draft never took off – and to date is a reminder that the
global investment community would be better off in the presence of a uniform global
substantive investment protection framework – the umbrella clause wording found
its way into the majority of bilateral investment treaties, as well as into the draft
OECD Convention on the Protection of Foreign Property:
Each Party shall at all times ensure the observance of undertakings given by it in relation to
property of nationals of any other Party.33
The umbrella clauses since then have gone through multiple iterations in the
various treaties that have adopted them:
“Either Party shall observe any other obligation it may have entered into with regard to
investments by nationals or companies of the other party.”34 [emphasis added]
“Each Contracting Party shall create and maintain in its territory a legal framework apt
to guarantee to investors the continuity of treatment, including the compliance, in good faith,
of all obligations assumed with regard to each specific investor.”35 [emphasis added]
“Each Contracting Party shall observe any obligation it may specifically have entered
into with regard to investment in its territory by investors of the other Contracting Party.”36
[emphasis added]
It is estimated that of the 2500 or more BITs currently in existence approximately

40% contain an umbrella clause.37
Given the nature of umbrella clauses, they are more frequently used by capital
exporting States with stronger negotiations power in their treaties with capital-
importing States, as opposed to the treaties concluded between States with equal
negotiations leverage (Figs. 2 and 3).
However, given the exposure that the umbrella clauses bring upon a host State, as
well as the uncertainty of the scope of obligations that the State will guarantee by
agreeing to an umbrella clause, the contemporary treaty-making practice sees a
steady decline in treaties with umbrella clauses in them.
The question here is therefore why umbrella clauses have gained so much
popularity, and how to resolve the controversy around the concept of the umbrella
clause? Certain critics argue that umbrella clauses are essentially redundant, and the
32
Draft Convention on Investments Abroad, 1959, Article II.
33
Draft OECD convention on the protection of foreign property, 12 October 1967. Aailable at http://
www.oecd.org/investment/internationalinvestmentagreements/39286571.pdf
34
Germany-Pakistan BIT.
35
Italy-Jordan BIT, at the heart of Salini v Jordan.
36
Switzerland-China BIT of 2009 (currently in force), Article 8.
37
Figure cited in Gill, Gearing, Birt (2004) Contractual claims and bilateral investment treaties: a
comparative review of the SGS cases. J Int Arb 21:5. 397 at footnote 31
412 O. Boltenko
Fig. 2 Top ten countries concluding BITs that contain umbrella clauses. (Source: UNCTAD
Investment Policy Hub available at https://investmentpolicyhub.unctad.org/Pages/mapping-of-iia-
clauses)
Fig. 3 Number and share of BITs with and without umbrella clause, signed between 1959 and
2016. (Source: UNCTAD Investment Policy Hub available at https://investmentpolicyhub.unctad.
org/Pages/mapping-of-iia-clauses)
breaches that they are intended to catch may be caught by the network of other
substantive protections, such as FET, FPS clauses, as well as clauses prohibiting
arbitrary and discriminatory treatment and other similar substantive protection
standards. In other words, the critics argue that umbrella clauses perform no function
at all. This line of reasoning, while potentially compelling, would not explain the
popularity of umbrella clauses, neither would it explain the controversy surrounding
the umbrella clauses, and nor would it be in line with the effet utile interpretation
principles.
C.L. Lim argues in response to that criticism that umbrella clauses do not simply
provide treaty protection in parallel with other treaty standards, rather, umbrella
clauses “expand the scope of treaty protection by including contractual commitments
which do not always fall within the FET, full protection and security and expropri-
ation clauses. Umbrella clauses are controversial precisely because they are not
superfluous.”38
Following Professor Lim’s line of reasoning, umbrella clauses would have gained
popularity because they offer a separate standard of protection of foreign investment
by including contractual obligations into the treaty’s protective umbrella; impor-
tantly, the value of umbrella clauses is in their ability to allow international arbitra-
tion for disputes between investors and host States, along with its enforcement
regime, where such option would not be available otherwise.
There are three landmark awards in which treaty tribunals have had to interpret
umbrella clauses to bring forward the value of umbrella clauses as a separate
substantive treaty protection.
Current State of Law on the Interpretation and Application

of Umbrella Clauses
In Serbian Loans – arguably the first case in which an international judicial authority
has had to consider the quizzical nature of State Contracts and to decide whether
State Contracts give rise to “international contractual rights” as opposed to the
rights of pure contractual nature, the Permanent Court of International Justice found
that State Contracts are “mere creatures of municipal, not international, law.” No
discussion of umbrella clauses has been entertained in Serbian Loans. Whether or
not a State Contract creates “international contractual obligations” or not is a moot
question in the context of the umbrella clause debate. In that context, what matter is
whether a breach of the State Contract is also a breach of the underlying treaty by
virtue of the treaty’s umbrella clause.
SGS v Pakistan is arguably the first case in which an investment tribunal has had
to consider the effects on an umbrella clause, in this case in the Switzerland-Pakistan
BIT. The SGS v Pakistan tribunal rejected the claimant investor umbrella-based
claims.39 The dispute arose out of Pakistan’s termination of a preshipment inspection
38
Sornarajah.
39
SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case
No. ARB/01/13 (Decision on Objections to Jurisdiction).
414 O. Boltenko
agreement that the Government had concluded with SGS Société Générale de
Surveillance S.A. (the “PSI Agreement”). SGS argued, in addition to its other
claims, that by unilaterally terminating the PSI Agreement the Government was in
breach of the Switzerland-Pakistan BIT which contains an umbrella clause.40 In
response, Pakistan argued that SGS’s claims were contract-based, not treaty-based,
for which reason the tribunal had no jurisdiction. The tribunal rejected SGS’s
umbrella arguments, noting that there was no evidence that Switzerland and
Pakistan had intended for the umbrella clauses to elevate contract breaches to treaty
breaches.
A few years later, the SGS v Philippines tribunal arrived at a completely different
finding with respect to the investor’s umbrella arguments.41 In that case, the dispute
arose out of a contract for the provision of import supervision services, which the
Philippines Government discontinued. One of SGS’s claims was that by
discontinuing the services under the contract, the Government was in breach of the
umbrella clause in the Switzerland-Philippines BIT, which required that the Philip-
pines observe commitments made to specific investments. In defense, the Philip-
pines argued, again, that the dispute was purely contractual in nature, and that the
underlying contract contained an exclusive jurisdiction clause requiring that the
disputes of such nature be resolved in the Philippines courts. The tribunal found,
in stark contrast to the tribunal’s restrictive finding in SGS v Pakistan, that it had
jurisdiction to hear SGS’s contract claims under the umbrella clause, but that it
would give effect to the forum selection clause in the underlying contract, thus
staying the proceedings.
In Noble Ventures v Romania, the tribunal found that that “a contractual breach
has of itself nothing to do with international law unless it also amounts to a violation
of a treaty standard.”42
In Vivendi v Argentina, the tribunal found that the exclusive jurisdiction clause
in the underlying contract required that contract disputes be resolved before
administrative courts of Tucuman. The Annulment Committee, however, disagreed
and found that the contractual choice of the Tucuman courts “did not mean that
Vivendi’s treaty rights could then be ignored or extinguished,”43 that each source of
law – contract and treaty – existed within its own proper sphere, and famously –
that “a breach of a contract does not yet amount to the breach of a treaty, and vice
versa.”
40
Article 11 of the Switzerland-Pakistan BUT provides that “Either Contracting Party shall
constantly guarantee the observance of the commitments it has entered into with respect to the
investments of the investors of the other Contracting Party”.
41
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case
No. ARB/02/6 (Decision on Objections to Jurisdiction and Separate Declaration)
42
Sornarajah.
43
Sornarajah, p 355
Finally, in CMS v Argentina,44 the tribunal found that “the effect of the umbrella
clause is not to transform the obligation which is relied upon into something else; the
content of the obligation is unaffected, as is its proper law.”45 The Annulment
Committee then carried on to find that “the source of contractual validity remains
the applicable law of the contract. The contract continues to be governed by that law
in respect of the usual incidents of contract notwithstanding any treaty consequences
which may apply to the breach.”46 In this case, the tribunal found that Argentina was
in breach of the umbrella clause in the US-Argentina BIT by violating the stabiliza-
tion clause in the underlying license. The Annulment Committee, however, annulled
the tribunal’s finding on the umbrella clause claims for failure to State reasons.
In these and other cases, the tribunals arrived at their – at times opposed – findings
as a result of application on the VCLT interpretative techniques on the basis of plain
and ordinary meaning of the wording of the relevant umbrella clauses. The fact that
the umbrella clauses that were at the heart of the tribunal’s findings differ rather
significantly explains, if not justifies, the opposed findings. As the Noble Ventures
tribunal found, “a clause that is readily capable of being interpreted in this way and
which would otherwise be deprived of practical applicability is naturally to be
understood as protecting investors also with regard to contracts with the host
state generally in so far as the contact was entered into with regard to an
investment.”47
Treaty interpretation considerations apart, what adds complexity to the effect of
the umbrella clause, and more specifically, to the “breach threshold” debate, is that a
number of tribunals have made a distinction between the State acting in a commer-
cial capacity and the State acting as a sovereign when breaching the State contract. In
Joy Mining v Egypt, the tribunal found that a dispute over a performance guarantee
was purely commercial in nature and removed from the notion of investment, thus
evidencing that the State committing a breach of the guarantee was acting in a
commercial capacity rather than in its capacity as a sovereign. On that basis, the
tribunal found that a commercial breach of a contract should not be elevated to the
breach of the international law obligations of the host State under the treaty:
Disputes about the release of bank guarantees are a common occurrence in many jurisdic-
tions and the fact that a State agency might be a party to the Contract involving a commercial
transaction of this kind does not change its nature. It is still a commercial and contractual
dispute to be settled as agreed to in the Contract, including the resort to arbitration if and
when available. It is not transformed into an investment or an investment dispute.48
44
CMS Gas Transmission Co. v. Republic of Argentina, ICSID Case No. ARB/01/8
45
ICSID Case No. ARB/01/8, Decision on Annulment, 25 September 2007, para 95.
46
As quoted in Lim CL. Is the umbrella clause not just another treaty clause? – Essays in honour of
Professor Sornarajah, p 355
47
Noble Ventures v Romania, ICSID Case No. ARB/01/11, Award, para 52.
48
Joy Mining Machinery Limited v. Egypt, ICSID Case No. ARB/03/11 (United Kingdom/Egypt
BIT), Award on Jurisdiction, 6 August 2004, paras 78–79.
416 O. Boltenko
Ultimately, as Professor Sornarajah has concluded in his expert opinion in El

Paso v Argentina, investors’ rights under State contracts exist in domestic law, and
such rights can be elevated to treaty rights through appropriate wording, bit only to
the extent that they exist in the applicable domestic law of the underlying contract:
Being domestic contracts, contracts of foreign investment create obligations only in domes-
tic law. It is without doubt that, through the use of appropriate language, the rights so created
can be lifted up and subjected to an international regime of protection. But, the extent of
those rights must depend on domestic law . . . they can be protected only to the extent that
they exist in domestic law.49
Conclusions and Policy Remarks
Umbrella clauses are inherently controversial. Their various iterations give rise to
varying degrees of application by treaty tribunals and produce criticism ranging from
mild to vile.
Ironically, the most open-worded iterations of umbrella clauses (“shall observe
all obligations”) that are – in the ideal world – designed to give all-encompassing
protection to State contracts – produce exactly the opposite result, with treaty
tribunals rejecting to apply such open-worded umbrella clauses for fear of indefi-
nitely expanding the protective scope of the treaty.
On a more reasonable approach, it appears that the umbrella clauses that are
drafted in a more conservative manner – limiting the treaty protection to only
“specific” obligations relating to “investment” – appear to be more effective in
protecting State contracts that fall within such treaty limitations.
There is no doubt that the controversy around the umbrella clauses as a concept is
far from being settled. The critics lament the opposed approaches taken by tribunals
on the basis of almost identical treaty wording and very similar facts, thus fuelling
the controversy almost indefinitely. That, in addition to the heated debate over the
internationalization of State contracts, does not exactly contribute to the predictabil-
ity and stability of the international law protective regime, in particular when it
comes to umbrella clauses and State contracts.
The contemporary treaty practice has seen a decline in umbrella clauses in the
latest investment treaties and free trade agreements. The umbrella clause controversy
has no doubt contributed to the States’ suspicion towards the umbrella mechanism.
Some States have thought to resolve the controversy, at least on a bilateral level, by
clarifying the umbrella clause “breach threshold” in the treaty itself: “the breach of a
contract between the investor and the host State will amount to a violation of this
treaty.”50 Other treaties remain open-worded and vague; while some treaties forego
the umbrella concept altogether.
49
Legal Opinion of M. Sornarajah in El Paso v Argentina, ICSID Case No. ARB/03/15, 5 March
2007, para 12.
50
See, Austria-Kyrgyzstan BIT, Article 11.
Ultimately, umbrella protection is only as good as the umbrella clause in the

underlying treaty; it is for the policy-makers themselves – the negotiating States – to
ensure that the umbrella clause in the treaty is functional and not subject to a wide
range of possible interpretations.
The frequent lamentation of umbrella clauses for their ambiguity, as well as the
generalized whining over the inconsistent nature of case law that umbrella clauses
generate, has had an impact on the more general debate over treaty-based investment
protection system. The ISDS backlashers use umbrella case law to decry the alleged
toxic inconsistency created by the numerous ISDS tribunals – the inconsistency that –
apparently – removes stability and predictability from the treaty-based investment
protection regimes. It is for that reason, the backlashers allege, that the existing ISDS
regime needs to be cancelled out and replaced by something new and untested.
One must caution the backlashers that it is a treacherous path to take – to attack an
entire system for the peculiarity of one of the system’s elements.
Umbrella clauses in investment treaties are foreign investors’ only protective tool
when investors bid for large State-backed infrastructure contracts. There, often,
investors have no leverage to negotiate either the applicable law or the dispute
resolution clause. As a result, investors are often left with domestic law of the host
State as applicable law, and with the local courts to resolve investment disputes with
the State. In such situations, without umbrella clauses in the applicable treaties,
foreign investment projects in fragile jurisdictions would be more expensive and
risky, and thus less forthcoming.
It is for the States to agree on the appropriate scope of the umbrella protection in
their treaties, based on the State’s FDI needs, and based on what exposure the States
can afford in exchange.
In any event, a controversy over one element of treaty protection should not cause
the demise of the entire treaty-based investment protection system – “But such a tiny
and trivial thing as an umbrella can deprive you of the sight of such a stupendous
fact as the sun.”
Standard of Compensation
for Expropriation of Foreign Investment 17
R. Rajesh Babu
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
International Law on Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
Compensation in International Law: Calvo Clause, Hull Standard, and “Appropriate”
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
Standard of Compensation for Expropriation: The Dominance of “Prompt, Adequate,
and Effective” Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Standard of Compensation: Bilateral and Multilateral Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
Compensation for Indirect Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
Abstract
The standard of compensation for expropriation or nationalization of foreign invest-
ments has been one of the single most contested issues of international law. The
debate has centered on whether the host State laws or international law would
determine the standard of compensation for expropriation of foreign property.
Despite persistent objection from the developing countries, the prompt, adequate,
and effective compensation standard have become an integral part of international
investment jurisprudence. This chapter examines the international law and practice
on standard of compensation for expropriation/Nationalization of foreign investment.
Section “International Law on Expropriation” of the chapter shall look briefly at the
international law on expropriation of foreign property. Sections “Compensation in
International Law: Calvo Clause, Hull Standard, and “Appropriate” Compensation”
and “Standard of Compensation for Expropriation: The Dominance of “Prompt,
Adequate, and Effective” Standard” shall deal with the general international standard
of compensation and the practice of States and tribunals in the context of calvo
R. R. Babu (*)
Indian Institute of Management Calcutta, Kolkata, West Bengal, India
e-mail: rajeshbabu@iimcal.ac.in

https://doi.org/10.1007/978-981-13-3615-7_4
420 R. R. Babu
clause, Hull standard, and “appropriate” compensation, respectively, and the domi-
nance of “prompt, adequate, and effective” standard. Section “Standard of Compen-
sation: Bilateral and Multilateral Approaches” deals with bilateral and multilateral
treaty approaches to compensation, with section “Compensation for Indirect Expro-
priation” deals with indirect expropriation followed by concluding observations in
section “Concluding Remarks.”
Keywords
Compensation for expropriation · Hull formula · Calvo clause · Prompt ·
Adequate and effective compensation · Appropriate compensation
Introduction
The standard of compensation for expropriation or nationalization of foreign invest-

ments has been one of the single most contested issues of international law. The
debate has centered on whether the host State laws or international law would
determine the standard of compensation for expropriation of foreign property. On
the one hand, it was argued that the compensation was to be judged by the host
state’s courts and according to national laws as opposed to international law as
interpreted by courts and tribunals. On the other hand, the United States (USA) and
other investment exporting countries articulated that the famous Hull standard of
compensation or “prompt, adequate, and effective” standard as the universal stan-
dard as per the international law. The debate continues to dominate the investment
law regime even today.1
Over the years, Hull standard or its variants have dominated the fragmented
international investment law framework. Indeed, during the last few decades, most
developing countries have through United Nations General Assembly (UNGA)
resolutions2 and official statements refused to acknowledge Hull standard of “pro-
mpt, adequate, and effective” compensation as the universal standard. In spite of
such persistent objection from a large section of States, the influence of the Hull
standard in dictating terms of compensation for expropriation of foreign investments
remain most prominent. The 2800 plus bilateral investment protection treaties
(BIPTs) and the investment arbitration awards rendered under the egis of the
1
Hackworth (1942) Digest of International Law, 657 in Christoph Schreuer, The ICSID Conven-
tion: A Commentary (2001) [hereinafter Schreuer]; See also Indirect Expropriation & the Right to
Regulate in International Investment Law, Org. for Econ. Cooperation & Dev., Working Paper
No. 2004/4, 2004; Babu RR (2014) Changing trajectories of investment protection in India: an
analysis of compensation for expropriation. Trade Law Dev 6(2):359–392.
2
See Permanent Sovereignty over Natural Resources, UN G.A. Res. 1803 (XVII), 17th Sess., Supp
No. 17, U.N. Doc. A/5217, at 15 (1962); The Charter of Economic Rights and Duties of States, UN
G.A. Res. 3281(XXIX), U.N. Doc. A/Res/29/3281 (Dec. 12, 1974); The Declaration on the
Establishment of a New International Economic Order art. 2(c), UN G.A. Res. 3201 (S-VI),
U.N. Doc. A/Res/S-6/3201 (May 1, 1974).
17 Standard of Compensation for Expropriation of Foreign Investment 421
International Centre for Settlement of Investment Disputes (ICSID) and other private
arbitration institutions have aided the Hull standard gain foothold, albeit indirectly,
in international law.3 Gradually most countries have accepted the Hull standard in
their bilateral engagements, owing to the political and economic realities.
This chapter examines the international law and practice on standard of compen-
sation for expropriation/nationalization of foreign investment. Section “International
Law on Expropriation” of the chapter shall look briefly at the international law on
expropriation of foreign property. Sections “Compensation in International Law:
Calvo Clause, Hull Standard, and “Appropriate” Compensation” and “Standard of
Compensation for Expropriation: The Dominance of “Prompt, Adequate, and Effec-
tive” Standard” shall deal with the general international standard of compensation and
the practice of States and tribunals in the context of Calvo clause, Hull standard, and
“appropriate” compensation, respectively and the dominance of “prompt, adequate,
and effective” standard. Section “Standard of Compensation: Bilateral and Multilateral
Approaches” deals with bilateral and multilateral treaty approaches to compensation,
with section “Compensation for Indirect Expropriation” deals with indirect expropri-
ation following by concluding observations in section “Concluding Remarks”.
International Law on Expropriation
The term expropriation in international law refers to the taking of foreign-owned

property by a State whether for public purposes or other reasons. International law
recognizes the right of a State to expropriate foreign property in the exercise of its
territorial competence and is well articulated in several international instruments,
including the international investment protection agreements (IIPA).4 The sovereign
right to expropriate is, however, not absolute, but conditional. The four broadly
recognized limitations considered necessary for legitimate expropriation in interna-
tional law include: public purpose, due process, nondiscrimination, and compensation.
Obligation to compensation for expropriation of foreign property is recognized a
one of the key requirement to legitimize State action. More broadly, the concept of
reparation for violations of international obligations or the obligation to mitigate
wrongful conduct is well entrenched in international law. In one of the early
recognition on the obligation to compensate, it was noted that the right to expropriate
3
Braun TR (2010) Chapter 21: Globalization: the driving force in international law. In: Waibel M
et al (eds) The backlash against investment arbitration: perceptions and reality, p 493
4
Brownlie I (2008) Principles of public international law, 7th edn. Oxford University Press, Oxford,
pp 533–534; See also, Higgins R (1982) The taking of property by the state: recent developments in
international law. Recueil des Cours 176. It has been held that the right to expropriate is “established
as a result of general practices considered by the international community as being the law”, see
Texaco Overseas Petroleum Company v. Libyan Arabian Republic, Ad Hoc Award of January
19, 1977, 17 I.L.M. 183 (1978)
422 R. R. Babu
“has no existence as a right apart from the obligation to make compensation.”5

Similarly, the Permanent Court of International Justice (PCIJ) in Chorzów Factory
case held that: “[I]t is a principle of international law that the breach of an engage-
ment involves an obligation to make reparation in an adequate form. Reparation
therefore is the indispensable complement of a failure to apply a convention and
there is no necessity for this to be stated in the convention itself.”6 The judgment
remains to be the cornerstone of international claims for reparations, whether
presented by States or other litigants.7
The obligation to compensate is also mirrored in the International Law Commis-
sion’s (ILC) Draft Articles on State Responsibility 2001 (ILC Draft Articles). The
ILC draft Article 31(1) obligates the responsible State to “make full reparation for
the injury caused by the internationally wrongful act.”8 The draft Articles stress on
full reparation through restitution. If the damage cannot be made good by restitution,
the State “is under an obligation to compensate for the damage caused thereby” and
such compensation shall cover “any financially assessable damage including lost
profits insofar as it is established.”9
Obligation to compensate thus is well settled as integral to expropriation, and the
same has received considerable support from State practice and the jurisprudence of
international tribunals.10
Compensation in International Law: Calvo Clause, Hull Standard,

and “Appropriate” Compensation
Since the late nineteenth century, the Latin American and other erstwhile colonies
have constantly asserted economic self-determination as inalienable and argued for
effective control over their national resources. They also rejected the notion of full
compensation for expropriation of foreign property as inapplicable because “it
would make economic restructuring impossible.”11 The standard of compensation
5
Eastern Extension, Australisia & China Tel. Co. (Gr. Brit. v. U.S.), American and British Claims
Arbitration 73 (1923) in A. B. M. (1960), “Expropriation of Alien Property” 109 University of
Pennsylvania Law Review 245, 246.
6
Chorzów Factory (Ger. v. Pol.), 1927 P.C.I.J. (ser. A) No. 9 at 21 (July 26) [hereinafter Chorzów].
7
See Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion,1949
I.C.J. 174, p. 184 (Apr. 11); see also S.D. Myers, Inc. v. Canada (UNCITRAL (NAFTA)) Award on
merits, p. 311 (Nov. 13, 2000), 40 I.L.M. 1408 (2001); Metalclad Corporation v. Mexico, ICSID
Case No. ARB(AF)/97/1, Award, p. 122 (Aug. 30, 2000), 16 ICSID Rev-FILJ 168 [hereinafter
Metalclad Corp.]; The Stati and Ascom v. Kazakhstan Award considers that the starting point for the
calculation of damages should indeed be the formula applied in the Chorzów Award. Anatolie Stati
v. Republic of Kazakhstan, SCC Case No. V116/2010, Award, 1527 (Dec. 19, 2013).
8
Commentaries to the Draft Articles on Responsibility of States for Internationally Wrongful Acts in
Report of the ILC on the Work of its Fifty-third Session, U.N. GAOR, 56th Sess., Supp. No. 10, -
U.N. Doc. A/56/10, at 43 (2001) [hereinafter ILC Draft Articles] art. 31 at p. 91.
9
ILC Draft Articles, supra note 9, art. 36.
10
Brownlie, supra note 5, at 534.
11
Id.
for expropriation, for them, was national treatment, meaning that the foreign invest-
ment should receive similar treatment as the state’s own subjects.
The Calvo clause has its origin in the Calvo doctrine, which emerged as the
expression of resistance against the “aggression and conquest against military and
economically weak Latin American countries as a means of collecting debts owed to
their citizens by European states and the US.”12 Calvo stated that.
Foreigners who held property in Latin American states and who had claims against the
governments of such states, should apply to the courts within such nations for redress instead
of seeking diplomatic intervention. Moreover, according to the doctrine, nations were not
entitled to use armed force to collect debts owed them by other nations.13
The Latin American countries formalized their position by inserting the “Calvo
clause” into the investment contracts entered into with foreign companies. The
US-Mexican Claims Commission concluded that when an investor agrees to the
Calvo clause, the investor has waived their right to request diplomatic protection in
any matter arising out of the contract.14 Incorporation of the Calvo clause was further
justified in light of principles such as political and economic sovereignty, domestic
jurisdiction, territorial integrity, and permanent sovereignty over natural resources.15
The USA, in response to the act of expropriation by Mexico, sought compensation
for its affected citizens. Laying down the US understanding of the standard of compen-
sation in international law, in the US diplomatic communiqué in 1938, Hull wrote:
The Government of the United States merely adverts to a self-evident fact when it notes that
the applicable precedents and recognized authorities on international law support its decla-
ration that, under every rule of law and equity, no government is entitled to expropriate
private property, for whatever purpose, without provision for prompt, adequate, and effective
payment therefor.16
The emphasizing on the requirement of “prompt, adequate, and effective” com-

pensation, later come to be known as the “Hull Rule” or “Hull formula.” Cordell
Hull standard marked the first formal opposition against standard recognized under
the Calvo clause. For the USA and the other Western countries, “prompt, adequate,
12
See generally, J. Dugard, Special Rapporteur, Third Rep. on Diplomatic Protection, ILC,
U.N. Doc.A/CN.4/523/Add.1 (Apr. 16, 2002) in, International Law on Investment: The Minimum
Standard of Treatment (MST), Center for International Environmental Law (ISSUE BRIEF) 1, 3 (Aug.
2003), available at www.ciel.org/Publications/investment_10Nov03.pdf [hereinafter CIEL]
13
Calvo C (1868) International law of Europe and America in theory and practice. Calvo Doctrine
Britannica Encyclopedia. www.britannica.com/bps/topic/90348/Calvo-Doctrine (June 15, 2013);
see also Shihata I (1995) Applicable law in international arbitration: specific aspects in case of the
involvement of state parties. In: Shihata I, Wolfensohn JD (eds) The World Bank in a changing
world: selected essays and lectures, at 234.
14
North American Dredging Company of Texas (U.S.) v. United Mexican States, 4 R.I.A.A. 26 (Mar.
31, 1926) in CIEL, supra note 26, at 1.
15
Schrijver N (1997) Sovereignty over natural resources – balancing rights and duties. p 177
16
Lowenfeld A (2002) International economic law. Oxford University Press, Oxford, pp 397–403
424 R. R. Babu
and effective” compensation represented minimum standard of treatment for expro-

priation in international law.17 Further, it was reasoned that the Calvo clause in
essence is a clause by which private persons mistakenly pretended to renounce a
right which in law did not belong to them but to their national State.18
Over the decade since, the capital exporting countries have consistently reiterated
the “Hull standard” as the international benchmark for compensation introducing it
in various bilateral commercial treaties and international agreements.19 The strong
endorsement received for Hull standard as a universal norm by the developed
countries and acceptance of the same in bilateral context by the developing countries
has not deter them in collectively voicing their opposition.
At the UN General Assembly, the developing countries insisted on the national
treatment standard and reiterated their position in several Resolutions, passed over
the objection of developed countries, embracing less than full compensation. The
basic justification for “appropriate compensation” was that, if full compensation had
to be paid, the nationalizing State would go bankrupt.20 The 1962 UNGA Resolution
on Permanent Sovereignty over Natural Resources (“PSNR”) took a balanced view
in the event of expropriation, stating that “. . .the owner shall be paid appropriate
compensation, in accordance with rules in force in the State taking such measures in
the exercise of its sovereignty and in accordance with international law”.21 The
standard prescribed by this Resolution attempts to bring in a combination of the
national treatment and international standards.
A more restrictive approach was taken in the 1974 UNGA Resolution on the
Charter of Economic Rights and Duties of States which stated that:
appropriate compensation should be paid by the State adopting such measures, taking into
account its relevant laws and regulations and all circumstances that the State considers
pertinent. In any case where the question of compensation gives rise to a controversy, it shall
be settled under the domestic law of the nationalizing State and by its tribunals. . ..22
17
VanDuzer JA, Simons P, Mayed G (2013) Integrating sustainable development into international
investment agreements: a guide to developing countries negotiators. Commonwealth Secretariat.
p 157. See also, Peters P (1995) Recent development in expropriation clauses of Asian investment
treaties. Asian Yearb Int Law 5:57.
18
See AES Corporation v. Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdic-
tion, p. 98 (Apr. 26, 2005).
19
Nicholson FJ (1965) The protection of foreign property under customary international law.
Boston Coll Law Rev 6:391, 402. See also Schreuer, supra note 1.
20
Friedmann, Pugh (1959) Legal aspects of foreign investment, pp 730–731.
21
G.A. Res. on Permanent Sovereignty, supra note 2, p. 4 (adopted by 87 votes to two, with twelve
abstentions); see also G.A. Res. 3171 (XXVIII), U.N. GAOR, 28th Sess, Supp. No. 30, U.N. Doc.
A/9030 (1973).
22
Emphasis added. Charter of Economic Rights and Duties of States, UNG.A. Res. 3281 (XXIX),
29th Sess., Supp. No. 31, U.N. Doc. A/9631 at 50 (1974) (Adopted by a majority of 120 States over
the objection of 6 industrialized countries and with the abstention of 10 others); See Shihata, supra
note 14, at 238.
While The UN resolutions left open the interpretation of the term “appropriate”
compensation, it has been interpreted as “fair and reasonable given the circumstance of
the taking,”23 implying something less than full compensation.24 Less than full
compensation was advanced in the context of economic and social realities of poorer
countries, which may be against the principle of self-determination, independence,
sovereignty, and equality.25 The UNGA resolutions, by itself nonbinding, were con-
sidered as political and programmatic statements26 reflecting “the dominant trend of
international opinion.”27 Both UNGA resolutions 1803 and 3281 gave prominence to
national law and rejected Hull standard as universal or binding customary law.28
The American Law Institute’s Restatement on Foreign Relations Law, which
previously favored the Hull standard, preferred “just compensation” in the absence
of exceptional circumstances.29 The European Commission of Human Rights
(ECHR) in Shipbuilding Nationalization case held that “the general principles of
international law, according to which it used to be considered that compensation for
non-nationals ought to be full, adequate, equitable, prompt and appropriate, have
changed somewhat in the face of pressure from the Third World.”30
The Tribunal in Kuwait v. Aminoil, interpreted the term “appropriate” compen-
sation, to include the replacement values of the expropriated tangible assets plus an
award for lost profit calculated by reference to “reasonable rate of returns.”31
Declaring that “fair compensation” is payable, the Tribunal preferred to adopt the
23
O’Connor LA (1983) The international law of expropriation of foreign-owned property: the
compensation requirement and the role of the taking State. Loyola Los Angeles Int Comp Law
Rev 6:365
24
Lauterpacht E (1990) Issues of compensation and nationality in the taking of energy investments.
J Energy Nat Res Environ Law 8:241, 249
25
Brownlie, supra note 5, at 513; see also Oppenheim’s International Law 352 (H. Lauterpacht ed.,
8th ed.1992); Sornarajah M (2010) The international law on foreign investment, 3rd edn. Cam-
bridge University Press, Cambridge, pp 484–485; Chaisse J, Bellak C (2015) Navigating the
expanding universe of investment treaties – creation and use of critical index. J Int Econ Law
18(1):79–115.
26
Newcombe A, Paradell L (2009) Law and Practice of investment treaties: standards of treatment,
30 [hereinafter Newcombe and Paradell].
27
See Libyan American Oil Company v Libyan Arab Republic, Award, 53 (Apr. 12, 1977),
62 I.L.R. 140 (1982).
28
UNGA Resolution 1803 (Art. 4) has made appropriate standard mandatory by use of the term
“shall,” whereas in UNGA Res 3281 (Art. 2.2(c)) “should” was used and the reference to
“international law” was omitted. Ripinsky S, Williams K (2008) Damages in international invest-
ment law, 73.
29
1 Restatement of the Law Third: The Foreign Relations of the United States 196 (1987) in Thomas
W. Waelde ed.1996, The Energy Charter Treaty: An East-west Gateway for Investment and Trade
395 [hereinafter Restatement]. The ICC Guideline also refers to “just compensation.” see Interna-
tional Chamber of Commerce Guidelines for International Investment (2012), available at http://
www.iccindiaonline.org/pdf.pdf
30
Lithgow v. United Kingdom, 102 Eur. Ct. H.R. (ser. A) at 516 (1986).
31
Kuwait v. Aminoil, Award, pp. 160–161 (Mar. 24, 1982) in Ripinsky, supra note 29, at 75 [here-
inafter Aminoil].
426 R. R. Babu
term “appropriate compensation” as used in the UNGA Resolution 1803 and

explicitly rejected the UNGA Resolution 3281, which “purported to weaken the
customary international law standard of compensation for expropriation and leave
the matter entirely for determination under domestic law”.32 The Tribunal then
concluded that “appropriate compensation” could be
determined differently from case to case, depending upon the particular legal relationship
between the parties and on the overall international context prevailing at the time”, and
awarded a compensation that closely resembles full compensation, which even included loss
of profits to reflect the parties’ ‘legitimate expectations’.33
While the official approach of developing countries to standard of compensation

seems to favor “appropriate” compensation, the power-based bilateral engagements
encouraged the Hull or its variant. The fragmented nature of state’s response has led
to a state of incoherent application and development of the international law on
standard of compensation for expropriation.
Standard of Compensation for Expropriation: The Dominance

of “Prompt, Adequate, and Effective” Standard
State practice, scholastic view, or arbitral awards have not offered any consistent view
on the standard of compensation for expropriation, resulting in no universal consensus
or practice. While “appropriate” compensation standard continues to dominant official
position of most States, “prompt, adequate, and effective” standard or its variants have
found a place in most bilateral and regional investment agreements and consequently
the standard applied by arbitral tribunals.34 The BITs and tribunal interpretations have
lend legitimacy to the Hull standard. Economic realities and the need for FDI have
compelled developing to accept the “prompt, adequate, and effective” standard,
abandoning their collective officially espoused position.35 The tribunals have further
ensured that even when the “prompt, adequate, and effective” standard is not directly
used in the treaty, the provision is interpreted in roughly the same way.36
32
Aminoil, Ibid, pp. 143–44.
33
Weiler, supra note 60, at 362.
34
UNCTAD, Taking of Property 28 (IIA Issues Paper Series, UNCTAD/ITE/IIT/15, 2000) [here-
inafter UNCTAD – Paper Series]; See also Chaisse J (2013) Exploring the confines of international
investment and domestic health protections – general exceptions clause as a forced perspective. Am
J Law Med 39(2/3):352–354.
35
Guzman AT (1998) Why LDCs sign treaties that hurt them: explaining the popularity of bilateral
investment treaties. Vandarbilt J Int Law 38:639–688
36
Though the Italy-Egypt BIT does not mention the word “prompt” and States that compensation
paid must be “adequate and fair,” the Tribunal considers that the absence “ought not to be seen to
permit Egypt to refrain from paying compensation indefinitely”. Waguih Elie George Siag &
Clorinda Vecchi v. The Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award and Dissenting
Opinion, pp. 434, 435, 465 (June 1, 2009).
The Hull formula provides for a triple test – “prompt, adequate, and effective”
standard. Mostly undefined, the scope and content of these phrases have been
interpreted by the tribunals or provided in some of the BITs and Regional Trade
Agreements (RTAs) as specific provisions or explanatory note. The Australia-US
Free Trade Agreement, for instance, demands compensation to (i) be paid without
delay; (b) be equivalent to the fair market value of the expropriated investment
immediately before the expropriation took place; (c) not reflect any change in value
occurring because the intended expropriation had become known earlier; and (d) be
fully realizable and freely transferable.
In CME v. Czech Republic (Final Award), the Tribunal notes that the BIT’s require-
ment of compensation to be “just” evokes the Hull Formula providing for payment of
“prompt, adequate, and effective” compensation and concluded that when a State takes
foreign property, “full” compensation must be paid.37 Similarly, in Tippets v. TAMS-
AFFA Consulting Engineers of Iran, though the phrase used in the agreement was “just
compensation,” the Tribunal found that “full compensation” should be awarded and
prompt payment of just compensation is an obligation, which is accepted as a general
rule of customary international law.38 Further, in AIG v. Kazakhstan case, the Tribunal
held that customary international law has consistently recognized that the expropriation
of a foreign investor’s property, including contract rights, must be accompanied by
“compensation” – the traditional standard being that such compensation be adequate in
amount, be paid promptly, and be effective in the manner and form of its payment, to
recompense the owner for the loss of the property or investment.39
The tribunal awards and practices, though do not offer a consistent view, point
towards recognition of the “prompt, adequate, and effective” compensation standard
irrespective of the terminology used in the agreement. These tribunals have generally
favored granting of full value of the investment, including lost profit.40 Both
damnum emergens (actual or positive damages) and lucrum cessans (loss of future
earnings or profit) are often claimed by the injured party, and often both are
awarded.41 According to Georges Abi-Saab, compensation must be limited to actual
ascertained loss, but does not include lucrum cessans according to general
37
Article 11.7, Australia-US Free Trade Agreement 2002. See also Article 10.9, US – Chile Free
Trade Agreement 2003; US – Singapore Free Trade Agreement, 2003 and most other US FTAs.
38
CME Czech Republic B.V. v. Czech Republic (UNCITRAL), Final Award, 497 (Mar. 14, 2003).
See also, American International Group, Inc. & American Life Insurance Co. v. Islamic Republic of
Iran & Central Insurance of Iran, 23 I.L.M. 1 (1984); see Shihata, supra note 14, at 241; Anglo –
American Oil Company (U.K. v. Iran), 1952 I.C.J. 93, 151 (July 5) (the Tribunals granted full
compensation).
39
AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v. Republic of Kazakhstan,
ICSID Case No. ARB/01/6, Award, para 12.1.3 (Oct. 7, 2003).
40
See Sornarajah, supra note 27, at 381.
41
Collins D (2009) Reliance remedies at the international center for the settlement of investment
disputes. North West J Int Law Bus 29:195, 198; See Ripinsky S (2009) Damnum emergens and
lucrum cessans in investment arbitration: entering through the back door. In: Bjorklund AK et al
(eds) Investment treaty law: current issues remedies in international investment, pp 59–60.
428 R. R. Babu
international law.42 Collins notes that “while it has been noted that fair market value
and damnum /lucrum are different approaches, the ICSID tribunals have admitted
the notion of damnum emergens and lucrum cessans through the back door. The
consequence is that the damnum/lucrum approach may over-compensate the inves-
tor.”43 The ICSID tribunals in AGIP v. Congo44 and Benvenuti et Bonfant v. Congo45
also seems to favor this interpretation and held that Congo must indemnify for loss as
well as future profits.46
ICSID tribunals, however, have been hesitant to award damages for lost profits to a
new industry or one where there is limited record of profits.47 In the Mihaly International
Corp case, in a separate opinion, it was observed that preinvestment expenditure must
also be included in the “investment” for the purpose of compensation, notwithstanding
the fact that the proposed investment project failed to materialize and was ultimately
abandoned.48 Nonetheless, the majority of the Tribunal did not accept preinvestment and
development expenditures as a valid denomination of “investment.”49 Furthermore, it is
a standard practice in ICSID to award compound interest in expropriation cases50 and is
considered necessary to ensure full reparation.51 In Inmaris v. Ukraine, it was noted that
an award of interest is appropriate to ensure that claimants are made whole because
interest reflects the time value of money.52 Similarly, the Marion Unglaube v. Costa Rica
Award confirms full reparation requires the payment of interest and discusses various
approaches for determining the appropriate interest rate.53
42
See Ioan Micula, Viorel Micula and others v. Romania, ICSID Case No. ARB/05/20, Separate
Opinion of Professor Georges Abi-Saab, 15 (Dec. 11, 2013).
43
Collins, supra note 42 at 200.
44
AGIP S.p.A. v. People’s Republic of the Congo, ICSID Case No. ARB/77/1, Award,
21 I.L.M. 726 (1982).
45
S.A.R.L. Benvenuti & Bonfant v. People’s Republic of the Congo, ICSID Case No. ARB/77/2,
Award, 21 I.L.M. 1478 (1982).
46
Sornarajah, supra note 27, at 384.
47
Asian Agrie. Prod. Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award, 4 ICSID
Rep. 245, 293 (1990); Metalclad Corp., supra note 8, p. 232; Wena Hotels Ltd. v. Arab Republic of
Egypt, ICSID Case No. ARB/98/4, Award, 6 ICSID Rep. 89 (2000) [hereinafter Wena Hotels]; see
Collins, supra note 43 at 200.
48
Mihaly International Corporation v. Sri Lanka, ICSID Case No. ARB/00/2, Individual concur-
ring opinion by Mr. David Suratgar, 163 (Mar. 15, 2002).
49
Mihaly ibid; see also Hornick RN (2003) The mihaly arbitration: pre-investment expenditure as a
basis for ICSID jurisdiction. J Int Arbitr 20(2):189–197.
50
Middle East Cement Shipping and Handling Co.S.A v. Arab Republic of Egypt, ICSID case
ARB/99/6, p. 42 (Apr. 12, 2002); see also Wena Hotels, supra note 48, p. 919; Metalclad Corp.,
supra note 8, p. 16; ADC Affiliate Ltd & ADC Management Ltd v. Republic of Hungary, ICSID Case
No. ARB/03/06, Award, pp. 520–522.
51
See Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award, 659 (Mar. 3, 2010).
52
Inmaris Perestroika Sailing Maritime Services GmbH and others v. Ukraine, ICSID Case
No. ARB/08/8, Award, 429 (Mar. 1, 2012).
53
Reinhard Hans Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/09/20, Award,
pp. 319–323 (May 16, 2012).
In short, the tribunals have exercised the wide margin of discretion to justify and
award an array of compensation irrespective of the terminology used, which may
effectively result in full compensation. For instance, Sornarajah notes that “‘Appro-
priate’ compensation is a reference to a flexible standard, which could range from the
payment of full compensation, the amount of profit lost, to the payment of no
compensation at all, in circumstances where the foreign investor had visibly earned
inordinate profits from his investment and the host State had no benefits from it.”54
Schachter is forthright when he notes that “. . .when a dispute over compensation for
a particular taking reaches a court or arbitral tribunal, the property owner is quite
likely to get fair market value and a satisfactory award, even though the magic words
of the Hull formula are not invoked.”55
In short, the semantic heterogeneity of the expressions in BITs has not deterred
investment friendly arbitration tribunals from awarding compensation that are by all
means representative of “prompt, adequate, and effective” compensation.
Standard of Compensation: Bilateral and Multilateral Approaches
The “prompt, adequate, and effective” standard continues to dominate both

bilateral and multilateral investment agreements. Among the regional agreements
with investment chapters, the most prominent expression of the Hull standard is
found in the NAFTA and the Energy Charter Treaty (ECT).56 While the NAFTA
essentially paraphrases the Hull standard, the ECT makes a direct reference.57
Article 13 of the ECT departs from NAFTA provisions in the context of com-
pensation by stating that expropriation must be “accompanied by the payment of
prompt, adequate, and effective compensation.”58 The Charter’s protection
against expropriation extends from outright takings of investments by the host
State, to “measures having equivalent effect of nationalization or expropriation,”
i.e., various forms of indirect or creeping expropriation, such as exorbitant
regulations or confiscatory taxation that undermines the operation or enjoyment
of the investment.59
54
Sornarajah supra note 27, at 480.
55
Schachter O (1989) Compensation cases – leading and misleading. Am J Int Law 79:420, 421.
56
UNCTAD – Paper Series, supra note 35;
57
See NAFTA, supra note 19, art. 1110; see also Levy T (1995) NAFTA’s provision for compen-
sation in the event of expropriation: a reassessment of the “prompt, adequate, and effective
standard.” Stanford J Int Law 31:423–453.
58
Art. 13 (d), Annex I of the Final Act of the European Energy Charter Conference, 1994,
34 I.L.M. 373 (1995).
59
See on expropriatory epxropriatry taxation, see Chaisse J (2015) Investor-state arbitration in
international tax dispute resolution – a cut above dedicated tax dispute resolution? Va Tax Rev
41(2):149–222.
430 R. R. Babu
The World Bank Guidelines on Legal Treatment of Foreign Investment 1992

provides for a similar standard of compensation.60 The Guidelines while using the
term “appropriate compensation,” as was the case in UNGA Resolutions, goes on to
redefine the standard as no difference from “prompt, adequate, and effective”
compensation. The Guideline qualifies “appropriate” compensation, as “compensa-
tion for a specific investment taken by the State will, . . . be deemed ‘appropriate’ if it
is adequate, effective and prompt” (guideline IV.2, 7, 8); deemed “adequate” if it is
based on the “fair market value” (guideline IV.4), determined in accordance with a
method agreed by the State and the foreign investor or by a tribunal or another body
designated by the parties; deemed “effective” if the currency paid in is freely
convertible; and finally, considered “prompt” if paid without delay. Interest shall
be paid at a commercial rate established on a market basis from the date of
expropriation until the date of payment.
The 1967 draft OECD Convention on the Protection of Foreign Property also
refers to the Hull standard and states that taking of property is to be: “. . . accompa-
nied by provision for the payment of just compensation. Such compensation shall
represent the genuine value of the property affected, shall be paid without undue
delay, and shall be transferable to the extent necessary to make it effective for the
national entitled thereto”. A similar approach could be found in the APEC Non-
Binding Investment Principles (1994) and the draft Multilateral Agreement on
Investment 1998 (MAI).61 The APEC nonbinding principle states that the “Member
economies will not expropriate foreign investments . . . against the prompt payment
of adequate and effective compensation.”62
In the bilateral context, BITs are signed to establish favorable environment for
private investors of capital exporting countries in the territory of host countries.63
BITs seeks to guarantee “minimum standard” of protection for foreign investments
in the territory of the host State. BITs often have been termed as “unequal treaties”64
and “one-way ratchet designed to benefit multinationals”65 wherein the developing
countries are generally compelled to accept the drafts offered by developed coun-
tries.66 They “consciously seek to approximate in the developing, capital-importing
60
Guidelines on the Treatment of Foreign Direct Investment have been listed as “binding instru-
ment” in the official website of the WTO. See http://www.wto.org/english/news_e/pres96_e/pr057_
e.htm (24 March 2011).
61
Multilateral Agreement on Investment, Draft Consolidated Text art. IV.2, Apr. 22, 1998, DAFFE/
MAI(98)7/REV1, http://www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf
62
See The Asia Pacific Economic Cooperation Non-Binding Investment Principles, endorsed at the
Sixth Ministerial Meeting of APEC, Jakarta, http://www.apec.org/Press/News-Releases/2010/~/
media/965E37FDA6D848B4A0350D68D2A4BE1C.ashx (Nov. 12, 1994).
63
U.N. Centre for Transnational Cooperation & International Chamber of Commerce, Bilateral
Investment Treaties 1951–1991, ST/CTC/136 (1992).
64
Detter I (1966) The problem of unequal treaties. Int Comp Law Q 14:1069
65
Alvarez JE (1992) 86 ASIL proceedings 552
66
Vandevelde KJ (2005) A brief history of international investment agreements. UC Davis J Int Law
Pol 12:157, 170
State, the minimal legal, administrative, and regulatory framework, that fosters and
sustains investment in industrialized, capital-exporting states.”67
Since the 1980s, the economic pressure on the developing countries gradually led
to the acceptance of the Hull standard in their bilateral arrangements. Foreign
investment was seen as the tool for economic development and prompted developing
economies to shift their approach of rigorous regulations on foreign investment to
one of the “more flexible and pragmatic approaches aimed at facilitating and
speeding up foreign investment inflows”.68 BITs, thus, was expected to assure that
the foreign investor will have fair and equitable treatment, full and constant legal
security, and “prompt, adequate, and effective” compensation or more succinctly
“just” compensation.69 Economic compulsions made the Hull standard increasingly
acceptable and became an integral part of most BITs. The Calvo clause went out of
favor even among the Latin American countries. For instance, Mexico, a long-time
proponent of the Calvo clause, accepted Chapter XI of the NAFTA.
Compensation for Indirect Expropriation
The modern addition to the debate on expropriation is the Hull plus standards that
covers circumstances where the acts of the States can be construed as meeting the
conditions of expropriation. Often known as “creeping” or “indirect” expropriation,
the term is defined to denote State action, which seeks “to achieve the same result by
taxation and regulatory measures, designed to make continued operation of a project
uneconomical, so that it is abandoned.”70 These practices have the effect of
diminishing property rights, impacting ownership and enjoyment.
Measures tantamount to expropriation or regulatory takings are much broader in
scope and may be interpreted to include all government measures, taxation, policies, and
State laws that interfere with the full enjoyment of foreign investment. In Metalclad
Corp v. Mexico, a case where Mexican authorities had stopped construction because of
perceived adverse effect on the environment, the NAFTA Tribunal stated that:
. . . expropriation [...] includes not only open, deliberate and acknowledged takings of property,
such as outright seizure or formal or obligatory transfer of title in favor of the host State, but
67
Sloane RD, Reisman WM (2004) Indirect expropriation and its valuation in the BIT generation.
Br Yearb Int Law 74:115, 118
68
Rep. of the UN Centre on Transnational Corporations, Third Survey, 57 in Sornarajah, supra note
16, p. 91.
69
Clagett BM (1987) Just compensation in international law: the issues before the Iran-United
States claims tribunal. In: Lillich RB (ed) 4 The valuation of nationalized property in international
law, 31; see also Mohebi M (1999) The international law character of the Iran-United States Claims
Tribunal, pp. 325–327.
70
See Restatement, supra note 30, p. 712; see also Dolzer R (2002) Indirect expropriations: new
developments? N Y Univ Environ Law J 11:264; Chaisse J (2012) Promises and pitfalls of the
European Union policy on foreign investment. J Int Econ Law 15(1):66–68.
432 R. R. Babu
also covert or incidental interference with the use of property, which has the effect of depriving
the owner, in whole or in significant part, of the use or reasonably-to-be expected economic
benefit of property, even if not necessarily to the obvious benefit of the host State.71
Indirect expropriation and measures tantamount to expropriation has now become a

regular feature of all BITs and RTAs such as the NAFTA and ECT.72 The 1992 World
Bank Guidelines, for instance, state that: “A state may not expropriate or otherwise take
in whole or in part a foreign private investment in its territory, or take measures which
have similar effects, except where this is done in accordance with applicable legal
procedures, in pursuance in good faith of a public purpose, without discrimination on
the basis of nationality and against the payment of appropriate compensation”.73
There is, however, no clear definition that demarcates between State measures
“having the effect of creeping or indirect expropriation” for which no compensation
is due and actions qualifying as indirect expropriations that would require compen-
sation.74 American Law Institute’s Restatement commentary attempt to draw a
distinction on the measures that are noncompensable. It notes that “a state is not
responsible for loss of property or for other economic disadvantage resulting from
bona fide general taxation, regulation, forfeiture for crime, or other action of the kind
that is commonly accepted as within the police power of states, if it is not
discriminatory. . ..” The MIA negotiating text’s interpretive note also adhere to the
notion that the States is not responsible to compensate for losses which “an investor
or investment may incur through regulation, revenue raising and other normal
activity in the public interest undertaken by governments.”75
Given the lack of clear rules because of the varying and complex factual patterns,
it is often left to the arbitration tribunal to resolve the problem on a case-by-case
basis. The practice of tribunals has been wide and varied leading to inconsistencies.
It has been noted that broadly, the tribunals emphasize on the degree of interference
with the property right, the character of governmental measures, and the interference
of the measure with reasonable and investment-backed expectations.76 However, no
71
Metalclad Corp., supra note 18, p. 33; see also, Tecnicas Medioambientales TECMED S.A
(TECMED) v. Mexico, ICSID Case no. ARB (AF)/00/22003, Award, p. 113.
72
Fortier LY (2003) Caveat investor: e meaning of “expropriation” and the protection afforded
investors under NAFTA. News from ICSID/International Centre for Settlement of Investment
Disputes, ICSID, vol 20(1), p 1; see also Sacerdoti G (1997) Bilateral treaties and multilateral
instruments on investment protection. Recueil des Cours 269:255, 385–386.
73
Section IV (1), “Expropriation and Unilateral Alterations or Termination of Contracts” World
Bank Guidelines on the Treatment of Foreign Direct Investment, 1992.
74
Dolzer, Stevens (1992) Bilateral investment treaties. ICSID, p 99
75
See also OECD Declaration adopted by the Council of Ministers on April 28, 1998, C/MIN(98)
16/FINAL.
76
OECD (2004) “Indirect Expropriation” and the “Right to Regulate” in international investment
law, OECD working papers on international investment, 2004/04. OECD Publishing. https://doi.
org/10.1787/780155872321. See also Christie G (1962) What constitutes a taking of property under
international law? Br Yearb Int Law, pp 307–338. https://scholarship.law.duke.edu/faculty_scholar
ship/1751
consistent practice exist and the question of noncompensable act of States is solely
dependent on the interpretation of the tribunal.
In one such interpretations, the Tribunal in White Industries Australia Ltd.
v. India, the inordinate delay by the Indian judicial system for 10 years suffered in
enforcing the ICC commercial arbitral award against Coal India; though it would not
tantamount to denial of justice, denied White an effective means of enforcing rights
and asserting claims, resulting in a breach of India’s investment protection obliga-
tions under the Australia–India BIT.77 Accordingly, India was held in breach of
Article 4(2) of the BIT and was asked to pay a monetary compensation of Rs. 258 mil-
lion. Though the expropriation claim in the case was unfounded, it has been
observed that the tribunal considered foreign arbitral award is an “investment”
under the BIT and that the setting aside of such valid foreign awards could constitute
expropriation and thus entitled for compensation.78
Post this decision, India denounced most of 70 odd BITs with other countries and
fundamentally revised its Model BIT. The new Model Text categorically provides
that in addition to tax regulations, any “action taken by a Party in its commercial
capacity shall not constitute expropriation or any other measure having similar effect
(Article 5.4)”. It also adds that “Non-discriminatory regulatory measures by a Party
or measures or awards by judicial bodies of a Party that are designed and applied to
protect legitimate public interest or public purpose objectives such as public health,
safety and the environment shall not constitute expropriation under this Article”
(Article 5.5).
This above approach is evident in other BITs which indicates that even severe
measures if applied in good faith, and on a nondiscriminatory basis, designed and
applied to protect legitimate public welfare objectives cannot be construed as
constituting indirect expropriation. Some BITs further clarify that “actions and
awards by judicial bodies of a Party that are designed, applied or issued in public
interest including those designed to address health, safety and environmental con-
cerns do not constitute expropriation or nationalization”.79 Some BITs exclude
compensation for issuances of compulsory licenses granted in relation to Intellectual
Property Rights (IPRs) or a revocation consistent with the World Trade Organization
(WTO) Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPs).80
77
White Industries Australia Ltd v. The Republic of India (UNCITRAL), Final Award (Nov.
30, 2011), para 11.4.19. http://www.italaw.com/sites/default/files/case-documents/ita0906.pdf;
Kachwaha S (2013) The White Industries Australia Limited – Indian BIT Award – a critical
assessment. Arb Int 29:275.
78
Ranjan P. The white industries arbitration: implications for India’s investment treaty program.
IISG, April 13, 2012. http://www.iisd.org/itn/2012/04/13/the-white-industries-arbitration-implica
tions-for-indias-investment-treaty-program/
79
Id.
80
See Agreements with Singapore (Article 6.5.6); Japan; Malaysia; Korea and the ASEAN Com-
prehensive Investment Agreement (Article 14); see Ranjan P (2008) International investment
agreements and regulatory discretion: case study of India. J World Trade Invest 9(2):235, 239.
434 R. R. Babu
The practice of limiting the scope of indirect expropriation is a trend developed in

advanced economies. The 2004 US Model BIT, for instance, states that “except in
rare circumstances, nondiscriminatory regulatory actions by a Party that are designed
and applied to protect legitimate public welfare objectives, such as public health,
safety, and the environment, do not constitute indirect expropriations”.81 The arbi-
tration tribunals also seem to move towards increased government regulatory
space.82 In Feldman v. Mexico, the tribunal stated that:
In the past, confiscatory taxation, denial of access to infrastructure or necessary raw

materials, imposition of unreasonable regulatory regimes, among others, have been consid-
ered to be expropriatory actions. . .Reasonable governmental regulation of this type cannot
be achieved if any business that is adversely affected may seek compensation, and it is safe
to say that customary international law recognizes this.83
This trend reversal among developed countries could be attributed to the change
in circumstance, where the one way flow of capital – traditionally from North to
South – is no longer the reality.84 As seen earlier, larger developing countries,
specifically Brazil, China,85 South Africa, India, etc., have been emerging as capital
exports to the traditional capital exporting countries. To practice that which has been
preached may put the developed countries in a precarious position vis-à-vis the
domestic realities.
Concluding Remarks
After decades of contestations over the standard of compensation for expropriation,

the problem seems to have only complicated further owing to the official position of
“appropriate” compensation espoused by a larger majority of developing countries,
dominance of Hull standard and its variant in the bilateral engagements, and the
inconsistent interpretation of the arbitration tribunals. The expanding scope of
“indirect expropriation” that provided additional leeway for the tribunals to broaden
the instances of granting compensation has further complicated the debate. From a
broader perspective, the debate is neither about the Calvo clause nor the Hull
standard, nor about the superficial semantic difference between the Calvo and the
Hull. Rather, it is more about the preference of the richer and more powerful State in
81
Annex B to the 2004 US Model BIT.
82
Supnik KM (2009) Making amends: amending the ICSID convention to reconcile competing
interests in international investment law. Duke Law J 59(2):343, at 373–374
83
Marvin Feldman v. Mexico, ICSID Case No. ARB(AF)/99/1, Award, 105 (Dec. 16, 2002),
18 ICSID 488 (2003).
84
Supnik, supra note 82.
85
See generally Chaisse J, Oloaye K (2020) The Tired Dragon: casting doubts on China’s invest-
ment treaty practice. Berkeley Bus Law J 17(1):134–193; Congyan C (2006) Outward foreign direct
investment protection and the effectiveness of Chinese BIT practice. J World Invest Trade 7:639.
a bilateral engagement who would prefer the Hull standard when it is the guest, as it
would generally be the one concerned about protection of investment and the
overenthusiasm shown by the arbitration tribunals to protect the investor and the
investments over the legitimate public policy and regulatory concerns. The attitude
of arbitration tribunals have also led to trust deficit and even backlash against
investor-State arbitration.86
This does not suggest that the raison d’état of the opposition against the universal
recognition of the Hull standard has disappeared altogether. Neither does this
indicate that the utility and rational of “appropriate” compensation or the Calvo
clause in the contemporary debate has become inconsequential. Only the players
have changed, and the larger developing countries have started repositioning them-
selves in the debate, vis-à-vis their traditionally espoused positions. The problem and
the arguments remain valid for a large section of developing countries, specifically
from Africa and other less developed economies – the new Third World in the
expropriation discourse.87 China and India with their aggressive investment policy
abroad would be at the receiving end on this round.
Today’s international investment law is fragmented and is erected on the foun-
dation of adhocism and adhoc interpretations. The need is to bring clarity to the field
that has been intentionally left ambiguous. A more pragmatic approach is to develop
international consensus on the standard of compensation, rather than leaving the
matter to power imbalance, inherent in a bilateral setup or to the discretion of the
tribunals that are eager to please the investor. Only a universally recognized inter-
national compensation standard would bring in more clarity in an otherwise murkier
international investment framework and preserve the legitimacy of future investment
arbitration.88 It has been observed in arbitration awards, though fact-driven and
differ from treaty to treaty, cautious reliance on certain principles developed in a
number of those cases may advance the body of law, which in turn may serve
predictability in the interest of both investors and host States.89 The attempt must be
to create a more stable and reliable international framework, which is mutually
advantageous for both capital exporting and capital importing countries. Without
this, the existing mistrust would of the regime, and the interpretation therefore shall
continue to dictate the international investment policy space.
86
See Waibel, supra note 3; Trakman LE (2014) Invester-state arbitration: evaluating Australia’s
evolving positiion. J World Invest Trade 15:152 at 157. Boeglin N (2014) ICSID and Latin
America: criticisms, withdrawals and regional alternatives (June 14, 2014); Lopez O (2013)
Smart move: Argentina to leave the ICSID. Cornell Int Law J Online 1:121. http://cadtm.org/
ICSID-and-Latin-America-criticisms
87
Babu, supra note 2.
88
Walde TW, Sabahi B (2008) Compensation, damages and valuation. In: Linski PM et al (eds) The
Oxford handbook of international investment law. Oxford University Press, Oxford, p 1049
89
ADC Affiliate, supra note 51, p. 293.
Judicial Expropriations: Difficulties in
Drawing the Line Between Adjudication 18
and Expropriation
Sara Mansour Fallah
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
Conceptual Problems of Judicial Expropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440
Can Courts Expropriate? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440
The (Unclear) Line Between Expropriation and Its Unlawfulness . . . . . . . . . . . . . . . . . . . . . . . . . 441
Why the Dismay? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
Factual Scenarios of Judicial Expropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
Interferences with Commercial Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
Interference with Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
Seizures or Transfers of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452
Revocation of Patents or Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454
Unlawfulness of Judicial Expropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
The Grounds for Unlawfulness in Practice: Always the “Four,” Always a Denial of
Justice? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
The Role of the Exhaustion Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
Abstract
When foreign investors complain of measures that adversely impact their invest-
ment, the authorities from which these measures originate often pertain to very
different government branches. At first glance, it appears that investment treaties
This chapter is an updated and expanded version of an article published in April 2019 in
Transnational Dispute Management.
Mansour Fallah S (2019) Judicial expropriations – difficulties in drawing the line between
adjudication and expropriation. TDM 2. https://www.transnational-dispute-management.com/
article.asp?key=2635
S. Mansour Fallah (*)

Department of European, International and Comparative Law, University of Vienna, Vienna,
Austria
e-mail: sara.mansour.fallah@univie.ac.at

https://doi.org/10.1007/978-981-13-3615-7_120
438 S. Mansour Fallah
and the pertinent rules of State responsibility take this fact into account because
they provide for equal application of investment protection rules to acts of all
branches of a State. However, when it comes to acts of the judiciary, the situation
is somewhat more complex. First, cases dealing with violations of expropriation
standards by the judiciary are comparably scarce. Second, important structural
differences between the judiciary and other branches of government trigger the
question whether the traditional and generally formulated concept of expropria-
tion can accommodate these differences. The need for clarification is evident and
may be remedied by examining investment arbitration cases that have dealt with
the concept of judicial expropriations and its difficulties. They range from
deciding when judicial acts constitute an expropriation, what grounds of lawful-
ness are to be considered when courts expropriate and most critically, whether
only judicial acts of courts of last instance count as judicial expropriations in light
of a potential substantive application of the exhaustion rule. As claims of judicial
expropriations increase, these unsettled inquiries seem worth investigating.
Keywords
Judicial expropriation · Investment arbitration · Expropriation by courts ·
National courts in investment arbitration · Expropriation · Denial of justice · Due
process · Commercial arbitration · Expropriation of awards · Expropriation of
contracts
Introduction
Investment arbitration tribunals do not discriminate between branches of govern-

ment. In fact, a wide range of State organs and agencies have been found responsible
for breaches of investment protection standards – regardless of their affiliation to a
certain branch of the State. However, the vast majority of decisions holding States
liable for mistreating foreign property happen to arise out of measures taken by the
legislative or executive branch.1 Arbitration tribunals have been reluctant – or
hesitant – to find violations of treatment standards through acts of the judiciary.2
Nonetheless, it remains undisputed that national courts may bring about the
1
See specifically with respect to expropriations: Rumeli Telekom A.S. and Telsim Mobil Tele-
komunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award of
29 July 2008, para 702. (“Whereas most cases of expropriation result from action by the executive
or legislative arm of a State, a taking by the judicial arm of the State may also amount to an
expropriation.”)
2
See Amicus Curiae submission by the United States in Eli Lilly v. Canada, para 204 (“According
to the United States, under international law, the actions of domestic courts are accorded a greater
presumption of regularity than legislative or administrative acts are.”), with respect to general
international obligations, see Jiménez de Aréchaga E (1978) International law in the past third of a
century. Recueil des Cours 159, p 278.
18 Judicial Expropriations: Difficulties in Drawing the Line Between. . . 439
international responsibility of their State, as accepted both in general international

law3 and specifically in investment arbitration.4 And while international agreements
and their provisions formally apply to organs of all branches of government, the
structural and regulatory differences under which the distinct branches operate may
not be sufficiently accommodated by such universally formulated protection
standards.
This becomes strikingly evident in the context of expropriations of foreign
property, especially with regard to the conditions of unlawfulness of such takings.
In the long-standing tradition of bilateral investment treaties and arbitral awards, the
legality of a taking has been measured by more or less four factors: the payment of
adequate compensation, the measure’s public purpose, compliance with due process,
and non–discrimination.5 Although the language of investment treaties establishes
these criteria without distinction as to who (within a State) expropriated,6 their direct
application appears rather difficult when it comes to expropriation by courts: Are we
to measure the lawfulness of a judicial expropriation by the compensation offered?
This would lead to the paradox of requiring courts to compensate for judgments that
were intended to cure a legal imbalance in their own right. And with court judgments
not regularly being accompanied by compensation for the judgment debtor, it
becomes evident that the traditional conditions of lawfulness may not be appropriate
to measure the legality of all types of expropriations.
3
As reflected in Article 4 (1) ILC Articles on State Responsibility (“The conduct of any State organ
shall be considered an act of that State under international law, whether the organ exercises
legislative, executive, judicial or any other functions [. . .]”); on the general responsibility of a
State for judicial wrongs see Jiménez de Aréchaga E (1978) International law in the past third of a
century. Recueil des Cours 159, p 278; Difference Relating to Immunity from Legal Process of a
Special Rapporteur of the Commission on Human Rights, Advisory Opinion, I.C.J. Reports 1999, p.
87, para 62.
4
Robert Azinian, Kenneth Davitian & Ellen Baca v. Mexico, ICSID Case No. ARB(AF)/97/2,
Award of 1 November 1999, paras 98–99; Eastern Sugar B.V. v. Czech Republic, SCC Case No.
088/2004, Partial Award of 27 March 2007, para 200; Swisslion DOO Skopje v. The Former
Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award of 6 July 2012, paras
261–262; Dan Cake (Portugal) S.A. v. Hungary, ICSID Case No. ARB/12/9, Decision on Juris-
diction and Liability of 24 August 2015, para 143; Wittich S (2017) International investment law.
In: Nollkaemper A, Plakokefalos I (eds) The practice of shared responsibility in international law.
Cambridge University Press, Cambridge, p 824.
5
Dolzer R, Schreuer C (2012) Principles of international investment law. Oxford University Press,
Oxford, p 99; Kriebaum U (2015) Expropriation. In: Bungenberg M, Griebel J, Hobe S, Reinisch A
(eds) International investment law: a handbook, p 1017.
6
See, Argentina-US BIT (1991), Article IV (“Investments shall not be expropriated or nationalized
either directly or indirectly [. . .] except for a public purpose; in a non-discriminatory manner; upon
payment of prompt, adequate and effective compensation; and in accordance with due process of
law. . .”); Germany-Pakistan BIT (1959), Article 3(2) (“Nationals or companies of either Party shall
not be subjected to expropriation of their investments in the territory of the other Party except for
public benefit against compensation [. . .]”); Kazakhstan-Sweden BIT (2004), Article 4(1) (“Neither
Contracting Party shall take any measures depriving, directly or indirectly, an investor of the other
Contracting Party of on investment unless the following conditions are complied with [. . .]”).
This piece examines specific issues arising in the context of judicial expropria-
tions in international investment law. While it is common for national courts to be
found in violation of investment protection standards (most prominently, the guar-
antee of fair and equitable treatment) by way of a denial of justice, the question when
judicial acts may also constitute unlawful expropriations remains largely
unresolved.7 The issue of expropriations caused by national courts has become
relevant in several recent arbitration cases, but it has received little attention in
academic writing8; despite the many complex conceptual and practical questions it
poses.
Conceptual Problems of Judicial Expropriations
Can Courts Expropriate?
Despite the relative lack of “precedent” affirming judicial expropriations,9 there are
still a solid number of investment arbitration cases dealing with allegations of
expropriation by courts. While the approaches taken vary, most of the awards accept
the premise that a national court may be capable of effecting expropriations in breach
of investment protection standards. One of the more elaborate discussions of judicial
expropriations as a new development may be found in the Tatneft v. Ukraine award.
The tribunal there noted that, in principle, the law of expropriations was predomi-
nantly concerned with legislative or administrative acts and while judicial acts rarely
play a role, they are not in general exempted under either international law or BITs.10
7
Mantilla Blanco S (2016) Justizielles Unrecht im Internationalen Investitionsschutzrecht: Zur
Verletzung völkerrechtlicher Standards des Investitionsschutzes durch nationale Gerichte. Studien
zum Internationalen Investitionsrecht 21. Nomos, pp 147–148; Sattorova M (2012) Denial of
justice disguised? Investment arbitration and the protection of foreign investors from judicial
misconduct. Int Comp Law Q 61:234–235.
8
For the few pertinent publications, see Mourre A (2011) Expropriation by courts: is it expropriation
or Denial of justice? In: Rovine A (ed) Contemporary issues in international arbitration and
mediation. Martinus Nijhoff, Leiden; Sattorova M (2010) Judicial expropriation or denial of justice?
A note on Saipem v. Bangladesh. Int Arbitr Law Rev 2(35); Mantilla Blanco S (2016) Justizielles
Unrecht im Internationalen Investitionsschutzrecht: Zur Verletzung völkerrechtlicher Standards des
Investitionsschutzes durch nationale Gerichte. Studien zum Internationalen Investitionsrecht 21.
Nomos; Sattorova M (2012) Denial of justice disguised? Investment arbitration and the protection
of foreign investors from judicial misconduct. Int Comp Law Q 61:234–235, 225; Gharavi HG
(2018) Discord over judicial expropriation. ICSID Rev 33(2):349–357; Cox MJ (2019) Expropri-
ation in investment treaty arbitration. Oxford University Press, Oxford, pp 238–253.
9
OAO Tatneft v. Ukraine, PCA UNCITRAL, Award on the Merits of 29 July 2014, para 459 (“The
issue of an act of expropriation can also originate in the judiciary [. . .] is not a common occurrence
[. . .]”); Rumeli v. Kazakhstan, (note 1), para 702 (“Whereas most cases of expropriation result from
action by the executive or legislative arm of a State, a taking by the judicial arm of the State may
also amount to an expropriation”).
10
OAO Tatneft v. Ukraine, para 459.
Although, in that case, the tribunal was undecided about whether the expropriation
claim on the merits, Tatneft provides some insight into the treatment of judicial
expropriations by tribunals. Indeed, the length at which the Tatneft tribunal discussed
past jurisprudence on judicial expropriations and the tests applied gives away the
somewhat novel character it attached to the concept.
Investment tribunals are not alone in this confusion about this “novel” claim.
Constitutional protections against expropriations also exist in domestic laws, leading
the United States Supreme Court having to pronounce itself on a claim of judicial
taking too. In Stop the Beach Renourishment, Inc. v. Florida Department of Envi-
ronment Protection, a nonprofit corporation of beachfront property owners alleged
that the Florida Supreme Court expropriated their littoral rights when it held that
those rights were not “vested property rights.”11 The plurality opinion reveals that
the Supreme Court discussed at length, and without reaching consensus, the issue
whether it is even possible for judicial acts to violate the Takings Clause of the Fifth
Amendment to the US Constitution.12 While the opinion confirmed that no judicial
taking had taken place in the particular case, it emphasized that the Takings Clause
does not differentiate between branches of government but focuses on the act rather
than the actor.13 It would “be absurd to allow a State to do by judicial decree what the
Takings Clause forbids it to do by legislative fiat.”14 The opinion therefore concludes
that when “a court declares that what was once an established right of private
property no longer exists, it has taken that property, no less than if the State had
physically appropriated it [. . .].”15 The Supreme Court’s treatment of the issue, and
particularly the fact that no majority could be reached on it, confirms the premise that
the concept of judicial expropriations causes at least some initial perplexity in courts
and tribunals.16 The following chapters will demonstrate why they can certainly not
be blamed.
The (Unclear) Line Between Expropriation and Its Unlawfulness
When deciding whether a measure qualifies as an expropriation in breach of a treaty,

arbitrators and scholars often adopt a three-step examination. After firstly determin-
ing what interests are protected under the treaty, the test moves on to assess if an
expropriation has occurred and, finally, whether that expropriation met the condi-
11
Stop the Beach Renourishment, Inc. v. Fla. Dep’t of Envtl. Prot., 560 U.S. 702, p. 712 (2010).
12
Ibid., pp. 713–14, 719.
13
The Takings Clause stipulates: “nor shall private property be taken for public use, without just
compensation,” see U.S. Constitution, Amendment 5.
14
Stop the Beach Renourishment, pp. 713–14.
15
Id.
16
Justice Kennedy was rather averse to take, what he calls, “the bold and risky step of holding that
the Takings Clause applies to judicial action.” See Stop the Beach Renourishment, p. 719.
tions of the treaty (in which case it would still be lawful).17 With judicial expro-
priations, the line between determining the occurrence of an expropriation and its
unlawfulness seems to be somewhat blurred. Usually, the main characteristic
exposing direct expropriations is the transfer of legal title, while in case of indirect
expropriations, the title is left untouched but the investor may prove an expropri-
ation by showing that he or she has essentially been deprived of a “meaningful
possibility to utilize its investment.”18 Nevertheless, both types of expropriations
will have in common that there was a deprivation of property rights qualifying as
an investment and that this deprivation was substantial.19 Applying this standard in
abstracto to judicial expropriations will reveal that they are very easily at risk of
meeting the first threshold: Every court decision awarding property or rights of
economic value to one party (e.g., private or State) and dispossessing the other
party (e.g., an investor) of them could technically be considered to have deprived
the judgment debtor of them.20 This risk, as oversimplified as it may seem, could
explain the hesitation of many to take a stand on judicial expropriations: The effect
“on the ground” would be enormous if every national court judgment were to come
under the scrutiny of expropriation standards in investment law. The implications
would become even more wide-ranging considering jurisprudence that does not
find it necessary that an expropriation’s benefit go to the State.21 If no link of the
benefit to the State is required, every private dispute between the investor and
another private party that is “wrongly adjudicated” by a national court could,
theoretically, constitute a judicial expropriation.22 With this much being at stake,
it appears that some tribunals attempted to mitigate the damage by treating judicial
expropriations differently. For instance, some tribunals have – deliberately or not –
smudged the line between the finding of an expropriation and the conditions of its
unlawfulness.
These awards, among them Saipem v. Bangladesh, appear to require not only a
substantial deprivation of protected rights but also an additional element of
17
Kriebaum U (2015) Expropriation. In: Bungenberg M, Griebel J, Hobe S, Reinisch A (eds)
International investment law: a handbook. pp 963–964
18
Chaisse J (2013) Exploring the confines of international investment and domestic health pro-
tections – general exceptions clause as a forced perspective. Am J Law Med 39(2/3):352–353;
Oxford, p 101.
19
Ibid., p. 104.
20
See similarly, Saipem v. Bangladesh, (note 13), para 133 (“If this were true, any setting aside of an
award could then found a claim for expropriation, even if the setting aside was ordered by the
competent state court upon legitimate grounds”).
21
Kriebaum (note 2015), p. 1014 (citing Amco v. Indonesia, S.D. Myers v. Canada, Wena Hotels v.
Egypt).
22
This was, however, one of the doubts the Tatneft tribunal had about the expropriation at issue
there, stating: “[w]hile there are cases in which it has been held that expropriation need not result in
the transfer of title to property to the State, these are not common occurrences.”OAO Tatneft v.
Ukraine, para 467.
impropriety for a court’s act to be considered an expropriation in the first place. An

act by a national court causing a substantial deprivation of property would therefore
normally not be considered an expropriation, unless certain serious factors accom-
pany the measure. This group of tribunals appears to justify such departures from the
usual “modus operandi” of finding an expropriation through the exceptional char-
acter of expropriations by the judiciary. Another (earlier) example of such cases is
Middle East Cement v. Egypt, where the tribunal dealt with, among other things, a
court-ordered seizure and auction of an investor’s ship that was not properly notified
to him.23 The tribunal held that both measures would usually not qualify as a taking,
but if not taken “under due process of law,” they could be considered measures
tantamount to expropriation.24 It is interesting how in the case of courts, Middle East
Cement required, for the purpose of finding an expropriation, and not for determin-
ing its unlawfulness, an additional element of impropriety. Another formulation in
line with this “additional factor of seriousness/illegality” argumentation, albeit more
drastic, is found in Rumeli v. Kazakhstan, where the tribunal held that a court-
ordered transfer of property rights to a third party will amount to an expropriation
only if the judicial process was instigated by the State.25 Although these tribunals
seem to have applied the same adaption of the traditional test, the Saipem tribunal
was more outspoken about this introduction of another element to the test for finding
an expropriation.26
Then again, other tribunals did things quite differently. They only briefly address
whether an expropriation has occurred and apply the usual “substantive deprivation”
test for that inquiry. However, they then engage in a rather lengthy discussion on the
elements of unlawfulness, the most predominant in the context of judicial acts being
due process. While in these cases, the lines between finding an expropriation and
examining its lawfulness are therefore drawn more clearly, the next issue arises quite
inevitably. More often than not, an examination of the traditional conditions for
lawfulness will lead to the compensation requirement, creating an awkward situation
for tribunals that only a few have managed elegantly, while others either made only
passing reference to it, or skipped it altogether (Chap. 4). This article therefore
suggests that both the definition of a judicial expropriation and the conditions of
unlawfulness applied in arbitral practice are not yet uniform. However, significant
contributions to clarify the situation have already been made and shall be discussed
below (Chap. 3).
23
Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No.
ARB/99/6, Award of 12 April 2002, para 143.
24
Ibid., para 139.
25
Rumeli v. Kazakhstan, para 707.
26
Saipem v. Bangladesh, ICSID Case No. ARB/05/7, Award of 30 June 2009, paras 133–134 (“That
said, given the very peculiar circumstances of the present interference, the Tribunal agrees with the
parties that the substantial deprivation of Saipem’s ability to enjoy the benefits of the ICC Award is
not sufficient to conclude that the Bangladeshi courts’ intervention is tantamount to an
expropriation.”)
Why the Dismay?
This conceptual discussion allows some preliminary conclusions on judicial expro-

priations. The first is that, generally, tribunals appear to agree that judicial expro-
priations are a legal possibility, even if some would apply a heightened threshold of
seriousness or illegality to them. The creativity of tribunals in dealing with judicial
expropriations might arguably stem from a general reluctance to consider wrong-
doing by the judiciary an occurrence just as likely as by the executive or legislative.
This leads to the second preliminary conclusion that there is something about
judicial expropriations causing considerable dismay in scholars and arbitrators
alike.
Two issues are likely to be at the root of that dismay. A first concern voiced very
early on in both Loewen v. United States and Azinian v. Mexico is that when
allowing claims of judicial expropriations, a form of international review of
domestic rulings would be tolerated under the pretense of seeking compliance
with investment standards, in other words, judicial review “through the back-
door.”27 However, this contention seems equally applicable to any other invest-
ment protection standard that stipulates an international standard for the
administration of justice by domestic courts (i.e., denial of justice, FET). The
real crux (and second root) of the dismay appears to lie in the fear that lower
courts may face expropriation allegations in investment arbitration too. A claim of
denial of justice is only successful if, as a substantive requirement, local remedies
have been exhausted (Chap. 4).28 For many, the rise of claims alleging judicial
expropriations in lieu of a denial of justice is motivated by the desire to circumvent
the exhaustion requirement.29 Some tribunals and scholars have therefore argued
that courts may only violate investment treaties through a denial of justice, while
others ruled out that court measures are exclusively relevant in the context of
denial of justice.30 These two concerns will be kept in mind in the following survey
of cases and taken up again in Chap. 4.
27
In Loewen v. US, the criticism departs from the assumption that this form of “international
review” of domestic rulings would ultimately lead to “put[ting] the label of international wrong
on what is a domestic error.” Loewen Group, Inc. v. the United States, ICSID Case No. ARB(AF)/
98/3, Award of 26 June 2003, para 242; Azinian v. Mexico, para 99.
28
Paulsson J (2005) Denial of justice in international law. Cambridge University Press, Cambridge,
p 109; Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No.
ARB/04/13, Award of 6 November 2008, paras 255–261; Toto Costruzioni Generali S.p.A. v. The
Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction of 11 September 2009,
para 164.
29
Sattorova M (2012) Denial of justice disguised? Investment arbitration and the protection of
foreign investors from judicial misconduct. Int Comp Law Q 61:234–235.
30
Eli Lilly and Company v. Canada, Case No. UNCT/14/2, Award of 16 March 2017, para 223
(“[. . .] the Tribunal is unwilling to shut the door to the possibility that judicial conduct characterized
other than as a denial of justice may engage a respondent’s obligations under NAFTA Article
1105.”)
Factual Scenarios of Judicial Expropriations
What characteristics must a measure affecting property rights possess in order to

amount to a judicial expropriation? Before looking at a technical answer to this
question, it appears appropriate to briefly mention the theoretical divide between the
approaches of the “police powers” vis-à-vis the “sole effects” doctrine.31 In deter-
mining whether a governmental measure constitutes an expropriation, the “sole
effects” doctrine considers only its effect on the property, while the “police powers”
doctrine takes the purpose of the measure into account – and hence allows for more
deference to a state’s right to regulate. The choice of doctrine will decide whether a
measure is ultimately viewed as a compensable expropriation or as a non-compen-
sable regulation.32 In the context of judicial expropriations, the police powers
approach would therefore suggest that a measure by the judiciary, despite having
expropriatory effect, would not trigger an obligation to compensate, as it may be
considered a state’s legitimate exercise of its regulatory power.33
The technical response to the inquiry into the requisite characteristics of a judicial
expropriation, on the other hand, will require an examination of the rather manage-
able pool of pertinent cases. Awards dealing with judicial expropriations include the
following (non-exhaustive) scenarios of allegedly expropriatory measures by
national courts:
• Set aside or vacating of commercial awards (Saipem v. Bangladesh)

• Invalidation of arbitration agreements (ATA v. Jordan)
• Invalidation of contracts (Sistem v. Kyrgyzstan, Karkey Karadeniz v. Pakistan,
Krederi v. Ukraine)
• Termination of contracts (Swisslion v. Macedonia, İçkale v. Turkmenistan)
• Redemption of shares (Rumeli v. Kazakhstan, Tatneft v. Ukraine)
31
Mostafa B (2008) The sole effects doctrine, police powers and indirect expropriation under
international law. Aust Int law J 15:267; Dolzer R (2003) Indirect expropriations: new develop-
ments? NY Univ Environ Law J 11:79; Reinisch A (2008) Expropriation. In: Muchlinski P, Ortino
F, Schreuer C (eds) The Oxford handbook of international investment law. p 445; Reinisch A (2008)
Legality of expropriations. In: Reinisch A (ed) Standards of investment protection. Oxford Uni-
versity Press, Oxford, pp 171–204.
32
Saluka Investments B.V. v. Czech Republic, UNCITRAL, Partial Award of 17 March 2006, para
263 (“In other words, it has yet to draw a bright and easily distinguishable line between non-
compensable regulations on the one hand and, on the other, measures that have the effect of
depriving foreign investors of their investment and are thus unlawful and compensable in interna-
tional law.”)
33
In Weinstein v. Iran, a US Court of Appeals rejected that there was an expropriation, based on the
fact that the judgment ordering payment of compensation originated from the entity’s “unlawful
actions in support of terrorism” and hence confirms the relevance of the public purpose for which
the damages were granted in the determination of an expropriation. See United States Court of
Appeals (2nd Circuit), Weinstein v. Iran, 609 F.3d 43 (2010), 54. To the contrary, in Infinito Gold v.
Costa Rica, an investor argued that “[t]he sole effects doctrine applies to judicial expropriations in
the same manner as it does to other expropriatory measures.” See Infinito Gold Ltd. v. Republic of
Costa Rica, ICSID Case No. ARB/14/5, Decision on Jurisdiction, 4 December 2017, para 163.
• Seizure, auction, or transfer of assets (Middle East Cement v. Egypt, Garanti

Koza v. Turkmenistan, Standard Chartered Bank v. Tanzania II)
• Revocation or invalidation of patents or licenses (Eli Lilly v. Canada; Liman
Caspian Oil v. Kazakhstan)
These specific examples may be categorized into interferences by national courts

of four types: interferences with commercial arbitration (section “Interferences with
Commercial Arbitration”), interferences with contracts (section “Interference with
Contracts”), interferences through seizure or transfer of assets (section “Seizures or
Transfers of Assets”), and interferences through revocation or invalidation of patents
or licenses (section “Revocation of Patents or Licenses”).
Interferences with Commercial Arbitration
A number of claims alleging judicial expropriation arise out of acts by national

courts in relation to an arbitration agreement, an arbitration, or the resulting award. A
quite succinct expression of the main problem at issue here may be found in this
general statement made in a treatise: “In international commercial arbitration, most
of the time parties and arbitrators do not want interference from a court.”34 However,
with the system of commercial arbitration heavily relying on national courts for
matters such as judicial assistance, setting aside or enforcing an award, such
interferences are bound to occur. When an action in these courts has ended in an
unfair result for the investor, international investment protection standards regulating
judicial conduct seem to be an all too welcome avenue. This was the case in the most
prominent investment award in the context of judicial expropriations, Saipem
v. Bangladesh, which dealt with the domestic “nullification” of a commercial
arbitration award.
The Many Legacies of Saipem

As a dispute arose between the investor and the State-owned corporation
Petrobangla in relation to their concession contract, Saipem initiated arbitration
under the International Chamber of Commerce (ICC) Rules in accordance with the
arbitration agreement contained in that contract. Petrobangla brought several actions
in Bangladeshi courts against the ICC arbitration, which resulted in interferences
with it by the national courts in various forms, ranging from anti-arbitration injunc-
tions to revocations of the arbitral tribunal’s authority. After Petrobangla requested a
set aside of the ICC award rendered in favor of Saipem, the Bangladeshi Supreme
Court – in line with the lower courts – ultimately held that the arbitration was
conducted “illegally” and that the tribunal’s authority had been revoked.
34
Moses ML (2008) The principles and practice of international commercial arbitration, 3rd edn.
Cambridge University Press, Cambridge, p 92
Consequently, it found that the resulting ICC award was a “nullity in the eyes of the
law” and thus would not even need to be set aside.35
The ICSID tribunal classified these interventions by Bangladesh’s courts as an
indirect expropriation. In doing so, it held that the injunctions and the “nullifica-
tion” had “substantially depriv[ed] Saipem of the benefit” of contractual rights
incorporated in the award and therefore constituted a measure tantamount to
expropriation.36 The tribunal, despite denying it, indeed departed from the “sole
effects doctrine” discussed above, when it opined that a factual and substantial
deprivation would not be sufficient to give rise to a claim of judicial expropriation
– the actions must also have been “illegal.”37 In Saipem, this illegality was on the
one hand derived from an abuse of rights by the domestic court as it issued a ruling
with no foundation in evidence.38 On the other hand, the actions were considered
illegal because the Bangladeshi courts had, by revoking the arbitrators’ authority,
de facto prevented the arbitration and thus “completely frustrat[ed]” its obligation
under Article II of the New York Convention to recognize and respect arbitration
agreements.39
The significance of the tribunal’s decision in Saipem v. Bangladesh not only lies
in its finding – among the first40 – in favor of an investor’s claim to have been
expropriated by a court. It also considers, for the purposes of determining the
illegality, a violation of international law that is not necessarily connected to
procedural impropriety but rather lies in a violation of an international treaty other
than the BIT at issue.41 The more lasting contribution of Saipem is, however, its
impact for the category of judicial expropriations defined here: In light of the
decision in Saipem, the interaction between commercial arbitration and investment
protection could reach interesting dynamics. Claiming a judicial expropriation
before an investment arbitration tribunal could accordingly provide a remedy against
35
Saipem v. Bangladesh, para 50.
36
Ibid., para 129.
37
Ibid., para 133–134.
38
Ibid., para 155; Stephenson A, Carroll L, Deboos C (2011) Interference by a local court and a
failure to enforce: actionable under a bilateral investment treaty? In: Brown C, Miles K (eds)
Evolution in investment treaty law and arbitration. Cambridge University Press, Cambridge, pp
429, 435.
39
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Con-
vention), 10 June 1958, 330 UNTS 38, Article II (1) (“Each Contracting State shall recognise an
agreement in writing under which the parties undertake to submit to arbitration all or any differences
which have arisen or which may arise between them in respect of a defined legal relationship
whether contractual or not, concerning a subject-matter capable of settlement by arbitration.”);
40
See, however, Oil Field of Texas, Inc. v. The Government of the Islamic Republic of Iran and
National Iranian Oil Company, IUSCT Case No. 43, Award (Award No. 258-43-1), 8 October
1986, para 43.
41
Sattorova M (2010) Judicial expropriation or denial of justice? A note on Saipem v. Bangladesh.
Int Arbitr Law Rev 2(35):35.
a set aside or a refusal to enforce an award if there were major irregularities.42 Yet,
the precedential value of the Saipem award is limited to some extent by the fact that
Petrobangla did not have any assets outside of Bangladesh, making the refusal to
enforce in Bangladesh a real and permanent deprivation of the investment43 and
because of jurisdictional limitations valid in that case.44
Awards or Arbitration Agreements as Assets Protected Under BITs

An essential prerequisite for the success of such judicial expropriation claims is that
the respective commercial award qualifies as a protected right or an asset under the
BIT. In both general and investment law, it is widely recognized that intangible
property such as contractual rights can be expropriated and that they qualify as
investments either because they are directly listed in the respective BITs or because
they generally qualify as “assets.”45 The tribunal in Saipem v. Bangladesh indirectly
applied that premise by not focusing on whether a commercial arbitration award may
generally qualify as an investment under the treaty46 but rather by making clear that
the rights embodied in the award were not created by the award, but arose out of the
underlying contract.47 The final qualification of a commercial award as an invest-
ment may therefore also depend on whether the treaty protects contractual rights.
Further guidance on the treatment of arbitration agreements under BITs may be
found in ATA v. Jordan. In that case, the tribunal was faced with an allegation of a
judicial expropriation due to the annulment of an award and the invalidation of an
arbitration agreement. After a dike constructed by Claimant collapsed, a commercial
arbitration was initiated under the contract between ATA and the governmental
contracting party (APC). The award found that ATA was not liable for the collapse
and awarded compensation to it for its counterclaim. APC then turned to Jordanian
42
Mourre A (2011) Expropriation by courts: is it expropriation or Denial of justice? In: Rovine A (ed)
Contemporary issues in international arbitration and mediation. Martinus Nijhoff, Leiden, p 66.
43
Saipem v. Bangladesh, para 130 (‘It is true that one could object - Bangladesh did not - that in
theory Saipem can still benefit from the ICC Award [. . .]. Yet, Bangladesh itself acknowledges that
Petrobangla has “no assets outside Bangladesh”’).
44
Saipem v. Bangladesh, para 97 (‘As already mentioned in the Decision of Jurisdiction, Article 9
(1) of the BIT contemplates the possibility of recourse to the jurisdiction of ICSID with respect to
[. . .] “disputes [. . .] relating to compensation for expropriation, nationalization, requisition or
similar measures [...]”.’)
45
Cox MJ (2019) Expropriation in investment treaty arbitration. Oxford University Press, Oxford, p
211.
46
Saipem S.p.A. v. Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and Rec-
ommendation on Provisional Measures, 21 March 2007, para 127 (“This said, the rights embodied
in the ICC Award were not created by the Award, but arise out of the Contract. The ICC Award
crystallized the parties’ rights and obligations under the original contract. It can thus be left open
whether the Award itself qualifies as an investment, since the contract rights which are crystallized
by the Award constitute an investment within Article 1(1)(c) of the BIT.”).
47
Saipem v. Bangladesh, para 128 (“Turning first to the identification of the property at stake, the
Tribunal considers that the allegedly expropriated property is Saipem’s residual contractual rights
under the investment as crystallised in the ICC Award.”)
courts which not only annulled the award but also voided the arbitration agreement
based on a new Jordanian Arbitration law that entered into force only after the
arbitration agreement was concluded. While the ICSID tribunal did not discuss the
annulment of the award due to jurisdictional constraints, it dealt with the claim on
extinction of the arbitration agreement based on the retroactive application of the law
and thereby offered some insight as to how an arbitration agreement might qualify
under a BIT. The tribunal eventually did not find an expropriation, but it considered
the “right to arbitration” an “asset under the treaty,” because it qualified as “claims to
[. . .] any other rights to legitimate performance having financial value related to an
investment.”48 It then held that this particular right was not annulled with the
enactment of the new arbitration law, but upon the decision of the Jordanian courts,
because “the Jordanian Court of Appeal and Court of Cassation could have complied
with their duty in this case by refusing to apply retroactively the new rule.”49
Saipem and ATA not only show that rights related to commercial arbitration, be it
the resulting award or the arbitration agreement, qualify as an “expropriable” asset
under (at least the respective) BITs. They also exemplify that interferences with
arbitrations seem to serve as a regular cause for complaints of judicial expropria-
tions. Violations of standards for setting aside, vacating, or refusing to enforce
awards pursuant to the New York Convention may therefore be causal for the
unlawful character of that judicial expropriation. However, the tribunals’ treatment
of such judicial expropriations is still somewhat inconsistent. While Saipem con-
firmed an expropriation of an award, ATA dealt with the extinction of an arbitration
agreement under the realm of the FET standard incorporated through a Most-
Favored Nation clause. Particularly the Saipem award, however, has been widely
cited and endorsed in the context of judicial expropriations.50 The potential effect
Saipem’s finding could have on interactions between commercial arbitration and
investment arbitration may be one of many reasons why the tribunal attempted to
introduce a heightened “illegality” requirement into the expropriation test (section
“The (Unclear) Line Between Expropriation and Its Unlawfulness”). With more
cases asserting judicial expropriations in such context, jurisprudence on the issue
will still be evolving. In a recent decision, for instance, another tribunal was
confronted with a claim that domestic courts expropriated an investor’s “contractual
right to damages” because of the nonenforcement (or alleged delays in the enforce-
ment) of an award.51 It remains to be seen to what extent investment arbitration
48
ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID
Case No. ARB/08/2, 18 May 2010, para 125.
49
Ibid., para 128.
50
Krederi Ltd. v. Ukraine, ICSID Case No. ARB/14/17, Award of 2 July 2018, para 707; Eli Lilly v.
Canada, para 181.
51
The claim was eventually rejected because the deprivation of the value of the investment was
found not to be permanent and not to have been significant enough as the investor had recovered
substantial parts of it already. See Anglia Auto Accessories Limited v. The Czech Republic, SCC
Case No. 2014/181, Final Award, 10 March 2017, para 291.
tribunals consider themselves competent and willing to rule on the treatment of

commercial awards by national courts.
Interference with Contracts
A second category of scenarios often alleged to constitute judicial expropriations

deals with situations where national courts interfere with contracts. These interfer-
ences may either consist in the invalidation, termination, or transfer of contracts or
rights arising out of contracts. Now, dockets of domestic courts do not exactly suffer
from a scarcity of contract-related cases, which, together with the fact that contrac-
tual rights are clearly recognized as assets or investments, projects wide-ranging
implications for expropriations by national courts.
Invalidation of Contracts
A national court expropriated an investment through the invalidation of a contract in
Sistem v. Kyrgyzstan. The investor, who was active in the hotel industry, concluded
share purchase agreements with a State-owned Kyrgyz company after it was
declared bankrupt. When the Kyrgyz courts later reversed the declaration of bank-
ruptcy, they also invalidated the share purchase agreements which the investor had
concluded with the liquidator. The voiding of the contracts was ultimately upheld by
the Kyrgyz Supreme Court. The arbitral tribunal held it was well-established that the
abrogation of contractual rights by a State is tantamount to an expropriation of
property and that the court’s decision “deprived the claimant of its property rights in
the hotel just as surely as if the state had expropriated it by decree.”52 The tribunal in
Karkey Karadeniz v. Pakistan came to a similar conclusion. A judgment by the
Pakistani Supreme Court declared the investor’s rental power contract void ab initio,
leading various organs of the State to treat it as invalid. The tribunal found that
“Pakistan ha[d] expropriated Karkey’s investment through the Judgment”53 because
it “deprived Karkey of the use and enjoyment of its contractual rights, including [its]
right to terminate the Contract and [. . .] interfered with the free transfer of [its]
investment.”54 And while the respondents had also attempted to exonerate them-
selves by arguing along the lines of the police powers doctrine, the tribunal stated
that “[s]uch a deprivation cannot be considered as a legitimate regulatory taking as it
stems from the arbitrary 30 March 2012 Judgment.”55
52
Sistem Muhendislik Insaat Sanayi ve Ticaret A.S. v. Kyrgyz Republic, ICSID Case No. ARB(AF)/
06/1, Award of 9 September 2009, para 118.
53
Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/
1, Award of 22 August 2017, para 641.
54
In particular, Karkey lost post-termination rights under the contract, including rights to payment
for outstanding invoices, termination charges, and demobilization charges. See Karkey Karadeniz v.
Pakistan, paras 648–649.
55
Ibid., para 649.
On the other side of the spectrum of awards dealing with invalidated contracts and
judicial expropriations lie more hesitant, sometimes even stricter, approaches. The
rather strong insistence of the Sistem tribunal on the equally great potential of
judicial acts to lead to expropriations may be contrasted to the hesitant approach in
Tatneft v. Ukraine, where it seems like the tribunal was more comfortable tying the
judicial acts to other measures to determine an expropriation. Similar as in Sistem,
the tribunal here was also concerned with the court’s annulment of a share purchase
agreement and an order to return shares. While confirming that the judicial decisions
were the acts that eventually resulted in the “total deprivation” of the Claimant’s
rights as a shareholder, the tribunal emphasized that the judicial conduct was not
isolated but rather part of “the complex network of acts that led one way or another to
the courts’ determinations.”56 The judicial acts were ultimately discussed as part of a
series of “composite acts,” which might not constitute an expropriation on their own,
but could do so as an aggregate of acts.57 It seems as though it was rather the
particular facts at issue in Tatneft that led to its conclusion on the aggregate nature of
the expropriation, as other jurisprudence clearly suggests that judicial acts may
indeed constitute expropriations on their own.
The strict approach may be represented by the Krederi v. Ukraine award. Claim-
ant argued that the invalidation of contracts for the lease and sale of land plots in
violation of due process and denial of justice guarantees constituted an unlawful
judicial expropriation of its investment.58 While the tribunal did not generally reject
the premise that judicial acts may constitute an expropriation, it considered such an
occurrence “the exception rather than the norm.”59 The strictness of its approach is
particularly reflected in the fact that the tribunal specifically discussed certain
scenarios it did not consider judicial expropriations. Accordingly, private law dis-
putes where ownership rights are confirmed for one side and not for the other
constitute “judicial determinations” rather than expropriations.60 Moreover, the
tribunal denied that cases in which transfers of ownership after “property transfers
are held to be invalid” amount to expropriation. In the next step, the tribunal also
endorsed Saipem’s “additional illegality” requirement as a prerequisite for the
finding of a judicial expropriation and not for its unlawfulness. In that vein, the
tribunal argues that it would be “necessary to ascertain whether an additional
element of procedural illegality or denial of justice was present” as only in such
case one could speak of an indirect expropriation.61
56
In particular, violations of FET and the subsumed full protection and security and the complete
and unconditional legal protection of the investment, for which compensation was awarded by the
tribunal. OAO Tatneft v. Ukraine, para 465.
57
Ibid., para 462.
58
Krederi v. Ukraine, para 690.
59
Ibid., para 709.
60
Id.
61
Krederi v. Ukraine, para 713.
Termination of Contracts
Whether a court-confirmed termination of a contract may amount to an expropriation
appears even more disputed than the invalidation of contracts. In Swisslion v.
Macedonia, the tribunal, while recognizing the possibility of judicial takings,
warned that the regular exercise of a contracting party’s right to allege a breach or
to terminate the contract should not be equated with expropriation.62 A similar
stance was taken in İçkale v. Turkmenistan, where the investor claimed that the
confirmation of a contract termination by a domestic court amounted to expropria-
tion. The tribunal rejected this argument by clarifying that merely upholding termi-
nations of a contract by a contracting party, regardless of whether they conform to
the provisions of the contract, is not sufficient to find an expropriation; rather, a
breach of the treaty would have to be proven.63
In contrast to these rejections of judicial expropriations through contract termination
stands Rumeli v. Kazakhstan. In that case, contracts had been terminated by the
government, but the crux of the expropriation was a compulsory redemption of the
investor’s shares ordered by the Kazakh courts at a very low fixed value. The tribunal
started off by observing that although “most cases of expropriation result from action by
the executive or legislative arm of a State, a taking by the judicial arm of the State may
also amount to an expropriation.”64 The arbitral tribunal found a creeping expropriation
in this case and, after examining the traditional requirements for a lawful expropriation,
held that the compensation offered for the shares was grossly inadequate and therefore
unlawful.65 An additional reflection was offered on the question whether a transfer of
rights to third parties could exclude the possibility of a State expropriation, which was
denied for cases where a transfer to a third party was “instigated by the State.”66
These specific examples of judicial expropriations support the premise that an
internationally unlawful abrogation of contractual rights may violate expropriation
standards. While this has been mostly confirmed with respect to invalidation, caution
is warranted when it comes to terminations of contracts, which ought not to be
automatically equated with expropriation. The deciding factor will be the violation
of international law that accompanies the termination or invalidation, which will be
discussed in more detail below (Chap. 4.).
Seizures or Transfers of Assets
Seizures and auctions may be among the rather routine tasks of a court, and they do
occur in great frequency. An important example of a judicial expropriation of
62
Swisslion v. FYR Macedonia, para 314.
63
İçkale İnşaat Limited Şirketi v. Turkmenistan, ICSID Case No. ARB/10/24, Award of 8 March
2016, para 350.
64
Rumeli v. Kazakhstan, para 702.
65
Ibid., para 705–706.
66
Ibid., para 704.
movable assets is the Middle East Cement v. Egypt case. The Poseidon, a trans-
porting ship, was taken from the investor by way of a court-ordered seizure and
auction, and both acts were improperly notified to the investor. The tribunal con-
cluded that although normally seizures and auctions by courts do not qualify as
expropriations, they may constitute measures tantamount to expropriation if they
violated the due process clause of the treaty.67 In case of the Poseidon, the award
confirmed that the seizure and auctioning of the ship fell short of the due process
requirements of the BIT because they should have been notified to the investor by
direct communication.68
One may note here that what the tribunal appears to be requiring is, as discussed
earlier, an additional element of impropriety to find an expropriation in the first
place. A similar position was taken by the tribunal in Garanti Koza v. Turkmenistan,
where a factory and equipment were seized following default under a contract. The
tribunal seems to follow suit with the heightened illegality standard set in Saipem,
except that such illegality is expressly limited to the confines of procedural irregu-
larities in Garanti. The tribunal accordingly started off by saying that a “seizure of
property by a court as the result of normal domestic legal process does not amount to
an expropriation under international law,” with the exception of seizures that
occurred in a legal process tainted with “an element of serious and fundamental
impropriety.”69 In that sense, the Garanti tribunal appears to have concurred with
Middle East Cement in that seizures will only constitute expropriations if not taken
under due process of law.70
A more recent decision arising out of security and property rights was handed
down in Standard Chartered Bank v. Tanzania II. The investor acquired a loan and
the related security that had been provided to a power company, which in turn had
contracted with governmental instrumentalities to operate a power plant. After the
government-owned corporation failed to make payments, irregularities in the liqui-
dation procedure of the power company led to a loss of the investor’s rights. In
particular, after a petition for liquidation of the company was withdrawn, a local
court ordered the transfer of all of the power company’s affairs, including the power
contract and control of related facilities, to a third party rather than to the investor
(and security holder). The tribunal first rebutted respondent’s argument that only
legislation may effect expropriations; any organ of the State can be a “possible
player” in the act of an expropriation. The issue of judicial expropriations was then
approached with the usual disclaimer that judicial acts should not be called judicial
expropriation “simply because [they] were taken in error or may be considered
67
Middle East Cement v. Egypt, para 139.
68
Id.
69
Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20, Award of 19 December 2016,
para 365.
70
Id.
aberrant.”71 Nevertheless, here too, the tribunal (as already observed in section
“Invalidation of Contracts”) attempted to tie expropriations by the judiciary to
other branches of government, in the sense that if judicial acts “permit the actions
or inactions of other branches of the State” and “deprive the investor of its, property
or property rights,” they may amount to expropriation. A second notable feature of
the tribunal’s discussion is the fact that it did not agree that a denial of justice will in
all cases be necessary for a judicial expropriation to occur. Eventually, the tribunal
found that although some court instances indeed acted questionably, the judiciary “as
a whole, had not acted to deprive” the investor of the economic value of its
investment, as “poor decisions or decisions without proper justifications do not
rise to the standard of expropriation.”72
Revocation of Patents or Licenses
The last strand of factual scenarios discernible from claims of judicial expropriations
is interferences with government-issued patents or licenses. Liman Caspian Oil v.
Kazakhstan discusses such a scenario, namely, where a license was invalidated
through court decisions. In the opinion of the tribunal, the “mere fact that decisions
of the Kazakh courts declared that Claimants did not prevail and were not holders of
rights [. . .]” would not be sufficient to constitute an expropriation.73 Even if the
invalidation may have been incorrect as a matter of Kazakh law, since it could not
find any indicia of “arbitrary, grossly unfair, unjust, idiosyncratic, discriminatory”
conduct or a lack of due process in the Kazakh court decisions, the invalidation of the
transfer of the license would have to be accepted under international law.74
The more recent and widely discussed award in Eli Lilly v. Canada found no
NAFTA breaches by the Canadian courts when they revoked Eli Lilly’s Canadian
patents. The tribunal emphasized that it is indeed possible that a judicial act (or
omission) raises questions of expropriation, for instance, when “a judicial decision
crystallizes a taking alleged to be contrary to NAFTA Article 1110.” For the
purposes of defining when a judicial expropriation occurs, this rule of thumb by
the Eli Lilly tribunal may not be very useful. Its hesitance toward judicial expropri-
ations is also reflected in the disclaimer that a “NAFTA Chapter Eleven tribunal is
not an appellate tier in respect of the decisions of national judiciaries.”75 However,
the significance of the award and the reason for its prominence lies in its rather liberal
take when it comes to the conditions of (un)lawfulness, as shall be discussed below
(Chap. 4).
71
Standard Chartered Bank (Hong Kong) Limited v. United Republic of Tanzania, ICSID Case No.
ARB/15/41, Award, 11 October 2019, para 279.
72
Ibid., para 320.
73
Ibid., para 430.
74
Ibid., para 431.
75
Eli Lilly v. Canada, para 221.
Unlawfulness of Judicial Expropriations
Our analysis of cases in the past chapter has not only shown the factual circum-
stances in which judicial expropriations may occur but also, to a certain extent,
highlighted considerations of unlawfulness on which tribunals have focused. And
while not all abovementioned tribunals clearly separated the finding of an expropri-
ation from determining its unlawfulness (particularly in the context of the “additional
illegality” requirement of finding an expropriation, sections “The (Unclear) Line
Between Expropriation and Its Unlawfulness” and “The Many Legacies of
Saipem”), it is appropriate to do so for the purposes of this discussion. The awards
dealing with court-ordered expropriations demonstrate that investment arbitration
tribunals do not uniformly apply the “traditional” elements of unlawfulness. It might
therefore be tempting to hinge the existence of a judicial expropriation on a denial of
justice. Consequently, an expropriation may only be confirmed, if all requisite
conditions for a denial of justice are fulfilled. This will necessarily confine the
“illegalities” enacted by the courts to procedural improprieties, rather than violations
of substantive international law.76 Some awards suggest, however, that a denial of
justice is not a prerequisite to an expropriatory court ruling and that the unlawfulness
of a judicial expropriation may be derived from circumstances independent from
procedural propriety, for instance, from other rules of international law in sources
such as treaties.77
The Grounds for Unlawfulness in Practice: Always the “Four,” Always

a Denial of Justice?
As mentioned above, the traditional expropriation doctrine measures the lawfulness

of an expropriation by examining the usual four suspects: payment of prompt,
adequate, and effective compensation, public purpose, due process, and non-
discrimination. While the prohibition of denial of justice is an autonomous custom-
ary law standard, it may also apply by virtue of incorporation in investment treaties,
either directly or through the FET standard. Denial of justice is predominantly
concerned with the procedural propriety as well as the nondiscriminatory and
76
An often drawn, but imprecise distinction is the one between “procedural” and “substantive”
denial of justice. Paulsson quite rightly argues that “when national courts misapply international
law, they commit substantive violations which should not be called denials of justice.” Paulsson J
(2005) Denial of justice in international law. Cambridge University Press, Cambridge, p 4.
77
Amongst others, see Saipem v. Bangladesh, para 181 (“While the Tribunal concurs with the
parties that expropriation by the courts presupposes that the courts’ intervention was illegal, this
does not mean that expropriation by a court necessarily presupposes a denial of justice.”); Eli Lilly v.
Canada, para 223 (“[. . .] the Tribunal is unwilling to shut the door to the possibility that judicial
conduct characterized other than as a denial of justice may engage a respondent’s obligations under
NAFTA Article 1105.”); Gharavi HG (2018) Discord over judicial expropriation. ICSID Rev 33
(2):349–357, 356.
independent adjudication of disputes before national courts. The situations where a

denial of justice has been confirmed in international jurisprudence range from refusal
of access to justice, unreasonable delay, interferences by State authorities in pro-
ceedings, and breaches of due process, to corruption, discrimination, and preju-
dice.78 Whenever a denial of justice is concerned, the exhaustion of local remedies
becomes binding in a substantive sense: the wrong must have reached the highest
instance of courts in order for the claim of a denial of justice to be completed on the
merits.79 The way in which this condition may have caused interpretations of judicial
expropriations as reflections of denial of justice shall be discussed in more detail
below (section “The Role of the Exhaustion Rule”).
To understand how tribunals identify the unlawfulness of judicial expropriations,
the grounds of illegality named in the relevant investment awards discussed above
shall be reconsidered. These grounds often stem from a denial of justice, but not in
all cases, as exemplified by the following enumeration of reasons considered (but not
necessarily confirmed) by tribunals:
• The four “classic” conditions of unlawfulness generally, (Sistem v. Bangladesh,

Tatneft v. Ukraine, İçkale v. Turkmenistan) or specifically:
– Undue process of law (Krederi v. Ukraine, Middle East Cement v. Egypt); such
as through improper notice (Middle East Cement v. Egypt)
– Lack of prompt and adequate compensation (Rumeli v. Kazakhstan, Tatneft v.
Ukraine)
– Public purpose (Tatneft v. Ukraine, Rumeli v. Kazakhstan)
– Discrimination (Tatneft v. Ukraine)
• Denial of justice (Tatneft v. Ukraine, Krederi v. Ukraine)
• Decision not sufficiently founded on evidence (Karkey Karadeniz v. Pakistan)80
• Excessiveness/lack of proportionality (dissent in İçkale v. Turkmenistan)81
• Violation of general principle on the prohibition of abuse of rights (Saipem v.
Bangladesh)
78
Focarelli C (2013) Denial of justice. In: Max Planck Encyclopedia of public international law.
Available via OPIL. http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-
9780199231690-e775, para 3.
79
Paulsson J (2005) Denial of justice in international law. Cambridge University Press, Cambridge,
p 8; Corona Materials LLC v. Dominican Republic, ICSID Case No. ARB(AF)/14/3, Award, 31
May 2016, para 254.
80
Karkey Karadeniz v. Pakistan, para 649 (‘Even if the Tribunal were to apply the “balance of
probabilities” standard as proposed by Pakistan, the Tribunal finds that there is insufficient evidence
to demonstrate that it was more likely than not that Karkey was involved in the practice of
corruption.’)
81
İçkale İnşaat Limited Şirketi v. Turkmenistan, Partially Dissenting Opinion of Carolyn B. Lamm,
para 15 (“I disagree with the majority and conclude that the Supreme Court’s directive was in fact
excessive and thus expropriatory, because it resulted in the seizure of all of Claimant’s machinery
and equipment in Turkmenistan, significantly in excess of any penalties. The combined value of this
machinery and equipment, which was deployed by Claimant to perform its investment, far exceeded
any reasonable delay penalty that could have been imposed by the Supreme Court.”)
• Violations of a treaty other than the BIT (New York Convention) (Saipem v.
Bangladesh, ATA v. Jordan)
– Revocation of arbitral tribunal’s authority (Saipem v. Bangladesh)
– Retroactive application of laws (ATA v. Jordan)
Many of these grounds of illegality are related to irregularities in the procedure

before a national court. It is hence appropriate to say that the unlawfulness of the
majority of judicial expropriations is derived from contraventions of due process or
denial of justice (the choice of which will naturally depend on what protection
standards the treaty grants and the investor claims). However, there are two facts
about the grounds listed above that catch the eye. It is firstly striking, that many, but
not all tribunals generally examine the classic four conditions of lawfulness in their
analysis of expropriation claims, considering that they are usually stipulated as the
standard by the investment treaty. While due process and nondiscrimination seem to
be the most frequently discussed criteria of the four, certainly due to their usual
relevance in the context of irregularities of the judicial process, the public purpose or
compensation requirements are rarely discussed, and particularly the latter some-
times seems to be omitted entirely. Sistem and Tatneft are examples of cases where
the lack of compensation is generally noted, but not discussed any further.82 The
only case where the failure to pay prompt, adequate, and effective compensation was
deemed to be at the center of the unlawfulness of the expropriation is Rumeli v.
Kazakhstan. In fact, the case is among the few to examine all four of the classic
conditions of lawfulness exhaustively. The tribunal consequently notes, for instance,
that the decision was made for a public purpose, “namely the administration of
justice and the execution of the laws of the host State.”83 After confirming that there
is no indication of undue process of law, the tribunal emphasizes that the valuation of
the shares was “manifestly and grossly inadequate”; not commensurate with what is
required as adequate compensation under the BIT and therefore unlawful.84
The second point to note is that diverging opinions exist as to whether a judicial
expropriation must always include a denial of justice. As demonstrated in the list
above, some of the investment tribunals have asserted that the merits of a domestic
court decision may also run contrary to international law, such as treaty law or
general principles of law, without necessarily involving a procedural denial of
justice. This seems to be the case with judicial expropriations in the context of
82
Tatneft v. Ukraine, para 471 (“It is also to be noted that no compensation has been paid in the
present case and that the situation is no different than a case of direct taking or one concerning the
compulsory redemption of shares, as decided in Rumeli in respect of the latter.”); Sistem v.
Kyrgyztan, para 119 (“That abrogation of the Claimant’s property rights amounts to a breach of
the Article III of the Turkey-Kyrgyz BIT, which forbids the expropriation of property unless it is
done for a public purpose, in a non-discriminatory manner, and upon payment of prompt, adequate
and effective compensation. Those conditions are not satisfied in this case: in particular, no
compensation has been paid.”).
83
Rumeli v. Kazakhstan., para 705.
84
Ibid., para 706.
nullifications of commercial awards or arbitration agreements that are internationally

wrongful due to their incompatibility with to the New York Convention (e.g.,
Saipem and ATA), as well as when it comes to the compensation requirement,
which may be classified as a substantive right rather than a procedural requirement
of expropriation (e.g., Rumeli).
The contrast in opinions on the necessity of a denial of justice for judicial
expropriations is exemplified by the tribunals in Eli Lilly v. Canada and Krederi v.
Ukraine. The award in Eli Lilly v. Canada breathed new life into Saipem’s
conclusion that denial of justice and judicial expropriations are, in fact, separable
concepts. The tribunal engaged in a discussion on the correlation between Articles
1105 (Minimum Standard of Treatment) and 1110 (Expropriation) of NAFTA.
Article 1110(1)(c) stipulates that an expropriation is unlawful if it was not taken,
inter alia, “in accordance with due process of law and Article 1105(1),” which in
turn grants the minimum protection standard, including FET, for investments. The
tribunal firstly emphasized that a distinction should be made between a denial of
justice and “other conduct that may also be sufficiently egregious and shocking,
such as manifest arbitrariness or blatant unfairness.”85 Secondly, it continued by
asserting that a claim that the customary international law minimum standard of
treatment has been breached “may be properly a basis for a claim under NAFTA
Article 1105 notwithstanding that it is not cast in denial of justice terms.” This
statement seems to confirm the conclusion of Saipem that the threshold of unlaw-
fulness for a judicial expropriation is not necessarily a denial of justice but may
also consist of other violations of international law. The more recent award in
Standard Chartered Bank (Hong Kong) v. Tanzania concurs that “[w]hile denial of
justice could in some case result in expropriation, it does not follow that judicial
expropriation could only occur if there is denial of justice.”86 This may be
contrasted with the recent award in Krederi v. Ukraine. While the tribunal there
endorsed the “additional illegality” requirement of Saipem to find an expropriation,
it seemed to go a bit further than that by stating that it is “necessary to ascertain
whether an additional element of procedural illegality or denial of justice was
present” and that “[o]nly then may a judicial decision be qualified as a measure
constituting or amounting to expropriation.”87
The Role of the Exhaustion Rule
Notwithstanding this rather significant doctrinal dispute, the majority of awards have
followed a common line of argumentation: For a judicial decision or conduct to bring
about a violation of expropriation standards, serious flaws within the procedure or
85
Eli Lilly v. Canada, para 223.
86
Standard Chartered Bank v. Tanzania, para 279.
87
Krederi v. Ukraine, para 713 (emphasis added).
the substance of the ruling must have occurred.88 Not in all cases, as discussed
above, can these flaws be connected to a denial of justice, and the pressing question
that arises is whether local remedies must still be exhausted for such an expropria-
tion. Saipem appears to consider that the exhaustion rule does not constitute a
substantive requirement of a finding of expropriation by a court.89
In the Ambatielos Claim case, a quite prominent explanation was given for the
rationale of the exhaustion rule. According to the arbitrators, it was “the whole
system of legal protection [. . .] which must have been put to the test” before claims
could be made on the international level.90 Looking at this rationale, but also at its
historical context, arguments for both sides bear legitimacy. On the one hand, States
should be given the full opportunity to remedy judicial injustices through their own
legal systems. However, on the other hand, when a State has nowadays freely
disposed of the application of the exhaustion rule by express waivers, such as
those included in investment treaties, the situation becomes more complex.91
As discussed above, for a denial of justice to be successful on the merits, the
investor will usually have to have exhausted local remedies, as waivers in investment
treaties typically relate to the procedural exhaustion rule, not the substantive prereq-
uisite to a claim of denial of justice. The inherent question of the problem is thus the
extent of the connection between denial of justice and judicial expropriations.
Saipem states that an expropriation by a court must not necessarily presuppose a
denial of justice and that “[a]ccordingly, it tends to consider that exhaustion of local
remedies does not constitute a substantive requirement of a finding of expropriation
by a court.” An argumentum e contrario derived from this assertion could mean that
a substantial deprivation of the investment that is accompanied by treaty violations
and not a denial of justice may amount to a judicial expropriation even if it was a
decision by a lower court (as long as they fulfill the requirement of permanence).
This may explain why tribunals are almost anxious to connect judicial expropriations
to denial of justice. The other wave set into motion by this thought experiment is
the complex discussion on the finality rule. Although often taken as identical to the
exhaustion rule, “judicial finality” is a doctrinally different concept.92 While the
discussion on the exhaustion rule addresses a procedural aspect of an investor’s right
to bring a claim, the finality rule is arguably a substantive requirement for State
88
Azinian v. Mexico, para 105; Sergei Paushok, CJSC Golden East Company and CJSC
Vostokneftegaz Company v. Mongolia, UNCITRAL, Award on Jurisdiction and Liability of 28
April 2011, paras 661–663.
89
90
The Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland), RIAA, 6
March 1956, Vol. XII, p. 124.
91
Douglas Z (2014) International responsibility for domestic adjudication: denial of justice
deconstructed. Int Comp Law Q 63(4):867–900, 871
92
Greenwood C (2004) State responsibility for the decisions of National Courts. In: Fitzmaurice M,
Sarooshi D (eds) Issues of state responsibility before international judicial institutions. pp 55–73;
responsibility to arise for conduct of the judiciary.93 The finality rule was primarily
discussed in the context of denial of justice, which traditionally constituted the only
prominent area of internationally wrongful judicial conduct.94 Loewen v. United
States seems to be among the few cases that clearly distinguish between procedural
exhaustion rule and substantive finality rule.95 Other tribunals, too, have confirmed
the applicability of the finality rule to denial of justice.96 Any conclusion on the
applicability of the rule on judicial expropriations will be contingent on two devel-
opments that have yet to occur. Firstly, against the background of the contrasting
case law, it remains to be seen whether tribunals will necessarily frame the under-
lying improprieties of a judicial expropriation as a denial of justice and hence apply
the exhaustion rule substantively. Secondly, if judicial expropriations are found to be
independent of denial of justice, the role of the finality rule outside of denial of
justice claims will require clarification too. As a matter of fact, that seems to have not
yet been central to many of the discussions in case law, as in the majority of those
cases the alleged judicial expropriation involved decisions by courts of last
instance.97
Conclusion
What started off as a judicial “phenomenon” in the eyes of many has since Saipem
evolved into a legal claim of frequent occurrence and increasing interest in invest-
ment arbitration. Judicial expropriations are the subject of engaged discussions
among practitioners and scholars alike, not only because they have wide-ranging
practical implications for investment protection but also due to the complicated
conceptual and practical issues they raise. It is safe to say that the practice of
investment tribunals of the past decade confirms that expropriations by the judiciary
may occur, both as a composite act of a creeping expropriation as well as in the form
of an independent indirect expropriation. In the majority of cases, these judicial
expropriations will entail a denial of justice, which consequently makes it necessary
for tribunals to take a stand on the question whether the substantive requirement of
exhausting of local remedies applies to judicial expropriations too. It is important to
note, however, that in most cases of judicial expropriations (at least in the ones
discussed here), the investor has already gone through considerable (unsuccessful)
effort to remedy the situation domestically. Nevertheless, considering the variety of
93
94
Greenwood C (2004) State responsibility for the decisions of National Courts. In: Fitzmaurice M,
Sarooshi D (eds) Issues of state responsibility before international judicial institutions. pp 55–73
95
Loewen Group, Inc. v. the United States, ICSID Case No. ARB(AF)/98/3, Decision on Compe-
tence and Jurisdiction, para 68; Loewen Group v. United States (Award), para 147.
96
Jan de Nul v. Egypt, paras 255–261; Toto Costruzioni. v. Lebanon, para 164.
97
See for instance, Saipem v. Bangladesh, para 182.
factual scenarios capable of constituting judicial expropriations, ranging from inter-

ferences with commercial arbitration and contracts to seizures of assets, an influx of
jurisprudence on the issue may definitely be expected. Especially in the interaction
between unsuccessful enforcement of arbitral awards and the remedies provided by
investment arbitration, the concept of judicial expropriations could have significant
bearing.
At the same time, caution is warranted. As demonstrated in this piece, there seems
to be considerable confusion as to the requirements for an unlawful judicial expro-
priation as well as for the elements to be fulfilled to make a successful claim of
judicial expropriation. For a clear stance on the issue of judicial expropriations,
greater clarification as to the applicable standards will be necessary in adjudication
by tribunals, but more importantly, in respective treaty language.
Cross-References
▶ Anti-arbitration Injunctions in Investor-State Arbitration: Instruments of “Abuse

of Process”
▶ Relevance of Domestic Court Decisions to the Merits in Investment Arbitration
▶ Tribunal Jurisdiction and the Relationship of Investment Arbitration with Munic-
ipal Courts and Tribunals
Inclusion of Investor Obligations and
Corporate Accountability Provisions in 19
Nathalie Bernasconi-Osterwalder
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464
Corporate Social Responsibility Provisions in IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
Investor Compliance with Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472
Compliance with Laws and Regulations in the Definition of the Investment . . . . . . . . . . . . . . 472
Limiting the Scope of Investment Protection and ISDS to Investments in
Compliance with Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477
Explicit Positive Obligation to Comply with Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . 478
Introducing Specific Investor Obligations in IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
Abstract
The terms “corporate social responsibility” and “responsible business conduct,”
while growing increasingly popular in public discourse as consumers demand
greater corporate accountability, are also being worked into clauses featured in
international investment agreements (IIAs) to varying degrees and effects. These
treaty provisions often focus on how to ensure that foreign investors making
investments in host States are abiding by environmental, social, governance, or
other norms and are normally voluntary in nature. They tend to apply to the State
parties, rather than to investors directly, with some notable exceptions that have
emerged in recent years and which are explored here. Also significant is how many
IIAs have treated the subject of investment compliance with national laws, often
The author would like to acknowledge the excellent research support provided by Sofia De Murard,
NYU Law Fellow at IISD. Thanks also go to Sofia Baliño for her thorough review and input.
N. Bernasconi-Osterwalder (*)
International Institute for Sustainable Development, Geneva, Switzerland
e-mail: nbernasconi@iisd.org

https://doi.org/10.1007/978-981-13-3615-7_56
464 N. Bernasconi-Osterwalder
building the definition of “investment” around those lines, though how arbitral
tribunals have dealt with infractions of such laws has depended largely on the
nature of the violation. Some of these IIAs have focused primarily on violations in
the making of the investment, while others look further to the operations and
closure phases, which have been considered in investment jurisprudence. In addi-
tion to requirements to comply with laws and regulations, several recent IIAs have
begun spelling out specific investor obligations, ranging from anti-corruption to
environmental and social impact assessment and management plans, along with
providing company information. Given this context, this chapter features a detailed
analysis of various bilateral investment treaties (BITs), model treaties, and arbitra-
tion cases that demonstrate some of these issues and their evolution, both in theory
and in practice. It also places this discussion within the wider context of the push
for IIA reform at multiple levels, from the bilateral to the multilateral.
Keywords
Foreign investment · Investor obligations · Responsible business conduct ·
Business and human rights
Introduction1
In recent years, the international investment law regime has seen a concerted push for
reform in multiple forums, following significant criticism from multiple stakeholders
on what its current structure has meant for host States and the achievement of
sustainable development objectives. Among the most high-profile problems that
have emerged has been the severe imbalance between investors and host States
when it comes to the rights and obligations accorded to each, with investors often
benefitting from generous protections and rights that are subject to dispute settlement.2
Host States, for their part, have been subject to obligations that impose constraints on
their policy space, including the right to regulate in the public interest, which when
combined with these foreign investor rights can have significantly damaging results.
Given this context, efforts are well underway in multiple forums at reforming the
current legal regime, such as the ongoing Working Group III process on investor-
State dispute settlement (ISDS) reform at the United Nations Commission on
International Trade Law (UNCITRAL), which was at the phase of examining
possible reform solutions at the time of this writing. As such multilateral processes
1
Many of the findings in this chapter are informed by IISD’s past work in this area. In particular, this
chapter builds on and updates the insights and research used to develop the background paper and
the report from the workshop Harnessing Investment for Sustainable Development: Inclusion of
investor obligations and corporate accountability provisions in trade and investment agreements.
That workshop was held in January 2018 in Versoix, Switzerland. The meeting report is available at
the IISD website here: https://www.iisd.org/library/integrating-investor-obligations-and-corporate-
accountability-provisions-trade.
2
See, e.g., Chaisse J, Donde R (2018) The state of investor-state arbitration– a reality check of the
issues, trends, and directions in Asia-Pacific. Int Law 51(1):47–67.
19 Inclusion of Investor Obligations and Corporate Accountability. . . 465
continue, there are already some notable trends emerging in the negotiation of “new
generation” international investment agreements (IIAs), which are increasingly
incorporating investor obligations. Among these are provisions on corporate social
responsibility; on ensuring that investments are made in line with national laws; and,
in some cases, on requiring that the operation of these investments also abide by
national laws. Some arbitration cases have helped show how these provisions work
in practice, along with where their limitations lie.
This chapter begins by considering how recent IIAs have incorporated provisions
and clauses relating to responsible business conduct and corporate social responsi-
bility. The chapter then moves on to examine clauses aimed at promoting and
ensuring compliance with domestic law and how tribunals have interpreted these
types of clauses. The chapter subsequently provides an overview of recent develop-
ments in treaty-making in relation to the development of explicit treaty-based
investor obligations.
Corporate Social Responsibility Provisions in IIAs
Over the past several years, governments negotiating international investment agree-
ments (IIAs) have increasingly begun to incorporate provisions relating to corporate
social responsibility (CSR). These aim at improving the conduct of companies and
relate to a range of issues, including labor, environment, anti-corruption, and human
rights. This negotiating trend comes as the subject of CSR has grown in public
profile, amid consumer demands for greater accountability from the private sector.
Many companies are now seeking to provide assurances that their business practices
do not contravene legal systems or social and environmental norms.
According to the United Nations Conference on Trade and Development’s
(UNCTAD) International Investment Agreements Navigator, which maps out the
contents of international investment agreements, there are currently 40 signed
treaties with CSR clauses, excluding those treaties that solely mention CSR in
their preamble.3 Out of these treaties, 22 are currently in force.4 Some countries or
country groups have been especially prominent in taking these provisions on board:
3
See UNCTAD, International Investment Agreements Navigator, “Mapping of IIA Content”,
https://investmentpolicy.unctad.org/international-investment-agreements/iia-mapping. Please note
that, unless indicated otherwise, the texts of all treaties referred to in this chapter are available at
this site.
4
These treaties include the following: Burkina Faso-Canada BIT (2015); Iran-Slovakia BIT (2016);
Angola-Brazil BIT (2015); Japan-Uruguay BIT (2015); Canada-Guinea BIT (2015); Canada-
Mongolia BIT (2016); Cameroon-Canada BIT (2014); Canada-Senegal BIT (2014); Colombia-
Costa Rica (2013); EU-Georgia Association Agreement (2014); EU-Moldova Association Agree-
ment (2014); Canada-Mali BIT 2014; Pacific Alliance Additional Protocol (2014) between Colom-
bia, Peru, Mexico, and Chile; EU-Ukraine Association Agreement (2014); Canada-Cote d’Ivoire
BIT (2014); Canada-Serbia BIT (2014); Georgia-Switzerland BIT (2014); Canada-Korea FTA
(2014); Canada-Honduras FTA (2013); Benin-Canada (2013); Finland-Serbia BIT (2005); and
Japan-Korea (2002). For ease of reading, the agreements are generally referred to in their abbrevi-
ated form rather than their full names.
Canada has included CSR clauses regularly in its BITs since 2013,5 while Brazil and
the EU have been incorporating them in more recent treaties.6 Despite these exam-
ples of CSR uptake, such provisions remain relatively rare within BITs. For example,
out of the 29 IIAs concluded in 2018, only 13 IIAs include CSR provisions.7 A
greater number of treaties, 223 signed and 169 in force, have references to sustain-
able development factors in their preamble, including CSR, even if they fail to
include related provisions in the rest of the text.8 That disparity and the reasonings
behind it are worthy of consideration, though the focus of this chapter will be on the
IIAs which do have such CSR provisions.
Some clauses define CSR by explicitly referring to the types of issues covered,
often reflecting the policy priorities of the negotiating parties. For example, the 2013
Benin-Canada BIT refers to labor, environment, human rights, and community
relations,9 while the 2018 United States-Mexico-Canada Agreement (USMCA)
also mentions gender equality, as well as indigenous and aboriginal peoples’ rights,
as potential areas covered.10 These areas are merely indicative in the USMCA and
are listed in a non-exhaustive fashion: the wording says that the agreement “may
address areas such as.”11 Nonetheless, the text provides a useful indication of the
5
The Canadian BITs referred to here include Canada-Mongolia BIT (2016); Burkina Faso-Canada
BIT (2015); Canada-Guinea BIT (2015); Cameroon-Canada BIT (2014); Canada-Senegal BIT
(2014); Canada-Mali BIT 2014; Canada-Cote d’Ivoire BIT (2014); Canada-Serbia BIT (2014);
Canada-Korea FTA (2014); Canada-Honduras FTA (2013); and Benin-Canada (2013).
6
Zhu Y (2017) Corporate social responsibility and international investment law: tension and
reconciliation. NJCL:111. https://journals.aau.dk/index.php/NJCL/article/view/1983
7
See UNCTAD (2019) World investment report. United Nations:105. https://unctad.org/en/
PublicationsLibrary/wir2019_overview_en.pdf
8
See UNCTAD. International Investment Agreements Navigator, “Mapping of IIA Content”,
https://investmentpolicy.unctad.org/international-investment-agreements/iia-mapping.
9
Art 16 of the 2013 Benin-Canada BIT states:
Each Contracting Party should encourage enterprises operating within its territory or subject
to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate
social responsibility in their practices and internal policies, such as statements of principle
that have been endorsed or are supported by the Contracting Parties. These principles
address issues such as labor, the environment, human rights, community relations and
anti-corruption.
10
Art 14.17 USMCA provides:
The Parties reaffirm the importance of each Party encouraging enterprises operating within
its territory or subject to its jurisdiction to voluntarily incorporate into their internal policies
those internationally recognized standards, guidelines, and principles of corporate social
responsibility that have been endorsed or are supported by that Party, which may include the
OECD Guidelines for Multinational Enterprises. These standards, guidelines, and principles
may address areas such as labor, environment, gender equality, human rights, indigenous
and aboriginal peoples’ rights, and corruption.
11
See Art 14.17, USMCA.
signatories’ interests and original intent: for example, Canadian officials had put
forward proposals on full chapters addressing gender equality and indigenous and
aboriginal people’s interests during the early rounds of the USMCA negotiating
process, though these were reportedly transformed into less stringent provisions
featured in other chapters of the final text, rather than as stand-alone chapters in their
own right.12
Most CSR provisions also specify that the standards covered are “internation-
ally recognized standards of corporate social responsibility that have been recog-
nized by the parties”13 or “internationally recognized standards, guidelines, and
principles of corporate social responsibility that have been endorsed or are
supported by that Party [the party in which the enterprise is operating].”14 This
approach allows States to encourage only those standards that they have adhered to
already in other contexts and therefore are known policy priorities. For example,
the Organisation for Economic Co-operation and Development (OECD) Guide-
lines for Multinational Enterprises (MNEs) would be relevant only to those States
who are OECD members or have explicitly endorsed that document.15 Those
guidelines were first adopted in 1976, with the most recent update taking place
in 2011.
Some IIA clauses may refer to specific CSR-related international instruments or
standards by name. The 2018 USMCA – whose three signatories are all members of
the OECD – refers to the OECD Guidelines for Multinational Enterprises as one
instrument of reference (“internationally recognized standards, guidelines, and prin-
ciples of corporate social responsibility. . ., which may include the OECD Guidelines
for Multinational Enterprises”).16 The Dutch Model BIT (2019), along with referring
to the OECD Guidelines for MNEs, also names the United Nations Guiding Princi-
ples on Business and Human Rights, as well as the Recommendation CM/REC
(2016) of the Committee of Ministers to Member States on human rights and
business.”17 The language in these provisions does not legally add anything to the
more general approach seen elsewhere, which does not include specific references to
instruments. However, that same language does highlight the relevance of certain
instruments for the negotiating parties.
Finally, Brazil takes a unique approach by giving detailed definitions and
instructions of what constitutes CSR and how to achieve it. These provisions
12
See Porter C (2017) Canada wants a new Nafta to include gender and indigenous people’s rights.
The New York Times, 14 August 2017. https://www.nytimes.com/2017/08/14/world/americas/
canada-wants-a-new-nafta-to-include-gender-and-indigenous-rights.html.
13
See Art 16 of the 2013 Benin-Canada BIT.
14
See Art 14.17, USMCA. See also article 9.17 of the Comprehensive and Progressive Agreement
for Trans-Pacific Partnership (CPTPP).
15
See Organisation for Economic Co-operation and Development (2011) OECD guidelines for
multinational enterprises. http://mneguidelines.oecd.org/guidelines/.
16
See Art 14.17, USMCA.
17
See Art 7.2, Dutch Model BIT.
have become a regular feature of its Cooperation and Facilitation Investment

Agreements, which are also notable for having replaced the country’s old-style
investment protection BITs, which it had negotiated but failed to ratify.18 For
example, Article 9(2) of the Brazil-Malawi Cooperation and Facilitation Invest-
ment Agreement (CFIA) (2015), Article 13(2) of the Brazil-Mexico CFIA
(2015), and Article 13 of the Brazil-Colombia CFIA (2015) each list the princi-
ples and standards that investors should follow. Besides directing investors and
their investment(s) to “strive to achieve the highest possible level of contribution
to the sustainable development of the Host Party and the local community,
through the adoption of a high degree of socially responsible practices,” it
explicitly lists and sets out various voluntary principles and standards that
apply to investors and investments. The applicable language, quoted below,
requires that these investors and investments:
(a) Stimulate the economic, social, and environmental progress, aiming at achieving
sustainable development
(b) Respect the human rights of those involved in the companies’ activities, consis-
tent with the international obligations and commitments of the Host Party
(c) Encourage the strengthening of local capacities building through close cooper-
ation with the local community
(d) Encourage the development of human capital, especially by creating employ-
ment opportunities and facilitating access of workers to professional training
(e) Refrain from seeking or accepting exemptions that are not established in the
legislation of the Host Party, relating to environment, health, security, work or
financial incentives, or other issues
(f) Support and maintain good corporate governance principles and develop and
apply good practices of corporate governance
(g) Develop and apply effective self-regulatory practices and management systems
that foster a relationship of mutual trust between the companies and the society
in which the operations are conducted
(h) Promote the knowledge of workers about the corporate policy, through appro-
priate dissemination of this policy, including programs for professional training
(i) Refrain from discriminatory or disciplinary action against the employees who
submit grave reports to the board or, whenever appropriate, to the competent
public authorities, about practices that violate the law or violate the standards of
corporate governance that the company is subject to
(j) Encourage, whenever possible, the business associates, including service pro-
viders and outsources, to apply the principles of business conduct consistent with
the principles provided in this Article
(k) Respect local political activities and processes19
18
reconciliation. NJCL (2017):114. https://journals.aau.dk/index.php/NJCL/article/view/1983
19
This text is from the Brazil-Malawi CFIA (2015), Art 9.2.
Most CSR clauses are not mandatory and are not attached to enforcement
mechanisms.20 They therefore tend to be characterized as “soft law,” as opposed to
other treaty standards enforced through international arbitration.21 The “soft”
approach is characterized by non-binding language that “encourages” actions from
States or investors on a “voluntary basis.”22
These CSR clauses often address the treaty parties, rather than investors, though
how stringent the language is in such clauses can vary. Examples of voluntary
clauses that are less stringent include those featured in the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP), in force as of
December 2018 for those parties which have ratified the text, and the new Dutch
Model BIT released in 2019. These clauses merely state that the treaty parties
“reaffirm the importance of each Party encouraging enterprises operating within
its territory or subject to its jurisdiction to voluntarily incorporate” CSR standards
(emphasis added).23 This reads more like hortatory language usually included in
treaty preambles, rather than the language that might be expected in a substantive
provision.24 By contrast, the language used in Canadian BITs is slightly more direct,
though still voluntary, and shows some differences to what Canada later agreed to in
the CPTPP.25 For example, the 2013 Benin-Canada BIT and the 2014 Canada-
Senegal BIT provide that “[e]ach Party should encourage enterprises operating
within its territory or subject to its jurisdiction to voluntarily incorporate” CSR
standards.26 This addresses treaty parties directly and goes beyond a mere
reaffirmation of the importance of CSR.27
As the language indicates, these clauses clearly target State parties when they are
acting in their capacity as host States. They spell out how these host States should
20
reconciliation. NJCL (2017):118. Available at https://journals.aau.dk/index.php/NJCL/article/
view/1983
21
Id, pg 118. On the impact of soft law in international economic law see Chaisse J, Ji X (2018)
“Soft Law” in international law-making: how soft international taxation law is reshaping interna-
tional economic governance. Asian J WTO Law Health Policy 13(2):463–509
22
Id, 112
23
See Trans-Pacific Partnership Agreement (2016), Art 9.17 and Netherlands Model BIT (2018),
Art 7. Note that while the above text refers to the CPTPP, the language quoted herein from the TPP
was kept intact in the CPTPP version.
24
See Dubin L (2018) Corporate social responsibility clauses in investment treaties. Investment
Treaty News, December 21, 2018. https://www.iisd.org/itn/2018/12/21/corporate-social-responsibil
ity-clauses-in-investment-treaties-laurence-dubin/.
25
It is worth noting, however, that Canada is a party to the CPTPP and that these variations in
language should be noted accordingly and considered in relation to other relevant factors, such as
the negotiating dynamics with the other State parties involved.
26
See Canada-Benin BIT (2013), Art 16; Canada-Senegal BIT (2014), Art 16, all available at the
UNCTAD website.
27
encourage the adoption of CSR through the enterprises operating in their territory.
When these parties are in the position of being home States, however, the treaty’s
language is not as clear. So, for example, under a Canadian or the Dutch BIT, it is not
clear whether Canada or the Netherlands would be responsible for encouraging the
incorporation of CSR standards by a Canadian or Dutch company operating and
investing in a partner State. If the provision that “[e]ach Party should encourage
enterprises operating within its territory or subject to its jurisdiction to voluntarily
incorporate” [CSR standards] is understood to mean that home States have jurisdic-
tion over their companies operating abroad, then home States would also carry some
CSR responsibilities under the treaty. Any contrary interpretation would have to be
seen as running counter to recent trends in national legislations, where countries
have aimed at regulating outward investments and imposing due diligence obliga-
tions on transnational companies at the place of their seat.28 It would also run counter
to the spirit of the OECD Guidelines for Multinational Enterprises, under which all
adhering countries carry responsibilities, both those countries where companies are
operating and those where they are headquartered.
While the clauses target State parties, they also indirectly address the enter-
prises operating in the territory of one of the State parties. It is these enterprises
that should ultimately adopt and incorporate CSR standards into their operations.
In this context, however, the clauses further weaken the nature of the provision by
clarifying that the adoption of CSR standards is voluntary (“encourage enterprises
to voluntarily incorporate” [emphasis added]). The Canada-Senegal BIT
timidly attempts to address enterprises directly by continuing as follows: “Such
enterprises are encouraged to make investments whose impacts contribute to the
resolution of social problems and preserve the environment,”29 but it is
unclear whether soft term of “encourage” incorporates anything additional to the
rest of the article.
Some recent IIAs, however, target investors and their investments more
directly.30 The treaties negotiated by Brazil represent this approach. For example,
Article 9(1) of the Brazil-Malawi CFIA (2015) states:
Investors and their investment shall strive to achieve the highest possible level of contribu-
tion to the sustainable development of the Host Party and the local community, through the
28
See, for instance, the French Duty of Vigilance Law. LOI n 2017-399 du 27 mars 2017 relative au
devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre (1), JORF n 0074 du 28
mars 2017 texte, n 1, available at: https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=
JORFTEXT000034290626&categorieLien=id.
29
See the Canada-Senegal BIT (2014), Art 16.
30
ity-clauses-in-investment-treaties-laurence-dubin. See also Levashova Y (2018) The accountability
and corporate social responsibility of multinational corporations for transgressions in host States
through international investment law. Utrecht L Rev 14:47. https://papers.ssrn.com/sol3/papers.
cfm?abstract_id=3204456.
adoption of a high degree of socially responsible practices, based on the voluntary principles
and standards set out in this Article.31
This language requires investors to demonstrate that they are doing their utmost to
achieve sustainable development outcomes for the local community by adopting and
integrating CSR standards.32 This language is meaningful, as it is directed at the
investors themselves and provides guidance on the relevant standards. The CSR
article then directs investors and their investments to apply a range of voluntary
principles and standards:
The investors and their investment shall develop their best efforts to comply with the
following voluntary principles and standards for a responsible business conduct and consis-
tent with the laws adopted by the Host Party receiving the investment. . .33
Article 24 of the Morocco-Nigeria BIT is devoted to CSR and provides another

example of a provision targeting investors directly:
1. In addition to the obligation to comply with all applicable laws and regulations of
the Host State and the obligations in this Agreement, and in accordance with the
size, capacities, and nature of investments, and taking into account the develop-
ment plans and priorities of the Host State and the Sustainable Development
Goals of the United Nations, investors and their investments should strive to
make the maximum feasible contributions to the sustainable development of the
31
See the Brazil-Malawi CFIA (2015), Article 9.2. By comparison, Art 15 of the Brazil-Chile CFIA
(2015) addresses both State parties and investors in its CSR clause and explicitly refers to the OECD
Guidelines, according to the below text in Spanish:
1. Las Partes reconocen la importancia de promover que las empresas que operen en su territorio o
que estén sujetas a su jurisdicción apliquen políticas de sostenibilidad y responsabilidad social y
que impulsen el desarrollo del país receptor de la inversión.
2. Los inversionistas y sus inversiones deberán desarrollar sus mejores esfuerzos para cumplir con
las “Líneas Directrices de la OCDE para Empresas Multinacionales” de la Organización para la
Cooperación y el Desarrollo Económico [. . .].
32
33
Brazil-Malawi CFIA (2015), Art 9. 2. By comparison, Art 15 of the Brazil-Chile CFIA (2015)
addresses both State parties and investors in its CSR clause and explicitly refers to the OECD
Guidelines for Multinational Enterprises:
1. Las Partes reconocen la importancia de promover que las empresas que operen en su territorio o
que estén sujetas a su jurisdicción apliquen políticas de sostenibilidad y responsabilidad social y
que impulsen el desarrollo del país receptor de la inversión.
2. Los inversionistas y sus inversiones deberán desarrollar sus mejores esfuerzos para cumplir con
las “Líneas Directrices de la OCDE para Empresas Multinacionales” de la Organización para la
Cooperación y el Desarrollo Económico [. . .].
Host State and local community through high levels of socially responsible
practices.
2. Investors should apply the ILO Tripartite Declaration on Multinational Invest-
ments and Social Policy as well as specific or sectorial standards of responsible
practice where these exist.
3. Where standards of corporate social responsibility increase, investors should
strive to apply and achieve the higher-level standards.34
In terms of enforcement, some treaties that incorporate CSR clauses explicitly

exclude those same provisions from the scope of ISDS. This simply means that the
investor cannot bring a claim based on the CSR provision against the host State.35
Similarly, some treaties exclude their CSR articles from the scope of state-State
arbitration, as seen in Brazilian treaties.36 However, this treaty does not exclude CSR
issues from its dispute prevention mechanism, which is executed by National Focal
Points or Ombudsmen.37
For those treaties that exclude claims from being brought based on CSR obliga-
tions in investment treaties or are silent in terms of implementation, ISDS tribunals
can still take the provisions into account when assessing the merits or damages of the
cases. The effectiveness of such clauses is particularly likely when they target
investors directly, as is the case in the Morocco-Nigeria BIT.
Investor Compliance with Laws and Regulations
While CSR obligations are generally formulated as voluntary, IIAs do include elements
of “hard” law in terms of how investors are expected to behave. An important and
frequently included example is the requirement to comply with domestic laws and
regulations. This requirement can be embedded in the definition of investment as
specified in the treaty and in provisions outlining the scope of ISDS. Some treaties also
include explicit obligations to conform with domestic laws and regulations.
Compliance with Laws and Regulations in the Definition of the

Investment
Some investment treaties use their definitions to explicitly limit the scope of protec-
tion that they provide for investments, which has important implications for arbitra-
tion cases when it comes to determining matters such as whether a tribunal has
jurisdiction. More specifically, these treaties will set the definition of “investments”
34
See Morocco-Nigeria BIT (2016), Art 24.
35
See the Canada-Mongolia BIT (2013), Art 20.
36
See, for example, Article 25.3 of the Brazil-Ecuador CFIA (2019).
37
See the Brazil–Ecuador CFIA (2019), Art 24.
covered by the agreement as those made “in accordance with the laws and regula-
tions” of the host State, as seen in the Oman-Yemen BIT (1998). That treaty includes
the requirement that these investments abide by national law, as spelled out in Article
1(1):
The term “Investment” shall mean every kind of assets owned and invested by an investor of
one Contracting Party, in the territory of the other Contracting Party, and that is accepted, by
the host Party, as an investment according to its laws and regulations, and for which an
investment certificate is issued. (emphasis added)
Similarly, the Canada-Costa Rica BIT (1998) provides in Article I(g):
‘investment’ means any kind of asset owned or controlled either directly, or indirectly
through an enterprise or natural person of a third State, by an investor of one Contracting
Party in the territory of the other Contracting Party in accordance with the latter’s laws [. . .].
(emphasis added)
A more recent example is Article 1 of the Cambodia-Turkey BIT (2018), which

sets out the definition of the term “investment” as covering “every kind of asset,
connected with business activities, acquired for the purpose of establishing lasting
economic relations in the territory of a Contracting Party in conformity with its laws
and regulations [. . .].”38 EU investment agreements and chapters also define covered
investments as those investments that are “made in accordance with the applicable
law at the time the investment is made,” among other requirements.39
These types of definitions can be understood as having the effect of obliging
investors to comply with national laws, even without stating this outright as an
investor obligation. The investor only has access to the treaty’s protection if he or she
acts in accordance with the applicable law of the host State in making an investment.
This could include a range of measures, such as applying for and receiving the
appropriate permits, as well as complying with laws relating to corruption and
environmental protection. Typically, these clauses are formulated in a way that
relates only to the establishment phase of an investment, and not the operation or
closure phases. Under this type of formulation, acts of bribery and other types of
illegal behavior during the operation phase would not be covered, though it would
include acts of bribery aimed at establishing an investment, such as when an investor
is trying to obtain a permit.
Some more recent treaties or model templates have adopted language that defines
investment as those which comply with the law beyond the establishment phase. For
example, Article 1.4 of the Indian Model BIT states that “investment” refers to “an
enterprise constituted, organised and operated in good faith by an investor in
accordance with the law of the Party in whose territory the investment is made.”40
38
See the Cambodia-Turkey BIT (2018), Art 1.
39
See, for example, Comprehensive Economic and Trade Agreement (CETA), Art 8.1.
40
See the India Model BIT (2015), Art 1.4.
Similarly, Article 1.3 of the Nigeria-Morocco BIT (2016) states: “Investment means
an enterprise within the territory of one State established, acquired, expanded or
operated, in good faith, by an investor of the other State in accordance with law of
the Party in whose territory the investment is made . . .” (emphasis added).41
While these types of newer and broader clauses have not yet been tested in
investment jurisprudence, several investment tribunals have interpreted the narrower
provisions that require compliance with the law in the making of the investment. In
general, if the investment is explicitly defined in the treaty as having been made in
accordance with the law, tribunals will deny jurisdiction if the investment does not
meet that definition. However, the cases so far indicate that there needs to be a clear
act of non-compliance, often associated with proven fraudulent behavior. Where the
non-compliance is merely a formality or where the government appears to have
accepted the behavior, the tribunals will accept jurisdiction despite the illegality
occurring in the making of the investment.42
Inceysa v. el Salvador is believed to be the first case involving the interpretation
of a provision requiring that the investment be made in “accordance with law,” with
the tribunal ultimately dismissing all investor claims on the grounds that the tribunal
lacked jurisdiction.43 In this case, after finding that the investor had presented false
financial information when taking part in the bidding process, the tribunal held that
the investment made by Inceysa in the territory of El Salvador was “made in
violation of the principle of good faith.”44
To come to this conclusion, the tribunal analyzed whether the investment was
made “in accordance with national laws” with respect to the BIT. In examining the
content of the national laws of El Salvador, it found that the country’s constitution
stated that international treaties such as the BIT were part of national laws, and thus
the investment had to be in accordance with both domestic laws and the BIT.45 The
tribunal then found that the BIT was governed by international law, including general
principles of international law, and so the investment had to comply with such
rules.46 This led the tribunal to examine whether the investment complied with the
general principle of good faith as one of the general principles of international law
and ultimately found that the investment had been made in violation of that general
principle.
41
See the Nigeria-Morocco BIT (2016), Art 1.3.
42
See Moloo R, Khachaturian A (2010) The compliance with the law requirement in international
investment law. Fordham Int LJ 34:1494–1499. https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?
article=2310&context=ilj.
43
See Debevoise W (2006) Inceysa Vallisoletana S.L. v. Republic of El Salvador ICSID Case No.
ARB/03/26 – Decision on Jurisdiction, 2 August 2006. Trans Disp Manag. https://www.transna
tional-dispute-management.com/article.asp?key=848.
44
Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, paras. 234,
236 (2 August 2006), https://www.italaw.com/cases/documents/564
45
Ibid., paras 219–221
46
Similarly, in Fraport v. Philippines47, the tribunal concluded that if the behavior

of the investor is purposely and clearly egregious, the investor could not benefit from
the presumption which might ordinarily operate in favor of the investor.48 In that
case, the tribunal rejected the jurisdiction ratione materiae over the case because the
investment was not made in accordance with domestic law. The tribunal relied on the
definition of “investment” in the Germany-Philippines BIT, which provides that the
investment shall mean “any kind of asset accepted in accordance with the respective
laws and regulations of either Contracting State. . ..”49
The tribunal found that Fraport “knowingly and intentionally circumvented the
ADL [Anti-Dummy Law, a foreign ownership and control legislation in Philippines]
by means of secret shareholder agreements, and thus, it cannot claim to have made
an investment ‘in accordance with law’.”50 The tribunal explained that:
[t]he BIT is, to be sure, an international instrument, but its Articles. . .effect a renvoi to
national law, which is hardly unusual in treaties and, indeed, occurs in the Washington
Convention. A failure to comply with the national law to which a treaty refers will have an
international effect.51
In Alasdair Ross Anderson et al. v. Republic of Costa Rica, the tribunal also
rejected the claims involving the company’s non-compliance with national law.52
The applicable BIT between Canada and Costa Rica again defined “investment” as
“any kind of asset owned or controlled either directly, or indirectly through an
enterprise or natural person of a third State, by an investor of one Contracting
Party in the territory of the other Contracting Party in accordance with the latter’s
laws. . .” (emphasis added).53 Since the investors acquired their investment from
people involved in unauthorized financial intermediation, the entire transaction that
resulted in this acquisition violated the host state’s domestic law.54 The tribunal
consequently found that the investment was made in a breach of domestic law,
meaning that the tribunal was “without jurisdiction to hear and decide the Claimants’
claims.”55 It also noted that “prudent investment practice requires that any investor
47
The Fraport award has been annulled, but due to other issues. The full award decision, “Decision
on the Application for Annulment of Fraport AG Frankfurt Airport Services Worldwide,” is
available here https://www.italaw.com/sites/default/files/case-documents/ita0341.pdf.
48
Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case
No. ARB/03/25, paras 394–397. Retrieved from https://www.italaw.com/cases/456
49
See Agreement between the Federal Republic of Germany and the Republic of the Philippines for
the Promotion and Reciprocal Protection of Investments, Art 1.1.
50
See Fraport v. Philippines, supra note 101, para 401.
51
Ibid., para 394
52
See Moloo, R., & Khachaturian, A., supra note 1, p. 1481.
53
Alasdair Ross Anderson et al. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award,
May 19, 2010, para 46. Retrieved from https://www.italaw.com/cases/85
54
Id., para 55
55
See Moloo, R., & Khachaturian, A., supra note 1, p. 1481.
exercise due diligence before committing funds to any particular investment pro-
posal” and that “[a]n important element of such due diligence is for investors to
assure themselves that their investments comply with the law,” which the tribunal
found was “neither overly onerous nor unreasonable.”56
The jurisprudence to date also shows that some tribunals have been willing to make
the distinction between non-compliance with apparently fraudulent intent and non-
compliance as the result of lighter omissions or oversights. For example, the tribunal in
Tokios Tokelés v. Ukraine confirmed that “[t]he requirement in Article 1 of the
Ukraine-Lithuania BIT that investments be made in compliance with the laws and
regulations of the host state is a common requirement in modern BITs.”57 However,
the tribunal added that in case of minor errors, jurisdiction should not be excluded.58
While Ukraine argued that some of the documentation of the disputed investments had
defects which violated domestic law, the tribunal refused to deny jurisdiction over the
claim on these grounds as “to exclude an investment on the basis of such minor errors
would be inconsistent with the object and purpose of the Treaty.”
Similarly, the tribunal in Desert Line Projects LLC v. Yemen acknowledged that
the phrase “according to its laws and regulations” has been applied by several
arbitral tribunals which “intended to ensure the legality of the investment by
excluding investments made in breach of fundamental principles of the host State’s
law, e.g. by fraudulent misrepresentations or the dissimulation of true ownership.”59
However, it concluded that where the investment was made in good faith, tribunals
should not reject jurisdiction even in case of a violation of national law, here the
obtention of a certificate.60
While the cases identified above involve treaties whose definition of the term
“investment” requires that these be made in accordance with the law, many treaties
do not contain explicit requirements that investments comply with national laws and
regulations. Despite this, defendant states have invoked arguments about how
investors behave when making an investment. In general, tribunals involved in
these cases have concluded that they cannot reject jurisdiction over these claims
on the grounds of investors failing to comply with national law when making the
investment or during its operation. Nevertheless, the tribunals generally still consid-
ered the legality issue in assessing the admissibility of the claims, concluding that
investments contrary to the law or principles of good faith, for example, due to
fraudulent misrepresentation, should not benefit from the substantive provisions of
the treaty at issue. While the tribunals generally found that these issues should be
56
Ibid., p. 1481
57
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, para 84 (Apr.
29, 2004). Retrieved from https://www.italaw.com/sites/default/files/case-documents/ita0863.pdf
58
Moloo, R., & Khachaturian, A., supra note 1, p. 1494
59
Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, para
104 (Feb. 8, 2008). Retrieved from https://www.italaw.com/sites/default/files/case-documents/
ita0248_0.pdf
60
dealt with at the merits stage, one tribunal did consider that if an investment was
manifestly not made in compliance with the law, tribunals should reject the claim as
a matter of jurisdiction, for reasons of judicial economy.61
Limiting the Scope of Investment Protection and ISDS to

Investments in Compliance with Laws and Regulations
Some agreements explicitly limit the scope of investment protection or at least the scope
of ISDS to investments made in accordance with the law. This approach ultimately has
the same jurisdictional effect as an agreement that integrates the requirement to comply
with the law in the definition of investment. Notably, EU agreements typically include
both. Article 2.1 of the Singapore-EU Investment Protection Agreement (2018) contains
a provision on scope in its investment protection chapter:
1. This Chapter shall apply to covered investors and covered investments made in
accordance with the applicable law, whether such investments were made before
or after the entry into force of this Agreement. (footnote omitted)62
Other EU agreements and investment chapters take this a step further. In line with
the cases in which tribunals rejected jurisdiction due to fraudulent behavior in the
making of the investment, some of these texts explicitly clarify that investments
made through corruption, fraud, and misrepresentation are excluded from the scope
of ISDS. Although not expressed as obligations, the agreements and chapters clarify
that certain types of investor behavior will entail the loss of investor-State dispute
settlement rights. The reasoning behind this is that the investment was never legally
established and therefore not protected. For example, the 2016 Canada-EU Com-
prehensive Economic and Trade Agreement (CETA) provides in the section on ISDS
an article on scope, specifically in Article 8.18, paragraph 3:
For greater certainty, an investor may not submit a claim under this Section if the investment
has been made through fraudulent misrepresentation, concealment, corruption, or conduct
amounting to an abuse of process.63
Similarly, Article13.4 of the Indian Model BIT provides:
An investor may not submit a claim to arbitration under this Chapter if the investment has
been made through fraudulent misrepresentation, concealment, corruption, money launder-
ing or conduct amounting to an abuse of process or similar illegal mechanisms.64
61
For an in-depth analysis and overview of these cases, see Moloo, R., & Khachaturian, A. supra
note 1.
62
See Singapore EU Investment Protection Agreement (2018), Art 2.1.
63
See Comprehensive Economic and Trade Agreement (2016), Art 8.18.
64
See Indian Model BIT (2015), Art 13.4.
Explicit Positive Obligation to Comply with Laws and Regulations
Some treaties contain a positive obligation for investors to comply with laws and
regulations. The 1981 Agreement on Promotion, Protection and Guarantee of
Investments among Member States of the Organization of the Islamic Conference
(OIC Agreement)65, for instance, contains such a clause, which was unusual given
the time period in which the agreement was reached. Article 9 of the OIC Agreement
provides:
The investor shall be bound by the laws and regulations in force in the host state and shall
refrain from all acts that may disturb public order or morals or that may be prejudicial to the
public interest. He is also to refrain from exercising restrictive practices and from trying to
achieve gains through unlawful means.
This article was tested in the first case initiated under the treaty in Al Warraq v.
Indonesia. In that case, the tribunal found that the investor’s claims were inadmis-
sible since it had engaged in wrongful acts by undertaking fraudulent banking
transactions, in violation of the treaty.
In addition, the tribunal found that Article 9 of the OIC Agreement could provide
a basis for a counterclaim, though it was dismissed in this specific instance.66
In contrast to the examples examined earlier, where fraud occurred in the making
of the investment and ultimately affected whether a tribunal could have jurisdiction
over the claim, Al-Warraq concerned a case in which fraud occurred during the
investment’s operation. Because Article 9 is not restricted to situations relating to
when the investor is making their investment, the majority of the tribunal concluded
that the claim was inadmissible, applying the “clean hands” doctrine to investor
conduct that occurred during the operations phase.
65
See Agreement on Promotion, Protection and Guarantee of Investments among Member States of
the Organization of the Islamic Conference. Another example stemming from the 1980s is the
Unified Agreement for the Investment of Arab Capital in Arab States. The agreement’s Art 14
provides:
1. In the various aspects of his activity, the Arab investor must, as far as possible, liaise with the
State in which the investment is made and with its various institutions and authorities. He must
respect its laws and regulations in a manner consistent with this Agreement and, in establishing,
administering and developing Arab investment projects, must comply with the development
plans and programmes drawn up by the State for the purpose of national economic development
by employing all means which reinforce its structure and promote Arab economic integration. In
so doing, he shall refrain from any action which might violate public order and morality or
involve illegitimate gains.
2. The Arab investor shall bear liability for any breach of the obligations set forth in the preceding
paragraph in accordance with the law in force in the State in which the investment is made or in
which the breach occurs.
66
Al Warraq v. Indonesia, UNCITRAL, Final Award (15 December 2014). On Al Warraq and
related developments, see Cotula L (2016) Human rights and investor obligations in investor-state
arbitration. JWIT 17(1):148–157. https://pubs.iied.org/X00150/.
In recent years, other investment treaties and investment treaty models have
begun including clauses with positive investor obligations. The Indian Model BIT
or the Southern African Development Community (SADC) Model BIT Template,
for instance, includes provisions explicitly requiring the investor to comply with the
law. The Indian Model BIT dedicates Chapter III to “Investor obligations.” Article
11, entitled “Compliance with laws,” provides among its four issue areas a general
obligation involving compliance with the law: “The parties reaffirm and recognize
that: (i) Investors and their investments shall comply with all laws, regulations,
administrative guidelines and policies of a Party concerning the establishment,
acquisition, management, operation and disposition of investments.”67
Another recent example is the Iran-Slovakia BIT (2016), which provides that the
investment shall be “made and maintained in accordance with the laws of the Host
State and in good faith” (Article 1.2). The term “maintained” indicates that this BIT
extends to both the making and the operation of the investment.68
Introducing Specific Investor Obligations in IIAs
In addition to provisions on CSR and requirements to comply with laws and

obligations, some more recent IIAs have begun integrating more specific investor
obligations.69 African governments have taken a leading role in this area. Regional
agreements and models, including the Common Market for Eastern and Southern
Africa (COMESA)70, the 2012 Southern African Development Community (SADC)
Model BIT Template71, as well as the 2016 Pan-African Investment Code (PAIC)72
67
See Indian Model BIT. See also Belarus-India BIT (2018), Art 1.4, or Intra-MERCOSUR
Cooperation and Facilitation Investment Protocol (2017), Art 13.
68
See Iran-Slovakia BIT (2016) https://investmentpolicy.unctad.org/international-investment-agree
ments/treaties/bit/3633/iran-islamic-republic-of%2D%2D-slovakia-bit-2016-.
69
A precursor for today’s developments on investor obligations in IIAs is the 2005 Model Interna-
tional Agreement on Investment for Sustainable Development of the International Institute for
Sustainable Development (IISD Model 2005). 2nd ed. Winnipeg: IISD (2005), https://www.iisd.
org/pdf/2005/investment_model_int_handbook.pdf. See also VanDuzer JA, Simons P, Mayeda G
(2012) Integrating sustainable development into international investment agreements: a guide for
developing countries. Commonwealth Secretariat, London. https://www.iisd.org/pdf/2012/6th_
annual_forum_commonwealth_guide.pdf
70
Revised COMESA Common Investment Area Agreement (2017) adopted by Council, as per
Official Gazette of COMESA, v. 21, n. 11, January 24, 2018. English version available at: https://
www.comesa.int/wp-content/uploads/2019/04/COMESA-Gazette-Volume-21-Final_upload_web.
pdf
71
SADC, SADC Model Bilateral Investment Treaty Template (July 2012), https://investmentpolicy.
unctad.org/international-investment-agreements/treaty-files/2875/download. A revision of the tem-
plate was adopted in 2017, but it is not yet publicly available. It is the author’s understanding that
there were no major changes to the sections on investor obligations.
72
African Union, Draft Pan-African Investment Code (October 2017), https://au.int/sites/default/
files/newsevents/workingdocuments/33090-wd-3_pan_african_investment_code_e.pdf
are all examples of more balanced treaties or treaty models with investor obligations.
At the bilateral level, the Morocco-Nigeria BIT from 2016 has also incorporated a
range of investor obligations.73 In other world regions, the 2015 Indian Model BIT
2015 and the 2017 Intra-MERCOSUR Protocol have also set out specific investor
obligations, though these provide less specificity than the companion African
agreements.
In its Chapter III, the 2015 Indian Model BIT addresses the issue of “Investor
obligations.” The main relevant provision here is Article 11 on “Compliance with
laws.” The article first lists the investor’s and their investments’ requirement to
comply with the law before and after establishment. Further, the article forbids
investors and their investment(s) to engage in corruption and bribery. The article
then requires compliance with tax laws and timely payment of tax liabilities. Finally,
the article requires investors to provide information about themselves, including
their corporate history and practices.74
In terms of implementation of these obligations, the treaty states that a “Tribunal
constituted under this Chapter shall only decide claims in respect of a breach of this
Treaty as set out in Chapter II . . .” (Article 13.3). Since investor obligations are
included in Chapter III, these are clearly excluded from the scope of ISDS. It is
therefore likely that a tribunal would reject counterclaims that are based on investor
obligations contained in the treaty. However, as explained earlier, in case of non-
compliance with national law at the establishment and operational phase, a tribunal
could reject jurisdiction based on the definition of “investment” and “enterprise.”
The Morocco-Nigeria BIT from 2016 takes direct investor obligations a step
further. The Morocco-Nigeria BIT lists obligations in several articles, including a
requirement to conduct environmental and social impact assessments (Article 14); an
obligation not to engage in corruption (Article 17); and an article requiring invest-
ments to “meet or exceed national and internationally accepted standards of
73
See Morocco-Nigeria BIT (2016), Art 14 (Impact assessment); Art 17 (Anti-corruption); Art 18
(Post-establishment obligations); and Art 19 (Corporate governance and practices).
74
See the Model Text for the Indian Bilateral Investment Treaty (India Model BIT 2015). Art 11 on
“Compliance with laws” reads:
The parties reaffirm and recognize that: (i) Investors and their investments shall comply with
all laws, regulations, administrative guidelines and policies of a Party concerning the
establishment, acquisition, management, operation and disposition of investments. (ii)
Investors and their investments shall not, either prior to or after the establishment of an
investment, offer, promise, or give any undue pecuniary advantage, gratification or gift
whatsoever, whether directly or indirectly, to a public servant or official of a Party as an
inducement or reward for doing or forbearing to do any official act or obtain or maintain
other improper advantage nor shall be complicit in inciting, aiding, abetting, or conspiring to
commit such acts. (iii) Investors and their investments shall comply with the provisions of
law of the Parties concerning taxation, including timely payment of their tax liabilities. (iv)
An investor shall provide such information as the Parties may require concerning the
investment in question and the corporate history and practices of the investor, for purposes
of decision making in relation to that investment or solely for statistical purposes.
corporate governance for the sector involved, in particular for transparency and
accounting practices” (Article 19).
Finally, the Morocco-Nigeria BIT also contains an article on “Post-establishment
obligations” (Article 18). This article contains very specific requirements in relation
to environmental management, human rights, and core labor standards directed at
investors and their investment. The article’s first paragraph requires investments to
“maintain an environmental management system” depending on the nature and size
of the investment. It also specifies that “[c]ompanies in areas of resource exploitation
and high-risk industrial enterprises shall maintain a current certification to ISO
14001 or an equivalent environmental management standard.”75 In the second
paragraph, it requires investments to “uphold human rights in the host state” and
in the third paragraph to act in accordance with International Labour Organization
(ILO) core labor standards.
The Morocco-Nigeria BIT also partially addresses how the obligations are to be
implemented. With respect to Article 17 on anti-corruption, paragraph 4 provides:
A breach of this article by an investor or an investment is deemed to constitute a breach of

the domestic law of the Host State Party concerning the establishment and operation of an
investment.
This means that in cases where corruption was found in the making of an
investment, a tribunal would have to deny jurisdiction due to the treaty’s definition
of “investment,” as explained earlier.
The other articles do not contain such clarifications. However, it is likely that a
tribunal would nevertheless also deny jurisdiction in case an investor violates one of
the other obligations relating to the establishment phase of an investment, such as
Article 14 on environmental and social impact assessments. On the other hand, with
respect to post-establishment obligations listed in Article 18 and corporate gover-
nance obligations stipulated in Article 19, the analysis would likely be different and
not lead to a rejection of jurisdiction. Instead, tribunals would probably consider the
breach at the merits or the damages stage. As seen in Al Warraq, where the tribunal
found it had jurisdiction but that the investor’s claims were inadmissible due to
wrongful acts in violation of the underlying treaty, a breach of one of the provisions
in the Morocco-Nigeria BIT could similarly lead a tribunal to conclude that a claim
by an investor is inadmissible.
Conclusion
The terms “corporate social responsibility” and “responsible business conduct,”

while growing increasingly popular in public discourse as consumers demand
greater corporate accountability, are also being worked into clauses featured in
75
ISO refers to the International Organization for Standardization.
IIAs to varying degrees and effects. These treaty provisions often focus on how to
ensure that foreign investors making investments in host States are abiding by
environmental, social, governance, or other norms and are normally voluntary in
nature. They tend to apply to the State parties, rather than to investors directly, with
some notable exceptions that have emerged in recent years and which are explored
here. Also significant is how many IIAs have treated the subject of investment
compliance with national laws, often building the definition of “investment” around
those lines, though how arbitral tribunals have dealt with infractions of such laws has
depended largely on the nature of the violation. Some of these IIAs have focused
primarily on violations in the making of the investment, while others look further to
the operations and closure phases, which have been considered in investment
jurisprudence. In addition to requirements to comply with laws and regulations,
several recent IIAs have begun spelling out specific investor obligations, ranging
from anti-corruption to environmental and social impact assessment and manage-
ment plans, along with providing company information.
Cross-References
▶ Business and Human Rights in International Investment Law: Empirical Evidence

▶ Counterclaims Admissibility in Investment Arbitration
▶ Denial of Benefits in Investment Arbitration: Genesis, Trends, and Application
▶ International Investment Agreements and Human Rights: Assessing the Role of
the UN’s Business and Human Rights Regulatory Initiatives
Ratione Temporis)
▶ Public Participation: Amicus Curiae in International Investment Arbitration
▶ The Importance of Transparency for Legitimizing Investor-State Dispute
Settlement
Non-precluded Measures Clauses: Regime,
Trends, and Practice 20
Dilini Pathirana and Mark McLaughlin
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484
The Historical Roots and Rationale of NPM Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486
A Typology of Non-precluded Measures Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490
WTO-Model NPM Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490
“Prohibition and Restriction” Model NPM Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491
Mapping Common Components: Scope, Permissible Objectives, and the “Nexus
Requirement” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492
Conditions for the Invocation of NPM Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496
(Non-)Reviewability of Measures Taken for Essential Security or Public Policy . . . . . . . . . . . . . 498
Interpretive Ambiguities of NPM Clauses in Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Are NPM Clauses Effective at Balancing the Interests of Investors and States? . . . . . . . . . . . . . . 502
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504
Abstract
“Non-precluded measures” (NPM) clauses have become a fixture of the modern
international investment regime. As an integral aspect of attempts to recalibrate
the public-private balance in investment treaties, these clauses are intended as a
corrective to the pro-investor interpretations of early arbitral tribunals. They
expressly provide for the primacy of public policy over investment protection
standards under certain conditions. This contribution seeks to identify trends in
the drafting of NPM clauses and identify their common components. It will
D. Pathirana (*)
Faculty of Law, University of Colombo, Colombo, Sri Lanka
e-mail: dilinipathirana@ymail.com
M. McLaughlin
Faculty of International Law, China University of Political Science and Law, Beijing, China
e-mail: mmclaughlin.intlaw@outlook.com

https://doi.org/10.1007/978-981-13-3615-7_6
484 D. Pathirana and M. McLaughlin
categorize the conditions that must be satisfied in order that host States can have
recourse to them, as well as the role that is provided – or denied – to arbitrators in
circumscribing the suitability of an impugned measure in relation to the objective
being pursued. Furthermore, recent investment arbitrations have highlighted the
latent interpretive ambiguities that can accompany NPM clauses. Indeed, it will
be argued that while NPM clauses do raise some difficulties with respect to
extending the policy space of contracting parties, they are relatively effective in
ensuring that public policy is a permanent feature of arbitrators’ matrix of
decision-making.
Keywords
Non-precluded measures · General exceptions · Essential security · Public
policy · International investment agreements
Introduction
The modern investment treaty regime is conventionally understood as a system of

governance that ensures the protection of foreign investors and their cross-border
investments.1 Indeed, the proliferation of international investment agreements
(IIAs) was devised with investment protection as its founding principle.2 As
such, the traditional template for substantive legal protections was oriented toward
the safeguarding of private interests and as a constraint on the protectionist
tendencies of host States.3 The consequences flowing from this imbalanced
approach have become apparent in recent decades, with the inherent tension
between the regulatory autonomy of host States and the legal protections accorded
to foreign investors being exposed by the growing frequency of treaty-based
investment arbitrations.4 Measures taken for the protection of public health,
national security, the environment, and manifold other purposes have been alleged
to violate international obligations.
At the same time, broader organizational and conceptual challenges have
weighed upon the international investment regime. The strained reasoning of some
1
The investment treaty regime includes three main components – “investment treaties; the set of
treaties, rules, and institutions governing investment treaty arbitration; and the decisions of arbitral
tribunals applying and interpreting investment treaties.” For a detailed discussion on this regime,
see Bonnitcha J, Poulsen LNS, Waibel M (2017) The political economy of the investment treaty
regime. Oxford University Press, Oxford.
2
See generally Sornarajah M (2010) The international law on foreign investment, 3rd edn. Cam-
bridge University Press, Cambridge.
3
See generally Vandevelde KJ (2010) Bilateral investment treaties – history, policy, and interpre-
tation. Oxford University Press, Oxford.
4
See generally Collins D (2017) An introduction to international investment law. Cambridge
University Press, Cambridge.
20 Non-precluded Measures Clauses: Regime, Trends, and Practice 485
arbitral tribunals has sparked allegations of inconsistency, incoherence, and demo-

cratic illegitimacy, with structural weaknesses and an absence of institutional disci-
pline acting to compound dissatisfaction with the existing system.5 Responses to this
dynamic are generally characterized as a “backlash” against the international invest-
ment regime, and are best viewed on a continuum, with minor tweaks to substantive
protections at one pole and outright repudiation of its conceptual foundations at the
other.6 Despite the divergent approaches adopted by host States, the central dilemma
remains constant: how to best balance investment protection with regulatory
autonomy?
This contribution seeks to explore the evolving role of NPM clauses in seeking to
achieve this balance within IIAs. These clauses provide for a number of policy
concerns in relation to which the host State is permitted to take measures that would
otherwise constitute a violation of its obligations under the treaty.7 Permissible
objectives typically include the safeguarding of national security, ensuring public
order, protecting the environment, preserving exhaustible natural resources, and
responding to public health emergencies.8 In essence, they effect an expansion of
a host state’s regulatory autonomy with respect to certain non-investment policy
objectives, at the expense of the legal protections accorded to foreign investors.9 The
NPM clause is therefore a vital tool that is increasingly insisted upon by drafters and
negotiators in order to balance public interests and private interests and investment
concerns and non-investment concerns. Thus, it is essential to establish a normative
framework to contextualize NPM clauses within the broader investment regime,
identify the trends in drafting techniques within treaty practice, and explore the
different interpretations by arbitral tribunals.
This task necessarily begins with an exposition of the historical and theoretical
underpinnings of NPM clauses, considering the arguments for and against their
inclusion within IIAs. This will comprise the first section of this chapter. Section
“A Typology of Non-precluded Measures Clauses” will formulate a typology of
NPM clauses and considers the various drafting techniques and textual variations
within the NPM-style clauses, before considering the conditions for invoking them
and the extent to which they are self-judging in the proceeding sections. Moving to
5
See generally Collins. Also see Sornarajah (2015) Resistance and change in the international law
on foreign investment. Cambridge University Press.
6
See, e.g., Spears SA (2010) The quest for policy space in a new generation of international
investment agreements. J Int Econ Law 13(4):1037–1075. https://doi.org/10.1093/jiel/jgq048.
7
For a detailed discussion on NPM clauses, see Burke-White WW, von Staden A (2008) Investment
protection in extraordinary times: the interpretation and application of non-precluded measures
provisions in bilateral investment treaties. Va J Int Law 48(2):307.
8
Ibid., pp. 332–335
9
See generally Ranjan P (2017) Investment protection and host State’s right to regulate in the Indian
model bilateral investment treaty: lessons for Asian countries. In: Chaisse J, Ishikawa T, Jusoh S
(eds) Asia’s Changing International Investment Regime – Sustainability, Regionalization, and
Arbitration. Springer, p 47, 59.
the jurisprudence of arbitral tribunals, it will then examine the arguments advanced
by host States with respect to the invocation of NPM clauses and how these
arguments have been received by arbitrators. From these threads of analysis, it
will be argued that NPM clauses do not constitute a silver bullet that will bring
about an equitable distribution of rights and obligations, but should nevertheless be
considered a step forward in ensuring a prominent role for public policy within
international investment law. Finally, proposals will be advanced as to the drafting
of NPM clauses in future IIAs so as to bolster the predictability and coherence of
the regime.
The Historical Roots and Rationale of NPM Clauses
The historical roots of NPM provisions can be traced to the friendship, commerce,
and navigation (FCN) treaties of the mid-twentieth century – the progenitor of
modern bilateral investment treaties (BITs). Indeed, the International Court of Justice
had cause to examine an NPM-type clause in Nicaragua v USA in 1984, which
provided: “The provisions of the present Article shall be subject to the right of either
Party to apply measures that are necessary to maintain public order and protect the
public health, morals and safety.”10 Similar clauses can be found in many of the US
FCN treaties concluded after the Second World War,11 as well as within specific
articles of the European Convention on Human Rights12 and the International
Covenant on Civil and Political Rights.13 These provisions stipulate the circum-
stances in which States would be permitted to deviate from otherwise applicable
legal obligations. Given the relative infancy of such clauses in the 1950s and 1960s,
there is a striking consensus as to the conditions and objectives that warrant such
deviation, with measures taken for security or public order, public health, and
morality explicitly referenced in numerous international legal instruments.
The rationale behind the inclusion of NPM clauses within IIAs is rooted in the
recognition that States may not be able to fulfill their obligations where there are
exigent circumstances that fundamentally alter their policy priorities.14 For example,
10
Article II (4) of the Treaty of Friendship, Commerce and Navigation between the United States of
America and the Republic of Nicaragua, signed 21 January 1956 (entered into force 24 May 1958)
11
See, for example, the Treaty of Friendship, Commerce and Navigation between the United States
of America and the Republic of China, signed November 4, 1946 (entered into force November 30,
1948).
12
European Convention for the Protection of Human Rights and Fundamental Freedoms Articles. 8
(2), 9(2), 10(2), 11(2), & 15, (April 11, 1950), 213 U.N.T.S. 221
13
International Covenant on Civil and Political Rights Articles 4(1), 12(3), 13, 19(3), 21, 22(2),
General Assembly Resolution 2200A (XXI), U.N. Doc. A/6316 (December 16, 1966)
14
See generally White and Staden, ‘Investment Protection in Extraordinary Times: The Interpreta-
tion and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties’
(2008).
in the immediate aftermath of a terrorist attack, it is common for States to tempo-

rarily suspend certain rights, such as the freedom of assembly and association, for
reasons of national security. At its core, the provision for such a deviation is an
acknowledgment that the political environments of nation-States are not static; they
are subject to conditions which may cause instability and emergency, the necessary
rectification of which will supersede the importance of complying with voluntarily
assumed international obligations. The express provision for measures that will not
be precluded in these exigent circumstances, despite their incompatibility with the
relevant treaty, reflects the practical reality of governing a nation-State.
As such, NPM clauses were included in the international investment regime from
its inception in 1959. The first BIT, between Germany and Pakistan, included an
exception to the nondiscrimination provisions, which stated that “[m]easures taken
for reasons of public security and order, public health or morality shall not be
deemed as discrimination within the meaning of Article 2.”15 Perhaps unsurpris-
ingly, the BIT practice of the United States was consistent with the aforementioned
FCN treaties with regard to its inclusion of an NPM clause, with the first US BIT
(with Panama) in 1982 providing that: “This treaty shall not preclude the application
by either Party of any and all measures necessary for the maintenance of public
order, the fulfillment of its obligations with respect to the maintenance or restoration
of international peace and security, or the production of its own essential security
interests.”16
Indeed, research has shown that NPM clauses have become a feature of BITs in
the treaty practice of Germany, the United States, the Belgium-Luxembourg Eco-
nomic Union, and India.17 BITs between developing countries, such as the China-Sri
Lanka BIT of 1987, contain analogous provisions under the heading of “prohibitions
and restrictions.”18 Canada was comparatively late in including such provisions,
adopting the practice only in 1994 under the heading of “general exceptions” or
“nonconforming measures.” While there are highly significant differences with
respect to scope of each particular clause, the terms “nonconforming measures,”
“general exceptions,” and “prohibitions and restrictions” are merely different termi-
nologies for NPM-type provisions.
Despite this apparent spread of influential countries to have adopted NPM
clauses, IIAs in which they are expressly included remain a small minority in the
15
Article 2 of the Protocol to the Treaty between the Federal Republic of Germany and Pakistan for
the Promotion and Protection of Investments, signed 25 November1959 (entered into force 28 April
1962)
16
Article X (1) of the US-Panama Bilateral Investment Treaty, signed 27 October 1982 (entered into
force 30 May 1991).
17
See, e.g., White and Staden, ‘Investment Protection in Extraordinary Times: The Interpretation
and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties’ (2008).
18
Article 11 of the Agreement between the Government of Democratic Socialist Republic of Sri
Lanka and the Government of the People’s Republic of China on the Reciprocal Promotion and
Protection of Investments, signed 13 March 1986 (entered into force 25 March1987)
context of the international investment regime overall.19 Indeed, those NPM clauses
which apply to the entire treaty, as opposed to being merely limited to certain
standards of investment protection, are rarer still. Their inclusion is somewhat
scattered and inconsistent in the treaty practice of many States, with NPM clauses
inserted into some BITs but absent from others. Nevertheless, the frequency of their
explicit inclusion within IIAs has been steadily increasing in recent years. One study
has found that since 1985, the share of the number of BITs containing public policy
exceptions has grown considerably, constituting a clear trend in treaty practice.20 It is
thus apparent that the significance of such clauses may continue to grow in the near
future. The case in favor of their inclusion has patently been persuasive from the
perspective of host States.
This necessarily raises the question of why contracting parties have considered it
necessary to take such a step and what are the advantages and disadvantages to be
garnered from their inclusion. In this regard, the relevance of the broader context of
the international investment regime should not be overlooked. Over the past decade,
host States have taken active steps to respond to the perceived strictures that IIAs
place on their regulatory autonomy.21 They have zealously defended alleged viola-
tions of substantive obligations, sought to clarify standards by way of joint inter-
pretive instruments, and engaged in more detailed drafting techniques in order to
restrict arbitral discretion, and some States have even withdrawn from investor-State
arbitration altogether.22 The recent trend toward the inclusion of NPM clauses
should therefore be seen as part of the same tradition, seeking to expressly allow
for non-investment matters and circumstances to take precedence over investment
protection standards, even where this would result in a failure to comply with
substantive obligations under IIAs.23
Consequently, NPM provisions have been identified as performing a reallocation
of risk.24 In most circumstances, the international investment regime accords foreign
investors an undertaking that the host State will not take steps that harm the value of
an investment and establishes a mechanism for the retrieval of compensation when it
19
United Nations Conference on Trade and Development (UNCTAD) (2015) World investment
report 2015: reforming international investment governance pp 140–142. http://unctad.org/en/
PublicationsLibrary/wir2015_en.pdf. Accessed 20 April 2019
20
Alschner W, Hui K (2018) Missing in action: general public policy exceptions in investment
treaties. In: Sachs L, Coleman J, Johnson L (eds) Yearbook on international investment law and
policy. Oxford University Press, Oxford, p 4
21
See generally Spears (2010) The quest for policy space in a new generation of international
investment agreements
22
See generally Waibel M (2010) The Backlash against investment arbitration: perceptions and
reality. Kluwer Law International BV
23
See generally Alschner W, Hui K (2018) Missing in action: general public policy exceptions in
investment treaties.
24
White and Staden (2008) Investment Protection in Extraordinary Times: The Interpretation and
Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties, pp 314–318,
401–402
does so. The effect of NPM clauses is to effectively overturn this allocation of risk; if
circumstances should arise in which a host State must take measures to protect their
public policy interests, the investor must bear the risk that such measures may indeed
do harm to their investment. The host State is not financially liable for such damage.
As will be discussed below, this reallocation of risk remains subject to some
important conditions, such as that it must not be a disguised restriction on investment
or trade nor constitute arbitrary or unjustifiable discrimination. Nevertheless, the
central point holds: when NPM clauses are included, host States escape the other-
wise applicable obligation to provide compensation for harm done to an investment
under certain circumstances.
Indeed, far from being a revolutionary principle in international investment law, the
notion that obligations relating to an investment should not be entered into at the
expense of all other public policy concerns is a fundamental tenet of the modern
understanding of the investment regime.25 NPM clauses therefore seek to cement a
host state’s regulatory space explicitly in the text of the treaty, whether it be for security,
public health, the environment, morality, or labor rights. Whether it actually results in an
extension of this policy space, as opposed to a mere codification of existing jurispru-
dence or indeed a restriction of it, remains an open question to which we will return.
Furthermore, it has also been argued that NPM clauses can act as a bridge
between international investment law and other legal regimes.26 From this perspec-
tive, NPM clauses can be viewed as the point of intersection of international
investment law, other areas of international law, and domestic laws. For example,
should an NPM clause refer to a state’s “essential security interests,” there must be
some synergy between the concept of “essential security” as interpreted by arbitra-
tors and the concept of “essential security” as expressed by domestic law. If there is
an inconsistency, perhaps with the domestic concept of “essential security” being
broader than the interpretation afforded by an arbitrator in an international arbitra-
tion, then this conflict will not hold. The host State will either alter their domestic
concept of “essential security” or take actions to ensure that future international
treaties reflect the position in domestic law. Similarly, the inclusion of public health
and environmental concerns could prove a useful link to emerging scholarship
within international human rights law.27
From their historical roots in the FCN treaties of the mid-nineteenth century, it is
clear that the frequency and significance of NPM clauses have grown exponentially.
Their inclusion by host States in modern IIAs demonstrates a certain confidence in
their efficacy. In this context, it is pertinent to examine the different drafting
techniques and technical variations used in their construction.
25
See, e.g., Spears (2010) The quest for policy space in a new generation of international investment
agreements
26
Wang W (2017) The non-precluded measure type clause in international investment agreements:
significances, challenges, and reactions. ICSID Rev Foreign Invest Law J 32(2):447–456. https://
doi.org/10.1093/icsidreview/six001. ICSID Review 452
27
Ibid., 453
A Typology of Non-precluded Measures Clauses
The drafting of NPM-type clauses is not consistent or uniform across international

investment agreements. In general terms, they can be divided into two categories:
one modeled on provisions of WTO instruments and the other so-called “prohibition
and restriction” clauses that have developed within investment law.28 However, it
should be stressed these two categories are not internally homogenous. Variations
and divergences exist within each type, demonstrating the absence of consensus with
respect to the inclusion and function of NPM clauses among contracting States.
Nevertheless, both are worthy of attention, not least for the purposes of undertaking
an analysis as to the scope, permissible objectives, and the “nexus” requirement
adopted by each model, respectively.
WTO-Model NPM Clauses
WTO-Model NPM clauses originated in Article XX of the General Agreement on

Tariffs and Trade (GATT) and Article XIV of the General Agreement on Trade in
Services (GATS).29 Both of these Articles affirm the right of WTO Member States to
adopt measures which would otherwise constitute violations of standards set out in
other provisions in the respective treaties. More specifically, Article XX of GATT
contains a list of permissible objectives. Measures taken in the pursuance of such
objectives will not violate the agreement, where they would otherwise do so. In
particular, measures taken for the protection of public morals human, animal, or
plant life or health; and the conservation of exhaustible natural resources are
expressly referenced in this regard.
The inclusion of NPM clauses modeled on Article XX of GATT within IIAs can
be described neither as an identical replication nor a consistently applied digression.
There is a considerable spread of treaty practice. Identical clauses are found where
the investment treaties incorporate Article XX of GATT and/or Article XIV of GATS
by reference. For example, the Thailand-Australia Free Trade Agreement incorpo-
rates Article XIV of GATS together with Article XX of GATT.30 Similarly, the
Comprehensive Economic and Trade Agreement (CETA) entered into between the
European Union and Canada incorporates Article XX of GATT, representing an
identical textual reproduction of GATT general exceptions with the added language
taken from WTO jurisprudence in order to ensure that XX (b) and XX (g) exceptions
28
Alschner and Hui (2018) Missing in action: general public policy exceptions in investment
treaties
29
For detailed discussion on the WTO-Model NPM clause, see Mitchell AD, Munro J, Voon T
(2018) Importing WTO general exceptions into international investment agreements: proportion-
ality, myths and risks. In: Sachs L, Coleman J, Johnson L (eds) Yearbook on international
investment law and policy. Oxford University Press, Oxford.
30
Article 1601 of the Free Trade Agreement between Thailand and Australia (entered into force on 1
January 2005).
extend to the protection of the environment and to nonliving resources, respec-

tively.31 Conversely, other IIAs include NPM clauses inspired by the Article XX of
GATT and Article XIV of GATS, but contain certain modifications. For example,
some investment treaties included public morals and national treasures as permissi-
ble objectives under the treaty’s general exception clause,32 while some have omitted
the conservation of exhaustible natural resources.33
These NPM clauses have common traits in their structure. First, they articulate the
list of public policy concerns within the exception clause. This list is generally
considered as an exhaustive one which represents the list of “permissible objec-
tives.” Second, the WTO-Model NPM clause highlights the nexus requirement
between permissible public policy concern and any disputed measure ensuring that
the policy purpose of the measure is more than tangential. Accordingly, impugned
measures should be “necessary,” “relating to” or “designed and applied to” the
public policy objective being pursued by enacting the impugned measures.34
Third, they are accompanied by a chapeau which usually emphasizes that measures
taken to achieve permissible public policy objectives should not apply in a manner
that would constitute arbitrary or unjustifiable discrimination between investors and
investments.
“Prohibition and Restriction” Model NPM Clauses
The second model of NPM clauses are those conventionally included in IIAs under
the heading of “prohibitions and restrictions.”35 These originated within developing
countries and differ from the WTO-Model NPM clauses in some significant ways.
Most notably, the “prohibition and restriction” model typically references both
essential security considerations and public policy concerns together, while the
WTO-model NPM clauses are normally confined to public policy concerns alone.
In addition, “prohibition and restriction” NPM clauses do not contain the “nec-
essary” test or a separate chapeau which are vital to prevent their misuse. Instead,
this formulation requires that impugned measures must be “directed to” one of the
articulated public policy goals, which includes essential security interests. The nexus
requirement is therefore a lower bar to clear, and it need only be shown that the
disputed measure has a close and genuine relationship between ends trying to be
achieved. Therefore, developing host States are accorded enhanced policy space in
31
Article 28.3.1 of the Comprehensive Economic and Trade Agreement, signed 30 October 2016
32
For example, Article 17 (1) (b) of the Japan-Uzbekistan BIT includes public morals as a
permissible objective. Article 9 of the Sri Lanka–Qatar BIT (not publicly available) includes
protection of national treasures as a permissible objective.
33
See, e.g., Article 13 of the Japan-Iran BIT of 2016.
34
Sabanogullari (2015) The Merits and limitations of general exception clauses in contemporary
investment treaty practice. Investment Treaty News. IISD, p 3
35
treaties
which to take measures that may have an impact on foreign investors without
additional checks.36 This is potentially at a greater risk of abuse, for example, to
cloak protectionist, discriminatory, or arbitrary measures under the guise of pursuing
public policy objectives.
However, the frequent inclusion of security matters under the “prohibition and
restriction” model could account for the disparity in safeguards. Furthermore, the
listed permissible objectives under the prohibition and restriction clauses are of a
different character to the public policy concerns listed in the WTO-Model NPM
clause. For example, conserving exhaustible resources is not listed as a public policy
objective under “prohibition and restriction” clauses, whereas they do generally
include the protection of public health and the environment.
There are also variations within this type of NPM clause. For example, the India-
German BIT of 1995 lists only essential security interests and the prevention of
diseases and pests in animals or plants.37 Moreover, the Sri Lanka-China BIT of
1987 is rare among “prohibition and restriction” clauses as it includes the phrase
“national interests” which can be interpreted in a manner which includes an array of
public policy concerns, including security. Consequently, an active concern with
respect to the “prohibition and restriction” model NPM clause is providing the host
State with an enhanced policy space without having the procedural burden to prove
that the impugned measures are strictly “necessary” to the public policy objective
intended to be pursued by the host State.
Both the WTO model and the “prohibition and restriction” model of NPM clauses
have common components that can be identified and often vary from treaty to treaty.
Mapping Common Components: Scope, Permissible Objectives,

and the “Nexus Requirement”
From the foregoing analysis, there are three primary components of NPM clauses
that are common to both models and are highly significant for investor protection
and a host state’s regulatory space. The first is the scope of the NPM clause. This
circumscribes whether public policy matters in relation to which otherwise non-
conforming measures would not violate the treaty apply merely to specific standards
or to the entirety of the treaty. The second is the permissible objectives that a host
State can pursue that will be caught by NPM provisions. As previously discussed,
this is highly variable between treaties. The third component relating to the role of
NPM in delineating the regulatory space of a host State is the nexus requirement.
This lays down the requisite relationship between the measure being taken and the
policy being pursued in order that it falls within the ambit of the clause. Each of these
will now be addressed in turn.
36
Ibid.
37
Article 12 of the Agreement between the Federal Republic of Germany and the Republic of India
for the Promotion and Protection of Investments, signed 10 July 1995 (now terminated)
Turning to the first, some IIAs contain NPM clauses which apply to specific treaty
standards only. For example, the Germany-Cameroon BIT of 1962 limits the scope
of the public policy exception clause only to the obligation to accord foreign
investors with national or most-favored-nation (MFN) treatment,38 while some
BITs such as the China-BLEU BIT of 1986 (now terminated) confined the applica-
tion of the security exception to the protection against uncompensated nationaliza-
tion and expropriations.39 Conversely, it is the practice of other States to insert
comprehensive NPM clauses that apply to the entirety of the treaty. This is partic-
ularly the case with regard to the treaty-making practice of the United States, India,
and Canada. Language to this effect resembles such phrases as “nothing in this
agreement shall preclude” or “this treaty shall not preclude.”
Second, it is notable that permissible objectives vary considerably, and these
objectives are often absent further definition or clarification. These are the non-
investment areas of public policy in the pursuit of which the host State can deviate
from the standards provided for within the international agreement. It is pertinent to
consider such objectives as either security-related or non-security-related. Typical
language of the former contains references to “essential security interests,” but this
comes with its own set of interpretive ambiguities. For example, how to define when
a security interest is “essential”? Can there be such a concept of a nonessential
security interest?
It has been suggested that the preparatory work of Article XXI of GATT can help
shed light on the meaning of the term “essential security” for the purposes of NPM
clauses.40 Accepting this premise, analysis of the preparatory work of Article XXI of
GATT does demonstrate a clear inclination to construe the term “essential interests”
narrowly, related to merely military and politically exigent circumstances, and not as
a broader carve-out in relation to social and economic situations.41 Indeed, several
commentators have convincingly argued that broader interpretations of “essential
security interests” are rooted in the conflation of Article XX of GATT, which
provides for the protection of public morals as well as human, animal, and plant
life, with Article XXI which provides for exceptions related to essential security.42
With recent treaty practice, contracting States have explicitly adopted the narrower
38
CETA is another example in this respect.
39
Article 4 (1) of the Agreement between the Government of the People’s Republic of China and the
Belgian-Luxembourg Economic Union on the Reciprocal Promotion and Protection of Investments
articulated that “Neither Contracting Party shall in its territory take the expropriation, nationaliza-
tion or other similar measures on the investment investor of the other Contracting Party except for
the necessity of security and interest under the following conditions. . .” (Emphasis added).
40
Moon WJ (2012) Essential security interests in international investment agreements. J Int Econ
Law 15(2):481–502. https://doi.org/10.1093/jiel/jgs024
41
GATT Council, Minutes of Meeting held May 29, 1985, GATT Doc. C/M/1888 (June 28, 1985)
10
42
Burke-White and Staden (2008) Investment protection in extraordinary times: the interpretation
and application of non-precluded measures provisions in Bilateral Investment Treaties
interpretation of “essential security interests”; the Japan-Oman BIT references those

actions “taken in a time of war or armed conflict” and relating to “the nonprolifer-
ation of weapons.”43 Furthermore, the narrower interpretation has considerable
support in the case law of the ICJ.44 The tribunal in LG&E also held that the issue
of economic crisis could be included within definitions of essential security or
indeed national emergency.45 As such, “essential security interest” clauses can be
separated from other NPM clauses.
There are several non-security concerns that are typically included as permissible
objectives. Notable examples are public order, public health, the environment, and
public morality. These terms are also absent unambiguous demarcation as to their
exact meaning. They would have to be interpreted in line with the rules on interpre-
tation contained in the Vienna Convention on the Law of Treaties. Whether a
particular regulatory measure falls within the scope of a permissible objective of
an NPM clause may indeed be a contentious matter between claimant and respon-
dent in investment arbitration.
Finally, the nexus requirement – the link between the challenged measure and the
objective sought through its implementation – is expressed in different ways in BITs
and FTAs.
“Necessary” is the most common of these nexus requirements and fulfills two
functions.46 First, it demonstrates that host State exceptions are not absolute; there
are actions which will be justifiable under the exception and those that will not. Host
State activity that is merely an instrument of protectionism will be not classed as a
“necessary” measure under NPM clauses. Second, it acts to balance the interest of
the foreign investor with the interest of the host State.47
Some brief comments can be made about the nature of the nexus required in the
different textual variations. There are instances in which the “necessary” threshold is
clearly raised, such as “strictly necessary for.” Language varies considerably from
one IIA to the next, and this can have an effect on the threshold required by the
exception. The term “for” clearly mandates a looser relationship; “directed to” sets a
similarly low standard requiring an enquiry into the asserted intention of the State;
“relating to” suggests “a close and genuine relationship of ends and means”; and “to”
43
Article 16 of the Agreement between Japan and the Sultanate of Oman for the Reciprocal
Promotion and Protection of Investment, signed 19 June 2015 (entered into force 2 July 2017)
44
Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v. United States.),
1986 ICJ para 227
45
LG&E Energy Corp. v. Argentine Republic, ICSID Case No. Arb/02/1, Decision on Liability (3
October 2006)
46
Ranjan P (2012) Non-precluded measures in Indian international investment agreements and
India’s regulatory power as a host nation. Asian J Int Law 2(1):21, Sinha AK (2017) Non-precluded
measures provisions in bilateral investment treaties of south Asian countries. Asian J Int Law 7
(2):227
47
Sinha (2017) Non-precluded measures provisions in bilateral investment treaties of South Asian
countries
requires only a confirmation that the state’s goal is a permissible one and therefore is
particularly deferential.48
The “necessary” requirement was most famously at the center of several ISDS
cases resulting from Argentina’s economic crisis. This has been the subject of
considerable scholarly comment.49 The tribunals in CMS v Argentina,50 Sempra v
Argentina,51 and Enron v Argentina52 sought to interpret the term “necessary” by
having recourse to Article 25 of the ILC Articles on State Responsibility, considered
to be a codification of the customary international law doctrine of necessity. As such,
these tribunals considered inseparable the “nexus” requirement provided for in the
BIT and the necessity defense under customary international law. Resultantly, these
tribunals set a very high bar to clear in order that measures taken by Argentina in the
economic crisis would be considered as exceptions under the bilateral investment
treaty.
However, the tribunals did not take account of hierarchical relationship between
the provisions contained in the BITs and the customary international law definition
of necessity. Invocation of the “necessity” defense requires the consideration of an
internationally wrongful act (as determined by primary rules) and consideration of
the relationship nexus by which the home State can be held responsible for this act
(the purpose of the secondary rules). Neither of these conditions were satisfied in this
case. As such, there is no normative justification for the use of the ILC Articles to
interpret “necessary” as “necessity” in this context. As such the standards contained
in the BIT and the necessity defense are entirely incongruent. Indeed, a preferable
approach was followed in the cases of LG&E v. Argentina and Continental Casualty
v Argentina.53 Both of these tribunals declined to conflate the customary interna-
tional law norm with the treaty provision, instead applying Article XI of the BIT as a
separate and distinct legal test. In doing so, the award in Continental Casualty
established the far higher threshold test of the customary international law norm as
compared to the exception in international investment agreements.
Instead of the necessity defense, Prabhash Ranjan argues that the “ordinary
meaning” of “necessary” leaves open the possibility of two tests: “the least-treaty-
inconsistent-alternatives-reasonably-available (LTIARA) test and a proportionality
48
Ibid., pp. 261–262
49
Reinisch A (2007) Necessity in international investment arbitration – an unnecessary split of
opinions in recent ICSID cases? Comments on CMS v. Argentina and LG&E v. Argentina. J World
Invest Trade 8:191. https://doi.org/10.1163/221190007X00074
50
CMS Gas Transmission Co. v. Argentina, Annulment Proceedings, ICSID Case No. ARB/01/8,
Award, 12 May 2005
51
Sempra Energy International v. Argentina, ICSID Case No. ARB/02/1628, Award, 28 September
2007
52
Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/
3, Decision on Jurisdiction, 14 January 2004
53
LG&E v. Argentina; Continental Casualty Company v. The Argentine Republic, ICSID Case No.
ARB/03/9, Decision on Jurisdiction, 22 February 2006
or a weighing and balancing test where the LTIARA test could be one component.”54
The proportionality test contained in WTO law – which includes a consideration of
the value of the objective being pursued, the extent to which the challenged measure
seeks to achieve this objective, and the counterweighted restrictive effect of the
measure – has been criticized as an unacceptable infringement on the regulatory
sovereign of States. Indeed, Ranjan argues in favor of a test that considers if a less
restrictive measure is reasonably available.55 However, it might be observed that the
“least-restrictive-measure” test also permits arbitrators to place themselves in the
position of policy maker, in order to second-guess or rework the appropriate
regulatory measure for the identified objective. A tribunal could, in any case, find
a less restrictive measure, and thus this test potentially constitutes an equally
invasive infringement on the regulatory autonomy of host States.
Therefore, the jurisprudence surrounding the necessity/necessary debate is some-
what unsettled. However, given the annulment proceedings and weight of scholarly
opinion against the conflation of the necessary and necessity tests, later tribunals
may well be more cognizant of the traditional rules of interpretation under the
Vienna Convention and the requirements for the use of the ILC Draft Articles on
State Responsibility in public international law.
Nevertheless, while the scope, permissible objectives, and nexus requirement
provide for a potential expansion of the host state’s regulatory autonomy, there
remain some conditions to be satisfied if the NPM clause is to be relied upon.
Conditions for the Invocation of NPM Clauses
Four conditions have been identified as possible limitations to the invocation of

NPM clauses in international investment agreements.56 Each of these circumscribes
the situation under which a host State may not be permitted to have recourse to an
NPM clause.
Firstly, there may be a qualification that the measure taken is free from arbitrar-
iness and is not an exercise in discrimination. For example, the Economic Partner-
ship Agreement between Japan and the Philippines provides that general and
security exceptions will apply “subject to the requirement that such measures are
not applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination against the other Party.”57 Similarly, the China-India BIT (now
terminated) provides that: “Nothing in this Agreement precludes the host
54
Ranjan (2012) Non-precluded measures in Indian international investment agreements and India’s
regulatory power as a host nation, p 49
55
Ibid.
56
United Nations Conference on Trade and Development (2009) The protection of national security
in IIAs. United Nations, p 81
57
Article 99 of the Economic Partnership Agreement between Japan and the Philippines, singed 9
September, 2006
Contracting Party from taking action for the protection of its essential security
interests or in circumstances of extreme emergency in accordance with its laws
normally and reasonably applied on a non-discriminatory basis.”58
This treaty language is the voluntary assumption by host States of limitations to
the manner in which measures taken to protect public policy interests are enacted.
These measures should be subject to the rule of law and must applied without
arbitrarily distinguishing between foreign investors and domestic investors or indeed
among foreign investors.
Secondly, the measures taken should not be a disguised restriction on investment
or trade. Language to this effect is found in the Canada-Tanzania BIT: “disguised
restriction on international trade or investment.”59 Some treaties refer purely to
investment flows, whereas others refer exclusively to trade restrictions. Such pro-
visions are clearly intended as an anti-protectionist measure, to ensure that the State
does not seek to derogate from substantive obligations to prevent the M&A activity
of foreign investors.
Thirdly, furnishing essential security exception clauses with illustrative or
exhaustive lists as to covered circumstances can act is a condition for their invoca-
tion. UNCTAD have identified three main examples often included in IIAs with
respect to essential security: “trafficking in arms; war and other emergencies in
international relations; and policies concerning the nonproliferation of nuclear
weapons.”60 Different international investment agreements may insert language
such as “included but not limited to,” in order to clarify that the list is not exhaustive.
While this latter approach is demonstrably more limiting as to the discretion of host
States to determine the scope of essential security interests, the former enhances the
predictability of arbitral tribunals.
Finally, measures taken that are necessary for the protection of public policy
interests also must be in compliance with the host state’s other international obliga-
tions. NPM clauses may contain language to the effect of ensuring that measures
taken conform to WTO obligations. Typical language can be found in the Frame-
work Agreement between ASEAN and Japan, which states: “. . .nothing in this
Framework should prevent Japan and/or any individual ASEAN Member State
from adopting or enforcing measures, in accordance with the rules and disciplines
of the WTO Agreement.”61
58
Article 14 of the Agreement between the Government of the Republic of India and the Govern-
ment of the People’s Republic of China for the Promotion and Protection of Investments, signed 21
November 2006
59
Article 17 of the Agreement between the Government of Canada and the Government of the
United Republic of Tanzania for the Promotion and Reciprocal Protection of Investments, signed 17
May 2013 (entered into force 09 December 2013)
60
United Nations Conference on Trade and Development (2009) The protection of national security
in IIAs. United Nations, p 85
61
Article 8 of the Framework for Comprehensive Economic Partnership between the Association of
South East Asian Nations and Japan, signed 8 October 2003
The inclusion of specific references to the WTO agreement clarifies that measures
taken by host States in respect of the NPM clause must conform to their obligations
under the WTO. Other international obligations might include those under the UN
Charter. For example, should a host State be obliged to take action in respect of
essential security that may adversely impact a foreign investor, these actions should
comply with their obligations in relation to decisions taken by the Security Council.
These four conditions governing the invocation of NPM clauses in some inter-
national investment agreements succeeds, to some extent, in limiting the discretion
of host States when taking certain forms of regulatory action. In this respect, foreign
investors are protected from discriminatory and protectionist measures while also
furnishing host States with express regulatory space to regulate for public policy.
However, one of the most crucial aspects of NPM clauses is the extent to which they
are self-judging.
(Non-)Reviewability of Measures Taken for Essential Security or

Public Policy
NPM clauses can be either self-judging or non-self-judging.62 The side of the divide
on which each BIT will fall has a significant – perhaps decisive – impact on the
reviewability of measures taken in respect of essential security interests.
The self-judging nature of a clause is determined by the language used in its
construction. Different drafting techniques have been used in this regard; some
essential security clauses contain phrases such as “it considers necessary,” “if the
state considers,” “in the state’s opinion,” and “if the state determines.” The inclusion
of such language is commonplace among the treaty practice of the United States.63
For example, the US-Rwanda BIT provides: “Nothing in this Treaty shall be
construed. . . to preclude a Party from applying measures that it considers necessary
for the fulfillment of its obligations with respect to the maintenance or restoration of
international peace or security, or the protection of its own essential security
interests.”64
In that instance, it will be for the host State to determine if the challenged measure
is necessary for the protection of essential security or not. However, host States are
not absent legal constraint altogether; the “good faith” requirements of the Vienna
62
Schill S, Briese R (2009) “If the state considers”: self-judging clauses in international dispute
settlement. In: von Bogdandy A, Wolfrum R (eds) Max planck yearbook of united nations law. Brill,
p 61; Gibson CH (2015) Beyond self-judgment: exceptions clauses in US Bits. Fordham Int Law J
38(1):17
63
Gibson CH (2015) Beyond self-judgment: exceptions clauses in US Bits.
64
Article 18 Treaty between the Government of the United States of America and the Government
of The Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Invest-
ment, signed 19 February 2008 (entered into force 01 January 2012)
Convention on the Law of Treaties will remain applicable.65 Thus, this form of self-
judging exception for the protection of essential security interest is subject to good
faith review.
However, some States have begun to incorporate language that makes these
clauses nonjusticiable, though this is rare in the context of the entire international
investment regime. A particularly clear example is the India-Korea Comprehensive
Economic Partnership Agreement: “. . .any decision of the disputing Party taken on
such security considerations shall be non-justiciable in that it shall not be open to any
arbitral tribunal to review the merits of any such decision, even where the arbitral
proceedings concern an assessment of any claim for damages and/or compensation,
or an adjudication of any other issues referred to the tribunal.”66
Demonstrably, there is a conscious effort, particularly in the instance of India’s
BITs, to ensure that essential security is not only to be determined solely by host
States but also makes explicit provision for the fact that such a determination is not
justiciable by arbitrators, in any way. There is some discussion as to whether this
prevents a good faith review.67
Nonetheless, it is unclear as to how an arbitrator would conduct a good faith
review of a clause if it expressly contains language to prohibit such an action. Even if
a good faith review could be conducted, in legal terms, it is difficult to conceive of
the circumstance in which an arbitrator would determine that a host State has not
taken a measure in good faith. The provisions give absolute autonomy to States to
make such a determination.
Non-self-judging NPM clauses, primarily those related to essential security, exist
when the drafting technique of the treaty does not stipulate the level of deference that
should be afforded to the invocation of exceptions. Thus, the IIA must be interpreted
as setting an objective test that will be subject to the interpretation of arbitrators.
Consequently, State parties are accorded no discretion to make their own determi-
nation. Language to this effect is “measures necessary for” or “taking action for.”68
In such instances, the tribunal would be tasked with assessing whether a measure
would indeed be necessary for the protection of essential security interests. Debates
as to the various interpretive controversies around these terms, as well the legitimacy
of a proportionality or a less restrictive measure test in certain circumstances, have
already been examined above.
Clearly, the reviewability of measures taken for NPM clauses varies considerably
depending on the drafting technique utilized in their construction. International
investment agreements that contain self-judging clauses afford considerable
65
See generally Sipiorski E (2019) Good faith in international investment arbitration. Oxford
University Press.
66
Annex 10-C (a) of the Comprehensive Economic Partnership Agreement between India and the
Republic of Korea, signed 07 August 2009 (entered into force 01 January 2010)
67
Newcombe AP, Paradell L (2009) Law and practice of investment treaties: standards of treatment.
Kluwer Law International BV, Austin, p 495
68
Ibid.
discretion to host States to regulate in a manner they see fit. The minority of clauses
that provide for nonjusticiability go even further in closing off any role for arbitra-
tors, perhaps even to good faith review. Non-self-judging clauses offer considerably
more investor protection, though the interpretive methods mean that predicting the
precise test that will be applied remains a difficult task.
Interpretive Ambiguities of NPM Clauses in Investment

Arbitration
While the jurisprudence of arbitral tribunals with respect to the analysis of NPM
clauses remains in its infancy, concerns raised by recent investment arbitrations may
be indicative of broader issues in the drafting of NPM clauses, as well as their
treatment by arbitrators and State parties.
The first is whether an NPM clause excludes the public policy issues within its
ambit from the scope of the IIAs – and therefore constitutes jurisdictional issue – or
establishes a defense against measures that would otherwise constitute a breach of
investment protection standards and is therefore a merits issue. Alschner and Hui
have argued that a determination in either direction has far-reaching legal implica-
tions. It is significant for the procedural stage at which the exception clause should be
raised; if it must be raised by the claimant party to establish jurisdiction, or the
respondent party to defend against claim of breach; and whether misapplication of
the NPM clause establishes a ground for the award to be set aside.69 Persuasive
arguments have been made in either direction by various scholars.70 Moreover, the
matter has proven to be problematic in recent cases.
The arguments advanced by Ecuador and the analysis of the tribunal in the
Copper Mesa v. Ecuador case are instructive in this regard.71 Ecuador argued that
“even if this Tribunal were to find that the 2008 Mining Mandate, the 2009 Mining
Law and the Termination Resolutions were in their effects expropriatory, they do not
qualify as breaches of the Treaty because they fall under the general exception
provided by Article XVII (3) of the Treaty.”72 This position is revealing as it presents
Ecuador’s understanding of the NPM clause as a mechanism by which to excuse
measures that would otherwise breach the treaty. However, the tribunal failed to
engage in a doctrinal analysis of Ecuador’s position, instead undertaking a hybrid
analysis of the expropriation and the NPM clause together. A more justifiable
69
treaties, p 10
70
Kurtz J (2016) The WTO and international investment law: converging systems. Cambridge
University Press; DiMascio N, Pauwelyn J (2008) Nondiscrimination in trade and investment
treaties: worlds apart or two sides of the same coin? Am J Int Law 102(1):48–89. https://doi.org/
10.1017/S000293000003983X
71
Copper Mesa Mining Corporation v. Republic of Ecuador, PCA No. 2012–2, Award, 15 March
2016
72
Ibid., para 6.14
engagement would require a two-step approach – first to determine a breach of

substantive treaty protections and second to determine whether such a violating
measure falls within the scope of the NPM clause.
Furthermore, there is latent uncertainty as to the relationship between the NPM
clause and customary international law. More specifically, it is unclear whether the
former is a codification of the latter, whether NPM seeks to complement defenses in
custom, or whether they displace them.
In the Bear Creek Mining Corporation v Peru case, the respondent State sought to
rely on the police powers doctrine to argue that an impugned measure was not
expropriatory because it was a legitimate exercise of the respondent’s police pow-
ers.73 However, the majority of arbitrators concluded that the inclusion of such
specific exceptions automatically renders any other defenses under international
law inapplicable. In effect, it was considered lex specialis which displaced the
customary international law defenses. Indeed, the tribunal went further still, arguing
that the inclusion under the NPM clause did not constitute an abandonment of the
requirement to pay compensation, before finding that procedural inefficiencies
breached the provisions on due process as well as the chapeau of the NPM clause.
Some difficulties might be noted in respect of both of these conclusions. The
tribunal misstated the interaction between the NPM clause and customary interna-
tional law, the latter of which has been held to exist and to apply separately from
international treaty law by the International Court of Justice in the case of USA v
Nicaragua, in the absence of express provision for displacement.74 This approach
can be thus considered as the mirror of the approach adopted by some of the arbitral
tribunals in Argentinean cases by conflating the essential security interest clause and
the customary plea of necessity. By recognizing the general exception clause as the
only available defense for Peru to argue against a violation of the protection against
the indirect expropriation, the tribunal manifested its understanding of general
exceptions as treaty-based defenses, constituting an issue of merit which becomes
relevant after violation of primary obligation has been established. The conflation of
the two tests fails to give effect to the meaning of the NPM provision. Indeed, the
relationship between the primary obligation and the NPM clause remains untreated
by both Copper Mesa and Bear Creek.
The approach adopted by the tribunal in CC/Devas v India is more satisfactory in
this regard.75 It was based on a “prohibition and restriction” model NPM clause in the
Mauritius-India BIT, and the “essential security interests” of India was the permissible
objective at issue. Denying the claimant’s argument that the respondent must demon-
strate that it meets the conditions of a State of necessity defense under customary
73
Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award, 30
November 2017
74
Burke-White and Staden (2008) Investment protection in extraordinary times: the interpretation
and application of non-precluded measures provisions in bilateral investment treaties, pp 322–323
75
CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited and Telecom Devas
Mauritius Limited v. India, PCA Case No. 2013–09, Award on Jurisdiction and Merit. 25 July 2016
international law, the tribunal made a clear distinction on the “state of necessity”
defense which, under customary international law, is available to a State as a ground
for precluding the wrongfulness of an act which would otherwise be in breach of an
international obligation of that State, which was not invoked by the respondent in this
case. Thus, the Devas tribunal maintained a clear distinction between the customary
international law norm and the provisions as laid out in the treaty law.
Interestingly, and contrary to the approaches adopted by the aforementioned
tribunals, the arbitrators in Devas regarded the NPM clause as a jurisdictional
issue, as opposed to an exception to excuse a treaty violation. Whether this inter-
pretation will cause a lasting ripple effect with respect to the jurisdiction/merits
debate in relation to “prohibition and restriction” model NPM clauses is as yet
unclear. The tribunals in CMS v Argentina and Continental v Argentina, which
considered the essential security exception clause in the USA-Argentina BIT, a
matter which would render the substantive obligation under the Treaty inapplicable,
might be cited in support of this proposition.76 However, there may be differential
approaches to essential security interests and public policy interests, respectively.
Indeed, upon India challenging the award in Deutsche Telekom v India,77 a case
brought on the same facts as the Devas case, the Swiss Federal Tribunal considered
that “essential security interests” related to the merits of the dispute. India was
unable to claim a procedural error before the Swiss Federal Tribunal, as it had not
raised the argument of NPM clauses being a jurisdictional matter at the original
arbitration.78
Clearly there are significant interpretive ambiguities that remain with respect to
the interpretation of NPM clauses before arbitral tribunals. The drafting of these
clauses, the failure of State parties to raise them, and the failure of tribunals to afford
them adequate consideration necessarily lessen their impact. In light of the foregoing
analysis, it is pertinent to consider whether NPM clauses fulfills the objective for
which they were included in IIAs.
Are NPM Clauses Effective at Balancing the Interests of Investors

and States?
An assessment of the effectiveness of NPM clauses necessarily entails a comparison

between the rationale that led to their inclusion in IIAs and the actual effect of this
inclusion. The former of these is comparatively straightforward to establish. NPM
76
For a detailed discussion on this issue, see Henckels C (2018) Should investment treaties contain
public policy exceptions? Boston Coll Law Rev 59:2825–2844, Symposium Edition, Reforming
International Investment Law: Opportunities, Challenges, Paradigms, 2018.
77
Deutsche Telekom v. India, PCA Case No. 2014–10, Judgment of the Swiss Federal Supreme
Court (French), 11 December 2018
78
For discussion on this case see, “Swiss Federal Tribunal refuses to set aside the Deutsche Telekom
v India Award.” 2019. Blog. Arbitration Notes. https://www.lexology.com/library/detail.aspx?g=
b308052d-eefb-49da-ad65-30bcd26c44cf
clauses were one of a number of measures taken to effect a rebalancing of interests in

the international investment regime. In short, it sought to ensure adequate public
policy space for host States to pursue their public interests, notwithstanding legal
obligations to foreign investors. As to the latter – the effect of these clauses – the
picture is less clear.
In favor of their effectiveness, there are several arguments that can be made in the
affirmative. At the most basic level, NPM clauses provide an explicit requirement
that arbitrators must not consider a state’s obligations to investors in a vacuum, but
should place them in the broader landscape of competing policy perspectives. While
this might be considered a low bar to clear, it is nevertheless a useful one in
establishing the relevance of non-investment issues in investment arbitration. More-
over, the inclusion of NPM clauses also creates a hierarchy of policy priorities, with
the permissible objectives explicitly elevated above the protection accorded to
foreign investors, who continue to receive safeguards within the chapeau of the
GATT XX Model. This is a departure from the balancing of investment and non-
investment objectives often undertaken by arbitrators in the absence of the existence
of such a clause.79
Furthermore, NPM clauses can also be said to accord contracting parties the
opportunity to define their policy priorities as they see fit. For example, the emer-
gence of environmental issues within the past two decades, as well as advances in
medical science, inevitably alters contemporary understanding of the importance of
environmental and public health measures as vital aspects of public policy. Express
provision for these matters within NPM clauses ensures that arbitrators are bound to
consider these particular non-investment objectives, as opposed to it being at the
mercy of arbitral discretion. In this way, it enhances the predictability of the
international investment regime.
However, there are two ways in which the inclusion of NPM clauses has proven
to be problematic and perhaps counterproductive. The first is the potential that the
drafting of the GATT XX Model clause could potentially restrict the policy space for
host States.80 The argument can be best described by reference to the range of
covered issues. Where arbitrators consider public policy exceptions as an implicit
aspect of primary obligations, they have potentially all matters of public policy at
their disposal. Conversely, the provision of an exhaustive list of permissible objec-
tives binds their hands, potentially closing off avenues of public policy exceptions to
79
SAUR International S.A. v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Juris-
diction and Liability, 6 June 2012; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11,
Award, 12 October 2005; Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12,
Award, 14 July 2006
80
Newcombe A (2008) General exceptions in international investment agreements. In: Draft
discussion paper prepared for BIICL eighth annual WTO conference, London, p 12; Lévesque C
(2013) The inclusion of Article XX of GATT exceptions in IIAs: a potentially risky policy. In:
Echandi R, Sauvé P (eds) Prospects in international investment law and policy: world trade forum.
Cambridge University Press, Cambridge, pp 363–370. https://doi.org/10.1017/
CBO9781139565479.029
which they could otherwise reach for. Furthermore, the requirement of “necessity”
imposed by the GATT XX Model NPM clause establishes a higher threshold to clear
than tribunals that had considered a “reasonable nexus” in the absence of such
clauses. Thus, what may have been considered a measure taken in pursuit of a
legitimate public policy in respect of a primary obligation before the proliferation of
NPM clauses may not do so today. The consequences of their inclusion have not
necessarily matched the original intent.
Second, the absence of a chapeau stipulating the conditions for the invocation of
the NPM clause with respect to the “prohibition and restriction” model potentially
tilts the balance of interests in the other direction, leaving the system open to misuse
through the shielding of protectionist measures. The safeguards that are provided in
the GATT XX Model, namely, against arbitrariness and unjustifiable discrimination,
are often absent where the parties have chosen to adopt the “prohibition and
restriction” model NPM clause. Moreover, the nexus requirement of such clauses
is frequently “directed to.” Under this nexus requirement, all that must be shown is
that the disputed measure has a close and genuine relationship with the objective
being pursued. While this does offer some level of protection against abuse and
misuse, it should be recognized that the risk is greater than with the GATT model.
Consequently, the inclusion of NPM clauses to find a better balance between the
private interest of foreign investors and the public interest of host States can be
described as an endeavor of limited success. They compel arbitrators to confront the
significance of public policy issues, and certain non-investment issues are given
priority over obligations made with respect to foreign investors. However, the risk is
that this innovation may curtail the flexibility of the existing regime resulting in the
opposite effect than was intended, and certain iterations may open the system to
misuse. Any successes claimed must also be qualified.
Conclusion
To conclude, the evolution of non-precluded measures clauses in IIAs is represen-

tative of the broader effort to bolster the role of the public interests within the regime
of international investment protection. From their roots in the FCN treaties of the
mid-nineteenth century, NPM clauses are becoming evermore prominent, with the
emergence of an observable trend toward their explicit inclusion in BITs and FTAs.
Both the more-favored WTO-style model and “prohibition and restriction” model
stipulate the permissible objectives, scope of application, and the requisite relation-
ship between the impugned measure and the aim being pursued in order to qualify
under the NPM clause.
Indeed, the conditions for invoking NPM clauses, particularly those acting as a
barrier to arbitrariness and unjustified discrimination, prevent the pendulum from
swinging too far in the pro-State direction and provide the limitations of host States’
capacity to have recourse to these exceptions. The possibility of good faith review
with respect to NPM clauses for “essential security” supports this effort, while the
self-judging and nonjusticiable variant undermines it somewhat. Nevertheless,
ambiguities remain as to the appropriate interpretive approach that should be taken

by arbitral tribunals. The jurisdiction/merits debate remains as yet unsettled, and
some tribunals have not adequately separated NPM clauses both from primary
obligations and from other customary international law defenses to a potential
breach. Perhaps the most disappointing of all for those advocates of NPM clauses
in the investment regime, some tribunals have failed to engage with these technical
innovations.
As such, their effectiveness in recalibrating international investment law is
modest as compared to their founding purpose. While it does expressly provide a
hierarchy to guide the reasoning of arbitrators, the process of enumerating the range
of concerns that could be encompassed by the term “public policy” may indeed
result in a contraction of host State regulatory space in some instances.
Consequently, the mere existence of NPM clauses in IIAs cannot be said to
constitute a silver bullet to bring about an equitable distribution of interests and
obligations, but should nevertheless be considered a qualified success. Express
reference to public policy within IIAs represents a sea change from the first gener-
ation of investment arbitrations that were inclined in a pro-investor direction.
However, it is difficult to deduce whether or not the inclusion of NPM clauses is a
driver of the public interest recalibration or in fact a reflection of it. It may be the case
that the proliferation of NPM clauses is a “belt and braces” approach, providing a
binding fail-safe for when arbitrators might fall out of step with the prevailing
practice of reading exceptions onto matters of primary obligation within a tranche
of the arbitral jurisprudence.
Nevertheless, drafters would aid in the consistent interpretation of NPM clauses if
they were explicit as to whether it was a matter of jurisdiction or merits, and
arbitrators should carefully apply the two-tiered test that has been developed by
the Appellate Body of the WTO. Given the relative infancy of existing arbitral
jurisprudence, the maturation of the interpretive method for NPM clauses will be of
considerable interest in the decades ahead.
National Security: The Role of Investment
Screening Mechanisms 21
Georgios Dimitropoulos
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508
Foreign Investment Control and the Rise of Screening Mechanisms in Investment Law . . . . . 511
The Role of Domestic and International Law in Investment Protection . . . . . . . . . . . . . . . . . . . 511
Domestic Laws on Foreign Investment and Investment Control Mechanisms . . . . . . . . . . . . 513
Investment Screening Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516
Investment Screening Mechanisms and National Security Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521
Country-Specific Investment Screening Frameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521
Similarities and Divergencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532
National Security in Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534
National Security Exceptions in International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534
National Security in Domestic Screening Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537
Towards a Redefinition of the Notion of National Security? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542
Abstract
The international investment regime is rapidly changing. Investment law is becom-
ing a much more domestic field of law. A domestic investment institution that has
been on the rise in the last years is investment screening mechanisms (ISMs). ISMs
operate in parallel to international investment law. National security considerations
lie at the epicenter of the screening procedures. Studying the USA, Australia,
Canada, and the EU, the chapter shows how the assessment of national security
concerns has started leaving the realm of international investment law and invest-
ment arbitral tribunals in favor of domestic mechanisms of ex ante evaluation of
interference by foreign investment with national security interests. In addition to
G. Dimitropoulos (*)
Hamad Bin Khalifa University (HBKU) College of Law, Doha, Qatar
University College London (UCL) Centre for Law, Economics and Society, London, UK
e-mail: gdimitropoulos@hbku.edu.qa

https://doi.org/10.1007/978-981-13-3615-7_59
508 G. Dimitropoulos
this move from the international to the domestic, the comparative study shows that
there is an opening of the definition of the term of national security to also include
considerations beyond national security in the strict sense. Still, the chapter sug-
gests that the world is not necessarily advancing towards more closeness, but rather
towards a fairer balance between globalization and national sovereignty.
Keywords
Foreign Direct Investment (FDI) · Investment screening mechanisms · National
security · CFIUS · EU Screening Regulation
Introduction
States have a sovereign right to regulate the entry and establishment of foreign invest-
ment within their jurisdiction.1 Mechanisms of foreign investment control have been on
the rise in the last years.2 This is part of a larger contemporary trend of contestation of
economic globalization.3 Globalization is now a disputed notion in international polit-
ical and legal practice; the contestation has even reached some of the previously
undisputed dogmas of globalization, such as the need for a relatively unrestricted flow
of capital in the form of Foreign (Direct) Investment (FDI) across borders.
1
See UNCTAD World investment report: special economic zones (UN 2019), p. 92.
2
See generally Wint A (1992) Liberalizing foreign direct investment regimes: the vestigial screen.
World Dev 20(10):1515–1529; Sauvant KP (2009) Driving and countervailing forces: a rebalancing
of national FDI policies. In: Sauvant KP (ed) Yearbook on international investment law & policy.
Oxford University Press, Oxford, pp. 215–272; Sauvant KP (2009) FDI protectionism is on the rise,
policy research working paper 5052. International Trade Department/The World Bank, Washington,
DC; Holden M (2007) The foreign direct investment review process in Canada and other countries.
Parliamentary Information and Research Service, Ottawa; Moran TH (2017) CFIUS and national
security: challenges for the United States, Opportunities for the European Union, Peterson Institute
for International Economics (PIIE). The rise of protectionism in investment law has attracted the
interest of international organizations that have started working in the area, particularly the United
Nations Conference on Trade and Development (UNCTAD) and the Organization of Economic Co-
operation and Development (OECD). The World Investment Report also includes a Chapter
dedicated to domestic investment measures, including screening mechanisms; see, e.g., UNCTAD
world investment report: special economic zones (UN 2019), p.96. The OECD has developed the
‘FDI Regulatory Restrictiveness Index,’ available at https://www.oecd.org/investment/fdiindex.
htm; the OECD also has a special section on its website on ‘Investment Policies Related to National
Security and Public Order,’ available at http://www.oecd.org/investment/investment-policy/invest
ment-policy-national-security.htm; see also OECD Guidelines for recipient country investment
policies relating to national security: recommendation adopted by the OECD council on 25 May
2009. Available at https://www.oecd.org/daf/inv/investment-policy/43384486.pdf
3
Protectionism and the use of screening mechanisms have been identified as being on the rise at
least since 2012; see Anwar ST (2012) FDI regimes, investment screening process, and institutional
frameworks: China versus others in global business. J World Trade 46(2):213–248; Grieger G EU
framework for FDI screening 4 (EPRS | European Parliamentary Research Service, PE 614.667 –
February 2019), p. 4.
21 National Security: The Role of Investment Screening Mechanisms 509
Contestation has led to a process of reform in international investment law. This

reform process can be understood as a process to reclaim national sovereignty
conceded to international rules and delegated to international institutions.4 One
can identify three trends to reclaim sovereignty in international investment law,
distinguishing5: (a) an isolationist reassertion, which involves the explicit with-
drawal from international agreements, or the withdrawal from negotiations for
such agreements; from (b) an international reassertion, which involves enhancing
the role of the State in international law through the adoption of favorable
approaches towards State sovereignty at the international level, as may be observed
with the new “rights to regulate” and expanded regulatory space for States in a
variety of international treaties; and in turn from (c) domesticating reassertion, which
involves an effort to “domesticate” globalization through the use of domestic law
and institutions like the creation of Special Economic Zones.
The rise of investment control mechanisms can be classified under the isolationist
reassertion move of national sovereignty. In a very characteristic way for the current
status of globalization, isolationist reassertion does not mean a wholesale rejection of
international investment law, or foreign investment; it rather means an effort to
regain greater control over powers that had been handed over from the State to
international agreements such as Bilateral Investment Treaties (BITs), and interna-
tional institutions such as investment tribunals. Twenty-first-century globalization
means that States increasingly only allow the globalization of these aspects of their
sovereignty that they deliberately choose and to the degree they permit to do so.
Almost all major economies in the world have put in place mechanisms to control
inward FDI flows. Among these mechanisms, foreign investment screening mech-
anisms (ISMs) have become very prominent. The Committee on Foreign Investment
in the United States (CFIUS) is one of the oldest and most active bodies screening
foreign investment and has served as a model for the establishment of screening
mechanisms in other countries.6 Except for the USA, Australia, Canada, Japan, as
well as Member States of the European Union (EU) have ISMs in place. According
to UNCTAD, at least 11 countries have introduced new laws for the screening of
foreign investment since 2011, while 41 significant amendments in 15 jurisdictions
have taken place during the same time, and even more are forthcoming.7 ISMs are
4
See Dimitropoulos G (forthcoming 2020) National sovereignty and international investment law:
sovereignty reassertion and prospects of reform. J World Invest Trade 21:71.
5
Dimitropoulos (forthcoming 2020). National sovereignty and international investment law: sov-
ereignty reassertion and prospects of reform. J World Invest Trade 21:71.
6
Grieger G Foreign direct investment screening: a debate in light of China-EU FDI flows, European
Parliamentary Research Service (Briefing May 2017), Members’ Research Service PE 603.941, p. 8.
7
UNCTAD world investment report: special economic zones (UN 2019), p. 94. Rejections are
relatively rare according to Grieger G Foreign direct investment screening: a debate in light of
China-EU FDI flows, European Parliamentary Research Service (Briefing May 2017), Members’
Research Service PE 603.941, p. 10. Moreover, according to Grieger G EU framework for FDI
screening 4 (EPRS | European Parliamentary Research Service, PE 614.667 – February 2019) 5, the
presence or absence of investment screening mechanisms does not seem to be an important
founded under domestic law, and their purpose is to block or limit the entry of
foreign investment in national economies, generally or for certain sectors, and
subject to certain considerations.
From an international investment law viewpoint, government measures for the
control of foreign investment are aimed at the investment pre-establishment phase
and thus fall outside the scope of most BITs. The conditions for investment in the
pre-establishment phase are gaining in importance in an age where national security
concerns are becoming part of the mainstream in international economic law.
Different considerations lie behind the promulgation of screening mechanisms in
investment law; the protection of national security stands out as the most important
one. The different legal orders give different interpretations to the notion of national
security; the general tendency is to keep the term fairly broad, allowing for broad
discretion for the Executive branch of Government to apply the screening rules when
it considers appropriate. Domestic statutes include lists of factors, where national
security may be deemed as being violated. The recent introduction as well as the
reform of longstanding FDI control mechanisms can be attributed to the rise of State-
Owned Enterprises (SOEs), and most prominently Sovereign Wealth Funds (SWFs)
in the international economy.8 Contemporary investment screening laws move
beyond considerations relating to national defense and link national security to the
following three considerations: the involvement per se of SOEs; protection of critical
technologies with a view to keeping a technological edge in today’s competitive
economy; the protection of critical infrastructure.9
The present chapter is structured as follows: Section “Foreign Investment Control
and the Rise of Screening Mechanisms in Investment Law” presents the trend
towards the creation of FDI control mechanisms with a focus on screening mecha-
nisms. Before doing so, it discusses the broader issue of the interplay between
determinant of the foreign investor’s decision to invest in a country; but see Saha S (2013) CFIUS
now made in China: dueling national security review frameworks as a countermeasure to economic
espionage in the age of globalization. Northwestern J Int Law Bus 33:199, pp. 220–222 on the
informal effects of CFIUS on the choice of foreign investors to invest in the US.
8
See Burgstaller M (2011) Sovereign wealth funds and international investment law. In: Brown C,
Miles K (eds) Evolution in investment treaty law and arbitration, p 163; Chaisse J, Chakraborty D,
Mukherjee J (2011) Sovereign wealth funds as corporations in the making – assessing the economic
feasibility and regulatory strategies. J World Trade 45(4):837–875; Chaisse J (2018) State capital-
ism on the ascent – stress, shock, and adaptation of the international law on foreign investment.
Minn J Int Law 27(2):339–419; Shima Y (2015) The policy landscape for international investment
by government-controlled investors: a fact finding survey, OECD working papers on international
investment, 2015/01. https://doi.org/10.1787/5js7svp0jkns-en; Hsu L (2009) Multi-sources norms
affecting sovereign wealth funds: a comparative view of national laws, cross-border treaties and
non-binding “codes”. J World Invest Trade 10(6):793–828; Hsu L (2009) SWFs, recent US
legislative changes, and treaty obligations. J World Trade 43(3):451–477; Cohen BJ (2009)
Sovereign wealth funds and national security: the great tradeoff. Int Aff 85(4):713–731.
9
See eg European Commission, Review of national rules for the protection of infrastructure relevant
for security of supply, final report, February 2018; Grieger G Foreign direct investment screening: a
debate in light of China-EU FDI flows, European Parliamentary Research Service (Briefing May
2017), Members’ Research Service PE 603.941, p. 4.
domestic and international law in the international investment regime. Section

“Investment Screening Mechanisms and National Security Review” discusses spe-
cific examples of screening laws and how they address the national security concerns
of the relevant jurisdictions. Section “National Security in Investment Law” dis-
cusses the issue of national security in investment law and how national security has
become the order of the day for investment law; from an issue that was initially
included and raised primarily within the BIT framework, national security is becom-
ing an issue for domestic law with the development and stipulation of domestic
screening laws. Section “National Security in Investment Law” finally presents how
the notion of national security has developed in the last years under the changing
conditions of a “New Geoeconomic World Order.”
Foreign Investment Control and the Rise of Screening

Mechanisms in Investment Law
Investment law is composed of a web of norms at the international and the domestic
levels of government. Equally, the decisions of foreign investors to invest in one
country depend on multiple variables, including international law, as well as the
domestic law of the host State. The domestic level of investment governance is often
disregarded in this respect; the present section gives a brief historical account of the
interplay between domestic and international law relating to foreign investment
governance (section “The Role of Domestic and International Law in Investment
Protection”). It then moves on to discuss domestic laws on foreign investment, as
well as foreign investment control mechanisms that occur in such laws (section
“Domestic Laws on Foreign Investment and Investment Control Mechanisms”),
before moving to the discussion of the most important category of foreign invest-
ment control mechanisms, i.e., investment screening mechanisms (section “Invest-
ment Screening Mechanisms”).
The Role of Domestic and International Law in Investment Protection
International law was not particularly relevant for the regulation of foreign invest-
ment flows until the 1960s. The main reason for the decreased significance of
international law for FDI was that the wealthy countries of the North and West
had no need for an international regime for the protection of foreign investment,
given the persistence of colonialism until about the same time. When Western
countries started withdrawing from former colonies, a perceived need appeared for
a law that would protect the investments of (Western) private investors abroad.
International law in the form of BITs started playing this role. The majority of
BITs until this day are between a country from the North and West, on the one
side, and a country from the South and East, on the other. The BIT system itself
replaced the Friendship, Commerce and Navigation (FCN) Treaties; while the FCN
Treaties were bilateral and included certain investment provisions as well, they were
mostly signed between States of the northern hemisphere.10 Thus, international law
largely replaced domestic law as the dominant system for investment protection in
the last quarter of the twentieth century.
Under the international investment law system that was developed in the twen-
tieth century, there are no general international obligations for market access to
foreign investors and no general obligation to admit foreign investments into the
economy of a State. The typical BIT does not grant a right of admission to the
potential host State market to a foreign investor, or any other type of pre-entry
protection for foreign investment. According to Article 2(1) of the Model BIT of
Germany (2008), for example11:
Each Contracting Party shall in its territory promote as far as possible investments by
investors of the other Contracting State and admit such investments ‘in accordance with
its legislation’ (emphasis added)
BITs defer typically to the requirements of the host States regarding market access.12
The same applies for the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (ICSID Convention) that includes no
rules on pre-entry protection for foreign investments. International law overall
generally recognizes the regulation of FDI as a sovereign right of States.13 The
measures taken by governments for the review of investments in the pre-entry phase
are thus generally not covered by BITs, and not reviewable by an investment
tribunal. Accordingly, it is generally up to domestic law and institutions to decide
10
On this historical development and the four phases of development of international investment
law see Johnson T Jr., Gimblett J (2010–2011) From gunboats to bits: the evolution of modern
international investment law. In: Sauvant KP (ed) Yearbook on international investment law &
policy. Oxford University Press, New York, p 649.
11
See also UK Model BIT (2005, 2006) Article 2(1); China Model BIT Article 2(1).
12
There are some ‘pre-entry BITs’, which grant market access to prospective investors. These BITs
grant a right of admission, which is limited in scope, and is usually based on a national treatment
clause; see Dolzer R, Schreuer C (2012) Principles of international investment law, 2d edn. Oxford
University Press, Oxford, p. 81. A good example is the US Model BIT of 2004; US Model BIT art
3(1) states that ‘Each Party shall accord to investors of the other Party treatment no less favorable
than that it accords, in like circumstances, to its own investors with respect to the establishment,
expansion, management, conduct, operation, and sale or other disposition of investments in its
territory’. The negotiations for the EU-China Comprehensive Agreement on Investment (CAI),
which started in 2014, also cover pre-establishment market access; see the European Parliament
Legislative Train Schedule, available at http://www.europarl.europa.eu/legislative-train/theme-a-
balanced-and-progressive-trade-policy-to-harness-globalisation/file-eu-china-investment-agreement.
See generally on the differentiation between ‘post-entry’ and ‘pre-entry’ models of investment
treaties UNCTAD (1999) Most-favoured nation treatment, in series on issues in international
investment agreements 8.
13
‘The General Agreement does not prevent Canada from exercising its sovereign right to regulate
foreign direct investments’; see CANADA - ADMINISTRATION OF THE FOREIGN INVEST-
MENT REVIEW ACT, Report of the Panel adopted on 7 February 1984 (L/5504 - 30S/140)
para 5.1.
whether a foreign investment and investor should be admitted to the domestic market
in the first place, as well as the appropriate mechanisms for control of foreign
investment. Domestic law started being relevant again more recently with the rise
of investment control mechanisms.14 Mostly countries in the West have developed
investment review mechanisms to control inward investment flows from countries in
the South and East, while countries from certain regions have already had a
longstanding tradition of controlling foreign investment flows.
Domestic Laws on Foreign Investment and Investment Control

Mechanisms
Various systems regarding foreign investment control have been devised by coun-
tries around the world. Three main systems of foreign investment admission may be
identified:
(a) National treatment – free admission: The domestic legislative framework of

various domestic jurisdictions around the world does not differentiate between
domestic and foreign investors, or domestic and foreign investments, applying
thus a system of national treatment of foreign investors. In Hong Kong, for
example, there is neither a general foreign investment legislation governing the
admission of foreign investments nor a general screening mechanism for admis-
sion of foreign investments.15 Foreign investors are subject to the same rules as
domestic investors.
(b) Positive list: Some countries only allow market access and admit foreign invest-
ment based on a positive list of requirements that foreign investors and foreign
investments need to comply with in order to be admitted in the relevant juris-
diction. Foreign investors are only allowed to operate under the conditions
prescribed in domestic law, and in prescribed economic sectors. The rest of the
sectors are closed to investment by foreign investors.
(c) Negative list: The negative list system creates the opposite default rule in
comparison to the positive list system so that automatic acceptance of investment
is the default in the relevant jurisdiction, unless the investment falls under one of
the sectors or cases that are identified under the negative list. The negative list
system is thus more liberal than the positive list system.
Both the positive and negative list systems can be explained using the example of
the foreign investment control system of the People’s Republic of China. China’s
growth stems from an economic model that is based on exports and the development
14
See footnotes 1 and 2.
15
See Miller T, Kim AB, Roberts JM (2018) 2018 Report of index of economic freedom. The
Heritage Foundation 215.
of infrastructure abroad referred to as the Beijing Consensus.16 China has been

sending mixed signals as to how open the country is regarding foreign investment
in Chinese companies. China was until recently following the positive list system
under the Guideline of Industries for Foreign Investment.17 The law included three
types of operations for foreign investors: encouraged, restricted (negative list), or
prohibited. The Ministry of Commerce (MOFCOM) has been the authority with the
power regarding inward investment.18
Already in 2013, the government established the China (Shanghai) Pilot Free-
Trade Zone as a Special Economic Zone to further attract foreign investment in the
country. China (Shanghai) Pilot Free-Trade Zone used the negative list system.19
Investments that are not on the list do not require previous approval, but only a
simple registration with the relevant authorities. After having progressively tested
the negative list system, and as a further sign to the global markets towards further
foreign investment liberalization,20 the new Foreign Investment Law of the People’s
Republic of China moves the country as a whole towards the negative list system.21
16
See generally Hsu SP, Wu Y-S, Zhao S (eds) (2012) In search of China’s development model beyond
the Beijing consensus. Taylor & Francis, London; cf. more generally McGregor J (2010) China’s drive
for ‘indigenous innovation:’ a web of industrial policies. U.S. Chamber of Commerce, Washington, DC.
17
Catalogue of Industries for Guiding Foreign Investment (Revision 2017), No. 4 Decree of the National
Development and Reform Commission and the Ministry of Commerce of the People’s Republic of
China of June 28, 2017, available at http://www.fdi.gov.cn/1800000121_39_4851_0_7.html
18
See Anwar ST (2012) FDI regimes, investment screening process, and institutional frameworks:
China versus others in global business. J World Trade 46(2):213–248, pp. 233, 234, 238; see
generally Sharma A (2015) Comparative analysis of the Chinese and Indian FDI regimes. 15 Chi.-
Kent J Int Comp Law 35; Sweeney M (2010) Foreign direct investment in India and China: the
creation of a balanced regime in a globalized economy. Cornell Int Law J 43(1):207–248.
19
See generally Villalta Puig G, Tai SLT (2017) China (Shanghai) pilot free trade zone investor-state
dispute settlement: an uncertain experiment. J World Invest Trade 18:673–711.
20
The National Development and Reform Commission and the Ministry of Commerce of China
have recently unveiled new negative lists in relation to foreign investment on 30 June 2018, see
‘China Unveils New Negative List for Foreign Investments in FTZs’ (Xinhua News, 30 June 2018)
<www.xinhuanet.com/english/2018-06/30/c_137292210.htm>. At the national level, the Special
Administrative Measures (Negative List) for Foreign
Investment Access (2018 Edition) <http://english.mofcom.gov.cn/article/policyrelease/
announcement/201807/20180702765903.shtml> will replace the previous Catalogue for the Guid-
ance of Foreign Investment Industries (Revised in 2017). At the level of Pilot Free Trade Zones, the
Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade
Zones (2018 Edition) http://english.mofcom.gov.cn/article/policyrelease/announcement/201807/
20180702765905.shtml is applicable.
21
See Articles 4 and 28; see also Article 36. Foreign Investment Law of the People’s Republic of
China, Promulgation Date: 2019-03-15 Promulgation Number: Order of the President of the
People’s Republic of China No. 26 Promulgation Department: The National People’s Congress of
the People’s Republic of China, available at http://www.fdi.gov.cn/1800000121_39_4872_0_7.
html. Order of the President of the People’s Republic of China No. 26. The Foreign Investment
Law of the People’s Republic of China, adopted at the Second Session of the 13th National People’s
Congress on March 15, 2019, is hereby promulgated for implementation as of January 1, 2020. Xi
Jinping, President of the People’s Republic of China, March 15, 2019.
Independent of whether a positive or negative list system is used in a jurisdiction,

there are two main types of foreign investment control laws: general foreign invest-
ment control laws and sector-specific. General foreign investment control laws are
laws dedicated to the control of foreign investment and codify all relevant require-
ments for foreign investors and investments under one single legislative document.
To be sure, there have always been legal barriers to entry of foreign investment in the
form of laws about company, nationality, immigration, property, etc. Sector specific
legislation for foreign investment is also very commonly found in the area of
competition law, namely, the law of mergers and acquisitions.22 A tendency that
may be observed is that of developing laws specifically for foreign investment
control. China is again a good example as under the previous legal regime foreign
investors had to resort to specialized laws and regulations and to fulfill certain
sectoral requirements in order to be admitted for investment in the relevant sectors.23
The new investment law progressively abolishes the old regulatory framework in
favor of a general investment law for all sectors of the economy.
The Organisation for Economic Co-operation and Development (OECD)24 mea-
sures the restrictiveness of a country’s FDI legislative and regulatory framework
using four main types of restrictions25: (a) foreign equity limitations, (b) screening or
approval mechanisms, (c) restrictions on the employment of foreigners as key
personnel, and (d) operational restrictions, e.g., restrictions on branching, capital
repatriation, or land ownership. The most common type of restrictions are limits or
other types of restrictions on foreign equity ownership by imposing joint ventures
22
See generally Dimitropoulos G (forthcoming 2021) The Viability of the Alternatives to Interna-
tional Investment Law and Arbitration: International and Domestic Perspectives. Michael Reisman
and Nigel Blackaby (eds), Arbitration Beyond Borders: Essays in Memory of Guillermo Aguilar
Álvarez, Kluwer
23
See The Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures, the Law
of the People’s Republic of China on Wholly Foreign-owned Enterprises and the Law of the
People’s Republic of China on Sino-Foreign Cooperative Joint Ventures shall be repealed simul-
taneously. On the previously applicable laws see Blodgett MS, Hunter RJ Jr., Hayden RM (2009)
Foreign direct investment, trade, China’s competition laws. Denver J Int Law Policy 37:201–216;
Howell TR, Wolff AW, Howe R, Oh D (2009) China’s new anti-monopoly law: a perspective from
the United States. Pacific Rim Law Pol J 18:53; Kong Q (2002) Towards WTO compliance: China’s
foreign investment regime in transition. J World Invest 3(5):859–878; Schneider EF (2007) Be
careful what you wish for: China’s protectionist regulations of foreign direct investment
implemented in the months before completing WTO accession, 2 Brook. J Corp Fin Com L;
Sothmann S (2009) Let he who is without sin cast the first stone: foreign direct investment and
national security regulation in China. Indiana Int Comp Law Rev. 19:203–218; Williams M (2009)
Foreign investment in China: will the anti-monopoly law be a barrier or a facilitator? Texas Int Law
J 45:127–155; Zhan H (2009) Achievement to date and challenges ahead: China’s antitrust law and
its implications. Syracuse J Int Law Commerce 36:229–242; Huang H (2010) China’s new
regulation on foreign M&A: green light or red flag? Univ NSW Law J 30(3):802–812.
24
OECD (2008) Transparency and predictability for investment policies addressing national secu-
rity concerns, a survey of practices. OECD, Paris
25
http://www.oecd.org/investment/fdiindex.htm
between foreigners and domestic investors,26 either in a certain sector or more

broadly.27 Media, transport, agriculture, forestry and fisheries, natural resources,
real estate and, above all, the mining, oil, and gas sectors have traditionally been
those most protected.28
Drawing on the OECD’s typology, one could differentiate between two main types
of foreign investment control mechanisms included in FDI control laws: outright
prohibition and screening.29 Certain countries – either alongside or without a formal
review process – may prohibit foreign investment in certain industries or restrict
market access to certain sectors or (the extent of) ownership in certain sectors, such
as very often occurs in the natural resource sectors and real estate. For example, the
“Procedures for Foreign Investments in the Business Entities of Strategic Importance
for Russian National Defence and State Security” of 2008 do not allow foreign
investors and foreign SOEs to gain majority interests in “business entities of strategic
importance for national defense and state security” in industries such as defense, oil
and gas, and aviation.30 In a similar vein, France uses the Banque publique
d’investissement (Bpifrance) to block takeovers of “strategic companies,” in which
the government owns shares, using the “golden share” mechanism, as well as further
actions such as sanctions imposed by the Minister for the Economy and Finance.31
The next subsection introduces the institution of screening mechanisms in invest-
ment law, while section “Investment Screening Mechanisms and National Security
Review” presents some examples of foreign investment screening mechanisms from
major capital-importing economies.
Investment Screening Mechanisms
In the current phase of intense political and economic contestation of the BIT system
and, more specifically, international investment arbitration,32 countries have started
26
Thomsen S, Mistura F (2017) Is investment protectionism on the rise? Evidence from the OECD
FDI regulatory restrictiveness index (Global Forum on International Investment, 2017) 4–5.
Available at http://www.oecd.org/investment/globalforum/2017-GFII-Background-Note-Is-invest
ment-protectionism-on-the-rise.pdf, pp. 4–5.
27
Thomsen and Mistura (2017), p. 6.
28
29
Cf with a tripartite differentiation Burgstaller M (2011) Sovereign wealth funds and international
investment law. In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration, p. 163.
30
Federal Law N57-FZ ‘Procedures for Foreign Investments in the Business Entities of Strategic
Importance for Russian National Defence and State Security’.
31
See Government of the French Republic, PACTE, the Action Plan for Business Growth and
Transformation, available at https://www.economie.gouv.fr/plan-entreprises-pacte# and https://
www.gouvernement.fr/en/pacte-the-action-plan-for-business-growth-and-transformation
32
See Waibel M, Kaushal A, Chung K-H, Balchin C (eds) (2012) The backlash against investment
arbitration. Perceptions and reality; Langford M, Behn D, Fauchald OK (2018) Backlash and state
strategies in international investment law. In: Aalberts T, Gammeltoft-Hansen T (eds) The changing
practices of international law, p 70.
placing regulatory emphasis on the investment pre-entry stage. ISMs are on the rise.
According to UNCTAD, 24 countries have ISMs.33 Even countries that have been
traditionally open to FDI such as Australia, Canada, and the USA operate similar
mechanisms, alongside China, India, and Russia. In fact, screening laws were first
developed in the 1970s in the USA, Canada, and Australia, prompted by fears of
takeovers of technology hardware companies, mostly in the semiconductor industry,
by Japanese counterparts. As with the general category of laws presented in the
previous subsection, ISMs may be adopted in order to control foreign investment in
sensitive industries and with a view to ensuring that foreign investments are driven
by commercial incentives.
According to the definition contained in the Regulation of the EU on FDI
screening, a “screening mechanism” is “an instrument of general application, such
as a law or regulation, and accompanying administrative requirements,
implementing rules or guidelines, setting out the terms, conditions and procedures
to assess, investigate, authorize, condition, prohibit or unwind foreign direct invest-
ments on grounds of security or public order.”34 One may differentiate among
countries that (a) do not feature an FDI review system at all, (b) review based on a
formalized procedure, or (c) allow for a case-by-case review without a legal
framework.35
According to UNCTAD there are three major types of ISMs: sector-specific,
cross-sectoral, and entity-specific.36 The first category of mechanisms focuses on
sectors such as utilities, energy, telecommunication, transportation, media, and
financial industries that are viewed as important for national security purposes.
Under the new Investment Law No. 1 of 2019 of Qatar, for example, which applies
exclusively to foreign investors, foreign investors are prohibited from investing in
banks and insurance companies unless the Council of Ministers allows such an
investment.37 The second category of cross-sectoral legislation allows for screening
in all sectors. The CFIUS process in the USA is the most characteristic example of
such a legislative framework. Legislation of the third category focuses on the
destination of the investment, rather than the investor as the screening mechanisms
of the previous two categories do. These legislative frameworks single out domestic
companies, usually State-owned and operating in sectors that are perceived as
33
UNCTAD world investment report: special economic zones (UN 2019), pp. 92–93. These are
Australia, Austria, Belgium, Canada, China, Finland, France, Germany, Hungary, Iceland, India,
Italy, Japan, Latvia, Lithuania, Mexico, New Zealand, Norway, Poland, the Republic of Korea, the
Russian Federation, South Africa, the United Kingdom and the United States.
34
Article 2(4) of the Regulation.
35
See Grieger G Foreign direct investment screening: a debate in light of China-EU FDI flows,
European Parliamentary Research Service (Briefing May 2017), Members’ Research Service PE
603.941, p. 7.
36
UNCTAD world investment report: special economic zones (UN 2019), p. 93.
37
Article 4(a) Investment Law No. 1 of 2019 ‘Regulating the Investment of Non-Qatari Capital in
Economic Activity.’
sensitive from a national security point of view, and allow for the review of foreign
acquisitions for these entities.
Another differentiation that may be made is between systems that provide for
screening ex ante or ex post. Countries that use ISMs focus on ex ante screening,
namely, on the screening of a potential investment before the investment takes place.
Nevertheless, the most important of them put in place mechanisms that address both
ex ante and ex post screening, namely, screening both before and after the investment
has taken place. Section 25.1 of Investment Canada Act, for example, mentions that
a national security review may take place for proposed or already implemented
investment by a non-Canadian. Ex post screening may be highly problematic from
an international investment law standpoint, as it may give rise to investor claims
under bilateral or multilateral investment treaties, as the investment will have taken
place at the time of the review and claims may arise under international law. Going
back to Article 2(1) of the Model BIT of Germany (2008), the relevant question from
an international investment law point of view will become to what extent the
investment may be considered as having been admitted “in accordance with the
legislation” of the screening jurisdiction, or not. This may be subject to potential
claims by foreign investors.
Another differentiation that deserves mention is that between mechanisms for the
screening of outward investment and inward investment. While the rule is the
screening of inward investment, the screening or other mechanisms of selection of
outward investment may be found as well. For example, the Chinese government has
devised a very interesting system of internal vetting of SOEs that then become
eligible to invest in projects abroad.38 For construction projects in Botswana, for
example, the Chinese government has developed an internal public procurement
process for the selection of State-owned construction companies to build infrastruc-
ture projects in that country.39 This chapter focuses on screening mechanisms for
inward investment.
There are several reasons that may explain the establishment and proliferation
of ISMs,40 two out of which stand out: First, there is no multilateral investment
treaty framework as in international trade.41 This has allowed for domestic
screening systems to develop according to the national specificities of each and
every country.42 Second, the balance of power in today’s international relations is
now different in comparison to what it used to be in the past. The BRICS
38
See generally European Chamber of Commerce in China, Chinese Outbound Investment in the
European Union (2013), pp. 26–28.
39
Chen AY (2009) China’s role in infrastructure development in Botswana, China in Africa project
occasional paper 44. Available at http://www.voltairenet.org/IMG/pdf/China_s_Role_in_
Botswana.pdf
40
See Anwar ST (2012) FDI regimes, investment screening process, and institutional frameworks:
China versus others in global business. J World Trade 46(2):213–248.
41
Anwar (2012), p. 224.
42
Anwar (2012), pp. 215–216.
countries,43 for example, have developed in very different ways from other
developing nations and sometimes operate when it comes to their foreign and
international economic policy similarly to traditionally capital-exporting coun-
tries.44 Beyond the BRICS, many more very competitive economies have
appeared in the South and East of the world with a great interest in investing
revenues made through the use of natural resources or otherwise, such as financial
services, abroad. The general preference for investment from these countries is for
countries in the North. As a result, emerging economies are now on the outward
side of investment, which brings them in a direct competitive relationship to the
West and North of the world when it comes to investment opportunities. Apart
from private investors, governments from emerging economies also have a pref-
erence in investing abroad. The operation of SWFs and other types of SOEs in the
international economy has been the main driver for the establishment of new
screening mechanisms or the tightening of current ones around the world based on
national security considerations. The major concern has been outward investment
mostly by Chinese SOEs, whose ownership is unclear,45 and the fear that invest-
ment by Chinese companies abroad does not take place according to market
and commercial criteria.46 The concern of Western governments has been increas-
ing since the involvement of Chinese companies in the fields of new technologies
and critical infrastructure.47 Political leadership in the USA and the EU has
43
BRICS stands for the group of countries consisting of Brazil, Russia, India, China, and South
Africa.
44
See Sauvant KP (2005) New sources of FDI: the BRICs – outward FDI from Brazil, Russia, India
and China. J World Invest Trade 6(5):639–709.
45
See generally Anwar ST (2010) CFIUS, Chinese MNCs’ Outward FDI, and globalization of
business. J World Trade 44(2):419–466; Bath V (2012) Foreign investment, the national interest
and national security – foreign direct investment in Australia and China. Sydney Law Rev.
34(5):5–34; Klaver M, Trebilcock M (2013) Chinese investment in the United States and Canada.
Can Bus Law J 54(2):123–177; Meunier S (2014) Divide and conquer? China and the cacophony of
foreign investment rules in the EU. J Eur Public Pol 21(7):996–1016; Zhang H and Van den Bulcke
D China’s direct investment in the European Union: a new regulatory challenge?, Asia Europe J,
2014, Vol. 12, pp. 159–177; Li X (2016) National security review in foreign investments: a
comparative and critical assessment on China and U.S. laws and practices. Berkeley Bus Law J
13(1):255–311; Knight L, Voon T (forthcoming 2020) The evolution of national security at the
interface between domestic and international investment law and policy: the role of China. J World
Invest Trade.
46
Cf generally Milhaupt CJ, Zheng W (2015) Beyond ownership: state capitalism and the Chinese
firm. Geo Law J 103:665, pp. 705–707.
47
See Saha S (2013) CFIUS now made in China: dueling national security review frameworks as a
countermeasure to economic espionage in the age of globalization. Northwestern J Int Law Bus
33:199; European Commission (2017) Commission Staff Working Document Accompanying the
document “Proposal for a Regulation of the European Parliament and of the Council establishing a
framework for screening of foreign direct investments into the European Union” Brussels,
13.9.2017, SWD, p 297; European Commission (2019) Commission staff working document on
foreign direct investment in the EU: following up on the commission communication “Welcoming
Foreign Direct Investment while Protecting Essential Interests” of 13 September 2017, SWD 108
final, Brussels, 13.3.2019.
been particularly vocal about this.48 At the EU level, the same concern is
expressed as a lack of reciprocity with a view to the fact that foreign SOEs receive
support and are subsidized by their governments in ways that are prohibited under
EU single market rules.49 The issue of reciprocity has been raised in the USA as
well.50
According to the OECD FDI Regulatory Restrictiveness Index51 the majority of
the countries that are the most restrictive, and at the same time the ones that will most
probably feature a screening mechanism, fall under two categories: countries in the
Asia-Pacific region and larger countries.52 The explanation for the former category is
the historical development of the economic regimes in this group of countries, as
well as that the index does not take into account special regimes such as Special
Economic Zones; for the latter, the existence of rich natural resources that may lead
to perceived need of greater protection, and the larger markets they offer that may be
attractive for more foreign investors.53 EU Member States are the least restrictive
according to the same index. At the same time, regulatory reform in the direction of
more openness to foreign investors and investments has been more common in the
groups of countries that have traditionally been the most restrictive, above all
countries in Asia.54
While different rationales may lie behind the promulgation of screening mecha-
nisms, there is one that stands out: the protection of national security. Different legal
orders give different interpretations to national security, a point we will come back to
below. The next section discusses domestic ISMs with a focus on national security as
a ground for review of foreign investment.
48
Vice President Pence has explained that recent changes to CFIUS mostly took place to address the
issue of Chinese companies trying to gain ownership of the IP of US firms; see Vice President
Michael Richard Pence 2018 Remarks by vice president pence on the administration’s policy
toward China (October 4, 2018). Available at https://www.whitehouse.gov/briefings-statements/
remarks-vice-president-pence-administrations-policy-toward-china/; see also European Commis-
sion and High Representative of the Union for Foreign Affairs and Security Policy, Joint Commu-
nication to the European Parliament, the European Council and the Council, EU-China-A Strategic
Outlook JOIN (2019) 5 final, Strasbourg, 12.3.2019.
49
See Zypries B, Sapin M, Calenda C (2017) Letter to Commissioner Cecilia Malmström (Berlin,
February 2017). Available at https://www.bmwi.de/Redaktion/DE/Downloads/S-T/schreiben-de-fr-
it-an-malmstroem.pdf?__blob=publicationFile&v=5; see also Zypries B, Sapin M, Calenda C
(2017) European investment policy: A common approach to investment control (July 28, 2017).
Available at https://g8fip1kplyr33r3krz5b97d1-wpengine.netdna-ssl.com/wp-content/uploads/
2017/08/170728_Investment-screening_non-paper.pdf
50
See Josselyn AS (2014) National security at all costs: why the CFIUS review process may have
overreached its purpose. Geo Mason Law Rev. 21:1347, 1367, p. 1367.
51
Available at http://www.oecd.org/investment/fdiindex.htm
52
Thomsen and Mistura (2017).
53
Thomsen and Mistura (2017), pp. 3–4.
54
Investment Screening Mechanisms and National Security Review
The present section presents four ISMs from major capital importing countries and
regions. Three of them – USA, Canada, and Australia – have a longstanding tradition
of screening mechanisms. The European Union has started a certain process of
coordinating and partly harmonizing the mechanisms that are to be found in its
Member States. The focus of the section is on national security as a ground for
review of foreign investment in the relevant jurisdictions. The section concludes
with a more general analysis of the four studied screening mechanisms.
Country-Specific Investment Screening Frameworks
USA
Introduction: The Committee on Foreign Investment in the United States (CFIUS)
was established in 1975 through an Executive Order by President Ford to review
foreign investments in US companies.55 A legislative foundation was given to the
CFIUS in 1988 under Section 721 of the Defense Production Act pursuant to the
Exon-Florio Amendment.56 In 2007, Congress passed the Foreign Investment and
National Security Act (FINSA) amending the Defence Production Act.57 FINSA was
passed after the attempt of Dubai Ports World (DPW) in 2006 to acquire Peninsular
and Oriental Steam Navigation Company’s (P&O) management contracts of six
major ports in the USA, as well as the effort of Huawei and Bain Capital’s failed
attempt to acquire 3Com.58 In August 2018, Congress passed the Foreign Invest-
ment Risk Review Modernization Act (FIRRMA) further expanding the scope of
55
Executive Order No 11858, 40 Fed Reg 20263 (7 May 1975); see generally Kang CSE (1997) U.
S. politics and greater regulation of inward foreign direct investment. Int Organ 51(2):301–333;
Byrne MR (2006) Protecting national security and promoting foreign investment: maintaining the
Exon-Florio Balance. Ohio State Law J 67:849–910; Graham EM, Marchick DM (2006) U.S.
national security and foreign direct investment, Peterson institute for international economics 2006.
Institute for International Economics/Columbia University Press, Washington, DC; Chesney R
(2009) National security fact deference. Va Law Rev. 95(6):1361–1435; Moran TH (2009) Three
threats: an analytical framework for the CFIUS process. Peterson Institute for International Eco-
nomics/Columbia University Press, Washington, DC; Travalini JR (2009) Foreign direct investment
in the United States: achieving a balance between national economy benefits and national security
interests. Northwestern J Int Law Bus 29(3):779–799; Weimer Christopher M (2009) Foreign direct
investment and national security post-FINSA 2007. Texas Law Rev. 87:663–684; Pasco BJC
(2014) United States national security reviews of foreign direct investment: from classified pro-
grammes to critical infrastructure, this is what the committee on foreign investment in the United
States cares about. ICSID Rev. 29:350; Jackson JK (2016) Cong. Research Serv., Rl33388, The
Committee On Foreign Investment In The United States (CFIUS) 1.
56
Section 721 of the Defense Production Act of 1950, 50 U.S.C. App. 2170.
57
Defense Production Act of 1950, 50 USC §4501 (2007 amendment).
58
Cox J (2008) Regulation of foreign direct investment after the Dubai ports controversy: has the
U.S. government finally figured out how to balance foreign threats to national security without
alienating foreign companies? J Corpor Law 34(1):293–315.
covered transactions as well as the factors that CFIUS can take into account in its
national security risk assessment. The scope now includes purchases or leases of real
estate in close proximity to sensitive US government facilities and noncontrolling
acquisitions in US businesses whose activities involve critical technologies, critical
infrastructure, or sensitive personal data of US citizens.59
Grounds for review and national security: The notion of national security has
been prominent since CFIUS came to existence. The standard of review under
Section 721 of the Defense Production Act is the determination that “there is credible
evidence that leads the President to believe that the foreign interest exercising
control might take action that threatens to impair the national security.”60 Moreover,
no other laws – except for the International Emergency Economic Powers Act –
should “provide adequate and appropriate authority for the President to protect the
national security.”61 Section 721 does not define the notion of national security, but
lists factors that may be considered in the determination of whether a transaction
may be considered as threatening to impair the national security of the USA.62 The
list is open-ended and for this reason CFIUS has been called by Jose Alvarez a
“Church without a Bible.”63
There is no threshold or any other type of condition to trigger the review. The
review may be initiated in any event there is a “covered transaction” under the Act,
namely, “any merger, acquisition, or takeover that is proposed or pending after
59
Foreign Investment Risk Review Modernization Act of 2018, Section 1702 Findings under
Actions (5) and (6).
60
See Subsection 721(d)(1) and (4)(A).
61
Defense Production Act of 1950, 50 USC §4565(d)(4) (2018).
62
See subsection 721(f) – Defense Production Act of 1950, 50 USC §4565(f) (2018): For purposes
of this section, the President or the President’s designee may, taking into account the requirements
of national security, consider — (1) domestic production needed for projected national defence
requirements, (2) capability and capacity of domestic industries to meet national defense require-
ments, including the availability of human resources, products, technology, materials, and other
supplies and services, (3) the control of domestic industries and commercial activity by foreign
citizens as it affects the capability and capacity of the US to meet the requirements of national
security, (4) the potential effects of the transaction in question on sales of military goods, equipment,
or technology to [certain countries]; (5) the potential effects of the transaction on US technological
leadership in areas affecting US national security; (6) the potential national security-related effects
on US critical infrastructure, including major energy assets; (7) the potential national security-
related effects on US critical technologies; (8) whether the transaction is a foreign government-
controlled transaction, as determined under subsection (b)(1)(B); (9) as appropriate, and particularly
with respect to transactions requiring an investigation under subsection (b)(1)(B), a review of the
current assessment of — (A) the adherence of the foreign country to nonproliferation control
regimes [. . .]; (B) the relationship of such country with the United States, specifically on its record
on cooperating in counter-terrorism efforts [. . .]; and (C) the potential for transshipment or
diversion of technologies with military applications, including an analysis of national export control
laws and regulations; (10) the long-term projection of US requirements for energy sources and other
critical resources and materials; and (11) such other factors as the President or the Committee may
determine to be appropriate, generally or in connection with a specific review or investigation.
63
Alvarez JE (1989–1990) Political protectionism and United States international investment
obligations in conflict: the hazards of Exon-Florio. Va J Int Law 30:1.
August 23, 1988, by or with any foreign person which could result in foreign control
of any person engaged in interstate commerce in the United States.”64 If the
Committee deems that a transaction may have effects on the national security of
the USA, then a national security investigation may be initiated. However, FINSA
brought about important changes in this process. There is now a mandatory review
and investigation in two cases65: first, for “foreign government-controlled trans-
actions,” namely, when the relevant transaction could result “in the control of any
person engaged in interstate commerce in the United States by a foreign government
or an entity controlled by or acting on behalf of a foreign government”;66 second, in
certain circumstances when transactions would result in control of “critical infra-
structure.” FIRRMA significantly expands the scope of covered transactions, adding
two new major categories and four new types67: first, a purchase, lease, or conces-
sion by or to a foreign person of real estate located in proximity to sensitive
government facilities; second, “other investments” by a foreign person in any
unaffiliated US business that “owns, operates, manufactures, supplies, or services
critical infrastructure,” “produces, designs, tests, manufactures, fabricates, or
develops one or more critical technologies,” or “maintains or collects sensitive
personal data of United States citizens that may be exploited in a manner that
threatens national security.” Other investments are noncontrolling investments –
that may be direct or indirect investments – and are defined under paragraph (i) as
investments that afford a foreign person access to material non-public technical
information in the possession of the US business, or membership or observer rights
or the right to nominate members on the board of directors of the US business, or any
involvement or other decision-making rights, other than through voting of shares, in
substantive decision making of US business regarding “(aa) the use, development,
acquisition, safekeeping, or release of sensitive personal data of United States
citizens maintained or collected by the United States business; (bb) the use, devel-
opment acquisition, or release of critical technologies; or (cc) the management,
operation, manufacture, or supply of critical infrastructure”; third, any change in
the rights that a foreign person has with respect to a US business in which the foreign
person has an investment, if that change could result in foreign control of the United
States business, or refers to an investment regarding critical infrastructure, critical
technologies, or personal data; and fourth, any other transaction, transfer, agreement,
or arrangement designed to evade or circumvent CFIUS jurisdiction.
Organizational and procedural aspects: The agency responsible for the adminis-
tration of Section 721 of the Defense Production Act of 1950 is CFIUS. CFIUS is a
multiagency committee chaired by the Secretary of the Treasury and is composed of
64
Section 721(a)(3).
65
Section 721(b)(2)(B)(i)(II) and (III).
66
See Section 721(a)(4) on the notion of the ‘foreign government-controlled entity’.
67
OECD (Notification by the United States), Investment Policy Related to National Security., DAF/
INV/RD(2018)8 (23 October 2018) 2. Available at http://www.oecd.org/officialdocuments/
publicdisplaydocumentpdf/?cote=DAF/INV/RD(2018)8&docLanguage=En, p. 2.
nine voting agencies, as well as the Director of National Intelligence and the Secretary
of Labor as non-voting, ex-officio members. The US Congress is also actively involved
– and more recently even increasingly so – in CFIUS proceedings.68 The Secretary of
the Treasury may designate a member or more members of the Committee to be the
lead agency or agencies for the conduct of reviews and investigations.69
Subsection 721(b) of the Defense Production Act 1950 provides for two procedures:
national security reviews and national security investigations. Additionally, FIRRMA
provides for “declarations,” which is an abbreviated filing process that may result in
shorter review timelines.70 As a general rule, CFIUS reviews are voluntary, and any
party to a transaction can submit a written notice requesting CFIUS to investigate the
transaction, but the President and/or CFIUS have the power to initiate review ex officio
– the so-called “unilateral initiation of review” – of all foreign investments.
CFIUS is an advisory body. The main decision-making authority lies with the US
President. The President has the power to suspend or prohibit proposed or pending
mergers, acquisitions, or takeovers of domestic companies by foreign companies that
threaten to impair national security based on the recommendation of CFIUS.
According to Section 721(l), the Committee or the lead agency may negotiate,
enter into or impose, and enforce any type of agreement as well as conditions on
any party involved in a covered transaction in order to mitigate any threat to national
security of the USA. The President has the power to deny, approve, or approve
subject to conditions any foreign merger, acquisition, or takeover. The President also
has the explicit power to request that the foreign person divest.71
This very broad power of the President is not subject to judicial review, and
Executive Orders of the President are final.72 This has been the subject matter of the
Ralls case before the D.C. Circuit, which relied on the political question doctrine to
confirm that the decisions of the President are not justiciable.73
Canada
Introduction: Foreign investment control in Canada takes place under the Investment
Canada Act of 1985,74 which replaced the Foreign Investment Review Act of 1973.
68
Anwar ST (2012) FDI regimes, investment screening process, and institutional frameworks:
China versus others in global business. J World Trade 46(2):213–248, p. 239.
69
Section 721(k)(5).
70
OECD (Notification by the United States), Investment Policy Related to National Security., DAF/
INV/RD(2018)8 (23 October 2018) 2. Available at http://www.oecd.org/officialdocuments/
publicdisplaydocumentpdf/?cote=DAF/INV/RD(2018)8&docLanguage=En, p. 2.
71
Section 721(d)(3).
72
Defense Production Act of 1950, 50 USC §4565(e) (2018).
73
Ralls Corp. v. Committee on Foreign Investment in the US, 758 F.3d 296 (D.C. Cir. 2014). This
was the first lawsuit in the history of CFIUS. The Court of Appeals also held that Ralls, a Chinese-
owned company, was subject to due process rights; see generally Wang J (2016) Ralls Corp. v.
CFIUS: a new look at foreign direct investments to the US, d54, 30.
74
Investment Canada Act, RSC 1985, c 28 (1st Supp). See Averyt W (1986) Canadian and Japanese
foreign investment screening. Columbia J World Bus 21(4):47–54; Mandel-Campbell A (2008)
While originally the Act did not include a national security review, this changed in
2009. The Act was amended in 2017 relaxing the regulatory framework to increase
the financial thresholds for “net benefit” reviews for investors from some
countries.75
Grounds for review and national security: The Act establishes two different types
of review: net benefit reviews and national security reviews. Under the Investment
Canada Act proposed investments must demonstrate that they provide a “net benefit”
to Canada, without specifying what constitutes a net benefit. The Act identifies
investments “subject to notification” under Part III and investments “subject to
review” under Part IV of the Act. Notifiable investments are those that involve either
the establishment of new Canadian business or control of a Canadian business by
non-Canadians.76 Any proposed foreign investment involving control of a Canadian
business above a certain value automatically constitutes a “reviewable investment.”
The threshold is different depending on whether the foreign investor is a “WTO
investor,” namely, the investor’s home State is a WTO member,77 or the foreign
investor is a “trade agreement investor,” namely, the investor’s home State is a
country with which Canada has signed a trade agreement such as the Comprehensive
and Economic Partnership Agreement between Canada and the European Union.78
The threshold also depends on the specific sector of the investment, notably whether
an investment takes place in a “cultural business,” which is related to Canada’s
cultural heritage or national identity.79 The Investment Canada Act also includes
different thresholds for State-owned enterprises.80
Until the 2009 Amendment, there was no general head for national security
review under the Act. Following the CFIUS approach, all foreign investments in
Canadian business may now be subject to national security review under Part IV.1 of
the Act. The Act does not specify minimum thresholds for the conduct of national
security review, and thus review may take place in any transaction involving a
“Canadian business” or “entity” and a “non-Canadian” investor. The ground for
the “reviewability of investments” and standard of review is whether there are
“reasonable grounds to believe that an investment by a non-Canadian could be
Foreign investment review regimes: how Canada stacks up. The Conference Board of Canada,
Ottawa; Bhattacharjee S (2009) Extended note. National security with a Canadian twist: the
investment Canada act and the new national security review test, Columbia FDI Perspectives 10.
Vale Columbia Center, New York, pp. 1–7; VanderMeulen J, Trebilcock M (2009) Canada’s policy
response to foreign sovereign investment: operationalizing national security exceptions. Can Bus
Law J 47(3):392–433.
75
See Government of Canada, Department of Industry, Regulatory impact analysis statement of the
regulations amending the investment Canada regulations (Vol. 151, No. 28 — July 15, 2017).
Available at http://www.gazette.gc.ca/rp-pr/p1/2017/2017-07-15/html/reg17-eng.html.
76
Section 11 ICA.
77
Section 14.1(1) ICA.
78
Sections 14.11(1) and 14(1)(c) or (d).
79
See Sections 15 and 16 Investment Canada Act.
80
See Section 14.1(1.1); see also Section 14.11(1).
injurious to national security.”81 The Act does not define national security. The
Minister of Innovation, Science and Economic Development issued guidelines in
2016 laying out the factors that are to be considered when assessing whether there is
a national security threat in the form of a list of factors that the Minister and
Governor in Council may take into account assessing a proposed or implemented
investment.82
Organizational and procedural aspects: The Minister responsible for the admin-
istration of the Act is the Minister of Innovation, Science and Economic Develop-
ment, who is assisted by a Director of Investments under Section 7 of the Act. The
Minister of Canadian Heritage is responsible for the administration of the Act
relating to cultural heritage or national identity. For national security reviews, the
Minister of Innovation, Science and Economic Development has to consult with the
Minister of Public Safety and Emergency Preparedness. The national security review
has then to be ordered by the Governor in Council, namely, the Cabinet of Canada.83
The Act also specifies the powers of the Governor in Council that may order “any
measures. . . to protect national security,” including the order not to make an
investment, authorize an investment, or impose conditions on the investment.84
The Act explicitly mentions the power of the Governor in Council to request
divestment from the Canadian investment.85
Australia
Introduction: Foreign investment screening in Australia takes place under the For-
eign Acquisitions and Takeovers Act of 1975. Foreign investment has been a
sensitive issue – and has led to screening procedures – in the areas of mining and
81
Section 25.2(1) and Section 25.3(1).
82
Minister of Innovation, Science and Economic Development, ‘Guidelines on the National Secu-
rity Review of Investments’ (19 December 2016), https://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/
lk81190.html. See Guideline 6: In assessing proposed or implemented investments under the
national security provisions of the Act, the nature of the asset or business activities and the parties,
including the potential for third party influence, involved in the transaction will be considered. For
the purposes of making determinations under Part IV.1 of the Act, the Minister or Governor in
Council may take into account factors including but not limited to the following, as they relate to
national security: i. The potential effects of the investment on Canada’s defence capabilities and
interests; ii. The potential effects of the investment on the transfer of sensitive technology or know-
how outside of Canada; iii. Involvement in the research, manufacture or sale of goods/technology
identified in Section 35 of the Defence Production Act; iv. The potential impact of the investment on
the security of Canada’s critical infrastructure; v. The potential impact of the investment on the
supply of critical goods and services to Canadians, or the supply of goods and services to the
Government of Canada; vi. The potential of the investment to enable foreign surveillance or
espionage; vii. The potential of the investment to hinder current or future intelligence or law
enforcement operations; viii. The potential impact of the investment on Canada’s international
interests, including foreign relationships; and, ix. The potential of the investment to involve or
facilitate the activities of illicit actors, such as terrorists, terrorist organizations or organized crime.
83
Investment Canada Act, RSC 1985, c 28 (1st Supp) s 25.3(1).
84
Section 25.4(1).
85
Section 25.4(1)(c).
natural resource industries.86 The Foreign Acquisitions and Takeovers Act of 1975
has a very broad regulatory reach, covering investments in a company over a certain
value threshold, portfolio investments, and investment in land by foreign individuals
or companies. Overall, there is in the Australian legislation an observable strong link
between real estate and infrastructure, and national security considerations. The
Foreign Acquisitions and Takeovers Act of 1975 has been amended in the last
years with a view to tightening the review process.
Grounds for review and national security: The basis for review under the Foreign
Acquisitions and Takeovers Act of 1975 is whether foreign investment is “contrary
to the national interest.” The Act establishes a negative test, namely, the Australian
government has to find reasons to reject an investment proposal.87 This is the
opposite system from the one applicable in Canada, where prospective investors
have to actively demonstrate a net benefit to Canada for the investments to be
approved.88 National interest is not defined in the legislation, but it is broader than
national security.89 A policy document gives guidance on what ought to be perceived
as a national interest without listing factors as the US legislation and the Canadian
secondary legislation has done.90
The Foreign Acquisitions and Takeovers Act of 1975 provides for two types of
action: significant actions and notifiable actions. Certain monetary thresholds need to
be met for screening and notification to take place. There is no threshold and
different rules apply in part for “foreign government investors.”91 Only some
significant actions are notifiable actions; notifiable actions need to be notified to
the Treasurer before they can be taken. Part 2 Division 2 of the Act defines
significant action. According to Section 40, an action is “significant” if certain
conditions are met, while the scope of the Act is very broad and covers the
acquisition of interests in securities, assets or Australian land, or otherwise take
action in relation to entities – either corporations or unit trusts – and business that
have a connection to Australia. These requirements are laid out as conditions relating
to entities (Section 40), businesses (Section 41), land (Section 43), as well as further
actions prescribed by regulations (Section 43). For entities, the conditions refer to
“kinds of action,” “threshold,” “kinds of entities covered,” and either “actions taken
by a foreign person,” or “action [that] results in change in control.” For businesses,
the conditions refer to “kinds of action,” “threshold,” and either “actions taken by a
86
See generally Sadleir C, Mahony G (2009) Institutional challenges and response in regulating
foreign direct investment to Australia. Econ Pap 28(4):337–345.
87
Holden M (2007) The foreign direct investment review process in Canada and other countries.
Parliamentary Information and Research Service, Ottawa, p. 6.
88
Holden (2007), p. 6.
89
See, eg, Australian Parliament, Senate Economics References Committee Foreign investment
review framework (April 2016), para 2.43.
90
Australian Government, Foreign Investment Review Board, Australia’s Foreign Investment
Policy (1 January 2018). http://firb.gov.au/resources/policy-documents/.
91
See Australian Government, Foreign Investment Review Board Guidance note 23, last updated:
15 January 2019.
foreign person” or “action [that] results in change in control.” There is a special

provision regarding action relating to “agribusinesses” (Section 42). The conditions
for significant action regarding land are that a foreign person acquires an interest in
Australian land, and the threshold test is met (Section 43). Part 2 Division 3 explains
the category of “notifiable action.” A notifiable action is a proposed action by a
foreign person: (a) to acquire a direct interest in an Australian entity or Australian
business that is an agribusiness, or (b) to acquire a substantial interest in an
Australian entity, or (c) to acquire an interest in Australian land. The relevant actions
are notifiable only if the entity, business, or land meets the threshold test. A similar
typology as for significant action is to be found in this Division. Part 2 Division 4
regulates the “threshold test,” namely, the value above which a certain action is
significant and notifiable. The value largely depends on the action. It moreover
regulates the issue of change in control, which is important for the definition of
significant action. Part 2 Division 5 regulates exemption certificates, which are
issued by the Treasurer and show that an interest does not give rise to significant
or notifiable action, or met the conditions that are required to be complied with for
this purposes. Part 3 covers the powers of the Treasurer for significant action. Under
the law, the Treasurer has the power to allow the investment under a no objection
notification, prohibit the investment, require the action to be undone, or impose
conditions on a significant action.
Organizational and procedural aspects: The agency with the power to inves-
tigate under the Act is the Foreign Investment Review Board (FIRB). The FIRB
only has an advisory role. According to Part 2 of the Act, the power to implement
the Act lies with the Treasurer of Australia. The Treasurer has powers to make
orders and decisions under Part 3 of the Act in relation to any significant action
taken or proposed to be taken. The Treasurer may block a proposed investment if it
is against the “national interest.” A foreign person must give the Treasurer notice
before taking a notifiable action. Only some significant actions are notifiable
actions.
EU Member States and the EU

The European Union and its Member States have started adopting a common
approach vis-à-vis investments originating in third countries, namely, countries
that are not Member States of the EU. The Member States of the European Union
have adopted different approaches in terms of how welcoming they are to FDI from
third countries. Some of them feature screening mechanisms, while others do not.
Approximately half of the EU Member States have screening mechanisms in
place.92
92
See European Commission (2017) Commission Staff Working Document Accompanying the
document “Proposal for a Regulation of the European Parliament and of the Council establishing a
13.9.2017, SWD, p 297, 7; Chaisse J (2012) Promises and pitfalls of the European Union Policy
on foreign investment – how will the new EU competence on FDI affect the emerging global
regime. J Int Econ Law 15(1):51–84; Chaisse J (2015) Demystifying public security exception and
EU law remains relevant both for States with and without screening mechanisms.
As was analyzed above, sometimes sectoral laws play the role of FDI control. While
EU competition law does not differentiate the review processes based on the source
of funding,93 it ensures that mergers and acquisitions do not result in economic
power concentration or distortion of competition in the internal market.94 Article 101
of the Treaty on the Functioning of the European Union (TFEU) prohibits cartels and
anticompetitive agreements, while Article 102 TFEU prohibits the abuse of a
dominant position. EU competition law distributes the power of enforcement
between the European Commission and the national competition authorities.95
The lack of homogeneity in the treatment of inward FDI from third countries gave
rise to the perception of a need to create an EU-wide legislative framework. It was
the powerful Member States that initiated the debate and the process in February
2017, when the French, German, and Italian Ministers of the Economy sent a letter to
this effect to the EU Commissioner for Trade, Cecilia Malmström.96
In May 2017, the European Commission issued a Reflection Paper on
“Harnessing Globalisation” to assess the current status of the influence of globali-
zation on the EU.97 Already in 2015, the Commission had proposed a new trade and
investment strategy for the EU under the title “Trade for All: Towards a More
Responsible Trade and Investment Policy.”98 “A Balanced and Progressive Trade
Policy to Harness Globalisation” has been the latest step in this process of creating a
more balanced approach to globalization.99 Apart from a draft mandate for the
European Commission to start negotiations for a Multilateral Investment Court
(MIC), this communication entailed another four proposals. One of the proposals
limitations on capital movement – hard law, soft law and sovereign investments in the EU internal
market. Univ Pa J Int Law 37(2):583–646; Grieger G Foreign direct investment screening: a debate
in light of China-EU FDI flows, European Parliamentary Research Service (Briefing May 2017),
Members’ Research Service PE 603.941, p. 5; Grieger G EU framework for FDI screening 4 (EPRS
| European Parliamentary Research Service, PE 614.667 – February 2019), p. 4.
93
Grieger G Foreign direct investment screening: a debate in light of China-EU FDI flows,
603.941, p. 5.
94
Grieger (2017), pp. 2, 5.
95
Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on
competition laid down in Articles 81 and 82 of the Treaty.
96
Grieger G Foreign direct investment screening: a debate in light of China-EU FDI flows, European
Parliamentary Research Service (Briefing May 2017), Members’ Research Service PE 603.941, 2.
97
European Commission, Reflection paper on harnessing globalisation, COM(2017) 240 of 10 May
2017.
98
European Commission (2015) Trade for all: towards a more responsible trade and investment
policy.
99
European Commission (2017d) Communication from the Commission to the European Parlia-
ment, the Council, them European Economic and Social Committee and the Committee of the
Regions: A Balanced and Progressive Trade Policy to Harness Globalisation, COM (2017) 492
final, Brussels, 13.9.2017; see also President Jean-Claude Juncker’s State of the Union Address
2017 (Brussels, 13 September 2017).
that went initially relatively unnoticed was for a Regulation establishing a frame-
work to screen foreign direct investment coming into the EU.100
The initial question in the EU was whether to reinforce FDI control mechanisms at
the Member State level or create a new FDI screening mechanism at the EU level.101
The EU Regulation on the Screening of Foreign Direct Investments was adopted in
March and entered into force in April 2019.102 The Regulation is based on Article 207
(2) TFEU on the common commercial policy, which is an area of exclusive EU
competence as defined in Article 3(1)(e) TFEU.103 The Regulation neither establishes
screening at the EU level nor explicitly mandates the establishment of such mecha-
nisms nor fully harmonizes screening procedures at the Member State level. Its main
goal is the co-ordination of domestic procedures – both in the case that Member States
use and in the case that Member States do not use ISMs – and the setting of minimum
standards for the national FDI screening mechanisms, when they have been put in
place by the Member States.104 There is still one firm obligation that is mandated on
States; should they introduce screening mechanisms, the exclusive purpose of screen-
ing must be on grounds of security or public order. This becomes apparent from a
common reading of Article 3(1) in conjunction with recital 18 of the Regulation.
Grounds for Review and national security: On the one side, free movement of
capital according to Article 63(1) TFEU has an erga omnes effect, applying among
EU Member States and between Member States and third countries, which means
that third country investors may enjoy the same benefits as EU citizen investors.105
On the other side, according to Article 4(2) TFEU as well as Article 346(1)(b) TFEU,
national security and essential security interests remain the sole responsibility of the
100
European Commission (2017) Commission Staff Working Document Accompanying the docu-
ment “Proposal for a Regulation of the European Parliament and of the Council establishing a
13.9.2017, SWD, p 297, 2017/0224 (COD) COM(2017) 487 final.
101
On older discussions on the introduction of screening mechanisms – mostly in the frame of the
role of Sovereign Wealth Funds in the international economy – see Grieger G Foreign direct
investment screening: a debate in light of China-EU FDI flows, European Parliamentary Research
Service (Briefing May 2017), Members’ Research Service PE 603.941, pp. 11–12.
102
See generally de Kok J (2019) Towards a European framework for foreign direct investment
reviews. Eur Law Rev. 44:24; García-Herrero A, Sapir A (2017) Should the EU have the power to vet
foreign takeovers? Bruegel Blog post, September 1, 2017. Available at https://bruegel.org/2017/09/
should-the-eu-have-the-power-to-vet-foreign-takeovers/; Maria Stella Bonomi, Foreign Direct Invest-
ment Screening Measures in the EU and Duty to Give Reasons (forthcoming 2020) Roma Tre Law
Review; Bruno Paolo Amicarelli, Remedies against Unlawful Foreign Direct Investments Screening
Measures under the New Common EU Regulation (forthcoming 2020) Roma Tre Law Review.
103
It needs to be noted that since the coming into force of the Lisbon Treaty, the common
commercial policy also includes FDI; see Snell J (2019) EU foreign direct investment screening:
Europe qui protege? European Law Rev. 44:137, p. 137.
104
See Snell J (2019) EU foreign direct investment screening: Europe qui protege? European Law
Rev. 44:137. Snell call this ‘a highly unusual approach’; ibid., at p. 138.
105
Snell (2019), pp. 137, 138. Article 63(1) TFEU reads as follows: ‘All restrictions on the
movement of capital between Member States and between Member States and third countries
shall be prohibited’.
Member States. In addition, the case law of the Court of Justice of the European
Union (CJEU) has established that Member States may be able to restrict capital
movements between the EU and third countries based on grounds that would not be
justified for freedom of movement of capital in an intra-EU context.106 The grounds
for screening according to Article 1 of the Regulation are “security or public order.”
This seems to be a rejection of some older proposals to include economic grounds as
screening grounds for foreign investment.107
Article 4(1) of the Regulation enlists factors that are to be taken into consideration
by the Member States and the European Commission when making an assessment
on whether a certain investment is likely to affect security or the public order.108
Article 4(2) adds some more factors as “context and circumstances of the foreign
direct investment,”109 most prominently whether the foreign investor is directly or
indirectly controlled by a third State in terms of ownership or significant funding.
The list of factors of Article 4 is not exhaustive.
Organizational and procedural aspects: The EU Regulation is complementary to
EU Member State screening laws. The Regulation also sets minimum requirements
that all States that already have in place or will be adopting screening procedures and
mechanisms have to comply with. Article 3 provides that Member States may
maintain, amend, or adopt mechanisms to screen foreign direct investments in
their territory, but subjects them to certain minimum procedural requirements as
essential elements of the screening framework, such as transparency and non-
discrimination among investors from third countries (para. 2), the obligation for
reviews to be conducted in an expeditious manner (para. 3), the obligation to protect
confidential information (para. 4), and very importantly, allow for judicial review of
the screening decisions (para. 5). In order to promote greater certainty for investors,
the Regulation also requires that screening takes place based on a concrete legal
framework that sets out the procedural rules for the conduct of the screening, the
factors triggering the screening process as well as the grounds for screening.
106
See e.g., Test Claimants in the Fil Group Litigation v Inland Revenue Commissioners (C-446/04)
EU:C:2006:7,74; [2007] l C.M.L.R. 35 at [171].
107
Snell (2019), p. 137, 138.
108
Article 1 of the Regulation reads as follows: 1. In determining whether a foreign direct
investment is likely to affect security or public order, Member States and the Commission may
consider its potential effects on, inter alia: (a) critical infrastructure, whether physical or virtual,
including energy, transport, water, health, communications, media, data processing or storage,
aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land
and real estate crucial for the use of such infrastructure; (b) critical technologies and dual use items
as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009, including artificial
intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum
and nuclear technologies as well as nanotechnologies and biotechnologies; (c) supply of critical
inputs, including energy or raw materials, as well as food security; (d) access to sensitive informa-
tion, including personal data, or the ability to control such information; or (e) the freedom and
pluralism of the media.
109
See recital 13 of the Regulation.
Apart from the procedural and organizational requirements referring to the

national screening mechanisms, the Regulation includes a variety of procedural
obligations for Member States vis-à-vis other Member States and the European
Commission. The Regulation requires Member States to notify the European Com-
mission of any FDI in their jurisdiction. In the case of investments that may have an
adverse effect on security or public order of another Member State, this Member
State/s has to be notified and consulted.
The Regulation provides for two plus one types of cooperation mechanisms among
Member States, as well as between Member States and the European Commission:
Article 6 establishes a cooperation mechanism for FDI undergoing screening in a
Member State; Article 7 establishes a cooperation mechanism for FDI not undergoing
screening in a Member State; Article 8 establishes a mechanism regarding FDI likely
to affect projects or programs of Union interest, like Galileo and Horizon 2020 as
identified in the Annex to the Regulation. The relevant mechanisms give the right to
affected Member States to provide comments, and to the European Commission to
issue Opinions, when FDI is likely to affect public order or security. The comments of
the other Member States and the Opinions of the European Commission are not
binding upon the Member States, but they have to give them “due consideration.”
When it comes to FDI likely to affect projects and programs of Union interest, there is
the heightened obligation to “take utmost account of the Commission’s opinion,” and
“provide an explanation to the Commission if its opinion is not followed.”110
The procedural and cooperation requirements for the EU Member States may
eventually have the effect of nudging a majority of EU Member States to develop
screening procedures and mechanisms.
Similarities and Divergencies
While the ISMs discussed above maintain the national specificities of the countries that
have established them, there are certain common features and trends across all countries.
There is a clear focus in screening laws on foreign investment in shares of
companies. This seems to be excluding FDI in land and foreign portfolio invest-
ments. Foreign portfolio investment includes investment in financial assets of a
company from foreign investors, including assets such as bonds, stocks, mutual
funds, and involves passive ownership, without the foreign investors having
control over companies, or even direct ownership in stakes of a company or
ownership of property. The EU Regulation makes clear that it does not regulate
portfolio investment.111 The Canadian legislative framework also gravitates
towards foreign direct investment. On the other side of the spectrum, the Australian
law covers multiple aspects of foreign investment that could capture aspects of
portfolio investment, and explicitly covers investment in land. The CFIUS process
110
Article 8(2)(c) of the Regulation.
111
See paragraph 9 of EU Regulation.
has been reformed under FIRRMA to also include investment in land and real
estate, as well as certain aspects of foreign portfolio investments. There is thus an
observable tendency to expand the scope of national security review from the
exercise of control in home State companies to include foreign investment in land
and some portfolio investments.
A common organizational feature is the representation of the State at the highest
level in the screening process. The final decision-maker is invariably a highly
placed agency from the Executive branch of government. In the studied mecha-
nisms, the competent agency for screening is at the ministerial level, with support
from lower-ranking agencies. The Minister with the primary decision-making
power may be the Treasurer or Finance Minister, while the supporting agencies
are responsible for the screening process as such. In Canada, final decisions are
made by the Council of Ministers. The USA presents a peculiar case whereby the
President has a direct involvement in the screening process and is the final
decision-making authority.
The representation of the State at the highest level safeguards that, when the
foreign investor and investment is faced with an investment screening decision, a full
range of sovereign powers is retained for these agencies. The powers of the govern-
ment range from being able to accept an investment or to accept it subject to certain
conditions to the power to reject an investment or even request divestment from the
country. Given the obligations to notify about investments, as well as the deadlines
imposed on the government to respond as soon as a notification has been received,
the request to divest will mostly apply in cases where notification is not mandatory or
to systems that do not require notification in the first place.
An issue where there is certain divergence among the mechanisms is whether
screening decisions are reviewable or justiciable. The systems that are at the two extremes
are the USA, on the one side, and the EU, on the other. While decisions of the President
are not reviewable, the EU Regulation makes justiciability a minimum requirement for all
EU Member States that have an investment screening system in place.
Another common procedural and organizational issue is the “triggering event”
that may give rise to the review process. Two types of actions may be initiated
through the relevant triggers: either the screening process or the obligation to notify
the relevant authority of the investment . The triggering event could be one of the
following112: a monetary threshold, a controlling or blocking stake in a business, or
the involvement in certain sector(s), such as real estate. Finally, the involvement of
an SOE has more recently become a trigger as well.
112
See also GAO (2008) Foreign investment laws and policies regulating foreign investment in 10
countries, report to the honorable Richard Shelby, Ranking Member, Committee on Banking,
Housing, and Urban Affairs, U.S. Senate (February 2008), p. 22: ‘Of the eight countries with a
review process, six maintain official thresholds for review, either dollar thresholds or a controlling
or blocking stake, which may be defined differently in each country. China reviews all transactions
at some government level. India requires government notification for all investments, and does not
specify monetary thresholds for review.’
National Security in Investment Law
National security has operated in the twentieth century as an exception to the freedom
of movement of capital under the BIT system of investment protection. Assessment of
national security considerations seems to be moving from international law to domes-
tic law with its inclusion as a justification for the rejection of an investment in the pre-
establishment phase. National security is now established in domestic law as an
overarching category that goes beyond national defense or foreign affairs consider-
ations to also include concerns about investments in strategic industries or sectors,
infrastructure, and key technologies such as telecommunications.
The expansion of the notion of national security has been taking place in two
distinct ways.113 First, through expansion of the relevant legislative frameworks, for
example, by adding new sectors or activities subject to review, lowering the thresholds
that initiate the review process, broadening the definitions of foreign investment that
may be subject to screening and as such the scope of the application of the law, or
extending the disclosure obligations of foreign investors.114 Second, through an
expansive definition of the notion of national security as the power to interpret
moves from the international to the domestic level of governance in the broader
“New Geoeconomic Order.”
The present section discusses the issue of national security within international
investment law (section “National Security Exceptions in International Investment
Law”) and how national security is changing from an exception in international
investment treaties to a domestic law issue through the use of ISMs in the investment
pre-establishment phase (section “National Security in Domestic Screening Mech-
anisms”). The section finally discusses how national security is developing more
generally into a major consideration for domestic legal orders and how this may have
an effect on domestic investment screening decisions (section “Towards a Redefini-
tion of the Notion of National Security?”).
National Security Exceptions in International Investment Law
International trade and foreign investment have been recognized in the second part of
the twentieth century as pathways to achieving both peace and economic development
in the world. Accordingly, trade and investment treaties have been developed to
regulate domestic policies ranging from health and the environment to energy and
taxation. More recently, this has started raising concerns regarding respect for national
sovereignty. International trade and investment treaties include “safety valves” for
cases in which States consider their sovereignty overly restricted. These safety valves
usually take the form of “security” or “essential interest” exceptions.
113
Cf. also UNCTAD world investment report: special economic zones (UN 2019), pp. 96–98.
114
See UNCTAD (2019), pp. 95–96.
While in the first post-World War II decades, resort to these exceptions was fairly
rare, this has started changing more recently. The situation in the multilateral trade
regime is very telling. While the national security exception of Article XXI of the
World Trade Organization General Agreement on Tariffs and Trade (WTO GATT) had
hardly ever been invoked before, it has been recently raised by various WTO members
before WTO panels.115 Regional law may also provide for national security and
essential security exceptions. While restrictions on freedom of establishment and on
capital movements are in principle prohibited by Article 49 TFEU and Article 63
TFEU, also between Member States and third countries in the case of capital move-
ments, there is settled case law of the CJEU allowing for restrictions if they are justified
by an overriding reason in the public interest and are proportionate.116 Moreover,
Article 346 TFEU allows for exceptions from the application of EU law for the sake of
“protection of the essential interests of [a Member State’s] security which are
connected with the production of or trade in arms, munitions and war material.”
BITs and other International Investment Agreements have traditionally not
contained general or security exceptions in the same way as the WTO agreements
have.117 This has started to change with more recent BITs and PTAs that include an
investment chapter that may include exceptions that resemble those of the WTO.118
115
There are three sets of cases raising the issue of national security before the WTO panels. First,
the case that arose out of the intervention of Russia in the Ukraine; see DS512: Ukraine vs Russia –
Measures Concerning Traffic in Transit; more information available at: https://www.wto.org/
english/tratop_e/dispu_e/cases_e/ds512_e.htm; second, the cases involving Qatar; third, the steel
and aluminium cases that have been initiated after the Trump Administration raised tariffs for steel
and aluminium; see, e.g., DS544: China vs. U.S. – Measures on Steel and Aluminium (April 5,
2018); DS548: EU vs. U.S. - Measures on Steel and Aluminium (June 1, 2018); DS550: Canada vs.
U.S. – Measures on Steel and Aluminium (June 1, 2018); DS554: Russian Federation vs. United
States – Certain Measures on Steel and Aluminium Products (June 29, 2018).
116
See Case C-371/10 National Grid Indus [2011] ECR I-12273, paragraph 42, and Case C-250/08
Commission v Belgium [2011] ECR I-12341, paragraph 51.
117
Knight and Voon (forthcoming 2020).
118
See generally Moon WJ (2012) Essential security interests in international investment agree-
ments. J Int Econ Law 15:481; Henckels C (2018) Should investment treaties contain public policy
exceptions? BCL Rev. 59:2825; Martini C (2018) Avoiding the planned obsolescence of modern
international investment agreements: can general exception mechanisms be improved, and how?
Boston Coll Law Rev. 59:2877; Ma J, International Investment and National Security Review
(February 19, 2019) Vanderbilt Journal of Transnational Law, Forthcoming Oct. 2019. Available at
SSRN: https://ssrn.com/abstract=3338072; see also Mitchell A D, Munro J, Voon T (2018)
Importing WTO general exceptions into international investment agreements: proportionality,
myths and risks’. In: Yearbook on international investment law & policy 2016–2017; Alvarez JE,
Brink T (2012) Revisiting the necessity defence: continental casualty v Argentina. In: Sauvant KP
(ed) Yearbook on international investment law & policy 2010–2011. Oxford University Press,
p 319; Mitchell AD, Henckels C (2013) Variations on a theme: comparing the concept of “neces-
sity” in international investment law and WTO law. Chicago J Int Law 14(1):93. (See ▶ Chaps. 23,
“Essential Security Interests in International Investment Law: A Tale of Two ISDS Claims Against
India,” ▶ 22, “National Security Exception in an Era of Hegemonic Rivalry: Emerging Impacts on
Trade and Investment.”)
Respondent States have used the security exceptions to justify the nonapplication
of investment treaty rules.119 Security considerations have been taken into account
by investment tribunals under two heads. The first head is “essential security”
exception clauses under BITs. Most cases under this head have arisen in the context
of Article XI of the Argentina-US BIT120 and in response to the Argentinian
economic crisis and the follow-up measures of the Argentinian government as of
2002. Different tribunals have made different proclamations on the interpretation of
Article XI.121 An issue of intense debate has been whether measures adopted in
response to an economic crisis are covered under the protection of essential security
interests. The second head is the necessity defense under customary international
law,122 as codified under Article 25 of the 2001 Articles on State Responsibility of
the International Law Commission,123 which recognizes necessity “as a ground for
precluding wrongfulness of an act not in conformity with an international obliga-
tion” where the act “is the only way for the State to safeguard an essential interest
against a grave and imminent peril.”124 The necessity defense has been acknowl-
edged as applicable also in the context of the cases arising out of the Argentinian
economic crisis.125
The main issue is whether these clauses are self-judging. The case law points in
the direction that national security clauses are not self-judging, unless this is
119
See, eg, Bear Creek Mining Corporation v Peru, ICSID Case No ARB/14/21, Award (30
November 2017) paras 122, 149, 202, 341, 473.
120
Treaty between United States of America and the Argentine Republic Concerning the Reciprocal
Encouragement and Protection of Investment (signed 14 November 1991, entered into force 20
October 1994), Article XI: ‘This Treaty shall not preclude the application by either Party of
measures necessary for the maintenance of public order, the fulfillment of its obligations with
respect to the maintenance or restoration of international peace or security, or the Protection of its
own essential security interests.’
121
See, eg, Zarra G (2017) Orderliness and coherence in international investment law and arbitra-
tion: an analysis through the lens of state of necessity. J Intl Arb 34(4):653; see also, e.g., Article
11(3) of the Mauritius–India BIT (Agreement between the Republic of Mauritius and the Republic
of India for the Promotion and Protection of Investments (signed 4 September 1998, entered into
force 20 June 2000); CC/Devas (Mauritius) Ltd v Republic of India, PCA Case No 2013–09, Award
on Jurisdiction and Merits (25 July 2016) (Devas v India).
122
See, eg, Sempra Energy International v Argentina, ICSID Case No ARB/02/16, Award (18
September 2007) para 344; but see Sempra Energy International v Argentina, ICSID Case No ARB/
02/16, Decision on Annulment (10 June 2010) paras 159, 168, 177, 200, 223. See also Enron
Corporation v Argentina, ICSID Case No ARB/01/3, Award (22 May 2007) paras 303, 333, 339;
but see Enron Corporation v Argentina, ICSID Case No ARB/01/3, Decision on Annulment (30
July 2010) paras 368, 378, 384, 395, 407.
123
Responsibility of States for Internationally Wrongful Acts, GA Res 56/83, UN GAOR, 56th sess,
85th plen mtg, Supp No 49, UN Doc A/RES/56/83 (28 January 2002, adopted 12 December 2001)
annex.
124
ibid. Article 25.
125
See, e.g., Kurtz J (2010) Adjudging the exceptional at international investment law: security,
public order and financial crisis. Int Comp Law Q 59:325.
expressly stated in the relevant treaty.126 At the same time, it is acknowledged that in
any event tribunals should treat the assessment of the assessment of States regarding
the existence of a threat to an essential security interest with some deference.127
This delimitation of sovereignty by investment treaties and tribunals may be the
factor that has prompted several States to take a different route, namely, that of
domestic law, when it comes to the assessment of national security considerations.128
This is reflected both in provisions regarding foreign investment and otherwise in the
domestic law of various countries, notably the contemporary economic superpowers.
National Security in Domestic Screening Mechanisms
While screening mechanisms have existed since the 1970s, there has been a ten-
dency to create new or tighten existing ones. Screening is almost always based on
national security grounds of review, either as the primary factor or as one among
others, and invariably the most prominent one.129 According though to a 2008 report
of the US Government Accountability Office (GAO), “[s]ome countries review or
restrict foreign investment based on economic security or cultural nationalism.
Canada, China, and Japan formally indicate economic reasons as part of the criteria
for the review of foreign investment.”130 Canada is the most characteristic example
in this respect, as it has traditionally used much broader justifications for screening
such as net benefit to the Canadian economy that prospective investors have to
demonstrate, as well as protection of cultural heritage; net benefit is most often
assumed to be economic in nature.131 In fact, national security as a head for review
126
CMS Gas Transmission Co v Argentina, ICSID Case No ARB/01/8, Award (25 April 2005) paras
370, 373; Enron Corporation v Argentina, ICSID Case No ARB/01/3, Award (22 May 2007) paras
331, 332; El Paso Energy International Co v Argentina, ICSID Case No ARB/03/15, Award (27
October 2011) para 561 (see more relevantly paras 589, 610); Devas v India, para 219; see further
Military and Paramilitary Activities in and against Nicaragua (Nicaragua v US) (Merits) [1986]
ICJ Rep 14, para 282 (erroneously cited as the 1984 Judgment on Jurisdiction and Admissibility);
Oil Platforms (Iran v US) (Judgment) [2003] ICJ Rep 161, para 43; Gabčíkovo-Nagymaros Project
(Hungary v Slovakia) (Judgment) [1997] ICJ Rep 7, para 51.
127
Deutsche Telekom AG v Republic of India, PCA Case No 2014–10, Interim Award (13 December
2017) (Deutsche Telekom v India) para 235 (‘In respect of the existence of essential security
interests, the Tribunal accepts that a degree of deference is owed to a state’s assessment. However,
such deference cannot be unlimited.’).
128
See also Knight and Voon (forthcoming 2020) according to the authors, the inconsistency and
unpredictability of the tribunal decisions are feeding into the increased use of national security at the
domestic level.
129
Knight and Voon (forthcoming 2020); GAO (2008) Foreign investment laws and policies
regulating foreign investment in 10 countries, report to the honorable Richard Shelby, Ranking
Member, Committee on Banking, Housing, and Urban Affairs, U.S. Senate (February 2008), 22.
130
GAO (2008), p. 19.
131
Holden M (2007) The foreign direct investment review process in Canada and other countries.
Parliamentary Information and Research Service, Ottawa, p. 9.
was only added relatively late, in 2009. Economic and cultural protectionism may be
seen in other parts of the world as well. Moreover, while for the rest of the systems
the government has to find reasons to reject an investment, in Canada the prospective
investors have to actively demonstrate a net benefit to Canada for the investments to
be approved.
In addition, even the mechanisms that narrow down screening to national security
grounds use a broad concept of national security. The relevant domestic legislative
frameworks do not include definitions of national security. National security is
generally not restricted to national defense or foreign affairs.132 The “national
interest test” applied by Australia seems to go further than national security in the
strict sense.133 The EU legislative framework also speaks of “security” and “public
order,” notions that may be interpreted as broader than national security. According
to Article 3(1) of the EU Regulation, “Member States may maintain, amend or adopt
mechanisms to screen foreign direct investments in their territory on the grounds of
security or public order.” The EU Regulation seems to disallow screening mecha-
nisms that go beyond the purpose of protecting security and public order. Still, both
notions are fairly broad, and ultimately, it is the EU Member States that have the
power to make the screening decision. According to Gisela Grieger, the US frame-
work “may be seen as a comparatively narrow approach limited to genuine security
threats and excluding issues of perceived ‘unfair competition’, despite pressure to
include them.”134
The broad definition of national security allows considerable discretion to be
exercised by national governments regarding the screening assessment. Discretion is
usually statutorily narrowed down either in order to oblige the competent govern-
ment agency to conduct a review or to prevent it from intervening. There are thus
triggers for the initiation of the review process. The most usual trigger is the
imposition of thresholds in various legislative and regulatory instruments, above
which actions are notifiable, or the government should mandatorily intervene in the
transaction. Another very common trigger is the sector of the proposed investment.
Traditionally, sectors that have triggered intervention are the energy and the real
estate sectors. Nowadays, “critical infrastructure” and “critical technology” are
emerging as areas that allow for the initiation of screening, alongside investment
in land and real estate more broadly. The most recent trigger that has been introduced
into domestic screening processes is SOEs and their involvement in inward
investment.
Apart from the triggers, most legislative instruments nowadays include lists of
factors that are to be considered by the decision-making bodies as relevant for
national security purposes. They represent cases for which national security may
132
Grieger G Foreign direct investment screening: a debate in light of China-EU FDI flows,
603.941, p. 9.
133
Grieger (2017), p. 9.
134
Grieger (2017), p. 9.
be deemed as violated. The lists are indicative, open-ended, and extend far beyond
national defense to include such aspects as food security, access to sensitive infor-
mation including personal data, and the freedom and pluralism of the media, which
are identified by the EU Regulation as factors prompting screening for national
security purposes. Again, the broad definition in conjunction with open-ended lists
of general factors gives a great margin of discretion to the government agencies that
have the power to screen and make investment screening decisions.135
The proliferation of screening mechanisms as well as the broad framing of
national security grounds shifts assessment of national security away from interna-
tional investment law and investment tribunals to the national executives. It more-
over creates a more cautious approach to foreign investment moving to an ex ante
domestic evaluation of foreign investments from a system that before relied almost
exclusively on ex post evaluation of State action by international tribunals.
Towards a Redefinition of the Notion of National Security?
The preceding analysis shows that while different rationales may lie behind the
creation of screening mechanisms in investment law, the protection of national
security stands out as the most important one. Different legal orders give different
interpretations to national security; the general tendency is to keep the term fairly
broad, allowing for broad discretion on the part of the Executive branch of Govern-
ment to apply screening procedures when it considers necessary. An effort has been
made in statutes to include lists of factors where national security may be deemed as
violated. The question becomes how far the expansion of the notion of national
security can go.
The international legal order has been changing rapidly in the last couple of years.
The last quarter of the twentieth century allowed for a certain divergence between
economic and security considerations regarding trade and investment. This was also
reflected in the relevant international trade and investment treaties. Security was
actually perceived to be (a) a premise for the order, and (b) an exception to the order,
namely, as one of the exceptions permitted under trade and investment rules.136
Anthea Roberts, Henrique Choer Moraes, and Victor Ferguson suggest that
135
See Grieger (2017), p. 9; Holden M (2007) The foreign direct investment review process in
Canada and other countries. Parliamentary Information and Research Service, Ottawa, p. 6.
136
See generally Roberts A, Moraes HC, Ferguson V The geoeconomic world order, Lawfare (Nov.
19, 2018). Available at: https://www.lawfareblog.com/geoeconomic-world-order; Roberts A,
Moraes HC, Ferguson V Geoeconomics: the variable relationship between economics and security
(27 November 27, 2018). Available at: https://www.lawfareblog.com/geoeconomics-variable-rela
tionship-between-economics-and-security; Roberts A, Moraes HC, Ferguson V Geoeconomics:
the Chinese strategy of technological advancement and cybersecurity (3 December, 2018). Avail-
able at: https://www.lawfareblog.com/geoeconomics-chinese-strategy-technological-advancement-
and-cybersecurity; Roberts A, Moraes HC, Ferguson V Geoeconomics: the U.S. strategy of
technological protection and economic security (11 December 2018). Available at: https://www.
lawfareblog.com/geoeconomics-us-strategy-technological-protection-and-economic-security
economics and security are now converging in new ways that may change the core of
the international economic law regime; the authors call this the “New Geoeconomic
World Order.”137 This has been reflected in the effort of economic superpowers to
restructure the rules and institutions governing international trade and investment
with the goal of advancing their own their own trade and investment agenda, and
also security preferences. This has led to the ongoing “trade wars” mostly between
the USA and China.138
Domestic law is becoming more relevant and domestic institutions the important
decision-making bodies in the international economic order in comparison to the
international economic order of the end of the twentieth century, i.e., the order of
globalization. The convergence between economics and security is moreover
reflected in the domestic laws of countries. Except for the investment control and
screening laws that have been described in this chapter, the overall legal orders of
States are adapting to the New Geoeconomic Order. This is very clear in the National
Security Strategy of the United States of America of 2017, which includes chapters
on the rejuvenation of the domestic economy, including on the link between national
security and the preservation of the lead of the USA in innovation.139 In 2015, China
passed a new National Security Law. Articles 2 and 3 of the same law define two
categories of national security: political and economic security.140 This reflects an
effort by the two economic and political superpowers to reassert national sovereignty
in a context of postglobalization international economic law.141 This is also reflected
in statutes on the protection of critical infrastructure and critical technologies that all
discussed countries have developed alongside the investment screening laws.142 The
institutions administrating critical infrastructure are often involved in the foreign
investment screening process.143
137
Roberts et al. (Nov. 19, 2018).
138
See generally Claussen K, Grewal DS (2018) Features symposium: international trade in the
trump era. Yale J Int Law Online; Chaisse J, Matsushita M (2018) China’s “Belt and Road”
initiative – mapping the world trade normative and strategic implications. J World Trade
52(1):163–186.
139
President of the United States of America, National Security Strategy of the United States of
America (December 2017). Available at https://www.whitehouse.gov/wp-content/uploads/2017/12/
NSS-Final-12-18-2017-0905.pdf
140
See Article 2 of the National Security Law of the People’s Republic of China (2015), Order of the
President of the People’s Republic of China (No. 29), available at http://govt.chinadaily.com.cn/a/
201812/11/WS5c0f1b56498eefb3fe46e8c9.html
141
See Introduction; Dimitropoulos (forthcoming 2020).
142
See eg in the US Presidential Policy Directive 21 (PPD-21) – Critical Infrastructure Security and
Resilience (February 12, 2013), available at https://obamawhitehouse.archives.gov/the-press-
office/2013/02/12/presidential-policy-directive-critical-infrastructure-security-and-resil, and in
Australia the Security of Critical Infrastructure Act 2018, available at https://www.legislation.gov.
au/Details/C2018A00029
143
See eg Australian Government, Department of Home Affairs The critical infrastructure centre
and foreign investment. https://www.homeaffairs.gov.au/nationalsecurity/Documents/cic-factsheet-
critical-infrastructure-centre-foreign-investment.pdf
These international geoeconomic developments have been the driving rationale

behind the proliferation of ISMs based on national security considerations. At the
same time, the establishment of a New Geoeconomic World Order is bound to
further influence the interpretation of the notion of national security in the assess-
ment of individual investment proposals. Accordingly, there is an observable ten-
dency to have the notion of national security cover multiple aspects of national
policy that would not, under the conditions of “mainstream” globalization, be
covered under the notion of national security. As mentioned above, the involvement
of an SOE and a SWF seems to be creating the assumption that an issue relates to
national security. The inclusion of SOES/SWFs as an a priori category subject to
intense scrutiny is already expanding the notion of national security significantly.
This is reflected in the US law, where – in contrast to longstanding legal tradition – if
an investment is made by an SOE/SWF, or involves critical infrastructure, the review
process is initiated automatically.
Still, one should not exaggerate in identifying a trend towards an over-stretching of
the definition of national security. There are contemporary developments that point in
the opposite direction. Countries in the Gulf Region, such as Qatar, the UAE, and
Kuwait, have a longstanding tradition of placing investment restrictions on foreign
nationals in the sectors of the economy in which they are allowed to operate, as well as
mandating the involvement of their nationals in the economy. Non-nationals are
usually allowed to invest in most sectors of the economy, provided that they become
shareholders in a company that is established according to national law and that they
have a local partner that contributes no less than 51% of the capital of the company.144
This has recently started to change as more countries lift some of the relevant
restrictions by adopting new domestic FDI laws. Qatar and the UAE have new laws
in place allowing 100% foreign ownership in domestic companies as a default rule for
almost all sectors.145 China is also moving from a sectoral investment control frame-
work based on a positive list, towards a general investment screening law with a
negative list. Moreover, Special Economic Zones (SEZs) are proliferating in all parts
of the world. Investment in SEZs is subject to minimal controls, while the relevant
legislative frameworks apply independently of the nationality of the investor, as they
create separate jurisdictions within the broader domestic legal order.
ISMs and increased investment protectionism seem to be the order of the day for
developed countries.146 Investment protectionism seems to be in a relative decline in
144
Until 2018, foreign investors were allowed to only invest in Qatar, for example, in accordance
with the provisions of Law No 13 of 2000 ‘Regulation of the Investment of Non-Qatari Capital in
the Economic Activity’, as amended. Foreign investment was generally limited to 49% of the
capital for most business activities with Qatari partner(s) holding at least 51%. Foreign investors
may generally not invest under Law No 13 of 2000 in commercial agencies or, broadly speaking,
real estate; see Investment Law No. 13 of 2000 Article 2.3. Nr. 2.
145
See, eg, UAE Federal Law by Decree No 19 of 2018 ‘Regarding Foreign Direct Investment;’ and
Qatar Law No 1 of 2019.
146
See also UNCTAD World investment report 2018: investment and new industrial policies (UN
2018), pp. 80–81. ‘The concentration of these FDI screening mechanisms in developed countries
the emerging economies of the East and South.147 Moreover, even in the West,
despite pressures, legislators and screening institutions have been hesitant to overtly
broaden the notion of national security. In the USA, this has been raised particularly
in the context of food security. Food security, food safety, and biosecurity have
traditionally not been within the scope of threats covered by CFIUS.148 Despite
pressures from the US Senate during the CFIUS process regarding the Shuanghui-
Smithfield Deal, the scope of national security was deliberately not expanded.149
Conclusion
The international investment regime is rapidly changing. Investment law is becom-

ing a much more domestic field of law. A domestic investment institution that has
been on the rise in the last years are screening mechanisms, and more generally,
domestic mechanisms to review and control foreign investment. Screening mecha-
nisms operate in a way in parallel to international investment law. A typology of
screening mechanisms was presented, as well as an evaluation of their legality under
international investment law.
National security lies at the epicenter of these screening mechanisms. There is
thus a clear tendency to move investment issues from the international realm into the
domestic, “reclaiming” them for the domestic level of governance. Accordingly, the
assessment of national security concerns will continue leaving the realm of interna-
tional investment law and investment arbitral tribunals in favor of domestic mech-
anisms of ex ante evaluation of interference by foreign investment with national
security interests. In addition to this move from the international to the domestic, the
comparative study of various legal orders shows that there is an opening of the
definition of national security to also include considerations beyond strict national
security such as national defense, to also include economic security considerations.
It is hard to predict where the balance will be struck. While there is a general
pessimism regarding this balance focusing on initiatives in the USA, Canada,
Australia, and the EU, examples from traditionally less open legal systems showcase
may be explained by the fact that these economies show a relatively high degree of openness
towards foreign investment, including in key economic sectors and infrastructure. FDI screening
may thus serve as a safety valve for regulating the entry of foreign investment in critical cases.
Moreover, the 24 countries identified as applying these mechanisms are the main global destinations
for foreign investment in these sensitive sectors and activities, making them therefore more
vulnerable to undesired foreign acquisitions;’ see UNCTAD world investment report: special
economic zones (UN 2019), p. 93.
147
UNCTAD (2018), pp. 81–83.
148
See Josselyn AS (2014) National security at all costs: why the CFIUS review process may have
overreached its purpose. Geo Mason Law Rev. 21:1347, 1367, p. 1366.
149
Press Release, Debbie Stabenow, U.S. Senator, Bipartisan Group of Senators Urge Appropriate
Oversight of Proposed Smithfield Purchase (June 20, 2013), http://www.stabenow.senate.gov/news/
bipartisan-group-of-senators-urge-appropriate-oversight-ofproposed-smithfield-purchase#sthash.
OiyujdHt.dpuf [https://perma.cc/BEV9-V8X6]
that the world is not necessarily advancing towards more closeness, but rather
towards a fairer balance between globalization and national sovereignty. Interna-
tional investment law is being informed by domestic systems of governance in order
to adjust the ways in which international law principles are implemented alongside
and through the use of domestic legal instruments.150
150
See Dimitropoulos (forthcoming 2020)
National Security Exception in an Era
of Hegemonic Rivalry: Emerging Impacts 22
on Trade and Investment
Joel Slawotsky
Contents
The Era of Hegemonic Rivalry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550
Asian Infrastructure Investment Bank (“AIIB”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554
Belt and Road Initiative (“BRI”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555
Yuan Challenge to US Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556
Emerging Impacts on Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560
Reconceptualizing the Security Exception: The Fusion of Ideology, Technology,
and Economic Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560
Stricter National Security Considerations in Investment and Trade Policy . . . . . . . . . . . . . . . . 567
Hegemonic Rivalry as a Factor in “Choosing Sides” in Trade and Investment . . . . . . . . . . . 570
Increasing Governmental Involvement in the Economy, Financial Markets,
and Updated Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 578
Abstract
2020 corroborated the trends outlined in the chapter’s first edition published in
December 2019 with respect to the US-China dynamic. Since the first edition, the
US-China relationship exhibited heightened tension exemplified by tit-for-tat
diplomatic expulsions; China’s implementation of the Hong Kong National
Security Law; a series of sweeping summer 2020 presentations by US govern-
ment officials identifying China as a dire national security threat to the USA; and
Chinese retaliatory sanctioning of US companies. Regarding the national security
exception in investment and trade, the four emerging impacts identified in the
first edition were reenforced in 2020. This update will detail the significant
developments since the publication of the first edition including: (1) the
reconceptualization of national security as a fusion of ideology, technology, and
J. Slawotsky (*)
IDC Law and Business Schools, Herzliya, Israel
e-mail: jslawotsky@idc.ac.il

https://doi.org/10.1007/978-981-13-3615-7_2
546 J. Slawotsky
economic power; (2) the enhanced scrutiny of foreign investment and trade as
evidenced by regulatory developments; (3) the increasing pressure on nations to
align with either the USA or China as demonstrated by enormous US pressure on
key US allies to economically distance from China (and the blowback against
such pressure); and (4) amplified sovereign involvement in the financial markets
and economic governance.
Keywords
National security · International economic law · Hegemonic rivalry
The age of US-China hegemonic rivalry is intensifying.1 Hegemons are perched on

top of the global pyramid dominating all other rivals economically, militarily, and
technologically, enforcing the international governance architecture to promote the
hegemon’s interests.2 The USA is the current hegemon wielding exceptional author-
ity to advance American interests extraterritorially.3 Illustrative is the long arm of US
justice empowered by US financial hegemony which empowers the USA to compel
compliance with US laws.4
China, a rival power, is challenging the existing hegemon.5 Conceding it is a great
power and has global ambitions of leadership in the geostrategic context; President
Xi believes “China should take the lead in shaping the ‘new world order’ and
1
See Rudd K (2019) US-China relations: this is a new and dangerous phase (Jan 23, 2019). https://
www.afr.com/opinion/kevin-rudd-on-uschina-relations-this-is-a-new-and-dangerous-phase-
20190122-h1acu6 (“Last year represented a fundamental strategic turning point in the 40-year
history of US-China relations. This is not just an American view; it is also the Chinese view.”)
2
See Slawotsky J (2018) The national security exception in US-China FDI and Trade: lessons from
Delaware corporate law. Chinese J Comp Law 6(2):241–245. https://doi.org/10.1093/cjcl/cxy012
(noting triad of hegemonic pillars of power: economic, military, and technological).
3
See Slawotsky J (2020) U.S. financial hegemony: the digital yuan and risks of dollar de-weapon-
ization. Fordham Int Law J 44:39 (global sanctions power of the US Dollar is a powerful tool to
enforce US policy); Slawotsky J (2021) U.S. extraterritorial jurisdiction in an age of international
economic strategic competition. Georget J Int Law 52 (extraterritoriality to enforce US laws in an
age of hegemonic rivalry). See also http://www.forbes.com/sites/robertwood/2014/08/19/ten-facts-
about-fatca-americas-manifest-destiny-law-changing-banking-worldwide/#300593551961 (noting
ability of the USA to essentially override domestic laws of foreign nations); John Grisham, The
Broker, p. 366. (Noting the inviolably of Swiss banking secrecy, “the Swiss were immune to
pressure from foreign governments . . . they were the Swiss!”). Yet, only a few years later after
The Broker was published, the ability of the USA to compel the Swiss banks to disclose the names
of account holders eliminated this anonymity. See https://www.justice.gov/opa/pr/justice-
department-announces-four-banks-reach-resolutions-under-swiss-bank-program-0
4
See Slawotsky J (2020) The long-arm of U.S. justice: Scoville’s restoration of “conduct and
effects” in securities enforcement and implications for Chinese corporations. Tsinghua China
Law Rev 12:259 (overseas violations of US law involving the accessing of US banking sufficient
to confer jurisdiction in US courts).
5
See infra.
22 National Security Exception in an Era of Hegemonic Rivalry: Emerging. . . 547
safeguarding international security.”6 China’s leader has in fact called for “a regional
order that is more favorable to Asia and the world,” noting that China, “[b]eing a big
country means shouldering greater responsibilities for regional and world peace and
development.”7
This long-term contest for global leadership will ultimately affect all pillars of the
transnational governance architecture: trade rules, communications, cross-border
investment policy, international financial institutions, international law,
geo-strategic alliances, military inflection points, and domestic economic and polit-
ical governance.8 While trade friction was the initial manifestation of the rivalry, the
competition now encompasses a broad range of global governance.9 The struggle’s
present phase is an economic and technologically based confrontation for overall
superiority in the global governance context triggering national security concerns
within the USA and China (and other nations) related to the triage of hegemonic
power levers: economic,10 military,11 and technological strength.12
As the nexus of security threats now militates toward economically themed and
technology-powered risks to national security, concerns are extending far beyond the
pure military context. Obtaining economic leverage and technological prowess over
an adversary provides a compellingly attractive alternative (with a potential benefit
6
See Huang Z (2017) Chinese president Xi Jinping has vowed to lead the “new world order”
(Feb 22, 2017). http://finance.yahoo.com/news/chinese-president-xi-jinping-vowed-
084654413.html
7
Schuman M (2015) Whose Money Will the World Follow? (May 15, 2015). https://www.
bloomberg.com/news/articles/2015-05-14/u-s-china-rivalry-whose-money-will-the-world-follow-.
See also Xi Jinping (2020) Issues on national medium and long-term social and economic strategies
(Oct 31, 2020). http://www.qstheory.cn/dukan/qs/2020-10/31/c_1126680390.htm (China as the
digital economy leader should be part of the rulemaking in global regulation of central bank digital
currencies).
8
See Slawotsky J (2017) The clash of architects: impending developments and transformations in
international law. Chinese J Global Governance 3(2):83–159. https://doi.org/10.1163/23525207-
12340025 (discussing the effects of China’s ascendancy and how this will affect international law
and global governance as well as potentially impacting domestic governance of sovereigns mili-
tating toward a Chinese governance model).
9
See Wu J (2018) Taking sides – USA or China (Oct 15, 2018). https://asia.nikkei.com/Opinion/
Taking-sides-US-or-China (“The deterioration of the U.S.-China relationship has now gone far
beyond what we can call a trade war. U.S. President Donald Trump and his administration have
expanded the rivalry from an economic battle to all-out confrontation with Beijing over military and
even ideological fields.”)
10
Willige A (2016) The world’s top economy: the US vs China in five charts (Dec 5, 2016). https://
www.weforum.org/agenda/2016/12/the-world-s-top-economy-the-us-vs-china-in-five-charts/
(China is second but close to surpassing the USA).
11
Rand Project Air Force (n.d.) An interactive look at the US-China Military Scorecard. https://
www.rand.org/paf/projects/us-china-scorecard.html (analyzing the significant rise in Chinese mil-
itary power).
12
See Kania EB (2017) Battlefield singularity (Nov 28, 2017). https://www.cnas.org/publications/
reports/battlefield-singularity-artificial-intelligence-military-revolution-and-chinas-future-military-
power (China is rapidly approaching parity and has ambitions for supremacy in AI-driven warfare).
548 J. Slawotsky
of profiting from such leverage/supremacy) to military confrontation. Thus, the

defense of the national bastion – once conceptualized as security against military
conquest and loss of territory – is now inextricably linked to global trade, investment
policy, and corporate finance including the control, and/or influence, over publicly
traded global businesses in communications, finance, energy, technology, and other
critical sectors.
Already the impact of national security in the realm of the technological is clear as
the USA has identified China’s Huawei and ZTE as posing security threats to the USA.
In Europe in particular, Huawei and ZTE have partnered with many countries to build their 5G
networks despite US protests over security concerns, and Chinese-built network infrastructure
continues to spread across the continent. Within Congress and the Administration there is a
bipartisan understanding of the threats posed by Chinese firms building the base layers of radio
equipment and other telecommunications infrastructure upon which 5G operates.13
As the strategic contest between the USA and China has broadened into the
ideological, technological, and economic spheres, the national-security-based
responses fuse the economic, military, and technological – limiting or banning foreign
investment,14 protection of economic growth engines and of national corporate cham-
pions,15 and the employment of geo-strategic pressure16 to block a rival’s rise.17
13
See Committee on Foreign Relations United States Senate (2020) The New Big Brother: China
and Digital Authoritarianism. A Democratic Staff Report Prepared for the Use of the Committee on
Foreign Relations United States Senate, p 57 (July 21, 2020). https://www.foreign.senate.gov/imo/
media/doc/2020%20SFRC%20Minority%20Staff%20Report%20-%20The%20New%20Big%
20Brother%20-%20China%20and%20Digital%20Authoritarianism.pdf.
14
Lawder D, Chiacu D (2018) Trump to use U.S. security review panel to curb China tech investments
(June 27, 2018). https://www.reuters.com/article/us-usa-trade-china/trump-administration-to-use-
review-panel-to-curb-china-tech-investments-idUSKBN1JN1K0 (“U.S. President Donald Trump
said on Wednesday he will use a strengthened national security review process to thwart Chinese
acquisitions of sensitive American technologies, a softer approach than imposing China-specific
investment restrictions.”)
15
Irwin D (2019) Understanding Trump’s Trade War (Jan 22, 2019). https://foreignpolicy.com/gt-
essay/understanding-trumps-trade-war-china-trans-pacific-nato/ (“The Trump administration’s
legal justification for its 2018 steel and aluminum tariffs was a little-used U.S. statute that allows
the president to raise such barriers in cases where U.S. national security is threatened. In mid-2018,
the Commerce Department also started looking into whether imported automobiles might pose a
similar threat – a sign that the administration was seriously considering imposing duties as high as
25% on foreign cars and auto parts, which would affect more than $200 billion worth of trade.”)
16
See U.S. won’t partner with countries that use Huawei systems: Pompeo (Feb 21, 2019). https://
www.reuters.com/article/us-huawei-tech-usa-pompeo/us-wont-partner-with-countries-that-use-
huawei-systems-pompeo-idUSKCN1QA1O6 (US NSA adviser advising nations that embracing
Huawei will lead to a loss in US intelligence and military cooperation).
17
Such measures would include, for example, urging allies to ban an adversary’s 5G. See U.S. Urges
Allies to Avoid Using Huawei Equipment, WSJ Says (Nov 23, 2018). https://www.bloomberg.com/
news/articles/2018-11-23/u-s-urges-key-allies-to-avoid-using-huawei-equipment-wsj-says (“The
U.S. government is contacting key allies to get them to persuade telecommunications companies
in their countries to avoid using equipment from China’s Huawei Technologies Co....Officials from
National security is an integral factor in a broad array of decision-making increas-

ingly crossing into the economic realm. For example, in retaliation for forthcoming US
military weapons sales to Taiwan, Chinese Foreign Ministry spokesman Zhao Lijian
defended China’s imposition of sanctions on US corporations stating:
The sanctions will be imposed “in order to uphold national interests.”18
China has also enacted a law prohibiting Chinese entities from conducting
business with specific foreign companies based upon threats to Chinese national
security which may encompass, for example, the limitation or banning sale of
strategic materials such as rare earths.19
The bill uses the same national security arguments that the Trump administration has
adopted in measures to isolate Chinese companies, including last month’s de facto ban on
exports to Huawei of semiconductors built using American technology.20
Another important development is the ideological context – the identification of

China’s ruling authority – the CCP – as an integral part of conceptualizing threats to
US national interests and how the US understanding affects trade and investment.
Today’s actions [against WeChat and TikTok] prove once again that President Trump will do
everything in his power to guarantee ournational security and protect Americans from the
threats of the Chinese Communist Party.21
the U.S. have reached out to counterparts and executives in countries including Germany, Italy and
Japan about perceived cybersecurity risks, the Journal said, citing unidentified people familiar with
the matter.”)
18
See McDonald J (2020) China to sanction Boeing, Lockheed and Raytheon over Taiwan arms
sales (Oct 26, 2020). https://news.yahoo.com/china-sanction-boeing-lockheed-raytheon-
130658911.html.
19
Kawate I (2020) China passes export control law with potential for rare-earths ban (Oct 19, 2020).
https://asia.nikkei.com/Politics/International-relations/US-China-tensions/China-passes-export-con
trol-law-with-potential-for-rare-earths-ban (noting potential rare earths export ban stating the new
law “authorizes tight restrictions on the sale abroad of dual-use goods with both civilian and military
applications, nuclear materials and equipment, and other products and services that touch on
national security.”) (emphasis added).
20
Kawate I (2020) China readies new law to ban companies on national security grounds (Oct 9,
2020). https://asia.nikkei.com/Politics/International-relations/US-China-tensions/China-readies-new-
law-to-ban-companies-on-national-security-grounds (“China is set to advance a new export control
law that would ban Chinese suppliers from dealing with specific foreign companies on national
security grounds, taking a page from the U.S. crackdown on Huawei Technologies and its peers.”)
21
U.S. Department of Commerce (2020) Commerce Department Prohibits WeChat and TikTok
Transactions to Protect the National Security of the United States (Sep 18, 2020). https://2017-2021.
commerce.gov/news/press-releases/2020/09/commerce-department-prohibits-wechat-and-tiktok-
transactions-protect.html
550 J. Slawotsky
Therefore, national security considerations arising from the US-China rivalry are a
significant driver of US and Chinese investment and trade policy.22 Part II more fully
describes the hegemonic contest between the USA and China.
The Era of Hegemonic Rivalry
The global competition between the USA and China will likely continue to intensify.
Zhou Li, former deputy head of the Chinese Communist Party’s International
Liaison Department, claims that relations between the USA and China will deteri-
orate and argues China must prepare for the “full escalation of the struggle.”23
Before proceeding, a brief recent historical perspective on the rise of the hegemonic
battle is called for. As this second edition of the chapter is being written, there is an
increasing likelihood that Joe Biden will ascend to the US Presidency. While Biden
is a Democrat and Chinese State-controlled media is fond of portraying the trade war
and a decline in US-China relations as the product of the Trump Administration and
Republicans generally, such claims are erroneous as the reality is more nuanced.
The US-China relationship commenced deteriorating before Trump was elected.
Indeed, prior to Trump’s 2016 election, the USA had commenced perceiving China
as a strategic enemy. Former President Obama’s Asia Pivot and Trans Pacific
Partnership (“TPP”) were products of perceptions that China’s rise was too rapid
and effective presenting a challenge to the US-led order in Asia. In advocating for
the TPP, Obama openly stated that the purpose of the TPP was to ensure the USA
rather than China set international trade rules.24 Joe Biden was Vice President under
Obama and might similarly share Obama’s Asian Pivot stratagem.
22
The use of the national security rationale by the USA to impose tariffs in 2018 as well as the
increasing scrutiny of Chinese foreign investment globally based upon national security all herald a
more frequent resort to national security-based international economic law decisions. See Presi-
dential Order Regarding the Proposed Takeover of Qualcomm Incorporated by Broadcom Limited.
https://trumpwhitehouse.archives.gov/presidential-actions/presidential-order-regarding-proposed-
takeover-qualcomm-incorporated-broadcom-limited/ (Mar 12, 2018) (“There is credible evidence
that leads me to believe that Broadcom [] through exercising control of Qualcomm [] a Delaware
corporation, might take action that threatens to impair the national security of the United States”)
(emphasis added).
23
See Nakazawa K (2020) China talks of US decoupling and a divided world (July 9, 2020). https://
asia.nikkei.com/Editor-s-Picks/China-up-close/China-talks-of-US-decoupling-and-a-divided-
world (US-China relations are broken, and China must leave the US Dollar financial structure).
24
See Hammond A (2015) The TPP gives the U.S.—rather than China—the power to influence
global trade (Oct 6, 2015). https://nationalpost.com/opinion/andrew-hammond-the-tpp-gives-the-u-
s-rather-than-china-the-power-to-influence-global-trade (impetus for the TPP was to guarantee
Washington, “rather than Beijing, would retain the position of rules-setter.”)
Right now, China wants to write the rules for commerce in Asia. If it succeeds, our competitors
would be free to ignore basic environmental and labor standards, giving them an unfair
advantage over American workers . . . We can’t let that happen. We should write the rules.25
The refusal to invite China into the TPP and comments regarding rulemaking evince
the clear pre-Trump US perception that China was a serious geo-strategic competitor.26
Moreover, notions that a specific political party in the USA is responsible for the
trade war and ensuing tension are misplaced. Within the US political establishment,
the single issue enjoying extensive bipartisan support is with respect to China.
“Within Congress and the Administration there is a bipartisan understanding of the
threats posed by Chinese firms building the base layers of radio equipment and other
telecommunications infrastructure upon which 5G operates.”27
The Democratic-led House of Representatives has issued various reports highly
critical of Chinese domestic governance.
Xinjiang province demonstrates the CCP’s willingness to engage in gross human rights
abuses, in a fashion so pervasive and widespread as to potentially implicate the government
in crimes against humanity.28
The bottom line is that regardless of political party, the USA now views China as a
competing economic and political model – a powerful strategic enemy – within grasp of
dominating Asia (and beyond) potentially reshaping the global governance architecture.
Yet, it is also true that the Trump Administration removed the veneer of US-China
cooperation revealing the deep fissures in the relationship. 2018 will be recalled as
the year the gauntlet was thrown down illustrated by US Vice-President Pence who
essentially said that China had lied to the USA in 2015 over militarization of the
South China Seas.29 Pence stated:
25
Somanader T (2015) President Obama: “Writing the Rules for 21st Century Trade” (Feb 18,
2015). https://trumpwhitehouse.archives.gov/presidential-actions/presidential-order-regarding-pro
posed-takeover-qualcomm-incorporated-broadcom-limited/ (emphasis added).
26
Interestingly, Joe Biden had remarked in 2019 that “China had problems with the seas and
mountains” and “was not a competitor to the U.S.” See AP Archive (2019) Biden: China not
economic threat to U.S. (May 8, 2019). https://www.youtube.com/watch?v¼dew9qqoAM9A
27
See footnote 13.
28
House Permanent Select Committee on Intelligence (2020) The China Deep Dive: A Report on
the Intelligence Community’s Capabilities and Competencies with Respect to the People’s Republic
of China, p 11. https://intelligence.house.gov/uploadedfiles/hpsci_china_deep_dive_redacted_
summary_9.29.20.pdf?utm_source¼CHINA+MACRO+REPORTER+SUBSCRIBERS&utm_
campaign¼bc2c13fa16-EMAIL_CAMPAIGN_2020_10_07_10_00&utm_medium¼email&utm_
term¼0_e23e65ea71-bc2c13fa16-396668841
29
Remarks by Vice President Pence on the Administration’s Policy Toward China (Oct 4, 2018).
https://trumpwhitehouse.archives.gov/briefings-statements/remarks-vice-president-pence-adminis
trations-policy-toward-china/ (“And while China’s leader stood in the Rose Garden at the White
House in 2015 and said that his country had, and I quote, “no intention to militarize” the South
China Sea, today, Beijing has deployed advanced anti-ship and anti-air missiles atop an archipelago
of military bases constructed on artificial islands.”)
552 J. Slawotsky
China’s aggression was on display this week, when a Chinese naval vessel came within
45 yards of the USS Decatur as it conducted freedom-of-navigation operations in the South
China Sea, forcing our ship to quickly maneuver to avoid collision. Despite such reckless
harassment, the United States Navy will continue to fly, sail, and operate wherever interna-
tional law allows and our national interests demand. We will not be intimidated and we will
not stand down. . ..
[O]ur message to China’s rulers is this: This President will not back down.30
The radical transformation in US perceptions of China is illustrated in the vast

differences between contemporary National Security Strategy documents. As
recently as 2002, the United States National Security Strategy nonconfrontationally
noted: “In time, China will find that social and political freedom is the only source of
[national] greatness.”31 And the 2006 United States National Security Strategy
opined in the context of optimism:
China’s leaders . . . cannot let their population increasingly experience the free-
doms to buy, sell, and produce, while denying them the rights to assemble, speak,
and worship.32
Barely a decade later, however, the United States National Security Strategy
(2017) clearly evinced a transformational recharacterization of China.33
China and Russia want to shape a world antithetical to U.S. values and interests. . .
China seeks to displace the United States in the Indo-Pacific region, expand the reaches
of its state-driven economic model, and reorder the region in its favor.
These sentiments were enforced in a series of summer 2020 speeches, remarkable

in the sweeping nature of the US assessment of the threat posed by China. A critical
mass of US government agencies including the National Security Agency, Justice
Department, FBI, and State Department is identifying China as a dire national
security threat to the USA.
The stakes could not be higher, and the potential economic harm to American businesses and
the economy as a whole almost defies calculation. We need to be clear-eyed about the scope
of the Chinese government’s ambition.34
30
Ibid.
31
Slawotsky J (2018) Principled realism: thoughts on the new U.S. National Security Strategy (Jan
11, 2018). http://lcbackerblog.blogspot.com/2018/01/joel-slawotsky-principled-realism.html
32
Ibid. Citing 2017 United States National Security Strategy, p 25.
33
A counterargument states that US strategy was in reality an effort at containment. See Backer LC
(2010) Encircling China or embedding it? (Nov 8, 2010). http://lcbackerblog.blogspot.com/2010/
11/encircling-china.html (noting Chinese concerns that US policy was aimed at containing a rising
China).
34
Wray C (2020) The Threat Posed by the Chinese Government and the Chinese Communist Party
to the Economic and National Security of the United States (July 7, 2020). https://www.fbi.gov/
news/speeches/the-threat-posed-by-the-chinese-government-and-the-chinese-communist-party-to-
the-economic-and-national-security-of-the-united-states (emphasis added).
The CCP’s stated goal is to create a “Community of Common Destiny for Mankind,” and to
remake the world according to the CCP. The effort to control thought beyond the borders of
China is well under way.35
The People’s Republic of China is now engaged in an economic blitzkrieg—an aggressive,

orchestrated, whole-of-government (indeed, whole-of-society) campaign to seize the com-
manding heights of the global economy and to surpass the United States as the world’s
preeminent superpower. . ..Made in China 2025” is the latest iteration of the PRC’s state-led,
mercantilist economic model.36
It’s this ideology, it’s this ideology that informs his decades-long desire for global hegemony
of Chinese communism. America can no longer ignore the fundamental political and
ideological differences between our countries, just as the CCP has never ignored them.37
The perception that China is a bona fide threat to continued US hegemony is not
without a rational basis. Indeed, for the first time in 80 years, the USA is being
effectively challenged.38 The possibility of hegemonic loss is now recognized by the
existing hegemon which merely a few years ago considered itself untouchable.39
35
See National Security Advisor O’Brien RC (2020) The Chinese Communist Party’s Ideology and
Global Ambitions (June 24, 2020). https://trumpwhitehouse.archives.gov/briefings-statements/
chinese-communist-partys-ideology-global-ambitions/ (emphasis added).
36
The United States Department of Justice (2020) Attorney General William P. Barr Delivers
Remarks on China Policy at the Gerald R. Ford Presidential Museum (July 16, 2020) https://
www.justice.gov/opa/speech/attorney-general-william-p-barr-delivers-remarks-china-policy-
gerald-r-ford-presidential (emphasis added). Interestingly, while Barr is critical of China’s state-
capitalism in his July 2020 remarks; a few months earlier he had suggested the USA engage in state-
capitalism with respect to 5G. See “Really? Is the White House Proposing to Buy Ericsson or
Nokia?” (Feb 7, 2020). https://www.nytimes.com/2020/02/07/business/dealbook/bill-barr-huawei-
nokia-ericsson.html (“President Trump has made it very clear that he is worried about Huawei’s
leading role in 5G wireless technology. Now his attorney general, Bill Barr, has offered a radical
solution: having the U.S. invest in the Chinese company’s European counterparts.”)
37
Ibid. (emphasis added).
38
Compare infra the Soviet Union as a rival to the USA.
39
Just a few years ago, the USA perceived itself as “the exceptional nation.” See Obama B (2014)
Remarks by the President at the United States Military Academy Commencement Ceremony (May
28, 2014). https://obamawhitehouse.archives.gov/the-press-office/2014/05/28/remarks-president-
united-states-military-academy-commencement-ceremony (“In fact, by most measures, America
has rarely been stronger relative to the rest of the world . . . Our military has no peer . . . Meanwhile,
our economy remains the most dynamic on Earth; our businesses the most innovative. Each year,
we grow more energy independent. From Europe to Asia, we are the hub of alliances unrivaled in
the history of nations. America continues to attract striving immigrants . . . So[,] the United States is
and remains the one indispensable nation. That has been true for the century passed and it will be
true for the century to come.”) (emphasis added).
554 J. Slawotsky
American officials now believe that “[n]o country presents a broader, more severe
threat to our ideas, our innovation, and our economic security than China.”40
Some argue that similar to prior hegemonic contenders who failed to dethrone the
USA, China will also fail. However, the contrast between China and the Soviet
Union is herculean: The former Soviet Union’s economy was unsuccessful, and the
Soviets never established competing international governance institutions. The
Soviets were on the outside looking in and attacked US hegemony via supporting
revolutionary groups, failed States, and rogue regimes. The ruble was not considered
even as a potential reserve currency.
In contrast to the Soviet Union, China has masterfully integrated into the global
governance architecture. China wields the world’s second largest economy and has
established the Asian Infrastructure Investment Bank (“AIIB”) and is a leader in the
New Development Bank (“NDB”) – both potential alternatives (and longer-term
competitors) to the IMF and World Bank. China’s BRI is a mammoth infrastructure
program which, if successful, will have immense geostrategic potential.41 Indeed,
China is astutely building a Chinese court system to resolve BRI-related disputes
potentially enabling China to influence commercial law development and become a
rulemaker.42 Yuan usage is increasing, and a successful digital Yuan may incentivize
internationalization. Several of these significant developments and Chinese-led
initiatives are briefly discussed below.
Asian Infrastructure Investment Bank (“AIIB”)
With respect to International Financial Institutions (“IFIs”), as a possible counter-

balance to the IMF, the World Bank, and the Asian Development Bank, China
launched a Chinese-dominated IFI; the AIIB headquartered in Beijing.43 The AIIB
is perceived as a blow to US dominance of international financial institutions and “is
seen as encroaching on the regional financial clout of Tokyo and its ally
Washington.”44
The successful establishment of the AIIB demonstrates the diminishing excep-
tionality of a US-led order, “the moment the United States lost its role as the
40
The US Department of Justice (2018) Attorney General Jeff Session’s China Initiative Fact Sheet
(Nov 1, 2018). https://www.justice.gov/opa/speech/file/1107256/download
41
See Silver V, Prasso S (2019) Italy’s embrace of China’s “Belt and Road” is a snub to Washington
(Mar 19, 2019). https://www.bloomberg.com/news/articles/2019-03-19/italy-s-embrace-of-china-s-
belt-and-road-is-a-snub-to-washington (discussing China’s potential influence in Europe).
42
See Hillman JE, Goodman MP (2018) China’s ‘Belt and Road’ court to challenge current US-led
order (July 25, 2018). https://www.ft.com/content/b64d7f2e-8f4d-11e8-b639-7680cedcc421
43
See S R (2014) Why China is creating a new “World Bank” for Asia (Nov 11, 2014). http://www.
economist.com/blogs/economist-explains/2014/11/economist-explains-6
44
New $100 bn BRICS Bank opens in China to challenge US-led lenders (July 21, 2015). http://
news.yahoo.com/brics-bank-opens-business-xinhua-015809429.html
underwriter of the global economic system.”45 The fact that the USA urged close
partners not to join the AIIB but these nations in fact did so demonstrates that allies were
in essence “hedging their bets.” Former US Treasury Secretary Summers commented:
I can think of no event since Bretton Woods comparable to the combination of China’s effort
to establish a major new institution and the failure of the US to persuade dozens of its
traditional allies, starting with Britain, to stay out of it.46
The allure of partnering with a rising State is powerful. The fact that American
allies in Europe joined China’s AIIB despite repeated requests from the USA not to
join proves that “[o]neby one, key U.S. friends and allies in Asia have stepped back
from unqualified support for Washington.”47
Belt and Road Initiative (“BRI”)
China’s BRI is a trillion dollar grand strategy48 envisioning a massive new network
of interconnected railways, roads, sea, and airports throughout Asia, the Gulf
Cooperation Council, Africa, and Europe, substantially influencing the global econ-
omy.49 BRI forms an integral part of China’s aspirational ascendancy both in Asia
and in the global context and “will be a catalyst for shifting power alliances and the
changing fortunes of nation states.”50 China’s BRI is inextricably linked with
China’s foreign policy51 and is the lynchpin of “the great rejuvenation of the Chinese
45
Summers LH (2015) Time US leadership woke up to new economic era (Apr 5, 2015). http://
larrysummers.com/2015/04/05/time-us-leadership-woke-up-to-new-economic-era/
46
47
White H (2018) The new East Asian jigsaw: 2019 will offer clearer picture of how US-China
power struggle has reshaped region (Dec 18, 2018). https://www.caixinglobal.com/2018-12-18/
hugh-white-the-new-east-asian-jigsaw-101360537.html
48
See Our bulldozers, our rules (July 2, 2016). https://www.economist.com/china/2016/07/02/our-
bulldozers-our-rules (describing OBOR as a means “of extending China’s commercial tentacles and
soft power”). See also President Xi Jinping Delivers Important Speech and Proposes to Build a Silk
Road Economic Belt with Central Asian Countries (PRC Ministry of Foreign Affairs, Sep 7, 2013).
http://www.fmprc.gov.cn/mfa_eng/topics_665678/xjpfwzysiesgjtfhshzzfh_665686/t1076334.
shtml, noting BRIs’ critical importance to China.
49
See Campbell C (2017) China says it is building the new silk road. Here are five things to know
ahead of a key summit. Time (May 12, 2017). https://time.com/4776845/china-xi-jinping-belt-road-
initiative-obor/
50
Capri A (2017) China’s growing influence on Middle East should not be lost on an impulsive
Trump administration. Forbes (June 21, 2017). https://www.forbes.com/sites/alexcapri/2017/06/21/
china-obor-qatar-middle-east-america/#469a0d4a70e8
51
See footnote 48 (“In 2014 the foreign minister, Wang Yi, singled out OBOR as the most important
feature of the president’s foreign policy.”). See also footnote 49. (“In 2015, China transferred $82
billion to three state-owned banks for OBOR projects. It also set up the Asian Infrastructure
Investment Bank (AIIB) primarily to fund OBOR, of which the $100 billion of initial capital may
be doubled soon.”)
556 J. Slawotsky
nation”52 constituting an important component of China’s long-term strategic plan to

regain dominance in Asia and prestige in the world. As BRI’s architect and leader,
China stands to gain immensely; even regional competitors want to align with
China.53 Moreover, China’s BRI is set to challenge the US-led Western dominance
in dispute resolution.54 By astutely establishing special courts to mediate, arbitrate,
and litigate BRI-related commercial disputes,55 China’s imprint on global gover-
nance will significantly strengthen. Furthermore, dominating crucial trade links can
also positively impact the internationalization of the Yuan, the ramifications of which
are discussed below.56
Yuan Challenge to US Dollar
The nation whose currency enjoys supreme global reserve status wields substan-
tial power.57 Not surprisingly, the dollar-based financial system has become
weaponized – to promote and enforce US interests extraterritorially – and is a
crucial factor enabling US hegemony.58 US Treasury Secretary Mnuchin con-
ceded that sanctions are used as a means to enforce the US order thus eliminating
the need for military intervention:
52
Kuhn KL (2013) Xi Jinping’s Chinese dream (June 4, 2013). http://www.nytimes.com/2013/06/
05/opinion/global/xi-jinpings-chinese-dream.html
53
See Reynolds I (2015) Abe pitches Japan’s infrastructure on China’s Silk-Road patch (Oct 23,
2015). http://www.bloomberg.com/news/articles/2015-10-22/abe-pitches-japan-s-infrastructure-
on-china-s-silk-road-patch
54
See footnote 42.
55
See International commercial courts eye expanded role (Jan 30, 2019). http://www.china.org.cn/
china/2019-01/30/content_74423850.htm (“China’s top court said the country’s two international
commercial courts will play a bigger role this year in helping resolve disputes related to the Belt and
Road Initiative and improving the global credibility of the judiciary.”)
56
See Lan Shen (2016) Xi Jinping’s “One Belt, One Road” strategy is showing the way to a new
world order (Dec 13, 2016). http://www.scmp.com/comment/insight-opinion/article/2054143/xi-
jinpings-one-belt-one-road-strategy-showing-way-new-world?utm_source¼&utm_medium¼&
utm_campaign¼SCMPSocialNewsfeed
57
Das S (2018) How the USA has weaponized the dollar (Sept 7, 2018). https://www.bloomberg.
com/opinion/articles/2018-09-06/how-the-u-s-has-made-a-weapon-of-the-dollar (“But the real
power of the dollar is its relationship with sanctions programs. Legislation such as the International
Emergency Economic Powers Act, the Trading With the Enemy Act and the Patriot Act allow
Washington to weaponize payment flows. The proposed Defending Elections From Threats by
Establishing Redlines Act and the Defending American Security From Kremlin Aggression Act
would extend that armory.”)
58
See footnote 3.
The reason why we’re using sanctions is because they are an important alternative for world
military conflicts. And I believe it’s worked . . . So whether it’s North Korea, whether it’s Iran
or other places in theworld, we take the responsibility very seriously.59
Most commentators opine that a Yuan challenge is decades away. President Trump
stated that Bitcoin was no competitor to the USD, tweeting that the USD will forever
reign as the world’s most important currency:
It is by far the most dominant currency anywhere in the World, and it will always stay that
way. It is called the United States Dollar!60
Trump’s confidence is understandable. Prior challengers touted as potential USD

rivals have failed in attempts to unseat the USD.61
The dollar is the gold standard. If the euro couldn’t overtake it, the Chinese renminbi (RMB)
sure won’t. Add to the fact that many of the core economies are angry with China for a lack
of transparency regarding the new SARS coronavirus and it is even less likely that its key
trading partners settle trade in the local yuan post-pandemic.62
Yet, history proves that no global reserve currency lasts forever.63 US Federal
Reserve Chairman Jerome Powell readily conceded the fact that global reserve
59
Turak N (2019) US isn’t weaponizing the dollar; sanctions are the alternative to war, Mnuchin
says (Dec 14, 2019). https://www.cnbc.com/2019/12/14/mnuchin-us-isnt-weaponizing-dollar-
sanctions-are-alternative-to-war.html
60
Donald Trump (@realDonaldTrump), Twitter (Sept 6, 2020). https://twitter.com/realDonaldTrump/
status/1149472282584072192
61
To be sure, other prior USD rivals, such as the Japanese Yen in the 1980s and the Euro in the
2000s, failed to topple the USD. Moreover, despite China’s decade-long efforts, Yuan usage is still
dwarfed by the dominance of the USD (See Galati G, Wooldridge P (2006) The euro as a reserve
currency: a challenge to the pre-eminence of the US dollar?) (Bank for International Settlements,
Working Paper No. 218, Oct 12, 2006) (“At its peak in the late 1980s, the yen had accounted for
over 10% of reserves.”); Ibid. at 16 (“[T]he available data suggest that the euro’s share of reserves
rose during the first few years after monetary union but then levelled off after 2003. In early 2006,
the euro’s share was still well below the US dollar’s share and below even the share of euro legacy
currencies in the 1980s and early 1990s. The euro comes closest to challenging the dollar in its role
as a store of value. As a unit of account and medium of exchange, the dollar’s role is not as secure as
it once was, but the dollar is still pre-eminent.”). However, as discussed below, emergent technology
together with a critical mass of interests might expedite more extensive Yuan usage.
62
See Rapoza K (2020) China is nowhere near replacing the dollar. Forbes (Apr 23, 2020). https://
www.forbes.com/sites/kenrapoza/2020/04/23/china-is-nowhere-near-replacing-the-dollar/
#161d65484dfd; See also Gopinath G (2020) Digital currencies will not displace the dominant
dollar. Financial Times (Jan 7, 2020). https://www.ft.com/content/e5dd66b8-2ca0-11ea-84be-
a548267b914b (replacing the USD will take a very long time if even possible).
63
See Quinn S, Roberds W (2014) Death of a reserve currency (Fed. Rsrv. Bank of Atlanta,
Working Paper No. 2014–17, September 2014). https://www.frbatlanta.org/-/media/documents/
research/publications/wp/2014/wp1417.pdf (“The demise of the Bank of Amsterdam ushered in a
long period of currency dominance for the British pound. The passing of the torch from the florin to
the pound in the 1780’s has a number of parallels with the better-known transition from the pound to
the dollar in the 1920’s and 1930’s.”),
558 J. Slawotsky
currencies such as the USD do not reign forever.64 More and more nations are now
also using the Chinese Yuan for transactions instead of exclusively relying on the US
dollar.65 In addition, central banks are buying Yuan as a reserve currency.66 While
these Yuan trade and central bank purchases are in the nascent stage, the interna-
tionalization of the Yuan will likely increase in the long term as China’s economy
continues to grow and potentially overtake the USA in terms of nominal GDP in less
than a decade.67 The fact that the only non-US dollar crude oil futures contract traded
internationally is denominated in Yuan speaks volumes.68 Should the Yuan become
accepted by oil producers in addition to (let alone rather than) US dollars, the
demand for dollars would plummet, thereby potentially degrading the dollar’s
status.69 Already, global corporations are increasingly pricing iron ore transactions
in Yuan.70
64
See The Semiannual Monetary Policy Report to the Congress: Hearing on Monetary Policy and
the State of the Economy Before the U.S. Senate Committee on Banking, Housing, and Urban
Affairs, 116th Congress (July 11, 2019) (statement of Jerome H. Powell, Chairman, Federal
Reserve) (admitting the USD will not last forever as the global reserve currency).
65
See, e.g., Gul A (2018) China, Pakistan agree to conduct bilateral trade in yuan (Nov 5, 2018).
https://www.voanews.com/a/china-pakistan-agree-to-conduct-bilateral-trade-in-yuan/4645164.
html (trade between China and Pakistan to be conducted in Yuan not Dollars); Ohuocha, C. (2018)
Nigeria woos importers to trade Chinese yuan (July 5, 2018). https://www.reuters.com/article/
investingNews/idAFKBN1JV0OX-OZABS (Nigeria starting to trade with China in Yuan not
Dollars); Shen A (2019) Myanmar adds yuan and yen as trade-settlement currencies (Feb 12,
2019). https://www.centralbanking.com/central-banks/reserves/foreign-exchange/4028831/myan
mar-adds-yuan-and-yen-as-trade-settlement-currencies (Myanmar allows trade settlement in Yuan
and Japan’s Yen).
66
See Europe’s central banks confirm yuan holdings (Jan 16, 2018). https://www.reuters.com/
article/bundesbank-reserves-yuan-belgium/update-2-europes-central-banks-confirm-yuan-hold
ings-idUSL8N1PB3Y5 (“More central banks in Europe revealed plans on Tuesday to hold yuan as
part of their foreign currency reserves, highlighting the Chinese currency’s rise into an elite league
of the world’s major reserve currencies.”)
67
Uehara M, Tanaka A (2020) China to overtake US economy by 2028–2029 in COVID’s wake:
JCER (Dec 10, 2020). https://asia.nikkei.com/Economy/China-to-overtake-US-economy-by-2028-
29-in-COVID-s-wake-JCER (China likely to become the largest economy in 2028 or 2029).
68
See Taplin N (2018) A Chinese oil slick for the dollar? (Sept 18, 2018). https://www.wsj.com/
articles/a-chinese-oil-slick-for-the-dollar-1537271564 (Shanghai oil futures are the only non-Dollar
contract, and longer-term Yuan for oil may become a global benchmark).
69
Ramady M (2018) Petro-yuan may prove a bigger headache to USA than trade wars (Apr 5,
2018). https://www.thenational.ae/business/energy/petro-yuan-may-prove-a-bigger-headache-to-
us-than-trade-wars-1.719021 (“While the world has been engrossed with the latest spats over tariff
wars, and who and when countries will retaliate against the United States, the Chinese have very
quietly set the ball rolling to end the US dollar’s hegemony in international oil trade.”)
70
Tan S-L (2020) China’s yuan gains foothold in iron ore deals, could increase Chinese self-
reliance, analysts say (Sept 4, 2020). https://www.scmp.com/economy/china-economy/article/
3100091/chinas-yuan-gains-foothold-iron-ore-deals-could-increase (“Iron ore miners ‘and steel
producers’ increasing use of the Chinese yuan will increase its internationalisation, reduce
China’s vulnerability to any possible US financial sanctions, and help the domestic economy in
line with the new “dual circulation” strategy.”)
China might be the first nation to introduce a Central Bank Digital Currency.71
The PBOC has been developing a digital currency since at least 201472 and has been
diligently and vigorously collaborating with Chinese financial institutions on
establishing the world’s first CBDC vesting China with a technological-financial
innovation lead.73 For China, a successful digital Yuan is a vital national interest
which is viewed as lessening the US Dollar’s role.
If the digital currency is closely associated with the US dollar... there would be in essence
one boss, that is the US dollar and the United States. If so, it would bring a series of
economic, financial and even international political consequences.74
A digital Yuan might serve to further internationalize the Chinese currency thereby
reducing the role of the US Dollar – and its ability to sanction nations such as China.
While some believe replacing the US dollar is decades away, Chinese motivation and
innovation, and a reform of Chinese markets, may serve to reduce the potential
challenge to the US dollar.
For China, facing a bonafide risk of reduced or eliminated access to USD and/or US
capital markets, banking and/or the SWIFT payments messaging system could be disas-
trous. Given the risks to China and Chinese companies, and with the proverbial sword of
Damocles hanging over their heads,30 China is extremely motivated to avoid such a
scenario.31 China is therefore existentially incentivized to replace the USD-centric
international economic architecture.75
The developments described above point to an ascendant China and exemplify

China’s status as a potent and effective hegemonic rival. The following part updates
the four emerging impacts outlined in the initial chapter.
71
See footnote 3.
72
Fan Y (2016) On digital currencies, central banks should lead. Bloomberg (Sept 1, 2016). www.
bloomberg.com/opinion/articles/2016-09-01/on-digital-currencies-central-banks-should-lead. Zhou X
(2016) Transcript of Governor Zhou Xiaochuan’s exclusive interview with Caixin Weekly. The
People’s Bank of China (Feb 14, 2016). www.pbc.gov.cn/english/130721/3017134/index.html
73
Tang F (2019) Facebook’s Libra forcing China to step up plans for its own cryptocurrency, says
central bank official. South China Morning Post (July 8, 2019). https://www.scmp.com/economy/
china-economy/article/3017716/facebooks-libra-forcing-china-step-plans-its-own (PBOC official
commenting on Facebook’s Libra).
74
See footnote 73.
75
See footnote 3.
560 J. Slawotsky
Emerging Impacts on Trade and Investment
Reconceptualizing the Security Exception: The Fusion of Ideology,

Technology, and Economic Power
A foundational cornerstone of the existing global economic governance model is

nondiscriminatory trade and encouragement of vigorous cross-border investment;
BITs, FTAs, and WTO obligations exemplify the mantra of free trade and open
investment. However, to protect against legitimate security threats, the national
(or essential) security exception allows States to override international economic
commitments should the state’s security be threatened. Envisioned as a “last-resort”
to address true emergencies, the historical narrative of the national security exception
in trade and investment has long been understood from the perspective of military or
quasi-military defense of the nation.
Conceptualized in the decades following WWII, the security exception has been
interpreted relatively rarely76 – but consistently – within the parameters of necessity/
defense of the sovereign’s territory and/or population.77 Exemplifying the focus on
military defense in the context of the national security exception, the CMS arbitra-
tion tribunal concurred that essential security interests “could potentially” embrace
severe economic crisis, but the conceptualization of security was overwhelmingly
oriented to military defense, and therefore, economic emergency would in effect
constitute the rare exception.
It must also be noted that clauses dealing with investments and commerce do not generally
affect security as much as military events do and, therefore, would normally fall outside the
scope of such dramatic events.78
Corroborating the orientation of security as geared toward defending the peace

and territorial integrity,79 the 2019 WTO Panel decision in Ukraine discussed the
national emergency clause of the GATT essential security exception within the
framework of military conflict and territorial integrity.80 The Panel Report explained
76
See Chaisse J (2015) Demystifying public security exception and limitations on capital move-
ment. Univ Pa J Int Law 37:583, 601 (relative dearth of rulings on the exception).
77
See Kurtz J (2010) Adjudging the exceptional at international investment law: security, public
order and financial crisis. Int Comp Law Q 59:324, 338
78
CMS v. Argentina, 44 I.L.M. } 373 (emphasis added).
79
See Korzun V (2016) The right to regulate in investor state arbitration: slicing and dicing
regulatory carve-outs. Vand J Transnatl L 50:355, 393 (“Reliance on the specific security exception
is usually accepted for a shorter period of time, limited by the goal of the exception, such as until
international peace or security is restored”).
80
Panel Report, Russia – Measures Concerning Traffic in Transit, WT/DS512/R (adopted Apr.
5, 2019). See also Wang C (2019) Invocation of national security exceptions under GATT Article
XXI: jurisdiction to review and standard of review. Chinese J Int Law 18:695, 705–706 (Ukraine
Panel understood security as defense of the territory in the context of armed conflict).
the circumstances in this dispute were “very close to the ‘hard core’ of war or armed
conflict”81 defining an “emergency in international relations” as:
a situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or

of general instability engulfing or surrounding a state.82
A 2020 WTO Panel interpreting the TRIPS security exception83 similarly held
essential security interests were relegated to defense of the population and territory
and the security exception triggered when threats related to the “defence or military
interests, or maintenance of law and public order interests” [are] sufficient to
establish the existence of an “emergency in international relations.”84
[T]he [essential security] interests identified [] are ones that clearly “relat[e] to the quintes-
sential functions of the state, namely, the protection of its territory and its population from
external threats, and the maintenance of law and public order internally.”85
Although rulings to date on the exception have confirmed the bias to retain the
traditional notions of national security,86 the classic understanding of national
security is rapidly becoming outdated. In a world of emergent technology and dual
civilian-military usage, understanding security threats as armed conflict or relegated
to defense may constitute an unworkable concept. As noted in this chapter’s first
edition, while historically military capabilities to attack and conquer were the focal
point of national security concerns, pure military power has been trumped by the
importance of emerging technology such as AI, 5G, robots, and space exploration.
Moreover, technology is the key component in the triage of hegemonic power
because technological supremacy can be used for both economic gain/defense and
offensive military power/defense. Dominating powerful emergent technologies will
likely crown the hegemonic winner for two reasons: One, the offensive capabilities
of emerging technology are potentially devastating. From a military perspective,
technologically advanced weapons could pave the path to an overwhelming victory
– e.g., deployment of 24-hour fighting robot soldiers requiring no food, rest, or
81
Ibid. } 7.136.
82
Ibid. } 7.111.
83
Article 73(b)(iii) is the national security exception of the TRIPS Agreement and is the same as
Article XXI(b)(iii) of GATT. The TRIPS security exception allows a state to take “any action which
it considers necessary for the protection of its essential security interests’ during the ‘time of war or
other emergency in international relations.’”
84
World Trade Organization (2020) Saudi Arabia – Measures Concerning The Protection of
Intellectual Property Rights. Report of the Panel (June 16, 2020). https://docs.wto.org/dol2fe/
Pages/SS/directdoc.aspx?filename¼q:/WT/DS/567R.pdf&Open¼True }7.257
85
Ibid. }7.280.
86
See, e.g., CC/Devas Award on Jurisdiction and Merits, CC/Devas v. India, PCA Case No. 2013–
09, Award on Jurisdiction and Merits, (Perm. Ct. Arb. July 25, 2016), }} 354–356, 360; accord
Deutsche Interim Award, Deutsche Telekom AG v. India, PCA Case No. 2014–10, Interim Award,
(Perm. Ct. Arb. Dec. 13, 2017) } 281.
562 J. Slawotsky
questioning any directive. Robots – coupled with AI – will substantially impact

future wars and conflicts. “As the power of artificial intelligence grows, the likeli-
hood of a future war filled with killer robots grows as well.”87 Indeed, if trends
continue, robot soldiers may very well replace human soldiers.88 Moreover, tech-
nology can also empower a sovereign to “attack” (in a nonmilitarily context) another
State. Election hacking to run a desired candidate and/or influence public opinion and
the power to shut down electricity, water, transportation, and other critical infrastructure
are all potential effective and efficient paths to virtually conquer or seriously degrade a
strategic adversary.89 AI, for example, will herald a tectonic impact on global gover-
nance with extremely important unforeseeable consequences.90
Two, huge new industries and profitable sectors will arise and greatly enrich the
sovereigns that can commercialize and exploit economically these new technologies.
As an exemplar, the World Economic Forum estimates that AI will add nearly $16
trillion to Global GDP by 2030.91 Reaping the lions’ share of this vast newly created
wealth will be the leaders in AI. Therefore, dominating these new powerful technolo-
gies is critical in the context of the hegemonic rivalry for both reasons outlined above.
The shifting paradigm of national security is significant. By holding to the
historical understanding of national security, there would be no way to “support
the view that a measure to protect a domestic industry that produces products which
may be related, even remotely, to the production of defense related products falls
under the provision.”92 Pursuant to this established conceptualization, the tariffs
imposed by the USA on metals may constitute a violation of WTO obligations.93
The traditional thinking was that economic harm or “remote relevance” to a military
87
See Hambling D (2018) Why the U.S. is backing killer robots (Sept 14, 2018). https://www.
popularmechanics.com/military/research/a23133118/us-ai-robots-warfare/
88
See Manson K (2018) Robot -soldiers, stealth jets, and drone armies: the future of war (Nov 16,
2018). https://www.ft.com/content/442de9aa-e7a0-11e8-8a85-04b8afea6ea3 (“The advance of arti-
ficial intelligence brings with it the prospect of robot-soldiers battling alongside humans – and one
day eclipsing them altogether.”)
89
Defensive capabilities will become increasingly crucial as well.
90
See Forbes Technology Council (2018) 14 ways AI will either benefit or harm society (Mar
1, 2018). https://www.forbes.com/sites/forbestechcouncil/2018/03/01/14-ways-ai-will-benefit-or-
harm-society/#3bd4e14d4ef0 (“[I]t is believed that Facebook’s newsfeed algorithm influenced an
election outcome that affected geopolitics.”).
91
Chainey R (2017) The global economy will be $16 trillion bigger by 2030 thanks to AI (June 27,
2017). https://www.weforum.org/agenda/2017/06/the-global-economy-will-be-14-bigger-in-2030-
because-of-ai/
92
Lee J (2018) Commercializing national security? National security exceptions’ outer parameter
under GATT Article XXI. Asian J WTO Int Health Law Policy 13(2):277, 296.
93
Ibid. (Since they are not enacted in response to “fissionable materials or the materials from which
they are derived,” “relating to the traffic in arms, ammunition and implements of war and to such
traffic in other goods and materials . . . for the purpose of supplying a military establishment,” and
“taken in time of war or other emergency in international relations.”)
activity would be insufficient to justify invoking the exception.94 However, this

traditional conceptualization of security is outmoded in an era of hegemonic rivalry
where economic and technological dominance is paramount.95
2020 saw a new US conceptualization of national security fusing together several
competitions: ideological supremacy, dominance in emerging technology, and eco-
nomic power.96 A July 2020 US Senate Report commented: “[i]n an era in which
rising authoritarianism is working to undermine the fabric of democratic institutions
globally, the Internet and connected technologies represent a continually evolving
domain that will fundamentally shape the future of politics, economics, warfare, and
culture.”97
The linkage of Chinese dominance in emergent technology, rising economic
strength and a competition over political governance, was enforced in a series of
summer 2020 speeches – remarkable in the sweeping nature of the US assessment of
the threat posed by China. US National Security Advisor Robert C. O’Brien iden-
tified China’s State-capitalism’s subsidization of emerging technology as a serious
threat to US economic interests.98 Highlighting the blurring of economic and
technological power, Huawei and ZTE were singled out as willing to sell at a loss
and to undercut the competition in order to advance the strategic goals of China
which include access to data.99 And data is crucial not only for economic reasons,
such as artificial intelligence, but also vital as a conduit for strategic usage, such as
94
Ibid. (“But they set forth specific requirements such that a simple showing of economic concern,
mere reference to an economic harm, or remote relevance to military activity does not satisfy them.”)
95
Ibid. at 302 (2018) (“The wording of the [GATT national security exception] article apparently
conveys the meaning that it should guard against improper imposition of trade-barriers for com-
mercial, business or political purposes under the guise of national security. Otherwise, the measure
may turn out to be an illegitimate carte blanche or a ‘self-proclaimed’ waiver.”) (emphasis added)
96
Dufour F (2020) Trump administration says Huawei, Hikvision backed by Chinese military (June
25, 2020). https://www.cnbc.com/2020/06/25/trump-administration-says-huawei-hikvision-
backed-by-chinese-military.html (“A Department of Defense (DOD) document listing 20 companies
operating in the United States that Washington alleges are backed by the Chinese military. . .The
DOD document also includes[Hikvison,] China Mobile Communications Group and China Tele-
communications Corpas well as aircraft manufacturer Aviation Industry Corp of China.”)
97
See footnote 13, p 5.
98
See, e.g., Lin L-W, Milhaupt CJ (2013) We are the (national) champions: understanding the
mechanisms of state capitalism in China. Stanford Law Rev 65:697 (“In the future, more boards of
directors may be established for the parent companies of the national champion groups, SOE boards
may take on somewhat more power, and independent directors may become more prevalent. (These
are reforms that have preoccupied many corporate law commentators.) But they will hardly alter the
fundamental governance norms of Chinese SOEs, which are determined by the party-state in its role
as controlling shareholder.”) (emphasis added).
99
See footnote 35 (“The CCP accomplishes this goal, in part, by subsidizing hardware, software,
telecommunications, and even genetics companies. As a result, corporations such as Huawei and
ZTE undercut competitors on price and install their equipment around the globe at a loss. This has
the side effect of putting out of business American manufacturers of telecom hardware and has
made it very difficult for Nokia and Ericsson. Why do they do it? Because it is not telecom hardware
or software profits the CCP are after, it is your data. They use “backdoors” built into the products to
obtain that data.”) (emphasis added).
564 J. Slawotsky
intelligence gathering, political interference, as well as promotion of visions for

global governance thereby linking ideology to both technology and economics.
O’Brien commented, “[t]he CCP’s stated goal is to createa ‘Community of Common
Destiny for Mankind,’ and to remake the world according to the CCP. The effort to
control thought beyond the borders of China is well under way.”100
The profiling of the CCP (and the fact that China’s domestic economic gover-
nance is a political-economic partnership and therefore inherently an ideologically-
based national security threat) is a significant development. The fusion of economy
and technology and ideology as the new national security conceptualization is
exemplified in the actions taken against WeChat and TikTok.
Department of Commerce (Commerce) today announced prohibitions on transactions relating

to mobile applications (apps) WeChat and TikTok to safeguard the national security of the
United States. The Chinese Communist Party (CCP) has demonstrated the means and motives
to use these apps to threaten the national security, foreign policy, and the economy of the U.S.101
O’Brien’s claims dovetail a US Senate Report profiling Huawei as benefitting from

China’s economic model and government support for national champions:
Government support has enabled Huawei to offer prices for its network equipment that are
below other companies’ prices, allowing Huawei to quickly gain market advantage. In the
Netherlands, for example, Huawei undercut its competitor, the Swedish firm Ericsson, by
underbidding for a contract to provide network equipment for the Dutch national 5G
network by 60 percent. Two industry officials who spoke to The Washington Post on the
condition of anonymity held that Huawei’s price was so low that, absent the subsidies the
company had been provided, Huawei would have been unable to even produce the necessary
network parts. Some countries also receive low-interest loans from Chinese state-owned
banks to use Huawei equipment.102
Similarly, U.S Federal Bureau of Investigation (“FBI”) Director Christopher

A. Wray commented that US economic superiority was under threat: “[t]he stakes
could not be higher, and the potential economic harm to American businesses and
the economy as a whole almost defies calculation. We need to be clear-eyed about
the scope of the Chinese government’s ambition.”103
Wray connected bribery and corruption to China’s ambitions: “China is engaged
in a highly sophisticated malign foreign influence campaign, and its methods include
bribery, blackmail, and covert deals.”104
100
See footnote 35. In the digital age, opinion and thoughts are influenced by data and potential data
manipulation and is so recognized by both China and the USA. See Buckley C (2011) China PLA
officers call Internet key battleground (June 3, 2011). https://www.reuters.com/article/us-china-
internet-google/china-pla-officers-call-internet-key-battleground-idUSTRE7520OV20110603 (Chi-
nese military understands that the internet is a significant battleground over public opinion).
101
See footnote 21.
102
See footnote 13, p 27.
103
See footnote 34.
104
Echoing this line of thought, US Attorney General William P. Barr identified

economic rivalry and China’s economic model as threats to US economic
preeminence:
The People’s Republic of China is now engaged in an economic blitzkrieg—an aggressive,

orchestrated, whole-of-government (indeed, whole-of-society) campaign to seize the com-
manding heights of the global economy and to surpass the United States as the world’s
preeminent superpower . . . . Made in China 2025” is the latest iteration of the PRC’s state-
led, mercantilist economic model.105
Barr also repeated the accusation that China intends to spread its political gover-
nance globally – linking governance, technology, and finance. “[T]he CCP’s cam-
paign to compel ideological conformity does not stop at China’s borders. Rather, the
CCP seeks to extend its influence around the world, including on American soil.”106
In the final speech, US Secretary of State Michael P. Pompeo specifically profiled
Huawei, accusing the Chinese giant of constituting a critical national security
threat.107 Referring to Chinese State-linked businesses, Pompeo stated that they
are promoting China’s ideological objectives. “[I]t’s this ideology that informs his
decades-long desire for global hegemony of Chinese communism. America can no
longer ignore the fundamental political and ideological differences between our
countries, just as the CCP has never ignored them.”108
Significantly, the reconceptualization of national security is not limited to the
USA but is gaining traction globally. From China,109 Hungary,110 and Norway,111
105
See footnote 36.
106
Ibid.
107
Secretary of State Pompeo MR (2020) Communist China and the Free World’s Future (July 23,
2020). https://2017-2021.state.gov/communist-china-and-the-free-worlds-future-2/index.html
(“We stopped pretending Huawei is an innocent telecommunications company that’s just showing
up to make sure you can talk to your friends. We’ve called it what it is – a true national security
threat – and we’ve taken action accordingly.”)
108
Ibid.
109
See footnote 20 (“For example, China produces almost all of the world’s dysprosium, a rare-earth
element used in magnets for electric cars. According to official Chinese data, 72% of its exports in
2018 went to Japan. Japanese companies use the material to produce magnets, which they sell to
clients around the world. Under the new law, China might restrict their supply if one of their
U.S. clients were blacklisted.”)
110
OECD Services Trade Restrictiveness Index: Policy trends up to 2020 (November 2020, p 20).
https://www.oecd.org/trade/topics/services-trade/documents/oecd-stri-policy-trends-up-to-
2020.pdf (“[T]he new Law on the Control of the Foreign Investments Offending the National
Security of Hungary entered into force. The Law establishes a verification procedure of investors’
conformity with national security interests (pre-screening procedure) for specific activities.”)
111
Ibid., p 24 (“As of 1 January 2019, a new investment screening mechanism has been in effect
[in Norway]. It covers investments in certain companies whose activities are essential to national
security interests, including national financial stability and autonomy. The screening mechanism
applies to direct or indirect acquisitions of one-third or more of the share capital, assets, or voting
rights or transactions that would enable the acquirer to exercise significant control over the
company. Investments that impose a “not insignificant” risk to national security interests may be
blocked or subjected to further conditions.”) (emphasis added).
566 J. Slawotsky
numerous sovereigns are linking technology to defending security interests, and

security’s conceptualization is increasingly being construed far outside the tradi-
tional contours of military defense. Examples include Germany banning US-made
dolls and Russia banning LinkedIn.112 Another exemplar is India’s banning of
TikTok based on national security issues.113
In August 2020, China added restrictions on important developing technologies
in order to defend China’s national security. The technologies included: speech
synthesis, voice recognition, smart review of exam answers, artificial intelligence
user interface and data analysis, encryption, cyber defense, metal 3D printing, aero
remote sensors, UAVs, lasers, major power and petrochemical facilities, etc.114
China has also enacted a law prohibiting Chinese entities from conducting
business with specific foreign companies based upon the threat to Chinese national
security. The list may also ban (or restrict) the sale of strategic materials such as rare
earths.115
The bill uses the same national security arguments that the Trump administration has
adopted in measures to isolate Chinese companies, including last month’s de facto ban on
exports to Huawei of semiconductors built using American technology.116
In discussing sanctions against US defense companies selling weapons to Taiwan,

national interests were the equivalent of national security which corroborates the
trend of expansionism. Chinese Foreign Ministry spokesman Zhao Lijian stated:
The sanctions will be imposed “in order to uphold national interests.”117
As the above examples illustrate, national security is increasingly important and

is militating toward an enlargement from the narrower “defense of the physical
territory” to a more inclusive understanding of economic sufficiency and
112
Nelson SS (2017) Germany bans “My Friend Cayla” doll over spying concerns (Feb 20, 2017).
https://www.npr.org/2017/02/20/516292295/germany-bans-my-friend-cayla-doll-over-spying-con
cerns (In 2017, for example, Germany banned My Friend Carly – a doll from the USA that you
could talk to you – because the conversation was processed by servers in the USA); Lunden I (2016)
LinkedIn, is now officially blocked in Russia (Nov 17, 2016) https://techcrunch.com/2016/11/17/
linkedin-is-now-officially-blocked-in-russia/ (Russia blocked access to LinkedIn because LinkedIn
refused to store personal data of Russian users in Russia).
113
Abi-Habib M (2020) India bans nearly 60 Chinese apps, including TikTok and WeChat (June 30,
2020). https://www.nytimes.com/2020/06/29/world/asia/tik-tok-banned-india-china.html (citing
national security, India bans TikTok and other Chinese apps).
114
Ministry of Commerce of the PRC (Aug 28, 2020). http://www.mofcom.gov.cn/article/ae/sjjd/
202008/20200802996696.shtml (main purpose of the revision was to “regulate the export of
technologies, promote technological improvement and expand economic and technological
exchanges with foreign countries while safeguarding national economic security.”)
115
See footnote 19.
116
See footnote 20.
117
See footnote 18.
competitiveness as strategic national security.118 In this new conceptualization of

national security, a wide array of businesses may be viewed as national security
threats.119 We are no longer in an age where the sole security threat consists of armed
conflict or threats to territorial integrity. Owning the technological high ground is
now an element of security. Under a re-conceptualization, the imposition of tariffs
and blocking investments by the USA (as well as conduct by China) may indeed be a
legitimate response to a strategic security threat. Given the importance of economic
strength and dominating emerging technologies, the emerging expansion of security
interests will substantially impact international law and governance.
Stricter National Security Considerations in Investment and Trade

Policy
As noted in the chapter’s first edition, there is a trend toward enhanced national
security review.120
2020 illustrated that, globally, investment review mechanisms are becoming
stricter and incorporating the expanding conceptualization of national security
such as defining security in terms of damaging “strategic assets.”121
118
See Benton Heath J (2020) Trade and security among the ruins. Duke J Comp Int Law 30:223,
232 (“By invoking these exceptions, the United States has edged toward a version of national
security that goes beyond military readiness, to embrace a conception that equates security with
economic self-sufficiency and competitiveness.”)
119
See Shepardson D, Freifeld K, Alper A (2020) U.S. moves to cut Huawei off from global chip
suppliers as China eyes retaliation (May 15, 2020). https://in.reuters.com/article/us-usa-huawei-tech-
exclusive/u-s-moves-to-cut-huawei-off-from-global-chip-suppliers-as-china-eyes-retaliation-
idINKBN22R1KC (ban on chip sales to Huawei); Swanson A, Zhong R (2020) U.S. places
restrictions on China’s leading chip maker (Oct 5, 2020). https://www.nytimes.com/2020/09/26/
technology/trump-china-smic-blacklist.html (USA blocks chip sales to SIMC)
120
In 2018, the USA enacted The Foreign Investment Risk Review Modernization Act
(“FIRRMA”) extensively strengthening the existing vetting architecture of CFIUS. While ostensi-
bly FIRRMA is applicable to all foreign buyers, it was precipitated by perceptions that China poses
a serious national security challenge to the USA. See McLaughlin D, Mohsin S, House B (2017)
China-US-buying spree prompts move to toughen deal reviews. Bloomberg (Oct 26, 2017). https://
www.bloomberg.com/news/articles/2017-10-26/china-s-u-s-buying-spree-prompts-move-to-
toughen-deal-reviews
121
See, e.g., European Commission (2020) Guidance to the Member States concerning foreign
direct investment and free movement of capital from third countries, and the protection of Europe’s
strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation)
(Mar 25, 2020). https://trade.ec.europa.eu/doclib/docs/2020/march/tradoc_158676.pdf?utm_
source¼CCSI+Mailing+List&utm_campaign¼f114c4c804-Perspective+284&utm_
medium¼email&utm_term¼0_a61bf1d34a-f114c4c804-62915057, pp 1–2 (“To this end, the
European Commission calls upon Member States to. . . to set up a full fledged screening mechanism
and in the meantime to use all other available options to address cases where the acquisition or
control of a particular business, infrastructure or technology would create a risk to security or public
order in the EU, including a risk to critical health infrastructures and supply of critical inputs.”)
568 J. Slawotsky
FDI screening should take into account the impact on the European Union as a whole, in
particular with a view to ensuring the continued critical capacity of EU industry, going well
beyond the healthcare sector. The risks to the EU’s broader strategic capacities may be
exacerbated by the volatility or undervaluation of European stock markets. Strategic assets
are crucial to Europe’s security, and are part of the backbone of its economy.122
Strategic assets are described as involving energy, essential public services,

financial stability, or a threat to a “fundamental interest of society.”123 The EU
calls on Member States to consider whether a foreign government is involved and
implicating data, media, financial infrastructure, and real estate as potentially trig-
gering a threat.124
Western concerns over Chinese investors are amplified because most large global
Chinese companies are controlled or dominated by arms of the Chinese State.125
Investments made by governments raise different regulatory sensitivities compared
to considerations raised by private companies because of the possibility that
government-owned/controlled businesses may utilize nonfinancial motivations at
least in part in decision-making.126
[H]ost countries cannot summarily assume that [SOE] investments will never be guided by
political objectives or that the management of [SOEs] will never be motivated by ‘nation-
alistic considerations’ deviating from conventional wealth maximization. . .127
China is similarly embracing more robust national security considerations in

investment policy128 and banning, for example, some US companies based on
122
Ibid. at 1 (emphasis added).
123
Ibid. at p 1.
124
See European Commission (2020) Screening of foreign direct investment (Nov 24, 2020). http://
trade.ec.europa.eu/doclib/press/index.cfm?id¼2006 intro Art 13 noting that screening mechanisms
should (“consider all relevant factors, including the effects on critical infrastructure, technologies
[] which are essential for security or the maintenance of public order. . .. [and] whether a foreign
investor is controlled directly or indirectly, for example through significant funding, including
subsidies, by the government of a third country or is pursuing State-led outward projects or
programmes.”); Ibid. at Art 4 (Defining risks to security and public order as involving “critical
infrastructure, whether physical or virtual, including energy, transport, water, health, communica-
tions, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and
sensitive facilities, as well as land and real estate crucial for the use of such infrastructure.”)
125
See Soble J (2017) Why the U.S. fears a Chinese bid for Westinghouse electric (Apr 7, 2017).
https://www.nytimes.com/2017/04/07/business/us-china-toshiba-westinghouse.html?_r¼0 (“Westing-
house is believed to have been targeted by Chinese spies. If a Chinese entity were to buy the
company, China could obtain secrets without the cloak and dagger”).
126
See Slawotsky J (2009) Sovereign wealth funds as emerging superpowers: how US regulators
should respond. Georget J Int Law 40:1239, 1251
127
See Chaisse (2015), pp. 583, 594–595 in footnote 76.
128
China has announced a negative list based upon national security considerations. See China
reveals punishment for firms on unreliable entity list (Sep 19, 2020). https://www.bloomberg.com/
news/articles/2020-09-19/china-reveals-punishment-for-firms-on-unreliable-entity-list
security threats.129 China added restrictions in 2020 on important developing tech-

nologies in order to defend China’s national security.130 Investment deals between
China and the USA as well as other nations) will likely be negatively affected.131 As
supply-chains are integrated, negative impacts on third nations will also arise.132
Invoking national security to heighten screening or block investment is contro-
versial because doing so may constitute a ruse for protectionism and violate inter-
national economic law.133 Indeed, China perceives the imposition of restrictive
measures as a violation of contractual commitments and as cover for protectionism
and discriminatory conduct.134 When the EU first floated an investment-screening
mechanism, China called on the bloc to observe the World Trade Organization
(WTO) rules and avoid discriminatory investment policies.135
According to the Chinese view, national security concerns are a prop – an excuse
– a hypocritical invocation of national security employed for protectionist reasons.
The Chinese perceive the USA as entering the private market endeavoring to steal
Chinese technology for the benefit of US business – in effect an exemplar of the
government partnering with the private sector.
129
See footnote 18 (“China will impose unspecified sanctions on the defense unit of Boeing Co.,
Lockheed Martin Corp., and Raytheon Technologies Corp. after the U.S. approved $1.8 billion in
arms sales to Taiwan last week.”)
130
See footnote 114.
131
Higgins-Dunn N (2020) China tightens tech export controls potentially jeopardizing TikTok
deal, reports say (Aug 29, 2020). https://www.cnbc.com/2020/08/29/china-tightens-tech-export-
controls-jeopardizing-tiktok-deal-reports-say.html (“Cui Fan, a professor of international trade in
Beijing, told Xinhua that ByteDance would probably have to get approval from the Chinese
government and suggested the company may have to suspend negotiations on TikTok’s sale.”)
132
See footnote 109.
133
For example, blocking transactions may potentially implicate international investment agree-
ments and give rise to claims either at the ICJ State – State venue or International Centre for
Settlement of Investment Disputes (ICSID) Investor–State arbitration. See Hsu L (2017) The role
and future of sovereign wealth funds: a trade and investment perspective. Wake Forest Law Rev 52:
837, 847.
134
China may also perceive that these measures are brought in the context of the USA–China
rivalry. See Backer (2010) in footnote 33 (“For a considerable period of time, Chinese officials have
been focusing on the possibility that the United States intends to surround it to prevent it from more
forcefully asserting its own interests in the region. . .[T]he Chinese suggest that American policy has
been to engage China economically while creating an effective military encirclement that would
enhance the American position in the event of conflict.”)
135
Pronina L, Follain J, Okov S (2018) EU is ready to fight back against China’s growing trade
dominance. Bloomberg (May 3, 2018). https://www.bloomberg.com/news/articles/2018-05-03/
europe-embarks-on-a-china-strategy-with-a-majority-for-screening. Notwithstanding this objec-
tion, the EU has in fact established such a mechanism. See European Commission (2019) Foreign
Investment Screening: new European framework to enter into force in April 2019 (press release,
Mar 5, 2019). http://europa.eu/rapid/press-release_IP-19-1532_en.htm (new EU mechanism
approved).
570 J. Slawotsky
[The] US’ highway robbery of TikTok completely violates market principles and the spirit of
the rule of law. It is a distorted hegemonic behavior under the forced intervention of the US
government. . . .The Trump administration is acting entirely in US interests, and even partly
out of the self-interest of the ruling party, who simply does not allow a foreign company
capable of challenging the competitiveness of its US counterparts.136
The importance of national security factors in decisions on investment and trade will
likely be enhanced going forward.
Hegemonic Rivalry as a Factor in “Choosing Sides” in Trade

and Investment
As noted in the chapter’s first edition, although the USA and China are the central
protagonists of the hegemonic contest, both powers are exerting pressure on allies
and partners to align with one or the other, and seek to build partnerships to “shut out
the other power.”137 This emerging impact picked up additional force in 2020.
India,138 Israel,139 and the UK140 are among the US allies that are being lobbied
strongly to distance themselves from China. The USA is portraying aligning with
China as a loss of sovereignty.141 For example, the USA is concerned about Chinese
136
Global Time editorial (2020) International community needs to break its silence on US highway
robbery of TikTok (Sept 25, 2020). https://www.globaltimes.cn/content/1202041.shtml
137
Wong E, Rappeport A (2018) In race for global power, USA and China push nations to pick a
side (Nov 21, 2018). https://www.nytimes.com/2018/11/21/us/politics/usa-china-trade-war.html
138
Chen C (2020) India to slowly phase out Huawei and other Chinese vendors from its telecoms
network (Aug 25, 2020). https://www.scmp.com/tech/big-tech/article/3098693/india-slowly-phase-
out-huawei-and-other-chinese-vendors-its-telecoms (“India is gradually phasing out Chinese ven-
dors from its telecoms networks amid rising tensions between the world’s most populous countries
following deadly border clashes, according to a Financial Times report.”)
139
McFall C (2020) Israel rejects $1.5B Chinese water plant after Pompeo said it could affect
working relationship with US (May 26, 2020). https://www.foxnews.com/world/israel-rejects-
chinese-water-plant-pompeo (Israeli government under immense pressure from Secretary of State
Pompeo who told Israelis, “We do not want the Chinese Communist Party to have access to Israeli
infrastructure, Israeli communication systems, all of the things that put Israeli citizens at risk and in
turn put the capacity for America to work alongside Israel on important projects at risk, as well.”)
140
Kelion L (2020) Huawei 5G kit must be removed from UK by 2027 (July 14, 2020). https://
www.bbc.com/news/technology-53403793 (“This has not been an easy decision, but it is the right
one for the UK telecoms networks, for our national security and our economy, both now and indeed
in the long run.”)
141
Buchan L (2020) US warns Britain’s sovereignty in jeopardy over Huawei deal amid pressure on
Boris Johnson to change course (Jan 27, 2020). https://www.independent.co.uk/news/uk/politics/
huawei-5g-boris-johnson-us-trump-mike-pompeo-china-a9303191.html (“In an escalation of pres-
sure on Boris Johnson, Mike Pompeo said the UK had a “momentous” decision to make this week
over whether to allow Huawei to form part of the UK’s 5G infrastructure.”)
economic ties and investment in Israeli technology companies142 and has requested
the Israeli government to reconsider its economic ties with China.143 Further illus-
trating, the new USA-Mexico-Canada Agreement contains a provision that allows
the USA to veto the ability of Mexico or Canada to sign an FTA with a nonmarket
economy absent of US approval.144 This clause is aimed at China.145
The vigorous US attempt to have allies shun Huawei is yet another example.
China’s Huawei Technologies, [] has been front and center of the escalating US-China tech
war. . .Over the past two years, [the U.S.]has consistently highlighted China’s real, perceived
and imagined threats to the liberal international order, while bidding to mobilize allies and
partners in a maximum pressure campaign aimed at hemming in Beijing and its
ambitions.146
The USA has argued that Huawei should be banned from deployment of 5G because
of security risks. The US position is that nations must select either the USA or China
and is openly stating that allies selecting China will find their US partnerships at
risk.147
Over the past year, the United States has embarked on a stealthy, occasionally threatening,
global campaign to prevent Huawei and other Chinese firms from participating in the most
dramatic remaking of the plumbing that controls the internet since it sputtered into being, in
pieces, 35 years ago.148
142
See Cohen T, Scheer S (2019) Israel’s chip sales to China jump as Intel expands (Mar 19, 2019).
https://www.reuters.com/article/us-israel-china-tech-exclusive/exclusive-israels-chip-sales-to-
china-jump-as-intel-expands-idUSKCN1R00DF (“Israel’s exports of computer chips to China
soared last year as Chinese companies bought more semiconductors made at Intel’s Kiryat Gat
plant.”)
143
Ackerman G, Levingston I (2019) Israel is stuck in the middle of Trump’s conflict with China
(Jan 28, 2019). https://www.bloomberg.com/news/articles/2019-01-28/trump-s-freeze-on-china-
exposes-israeli-tech-firms-to-chill-wind (“During a visit to Israel this month, U.S. National Security
Adviser John Bolton was due to raise concerns about China technology penetration, in particular
through Huawei Technologies Co. and ZTE Corp.”)
144
USMCA Article 32.10.
145
See Wu (2018) in footnote 9 (“While China is not named, the clause is squarely aimed at
isolating Beijing. Likewise, Washington will certainly ask for a similar clause in its trade negoti-
ations with Japan, the European Union or any other nations. They too will be likely forced to choose
between the U.S. and China.”)
146
Heydarian RJ (2020) US presses and pushes allies into New Cold War (May 30, 2020). https://
asiatimes.com/2020/05/us-presses-and-pushes-allies-into-new-cold-war/
147
See footnote 16 (“U.S. Secretary of State Mike Pompeo on Thursday warned that the United
States would not be able to partner with or share information with countries that adopt Huawei
Technologies Co Ltd. systems, citing security concerns.”)
148
Sanger DE, Barnes JE, Zhong R, Santora M (2019) In 5G race with China, U.S. pushes allies to
fight Huawei (Jan 26, 2019). https://www.nytimes.com/2019/01/26/us/politics/huawei-china-us-5g-
technology.html?action¼click&module¼Top%20Stories&pgtype¼Homepage
572 J. Slawotsky
The USA is also offering economic inducements to Brazil to ban Huawei.149

Some US allies have banned Huawei150 while others are considering such bans.151
Some nations are pushing back against US pressure.152 US allies will likely seek
to hedge their bets and balance relationships with both China and the USA. “The
German government looks likely to avoid an outright ban of Huawei Technologies’
equipment and allow the Chinese company to participate in its high-speed commu-
nications infrastructure in some form, as the country seeks to balance its relation-
ships with the U.S. and China.”153
The dilemma for sovereigns is not simple because the potential immense eco-
nomic gains from aligning with China154 must be evaluated against the risk that
149
Kharpal A (2020) U.S. tries to get Huawei blocked from Brazil’s 5G networks with $1 billion
financing pledge (Oct 21, 2020). https://www.cnbc.com/2020/10/21/us-tries-to-get-huawei-
blocked-from-brazils-5g-networks.html (“Washington has stepped up its offensive against Huawei,
offering financing to Brazil to get the Chinese telco effectively blocked from the nation’s next-
generation 5G networks.”)
150
See Cave D, Uren T (2018) Why Australia banned Huawei from its 5G telecoms network (Aug
30, 2018). https://www.ft.com/content/e90c3800-aad3-11e8-94bd-cba20d67390c (Australia).
151
Schulze E, Taylor C (2019) Huawei could be banned from 5G in Germany (Jan 18, 2019). https://
www.cnbc.com/2019/01/18/huawei-5g-ban-in-germany.html (“The German government is consid-
ering banning Huawei from providing 5G equipment in the country saying security concerns are of
‘high relevance’.”); Fadden R (2019) For the security of Canadians, Huawei should be banned from
our 5G networks (Jan 23, 2019). https://www.theglobeandmail.com/opinion/article-for-the-
security-of-canadians-huawei-should-be-banned-from-our-5g/ (“There are plenty of reasons why
intelligence professionals are alarmed by Huawei’s involvement in our 5G networks, particularly,
the close relationship between Huawei and a Chinese government with a history of cyberespionage.
Add the fact that China’s 2017 National Intelligence Law gives Beijing the power to compel
Huawei’s support for its intelligence work, and it should be a clear-cut case.”); France considers
bill amendment to target Huawei (Jan 21, 2019). https://www.reuters.com/article/us-france-huawei/
france-considers-bill-amendment-to-target-huawei-les-echos-idUSKCN1PF25E (“France is con-
sidering introducing a bill amendment to empower its security and defence watchdogs to make
retroactive checks to telecoms operators’ equipment once installed, targeting China’s Huawei.”)
152
Elmer K (2020) Portugal rejects US warning of sanctions over Chinese investment as rivalry
heats up (Sept 29, 2020). https://www.scmp.com/news/china/diplomacy/article/3103511/portugal-
rejects-us-warning-sanctions-over-chinese-investment (“Lisbon has rebuffed a warning from the
US ambassador that sanctions could be imposed on Portuguese companies with Chinese invest-
ment, the latest sign that rivalry between Washington and Beijing over Europe is intensifying.”)
153
Shinozaki K, Kastner J (2019) Germany follows UK in casting doubt on US-Huawei ban (Feb
19, 2019). https://asia.nikkei.com/Economy/Trade-war/Germany-follows-UK-in-casting-doubt-on-
US-Huawei-ban (noting Germany, the U.K. and New Zealand are questioning US pressure to ban
Huawei) (emphasis added)
154
Li T (2019) Huawei founder, says West would be “foolish” not to buy its 5G products as they are
leading edge (Jan 22, 2019). https://www.scmp.com/tech/big-tech/article/2182995/huawei-
founder-says-west-would-be-foolish-not-buy-its-5g-products-they (“They are foolish and will lose
money if they don’t buy [our products],” . . .“We have many things that the European and American
countries need, and they will have to purchase from us.”)
China’s hegemonic aspirations will not materialize or, alternatively, alliance will not
carry the rewards expected.155 Moreover, selecting the USA over China not only
jeopardizes economic opportunities but doing so also risks probable Chinese retal-
iation.156 In the context of the US-China hegemonic rivalry, geopolitical reality is a
significant consideration.157 Therefore, the risks over the longer-term of US allies
aligning with China cannot be discounted.158 US allies’ self-interested embrace of
China, should it gain critical mass, would constitute a transformative geostrategic
shift imperiling the hegemonic status of the USA.159
155
Lee YN (2020) Four years on, Philippine President Duterte is still struggling to show the benefits
of being pro-China (Sept 7, 2020). https://www.cnbc.com/2020/09/08/philippine-president-
duterte-fails-to-produce-results-from-pro-china-stance.html (“In a dramatic shift in the Philippines’
foreign policy, Duterte declared in 2016 the country’s “separation” from the U.S. – a military ally –
and announced closer ties with China. Among other things, the president also set aside his country’s
territorial dispute with Beijing in the South China Sea, in exchange for billions of dollars that China
pledged in infrastructure investments. But much of that promised investment has not materialized.”)
156
Wibawa T (2019) New Zealand gets “punished” by Chinese tourists following Huawei ban,
according to state media. https://www.abc.net.au/news/2019-02-19/china-tourists-punishing-new-
zealand-over-huawei-decision/10825340 (“Chinese state-owned media Global Times, claims Chi-
nese tourists are considering abandoning their travel plans into the country as a way to ‘punish’
New Zealand over its decision to ban mobile company Spark from using Huawei equipment in its
5G upgrade. It also says the political relationship between the two nations is now ‘strained’.”);
Murtaugh D, Scott J (2019) Major Chinese port bans Australian coal imports, report says (Feb 21,
2019). https://www.bloomberg.com/news/articles/2019-02-21/glencore-sees-political-issue-in-
china-s-australia-coal-delays (“A major port in northern China has reportedly banned coal imports
from Australia – in a sign that Beijing may be flexing its economic muscles and warning nations not
to bar its next-generation wireless technology.”)
157
China to halt key Australian imports in sweeping retaliation (Nov 3, 2020). https://www.
bloomberg.com/news/articles/2020-11-03/china-to-halt-key-australian-commodity-imports-as-ten
sions-mount (“China has ordered traders to stop purchasing at least seven categories of Australian
commodities, ratcheting up tensions with its key trading partner in its most sweeping retaliation yet.
Commodities traders in China won’t be able to import products including coal, barley, copper ore
and concentrate, sugar, timber, wine and lobster, according to people familiar with the situation. The
government has ordered the halt to begin on Friday, one of the people said, asking not to be
identified as the information is sensitive.”)
158
See Vela JH (2018) EU and China break ultimate trade taboo to hit back at Trump (Nov 21,
2018). https://www.politico.eu/article/eu-and-china-break-ultimate-trade-taboo-to-hit-back-at-
trump/ (“Anger over U.S. President Donald Trump’s steel tariffs is pushing Europe and China to
rip up one of the most sacrosanct unwritten rules in international trade policy: Don’t question
national security.”)
159
Chatzky A (2019) China’s Belt and Road get a win in Italy (Mar 27, 2019). https://www.cfr.org/
article/chinas-belt-and-road-gets-win-italy (“Chinese President Xi Jinping just returned from a visit
to Europe to promote the Belt and Road Initiative (BRI), China’s unprecedented plan to expand its
geopolitical reach. As Rome and Beijing signed a major deal on the BRI, several European leaders
expressed alarm about the agreement’s ability to divide Europe.”)
574 J. Slawotsky
Increasing Governmental Involvement in the Economy, Financial

Markets, and Updated Regulations
As noted in the chapter’s first edition, the reason that financial markets will be
increasingly affected by national security considerations is that large publicly traded
corporations are powerful actors and embedded in all facets of critical infrastructure.
Moreover, publicly traded entities are frequently at the vanguard of technological
innovation and revolutionary financial services destined to transform the world.160
Corroborating the first edition’s discussion, 2020 witnessed a strengthening of
discussion within the US government of resorting to US financial markets to
confront China. Such measures included the consideration of shutting Huawei out
of US financial markets and banking (declined for now but can be revived)161 as well
as implied threats to unsheathe the “Dollar weapon” with respect to Hong Kong in
response to China’s new Hong Kong National Security Law.162
The USA is in a unique position to wield substantial leverage against China in
capital markets and global payments due to the exceptional role of US financial
markets both in terms of depth and liquidity as well as the exceptional role the US
dollar plays in international finance (and influence over global payments messaging
system Swift). Imposing USD financial sanctions on foreign entities is an awe-
somely effective stratagem to promote US policy objectives and the USD has been
aggressively deployed in recent years forcing both friend and foe to adhere to US
directives in a variety of geo-strategic and economic contexts.163
The potential of the USA employing sanctions against Chinese entities should not
be discounted and may in fact be unsheathed should the hegemonic contest intensify
despite potential negative repercussions. China, recognizing this serious disadvan-
tage is endeavoring to nullify or blunt this immense US advantage by encouraging
Yuan internationalization, developing a digital Yuan164 and encouragement of an
alternative-payments-messaging system – CIPS.165
160
There are exceptions such as nonpublicly traded Huawei.
161
Alper A (2019) White House considered kicking Huawei out of U.S. banking system (Dec 3,
2019). https://www.reuters.com/article/us-huawei-tech-usa-treasury-exclusive/exclusive-white-
house-considered-kicking-huawei-out-of-u-s-banking-system-sources-idUSKBN1Y717U (“The
plan, which was ultimately shelved, called for placing Huawei Technologies Co Ltd. [HWT.UL],
the world’s second largest smartphone producer, on the Treasury Department’s Specially Desig-
nated Nationals (SDN) list. One of the people familiar with the matter, who favors the move, said it
could be revived in the coming months depending on how things go with Huawei.”)
162
Economists say U.S. threat to undermine Hong Kong dollar peg is “self-defeating” (July 8,
2020). https://fortune.com/2020/07/08/hong-kong-us-dollar-peg-threat-economists/ (discussing the
possibility of undermining the US Dollar-Hong Kong Dollar peg. “The most straightforward way to
implement such a strategy would be for the U.S. to impose limits on the ability of American and
potentially other foreign banks to sell U.S. dollars to Chinese lenders, possibly via sanctions on
Chinese banks.”)
163
For a discussion of the US financial hegemony and Chinese attempts to counter this power, see
footnote 3.
164
See supra Part II.
165
See footnote 3.
Demonstrating the impact of the new conceptualization of security, President

Trump signed an Executive Order preventing US persons from investing in certain
Chinese corporations based upon threats to US national security.166 The statement
links China’s State-capitalist model with advancing Chinese ambitions which are
treated as security threats.
Key to the development of the PRC’s military, intelligence, and other security apparatuses is
the country’s large, ostensibly private economy. . .. Those companies, though remaining
ostensibly private and civilian, directly support the PRC’s military, intelligence, and security
apparatuses and aid in their development and modernization.167
The Executive Order banning US investment in certain Chinese corporations

manifests the increasing likelihood that national security factors will impact capital
market regulation.168 Illustrative of the potentially sweeping impact of the hege-
monic contest and ensuing national security implications on financial markets: The
USA is considering the unprecedented de-listing of Chinese ADRs traded on US
capital markets and the possible de-listing of Chinese companies;169 is advising US
academic institutions to avoid investing in Chinese shares;170 is prohibiting US
government pension funds from investing in Chinese shares;171 is considering
166
Executive Order on Addressing the Threat from Securities Investments that Finance Communist
Chinese Military Companies (Nov 12, 2020). https://trumpwhitehouse.archives.gov/presidential-
actions/executive-order-addressing-threat-securities-investments-finance-communist-chinese-mili
tary-companies/ (“[T]he PRC’s military-industrial complex, by directly supporting the efforts of the
PRC’s military, intelligence, and other security apparatuses, constitutes an unusual and extraordi-
nary threat.”)
167
Ibid.
168
Franck T (2020) Senate passes bill on oversight of Chinese companies, Alibaba shares move
lower (May 20, 2020). https://www.cnbc.com/2020/05/20/senate-passes-bill-on-oversight-of-
chinese-companies-alibaba-shares-move-lower.html (“The Senate passed legislation on Wednesday
that could ban many Chinese companies from listing shares on U.S. exchanges or raising money
from American investors without adhering to Washington’s regulatory and audit standards.”)
169
See Alper A, Lawder D (2019) Trump considers delisting Chinese firms from U.S. markets (Sept
27, 2019). https://www.reuters.com/article/us-usa-trade-china-limits/trump-considers-delisting-chi
nese-firms-from-u-s-markets-sources-idUSKBN1WC1VP (USA considering measures including
de-listing Chinese shares).
170
Cirilli K, Banjo S (2020) U.S. warns colleges to divest China stocks on delisting risk (Aug 19,
2020). https://www.straitstimes.com/world/united-states/us-warns-colleges-to-divest-china-stocks-
on-delisting-risk (“The US State Department is asking colleges and universities to divest from
Chinese holdings in their endowments, warning schools in a letter on Tuesday (Aug 18) to get ahead
of potentially more onerous measures on holding the shares.”)
171
Franck T (2020) White House directs federal pension fund to halt investments in Chinese stocks
(May 12, 2020). https://www.cnbc.com/2020/05/12/white-house-directs-federal-pension-fund-to-
halt-investments-in-chinese-stocks.html (prohibition on US government pension fund to invest in
Chinese equities).
576 J. Slawotsky
eliminating the exemption for foreign issuers on audit inspections; and in a move
widely acknowledged as targeting Chinese shares, is looking at banning Chinese
listings who fail to allow audits.172
Exemplifying both the link between financial markets and national security is
China’s response with respect to audits:
China is proposing to let U.S. regulators audit its state-owned enterprises (SOEs) in a
concession aimed at solving their long-running accounting dispute, but would insist on
redacting some information on national security grounds.173
Governments are likely to increase investments in stock markets as corporate

share ownership and national security are now inextricably linked. Indeed, Western
market-capitalist economies are considering share purchases. In Europe, govern-
ments are contemplating taking stakes in publicly traded entities.174 The Finnish
Government – through a sovereign investment fund – has bought a stake in Finnish
national champion Nokia.175 In another exemplar, Germany is planning to acquire
stakes in national industrial champions.176
National security concerns are driving the USA to consider acquiring stakes in
corporations.177 Attorney General Barr noted this possibility with respect to the USA
172
See also Ho S (2020) Trump administration seeks to delist U.S.-listed Chinese companies for
blocking audit inspections (Aug 27, 2020). https://tax.thomsonreuters.com/news/trump-administra
tion-seeks-to-delist-u-s-listed-chinese-companies-for-blocking-audit-inspections/ (US stock
exchanges may delist Chinese companies that do not allow US audit inspections).
173
China makes proposal to U.S. in concession to solve accounting dispute (Aug 27, 2020). https://
www.reuters.com/article/us-china-audit-dispute-idUSKBN25N0BR
174
Europe’s next big rescue idea – public stakes in small firms (July 9, 2020). https://www.
straitstimes.com/business/economy/europes-next-big-rescue-idea-public-stakes-in-small-firms
(“The next big idea gaining traction among officials and economists is potentially taking stakes in
small and medium-sized businesses, in contrast to early efforts that relied heavily on loans to keep
corporations afloat.”)
175
Fildes N (2018) Finnish government buys stake in Nokia (Mar 13, 2018). https://www.ft.com/
content/8a6741b8-26a9-11e8-b27e-cc62a39d57a0
176
Germany ready to buy stakes in automakers, other companies to protect them (Feb 5, 2019).
https://www.autoblog.com/2019/02/05/germany-buy-stakes-automakers-protection/ (“The pivot to
a more defensive industrial policy is driven by German concerns about foreign – particularly
Chinese – companies acquiring German know-how and eroding the manufacturing base on which
much of Germany’s prosperity is built.”)
177
See Spence E (2020) U.S. takes stake in battery-metals firm to wean itself off China (Oct 4, 2020).
https://www.bnnbloomberg.ca/u-s-takes-stake-in-battery-metals-firm-to-wean-itself-off-china-1.
1503540 (“The U.S. government has taken an equity stake in a battery-metals company in a move that
undercuts dependence on China for a key material used in electric vehicles.”)
competing against Huawei.178 Doing so would represent a significant transformation

as the US market capitalism model eschews governmental ownership of stakes in
private enterprise. However, equity stakes are being considered in non-Huawei
contexts as well. For example, the USA contemplated taking equity stakes in
corporations that receive bailout money due to the Covid-19 pandemic.179 Going
forward, the US private tech and strategic corporations may be increasingly viewed
as important investments by the USA as crucial to national security.
Regulatory updates may develop in response to both national security concerns.
Share acquisitions empower sovereigns to “conquer” or to substantially influence
and/or control another sovereign’s political governance, industrial strength, and
economic future. For example, sovereign wealth funds are major stock market
investors and have the capacity of controlling large swaths of economic activity.
Foreign government-controlled vehicles are buying important companies or acquir-
ing investment stakes.180 Over the long term, foreign sovereign control over com-
panies through influence, election of directors, or shareholder activism can
substantially impact the host nation.181 Purchasing shares can also be a defensive
measure taken to thwart losing industrial and technological superiority.182 One
method of potentially monitoring foreign governmental ownership is the regulatory
disclosure process. In the USA, for example, a buyer must disclose when it acquires
4.9% of the shares. However, to avoid scrutiny and required filings, potentially,
foreign governmental entities could buy small stakes in companies – essentially
flying under the radar. Lower thresholds of disclosure can identify such investments
and are a possibility.183
178
See Really? Is the White House proposing to buy Ericsson or Nokia? (Feb 7, 2020). https://www.
nytimes.com/2020/02/07/business/dealbook/bill-barr-huawei-nokia-ericsson.html (“President
Trump has made it very clear that he is worried about Huawei’s leading role in 5G wireless
technology. Now his attorney general, Bill Barr, has offered a radical solution: having the
U.S. invest in the Chinese company’s European counterparts.”)
179
Hirsch L (2020) Trump says he would consider government equity stakes in companies seeking
bailouts (Mar 19, 2020). https://www.cnbc.com/2020/03/19/coronavirus-bailouts-trump-would-
consider-federal-equity-stakes-in-companies.html
180
See China Molybdenum buys 95 pct stake in DRC copper-cobalt mine (Dec 14, 2020). http://
www.xinhuanet.com/english/2020-12/14/c_139588737.htm (“China Molybdenum Co., Ltd. has
acquired a 95-percent stake in the Kisanfu copper-cobalt mine in the Democratic Republic of
Congo (DRC) from U.S.-based Freeport-McMoRan Inc. for 550 million U.S. dollars. The Kisanfu
mine holds an estimated 6.28 million tonnes of copper and 3.1 million tonnes of cobalt metal.”)
181
Backer L (2013) Sovereign investing and markets-based transnational rule of law building: the
Norwegian Sovereign Wealth Fund in global markets. Am Univ Int Law Rev 29:1, 92–94; See
Slawotsky (2009), pp. 1239, 1255 in footnote 126.
182
See footnote 176 (State acquiring shares to prevent a foreign government from controlling
corporation)
183
See Slawotsky J (2020) Financial stability and national security in an era of hegemonic rivalry:
the need to tighten United States securities disclosure requirements. J Bus L 22:457
578 J. Slawotsky
Conclusion
While the USA is the existing hegemon, an ambitious China is a contender for global
leadership. The age of hegemonic rivalry will substantially impact trade and invest-
ment policy, global governance, and international economic law. The geo-economic
contest promises to fundamentally change a foundational cornerstone of the existing
global governance model: nondiscriminatory trade and encouragement of vigorous
cross-border investment. In evaluating potential emerging impacts, it is crucial to
view trade and investment policy measures in the wider context of hegemonic
rivalry. Economic, technological, and military supremacy forms the triage of hege-
monic leadership. Given that threats to national security are no longer limited to pure
military perils, defending national security will become increasingly interconnected
with developing, controlling, and exploiting technological innovation for both
military and commercial purposes and will be inextricably linked with economic
and industrial power and may increasingly cross into the realm of the ideological.
Essential Security Interests in International
Investment Law: A Tale of Two ISDS Claims 23
Against India
Prabhash Ranjan
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580
Facts of the Two Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582
Essential Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584
Breadth of Essential Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584
The Threshold Question or the Degree of Severity to Establish Existence of Essential
Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589
Are Essential Security Interests Self-Judging? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591
Nexus Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Necessary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593
Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Abstract
Essential security interest clause in bilateral investment treaties (BITs) assumed
much significance after a spate of investor-state dispute settlement (ISDS) claims
were brought against Argentina challenging Argentina’s measures to meet an
economic emergency. This chapter studies two recent cases involving India –
Devas v India and Deutsche Telekom v India – on the matter of essential security
interest involving India. The chapter compares and contrasts the findings in these
two cases with the Argentine cases on matters of meaning of essential security
interest; the threshold to invoke the defense of essential security interest; whether
essential security interests are self-judging; what is the meaning of ‘necessary’ as
the nexus requirement in the essential security interest clause; and to what extent
the ISDS tribunal accords a margin of deference to States on matters of essential
security interest. The chapter finds that the two Indian cases make useful contri-
butions to the evolving jurisprudence on the security reservation on all the issues
P. Ranjan (*)
South Asian University, New Delhi, India
e-mail: prabhash.ranjan@sau.ac.in

https://doi.org/10.1007/978-981-13-3615-7_10
580 P. Ranjan
identified above. The tribunals make vital additions on matters like meaning of
‘necessary’ and on ‘standard of review,’ which would be useful for future tri-
bunals while interpreting essential security interest clauses.
Keywords
Essential security interest · India · Devas · Deutsche Telekom · ISDS ·
Necessary · Standard of review
Introduction
The essential security interest clauses are ubiquitous in bilateral investment treaties
(BITs) and have elicited considerable academic consideration over the years in the
sphere of international investment law.1 However, the jurisprudence on these cases is
largely restricted to the set of investor-State dispute settlement (ISDS) claims brought
against Argentina under the US-Argentina BIT.2 These cases were brought against
Argentina challenging the latter’s regulatory measures adopted to wrestle with a severe
economic and financial crisis.3 When Argentina was charged of violating its invest-
ment treaty obligations, it relied upon the essential security interest clause arguing that
the measures it adopted were necessary for the protection of its security imperatives.
This essential security interest clause is given in Article 11 of the US-Argentina BIT,
which provides as follows: This Treaty shall not preclude the application by either
Party of measures necessary for the maintenance of public order, the fulfillment of its
obligations with respect to the maintenance or restoration of international peace or
1
OECD (2007) Essential Security Interests under International Investment Law https://www.oecd.
org/daf/inv/investment-policy/40243411.pdf; Moon WJ Essential security interests in international
investment agreements. JIEL 15(2):481–502; UNCTAD (2009) The protection of national security
in IIAs. https://unctad.org/en/Docs/diaeia20085_en.pdf. UNCTAD, https://unctad.org/en/Docs/
diaeia20085_en.pdf; Burke-White WW, Von Staden A (2008) Investment protection in extraordi-
nary times: the interpretation and application of non-precluded measures provisions in bilateral
investment treaties. Va J Int Law 48(2):308–410.
2
CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Award,
12 May 2005; Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID
Case No. ARB/01/3, Award, 22 May 2007; Sempra Energy International v. The Argentine Republic,
ICSID Case No. ARB/02/16, Award, 28 September 2007; LG&E Energy Corporation v. The
Argentine Republic, ICISD Case No. ARB/02/1, Decision on Liability, 26 September 2006;
Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award, 5
September 2008; El Paso Energy International Company v. The Argentine Republic, ICSID Case
No. ARB/03/15, Award, 31 October 2011
3
For more on the Argentine crisis and the cases brought against Argentina, see Alvarez J, Khamsi K
(2008) The argentine crisis and foreign investors: a glimpse into the heart of the investment regime.
IILJ; Kurtz J (2010) Adjudging the exceptional at international investment law: security, public
order and financial crisis. ICLQ 59(2):325–371; Desierto D (2010) Necessity and supplementary
means of interpretation for non-precluded measures in bilateral investment treaties. U Pa J Int Law
31(3):827–934.
23 Essential Security Interests in International Investment Law: A Tale of. . . 581
security, or the Protection of its own essential security interests. Clauses like Article 11
are also known as non-precluded measures (NPM) provisions in BITs that allow host
States to adopt measures for the protection of certain public policy concerns like
health, environment, etc. that may otherwise constitute a violation of the treaty.4
The cases involving Argentina dealt with the same set of facts and the same
substantive law (US-Argentina BIT) yet resulted in different and irreconcilable
interpretations and decisions. The decisions of the arbitral tribunals in these cases
brought to fore several issues such the scope of the essential security interests in
BITs, circumstances in which can States invoke the national security exception. The
two recent ISDS cases involving India – Devas v India5 and Deutsche Telekom v
India6 – have rekindled the debate on the meaning and scope of essential security
interests in BITs. These two cases contribute to the ISDS case law on essential
security interest, thus becoming deserving candidates for a closer examination. As
we enter a world where more and more countries turn nationalistic and protectionist,
the possibility of use of the essential security interests to justify behavior that would
otherwise be inconsistent with BIT obligations is surely going to rise. This possibil-
ity is borne out by the increasing reliance of countries on the national security
exception to digress from obligations under the General Agreement on Tariffs and
Trade (GATT) and other World Trade Organisation (WTO) agreements.7
In view of the debate on essential security interests in light of the two Indian cases,
this chapter aims to discuss four principal issues. First, what is the meaning of essential
security interests? In other words, are essential security interests restricted to pure
security-related threats like war, external aggression, armed conflict, or such military-
related threats or whether it also includes other threats like economic, health, or
environmental exigencies? Also, what is the threshold to trigger an “essential security
clause?” (Part II). Second, are essential security interest clauses self-judging? (Part III).
Third, what is the significance of the nexus requirement in interpreting essential security
interests clause in BITs? Nexus requirement means the causal link between the regula-
tory measure adopted and the measure that the measure seeks to achieve. The stricter the
nexus requirement, the stronger will be the causal link (Part IV). Fourth, what should be
the appropriate standard of review that ISDS tribunals should follow while reviewing a
State’s essential security interests? (Part V). Part VI offers the conclusion.
But, before the chapter deals with these doctrinal issues, in part I, it provides the
facts of the two Indian cases.
4
For general discussion on NPM provisions, see Pathirana D, McLaughlin M (2020) Non-precluded
measures clauses: regimes, trends, and practice. In: Chaisse J, Choukroune L, Jusoh S (eds)
International investment law and arbitration. Springer.
5
CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telecom Devas
Mauritius Limited v. India, PCA Case No. 2013-09, Award on Jurisdiction and Merit, 25 July 2016
6
Deutsche Telekom v. India, PCA Case No. 2014-10, Interim Award, 13 December 2017
7
For the increasing use of the national security exception in the WTO, see Pinchis-Paulsen M (2020)
Trade multilateralism and US national security: the making of the GATT security exceptions. MJIL
41(1):109–193. Also see Slawotsky J (2018) The National Security Exce92ption in US-China FDI
and trade: lesson from Delaware Corporate Law. Chin J Comp Law 6(2):228–264.
582 P. Ranjan
Facts of the Two Cases
Interestingly, both these cases – Devas v India and Deutsche Telekom v India –
arose from similar set of facts.8 Antrix, the marketing arm of the Indian Space
Research Organisation (ISRO), a government entity, signed an agreement in 2005
with Devas Multimedia, a multimedia services provider.9 As per this agreement,
Antrix was supposed to provide 70 MHz of S-band satellite spectrum to Devas for
providing multimedia services to mobile users across India.10 On 16 March 2006,
CC/Devas and Telecom Devas made a first round of investment of approximately
USD 7.5 million each.11 A second round of investment, of approximately the same
amount, was made on 18 June 2007.12 Soon Devas also secured the licenses to
deliver internet services throughout India.13 As per the agreement between Devas
and Antrix, the satellites were to be launched by June 2009. However, Antrix failed
to meet the deadline but promised that the launch would take place by the end of
2009 or early 2010.14 Notwithstanding these delays, the claimants continued
meeting their financial obligations and other requirements.15 However, on 2 July
2010, the Indian Space Commission decided to annul the agreement in view of the
alleged increasing need of the military for the S-band spectrum.16 This decision to
annul the contract was announced by ISRO on 8 February 2011.17 Finally, on 17
February 2011, the cabinet committee on security18 (CCS) annulled the Antrix-
Devas contract.19
Remarkably, the decision of the Space Commission to annul the contract, taken
on 2 July 2010 was not conveyed to the claimants, despite many meetings, between
the government officials and Devas’ representatives.20 The claimants learnt about
8
Also see Ranjan P (2019) India and bilateral investment treaties: refusal, acceptance, and backlash.
Oxford University Press, Oxford.
9
See CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telecom Devas
Mauritius Limited v. India.
10
Ibid
11
Ibid., para 107
12
Ibid., para 108
13
Ibid., para 109
14
Ibid., para 110
15
Ibid., para 111
16
See CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telecom Devas
Mauritius Limited v. India, para 468.
17
Ibid., para 142
18
CCS is a select Cabinet Committee that, among other matters, deals with all defense-related issues
and comprises of the Prime Minister, the Minister of Home Affairs, the Minister of External Affairs,
the Minister of Finance, and the Minister of Defense of the Indian government.
19
Cabinet, CCS Decides to Annul Antrix-Devas Deal, Press Information Bureau, Government of
India, 17 February 2011(Devas Press Release). http://pib.nic.in/newsite/PrintRelease.aspx?
relid¼69856
20
Ibid
the decision only on 8 February 2011, when it was publicly announced through a
press release.21 The press release said, taking note of the fact that Government
policies with regard to allocation of spectrum have undergone a change in the last
few years and there has been an increased demand for allocation of spectrum for
national needs, including for the needs of defense, para-military forces, railways
and other public utility services as well as for societal needs, and having regard to
the needs of the country’s strategic requirements, the Government will not be able to
provide orbit slot in S band to Antrix for commercial activities, including for those
which are the subject matter of existing contractual obligations for S band. In the
light of this policy of not providing orbit slot in S Band to Antrix for commercial
activities, the ‘Agreement for the lease of space segment capacity on ISRO/Antrix S-
Band spacecraft by Devas Multimedia Pvt. Ltd.’ entered into between Antrix Cor-
poration and Devas Multimedia Pvt. Ltd. on 28th January, 2005 shall be annulled
forthwith.22
Thus, the Indian government ordered cancellation of the contract with Devas
to reacquire the S-band spectrum. The spectrum was reacquired supposedly due
to the ever expanding military and non-military needs as indicated in the press
release above. The cancellation of the spectrum led to two ISDS claims against
India. The Mauritian investors under the India-Mauritius BIT (Devas v India)
brought the first claim. The German shareholder, Deutsche Telekom, under the
India-Germany BIT (Deutsche Telekom v India) brought the second claim. In
both the cases, the foreign investors accused India of violating several substan-
tive obligations in BITs such as fair and equitable treatment and expropriation.
India, on the other hand, argued that its decision to annul the contract to reacquire
the S-band spectrum was to achieve its essential security interest given in Article
11(3) of the India-Mauritius BIT and in Article 12 of the India-Germany BIT.
Article 11(3) of the India-Mauritius BIT provides: the provisions of this Agree-
ment shall not in any way limit the right of either Contracting Party to apply
prohibitions or restrictions of any kind or take any other action which is directed
to the protection of its essential security interests or to the protection of public
health or the prevention of diseases in pets and animals or plants. Article 12 of
the India-Germany BIT provides: Nothing In this Agreement shall prevent either
Contracting Party from applying prohibitions or restrictions to the extent nec-
essary for the protection of its essential security Interests, or for the prevention of
diseases and pests in animals or plants.
Thus, like the Argentine cases, the question before the two ISDS tribunals was
whether India’s action of annulling the contract to reacquire the spectrum was to
achieve its essential security interest. After briefly discussing the facts, let us now
turn our attention to discussing the core four doctrinal issues identified earlier.
21
Ibid
22
Ibid
584 P. Ranjan
Essential Security Interests
In understanding the scope of essential security interests, the two interrelated points are –
first, whether the term security is confined to purely security-related threats or does it
also include other public interests within its ambit, i.e., what is the “breadth” of the
security interest clause, and second, what should be degree of severity for a security
interest to qualify as an essential security interest, i.e., the threshold to invoke the
security exception. The chapter discusses both these points one by one.
Breadth of Essential Security Interest
As a preliminary point, it is important to keep in mind that the question about which
regulatory objectives would qualify as part of essential security interest in BITs
arises because security interests often appear as part of a general NPM provision.
Unlike the GATT that apportions exceptions in distinctive categories of “general”
(Article XX) and security (Article XXI ), a large number of first-generation BITs
club exceptions in one legal provision. For example, Article 11(3) of the India-
Mauritius BIT, which was the main legal provision in the Devas v India case,
combines essential security interests with “protection of public health” and “preven-
tion of diseases in pets and animals or plants” in the same legal provision. There is no
separate categorization of general and security exceptions. Consequently, the ques-
tion arises whether security interest is restricted to purely security-related threats or
does it have a broader ambit? This question arose in several ISDS cases brought
against Argentina by American and other investors in the 2000s. As pointed out
earlier, these claims were brought against Argentina due to several regulatory
measures that Argentina adopted to deal with a severe economic crisis. In defending
these claims, Argentina invoked Article 11 of the US-Argentina BIT. The critical
question before the tribunals was whether an economic crisis would fall under the
essential security interest in Article 11.
Some authors have offered a narrow interpretation of essential security interests.
For instance, Reinisch argues that as per the plain meaning of essential security
interests, they primarily “relate to military and strategic considerations.”23 Likewise,
Alvarez and Khamsi argue that essential security interests in Article 11 of the US-
Argentina BIT is not an open-ended term and that security typically refers to military
or defense matters.24 Vandevelde discussing the history of negotiations on
23
Reinisch A (2007) Necessity in international investment arbitration – an unnecessary split of
opinions in recent ICSID cases – comments on CMS v. Argentina and LG&E v. Argentina. J World
Invest Trade 8:191–214
24
Alvarez J, Khamsi K (2008) The Argentine crisis and foreign investors: a glimpse into the heart of
the investment regime. https://iilj.org/wp-content/uploads/2016/08/Alvarez-etal-The-Argentine-Cri
sis-and-Foreign-Investors-2008-1.pdf. Also see Moon W (2012) Essential security interests in
international investment agreements. J Int Econ Law 15(2):481–502. https://doi.org/10.1093/jiel/
jgs024
friendship, commerce, and navigation (FCN) treaties between the United States (US)
and other countries writes that countries understood essential security interests in
narrow sense restricted to strict security-related concerns.25 Specifically, during the
US-Germany FCN negotiations, the United States was of the view that the “essential
security” exception was not to be invoked in a frivolous manner.26 The German
negotiators, fearing abuse of the security exception, agreed with their American
counterparts and said that the security reservation should not be used for economic
measures that are not indisputably based on real security contemplations.27 A WTO
panel in Russia-Transit Measures28 case, while interpreting Article XXI of GATT,
held that essential security interests generally refer to those interests that pertain to
the “quintessential functions of the state” such as guarding its territory and people
from external dangers and preserving law and public order internally.29
However, the arbitral tribunals in all the Argentine cases rejected the narrow
interpretation of essential security interests in Article 11 of the US-Argentina BIT. In
CMS v Argentina, the tribunal said that major economic crises are not excluded from
the purview of Article 11 of the US-Argentina BIT.30 The tribunal said: if the concept
of essential security interests were to be limited to immediate political and national
security concerns, particularly of an international character, and were to exclude
other interests, for example, major economic emergencies, it could well result in an
unbalanced understanding of Article XI. Such an approach would not be entirely
consistent with the rules governing the interpretation of treaties.31 The tribunal in
Sempra v Argentina held that there is nothing that would prevent an interpretation
allowing for the inclusion of economic emergency in the context of Article XI.
Essential security interests can eventually encompass situations other than the
traditional military threats, etc.32
In Continental Casualty v Argentina, the tribunal on essential security interests
said that it is necessary to recall that international law is not blind to the requirement
that States should be able to exercise their sovereignty in the interest of their
population free from internal as well as external threats to their security and the
maintenance of a peaceful domestic order. It is well known that the concept of
international security of States in the Post World War II international order was
intended to cover not only political and military security but also the economic
25
Vandevelde K (2017) The first bilateral investment treaties: US postwar friendship, commerce,
and navigation treaties. Oxford University Press, New York
26
Ibid., pp. 513–514
27
Ibid
28
Russia: Measures Concerning Traffic in Transit – Report of the Panel, 5 April 2019 WTO, WT/
DS512/R
29
Ibid., para 7.130
30
CMS Gas Transmission Company v. The Argentine Republic, para 359
31
Ibid
32
Sempra Energy International v. The Argentine Republic, Award, para 374. Also see Enron
Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, paras 331 and 332; LG&E
Energy Corporation v. The Argentine Republic, paras 206, 231 and 238
586 P. Ranjan
security of States and of their population.33 Thus, the tribunal held that a severe
economic crisis qualifies as an essential security interest.34 The tribunal in El Paso v
Argentina also arrived at the same conclusion that state of emergency can be of an
economic nature, thus falling under Article 11 of the US-Argentina BIT.35
The rulings of these tribunals are in sync with the dynamic understanding of
security in today’s complex world. National security is not a static but multifaceted
concept that, as Kurtz indicates, involves not just military threats but also health,
economic, and political dimensions.36 Ecological challenges such as climate change,
for example, can pose a grave threat to global security.37 A global health pandemic
like the COVID-19 can also have momentous repercussions for national security.38
Likewise, protecting critical infrastructure could also be part of a country’s essential
security interests.39
It is in this seesaw match between narrower and broader interpretation of essential
security interest that the two rulings – Devas v India and Deutsche Telekom v India –
assume significance. As pointed out already, in both these cases, the tribunals had to
determine whether India reacquiring a strategic and limited resource (S-band spec-
trum) for military and non-military needs qualifies as essential security interest. We
first discuss “military” needs followed by a discussion on the “non-military” ones.
Military Need as Part of Essential Security Interest

In Devas v India, the tribunal held, by majority, that although there was no specific
reference to essential security interests in India’s decision, “it has no difficulty
concluding that the reservation of spectrum for the needs of defense and
para-military forces can be classified as ‘directed to the protection of its essential
security interests,’ coming under the exclusion covered in Article 11(3) of the
33
Continental Casualty Company v. The Argentine Republic, para 175
34
Ibid., paras 178, 180–181
35
El Paso Energy International Company v. The Argentine Republic, para 611; also see Bjorklund A
(2008) Emergency exceptions: state of necessity and force majeure. In: Muchlinski P et al (eds)
Oxford handbook of international investment law. Oxford, p 481.
36
Kurtz J (2010) Adjudging the exceptional at international investment law: security, public order,
and financial crisis. pp 362–363
37
Parry E J (2020) The greatest threat to global security: climate change is not merely an
environmental problem. UN Chronicle. https://www.un.org/en/chronicle/article/greatest-threat-
global-security-climate-change-not-merely-environmental-problem. Also see Campus Oil v. Min-
istry for Industry and Energy, 1984 ECJ, Case 72/83, where the European Court of Justice said that
“petroleum products, because of their exceptional importance as an energy source in the modern
economy, are of fundamental importance for a country’s existence since not only its economy but
above all its institutions, its essential public services and even the survival of its inhabitants depend
upon them” (para 34)
38
Davies S (2020) National security and pandemics. UN Chronicle. https://www.un.org/en/chroni
cle/article/national-security-and-pandemics
39
Gordon K and Dion M (2008) Protection of “critical infrastructure” and the role of investment
policies relating to national security. OECD. https://www.oecd.org/daf/inv/investment-policy/
40700392.pdf
Treaty.”40 In other words, although there was no imminent military or security threat
that India faced, its declaration that it was reacquiring the strategic resource for military
needs was enough for the Devas tribunal to conclude that the measure was directed at
protecting India’s essential security interest. At one place, the tribunal said that it
would consider whether there was a “genuine need” for the military to reserve the S-
band spectrum.41 However, the tribunal didn’t make an assessment whether it was
imperative for the defense sector to acquire the spectrum for its needs.42 Granting a
wide margin of deference, the tribunal trusted India’s assertion that the military’s needs
to obtain the spectrum qualified as essential security interest.43
Arbitrator David R. Haigh, in a dissenting opinion,44 disagreed with the majority
ruling that reservation of spectrum for the needs of defense and paramilitary forces
was for the protection of India’s essential security interests.45 Arbitrator Haigh said
that even if he accepted, for the sake of argument, that military needs would
ordinarily qualify as State’s essential security interests, in the current case, India’s
decisions stopped short of reserving the S-band spectrum for any of the multiple
potential users including defense and paramilitary.46 At the time of annulling the
contract, no decision was taken as to who would get the resource that was reacquired
from Devas. This was to be decided by another body called the INSAT Coordination
Committee (ICC).47 More than 3 years after having taken the spectrum back, the
different organs of the government were still debating about its possible use.
Arbitrator Haigh held that merely asserting that the military needs a resource does
not mean that an essential security interest is at stake.48 Essential security interest
refers to a situation that is “absolutely necessary,” which was not true in this case as
the S-band spectrum had been reacquired for multiple potential uses ranging from
military to non-military needs.49
On the issue of military needs constituting essential security interest, the
Deutsche Telekom tribunal, without considering whether the military’s needs were
authentic, said that it would “of course accept that the so-called strategic needs
expressed by the armed forces meet the test for essential security interests.”50
40
Mauritius Limited v. India, para 354
41
Ibid., para 315
42
Kabra R (2019) Return of the inconsistent application of the essential security interest clause in
investment treaty arbitration: CC/Devas v India and Deutsche Telekom v India. ICSID Rev Foreign
Invest Law J 34(3):723–747. https://doi.org/10.1093/icsidreview/siz021. ICSID Review 732
43
Mauritius Limited v. India, para 244. Also see Part V on “Standard of Review” later in the chapter.
44
Ibid., dissenting opinion of David R. Haigh
45
Ibid., para 82
46
Ibid., paras 82 and 95
47
Ibid., para 89
48
Ibid., para 99
49
Ibid
50
Deutsche Telekom v. India, paras 281 and 284
588 P. Ranjan
However, as Ridhi Kabra points out,51 the tribunal, on the other hand, also suspected
if this case was about safeguarding essential security interest.52 The tribunal said that
if the S-band spectrum was reacquired for the purpose of essential security interest,
then why was it that even 4 years after the CCS decision in 2011 the Indian
Government had not made up its mind regarding the use of the spectrum.53 So, on
this point, the Deutsche Telekom tribunal agreed with the dissent of Arbitrator Haigh
in Devas v India. Furthermore, the Deutsche Telekom tribunal was also curious about
the fact that while the shortage of the S-band spectrum became definite in 2009, the
government licensed the use of S-band spectrum for commercial purposes in 2010.54
All this made it appear that the threat of not reacquiring the spectrum was more
speculative and less tangible for India’s essential security interests.55 Still the
tribunal did’nt conclude that the case was not about essential security interest.
Instead, it concluded that the measure India adopted was not necessary to obtain
the military needs. This point of nexus between cancelling the agreement and India’s
objective is discussed later in the chapter under the heading of “Nexus
Requirement.”
In sum, both the tribunals did not find that the case lacked a situation of essential
security interest. Both tribunals took military needs as constituting essential security
interest even if there was no imminent military or security threat. The Deutsche
Telekom tribunal differed with the Devas tribunal on whether India could get the
benefit of the security reservation, but that was because of the difference in the nexus
requirement, which is discussed later in the chapter.
Non-military Needs as Part of Essential Security Interest

After discussing how the two tribunals dealt with military needs, let us examine their
approach towards “non-military” needs. The tribunal in Devas v India held that
while the spectrum needs of the military will qualify as essential security interest, the
same is not true for spectrum being reacquired for purposes like railways and other
public utility services as well as for societal needs.56 The tribunal also said that
reference to India’s strategic requirements unless spelt out specifically will not fall
under the ambit of essential security interests57 as they have nothing to with national
security.58 The term “strategic requirements” is of a very wide import and can cover
51
investment treaty arbitration: CC/Devas v India and Deutsche Telekom v India, p 732
52
Deutsche Telekom v. India, para 290
53
54
Ibid., para 290
55
56
57
Ibid., paras 354 and 356
58
Ibid., para 371
a whole range of governmental activities, thus, it cannot, on its own, constitute an

essential security interest. The tribunal concluded that reacquiring the spectrum for
public purposes and societal needs would be subject to Article 6 of the India-
Mauritius BIT that talks of expropriation of foreign investments and not to the
security reservation.59
The tribunal in Deutsche Telekom v India emphasized on the “natural” meaning of
essential security interests. In this regard, it said two things. First, the “natural”
meaning of the treaty terms requires the presence of interests concerned with security
that are different from public or societal interests.60 In other words, the tribunal said
that societal and other public interests such as train tracking; disaster management;
tele-education; tele-health; and rural communication are different from security
interests.61 Second, the tribunal said that only those security interests are covered
that are “essential,” i.e., those “that go to the core (the ‘essence’) of state security.”62
The tribunal went on to substantiate this finding by stating that since successful
invocation of Article 12 of the India-Germany BIT would exclude all the treaty
obligations, therefore Article 12 must protect something “of higher value than any
public interest.”63
Thus, both the tribunals held that these non-military needs were public interests
and did not constitute essential security interest. According to the two tribunals,
bringing such public interests within the ambit of essential security interest would
imply disfiguring its natural meaning.64 Thus, the two tribunals seem to have
deviated from the broader understanding of essential security interest that the
Argentine tribunals offered. One reason for this could be that the non-security-
related interests that were present in the two Indian cases did not constitute an
emergency unlike the Argentine cases where the economic concerns were nothing
short of a huge crisis.
The Threshold Question or the Degree of Severity to Establish

Existence of Essential Security Interest65
Although all the Argentine cases agreed on the point that an economic emergency
can constitute an essential security interest, they differed on how severe the crisis
should be for it to be covered under the security exception. The tribunal in CMS v
59
Ibid
60
61
Ibid., para 281
62
Ibid., para 236
63
Ibid
64
Mauritius Limited v. India, paras 354–361; Deutsche Telekom v. India, paras 236 and 281
65
Also see Ranjan P (2016) Protecting security interests in international Investment Law. In: Footer
M et al (eds) Security and international law. Hart Publishing, Oxford.
590 P. Ranjan
Argentina said the actual question is “how grave an economic crisis must be so as to
qualify as an essential security interest.”66 The CMS tribunal explained this threshold
in terms of “total collapse.”67 The tribunal held Argentina’s economic crisis didn’t
constitute an essential security interest because the crisis was not severe enough to
have resulted “in total economic and social collapse.”68 Similarly, the Enron v
Argentina tribunal held that there is no doubt that there was a severe crisis and
that in such context it was unlikely that business could have continued as usual. Yet,
the argument that such a situation compromised the very existence of the State and
its independence so as to qualify as involving an essential interest of the State is not
convincing.69 Thus, the tribunal held that till the very existence of the State is not
compromised, an exigency does not constitute an essential security interest.70
The principal reason for these tribunals offering such a high threshold is their
reliance on the customary international law defense of necessity71 to interpret Article
11 of the US-Argentina BIT (also see the discussion on the “Nexus Requirement”
later in the chapter). For example, the tribunal in Sempra v Argentina held that since
the BIT does not define the meaning of essential security interests, the requirements
of state of necessity under customary international law become relevant.72
On the other hand, the tribunal in Continental Casualty v Argentina did not agree
with the extremely high threshold that CMS, Enron, and Sempra tribunals laid down.
The Continental Casualty tribunal held that the protection of essential security
interests does not require the occurrence of “total collapse” or a “catastrophic
situation” for the national authorities to act or to intervene.73 The argument that
host States can rely on the security reservation only when there is “total collapse”
denotes not giving any deference to the host State to decide what constitutes a risk to
its national security.74 The LG&E tribunal rightly held that what is “essential” has to
be determined in the specific circumstances in which the State finds itself and cannot
be predefined in an abstract manner.75
In the two Indian cases, the tribunals also held that the threshold to invoke the
security reservation is high. For instance, the tribunal in Devas v India held that
essential security interest does not include any security interest but only those
66
67
ibid, paras 354–355
68
ibid, para 355
69
Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, para 306
70
See also Sempra Energy International v. The Argentine Republic, Award, para 348.
71
This customary defense of necessity is given in Article 25 of the International Law Commission’s
(ILC) Draft Articles on Responsibility of States for Internationally Wrongful Acts (2001) [herein-
after ILC Draft Articles on State Responsibility]
72
Sempra Energy International v. The Argentine Republic, Award, para 375
73
74
Burke-White W, Staden A (2010) Private litigation in public law sphere: the standard of review in
investor state arbitrations. Yale J Int L 35:283–346
75
LG&E Energy Corporation v. The Argentine Republic, para 252
security interests that are “essential.”76 The tribunal endorsed the view of the
investors that prefixing security interests with “essential” means that the security
interest must be “vital” or “absolutely necessary” or “extremely important.”77
Likewise, the tribunal in Deutsche Telekom v India, as already mentioned, held
that the natural meaning of essential security interest requires the presence of
security interests which are different from other public or societal interests and that
are “essential,” i.e., “that go to the core (the ‘essence’) of state security.”78 The fact
that security interests be “essential” to qualify as part of the security reservation
played an important role in the Deutsche Telekom tribunal concluding that public and
societal interests do not qualify as essential security interests. It is important to bear
in mind that while these two tribunals talked of a high threshold to invoke the
essential security interest exception, they rejected the “total collapse” threshold laid
down by CMS, Enron, and Sempra tribunals. Although as discussed before, the
Devas and Deutsche Telekom tribunals granted deference to India to determine its
essential security interests.
Are Essential Security Interests Self-Judging?
An important question that has arisen in context of interpreting essential security

interest clause is whether the exception is “self-judging.” Arguably, a self-judging
essential security interest exception will give the State the right to determine
unilaterally whether the measure it has adopted is necessary for the protection of
its essential security interests.79 A good example of such a “self-judging” security
exception is Article XXI of GATT, which allows a State to adopt measures “which it
considers” necessary for the protection of essential security interests.80 However, the
presence of the words “which it considers,” while permitting significant discretion to
host States to determine the necessity of the measure adopted, do not make security
reservation nonjusticiable.81 As the WTO panel in the Russia-Transit Measures, case
76
Ibid., paras 235, 242 and 243
77
Ibid., paras 228 and 243; also see Sinha A (2017) Non-precluded measures provisions in bilateral
investment treaties of south Asian countries. Asian J Int L 7(2):227–263
78
79
On the rise of self-judging clauses, please see Sauvant K et al (2016) The rise of self-judging
essential security interest clauses in international investment agreements. Columbia academic
commons.
https://academiccommons.columbia.edu/doi/10.7916/D8Z60PKP
80
See Article 21 of General Agreement on Tariffs and Trade. Also see Article 33.1 (ii) of the
Agreement Between the Government of the Republic of India and the Government of the Republic
of Belarus for the Promotion and Protection of Investments, signed on 27 November 2002, that, like
GATT, provides, “nothing in this treaty shall be construed to prevent a party from taking any action
which it considers necessary for the protection of its essential security interests, etc.”
81
See Russia-Transit Measures, para 7.103.
592 P. Ranjan
held that the determination of the state of essential security interests is subject to a
good faith review by the adjudicating body.82
But, what should be the approach of ISDS tribunals in interpreting treaties where
the essential security interest exception does not contain the phrase “which it
considers,” i.e., not contain the “self-judging” language? A good example of this
is Article 11 of the US-Argentina BIT. In all the cases brought against Argentina,
despite Article 11 of the US-Argentina BIT not employing self-judging language,
Argentina argued that this provision is self-judging. For instance, in CMS v Argen-
tina, Argentina argued that it was free to determine the need for adoption of
extraordinary measures based on its assessment of an emergency situation or threat
to its security interests.83 However, the tribunal disagreed with Argentina and held
that there is not sufficient textual basis to conclude that Article 11 is self-judging.84
Similarly, the tribunals in LG&E v Argentina,85 Sempra v Argentina,86 Enron v
Argentina,87 Continental Casualty v Argentina,88 and El Paso v Argentina89 also
held and rightly so that in the absence of clear textual support in Article 11 of the US-
Argentina BIT, one cannot conclude that the essential security interests exception is
self-judging.
In Devas v India, the tribunal held that the national security exception clause
given in Article 11(3) of the India-Mauritius BIT is not self-judging. Relying upon
the ICJ judgments and the decisions given by ISDS tribunals, the tribunal held that
unless a treaty contains specific wording that grants complete discretion to the State
“to determine what it considers necessary for the protection of its security interests,
national security clauses are not self-judging.”90 Since Article 11(3) of the India-
Mauritius BIT does not contain any such language, therefore it does not grant
complete discretion to the State and thus is not self-judging.
Also, the tribunal in Deutsche Telekom v India held that Article 12 of the India-
Germany BIT is not self-judging. Like the Devas v India tribunal, this tribunal also
held that since text of Article 12 does not use language that gives a country the right
to determine what it “considers necessary” for the purpose of protecting essential
security interests, it is not self-judging.91 Like the Devas v India tribunal, this
82
Ibid., paras 7.132 and 7.133. For more on national security exception in international trade, see
Pinchis-Paulsen M (2020) Trade multilateralism and US national security: the making of the GATT
security exceptions.
83
84
85
LG&E Energy Corporation v. The Argentine Republic, paras 212–213
86
Sempra Energy International v. The Argentine Republic, Award, para 374
87
Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, para 339
88
Continental Casualty Company v. The Argentine Republic, paras 187–188
89
El Paso v. Argentina, paras 588–610
90
91
See Deutsche Telekom v. India, para 231.
tribunal too relied upon the ICJ jurisprudence92 and jurisprudence of ISDS tribu-
nals93 that interpreted Article 11 of the US-Argentina BIT to conclude that Article 12
of the India-Germany BIT is not self-judging.
Thus, all ISDS tribunals including the two that dealt with the Indian cases are of
the view that absent any textual basis (such as presence of words like “which it
considers”); an essential security interest clause in investment treaties shall not be
self-judging. In any case, even if a security reservation is self-judging, it shall be
subject to a good faith review and is definitely not nonjusticiable.
Nexus Requirement
We now move to discuss the nexus requirement, which is another very important
aspect of the essential security interest clause. As mentioned, nexus requirement in
an essential security interest clause provides the causal link between the regulatory
measure that has been adopted and the national security exception that the measure
seeks to achieve. So, for example, Article 21 of the US-Argentina BIT contains
“necessary” as the nexus requirement. In other words, the State can adopt only those
measures that are “necessary” to achieve essential security interest. The significance
of the nexus requirement in the context of the security reservation is in establishing
the degree of connection between the adopted measure and the security objective
that the measure seeks to achieve. The stricter the nexus requirement, the severer will
be the degree of connection between the measure and the security objective. A nexus
requirement like “necessary” is stricter as against “related to” or “directed to,” i.e.,
the degree of connection between the measure and the security objective has to be
more when the nexus requirement is “necessary” in comparison with “directed to.”94
Necessary
The interpretation of “necessary” in the essential security interest clause has been
one of the controversial issues in international investment law marred by inconsis-
tent interpretations. This issue first cropped up in the Argentine cases where the
question was whether Argentina’s measures were necessary to achieve its essential
security interests. As pointed out earlier, the tribunals in CMS v Argentina, Enron v.
Argentina, and Sempra v. Argentina interpreted “necessary” in Article 11 of the US-
Argentina BIT by relying on the customary law defense of necessity given in Article
92
Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v.
United States), 1986 ICJ
93
The tribunal cited Continental Casualty Company v. The Argentine Republic
94
In this regard, see the WTO ruling in United States – Standards for Reformulated and Conven-
tional Gasoline – Report of the Appellate Body, 1996 WTO pp. 17-18, WT/DS2 and 4.
594 P. Ranjan
25 of the ILC Articles on State Responsibility.95 One of the stringent conditions

given in Article 25 of the ILC Articles on State Responsibility is that for a measure to
be “necessary,” it must be the “only way” to address the problem at hand. The
tribunals, in all these cases, conflated the treaty defense of necessity with the
customary international law defense of necessity and concluded that since
Argentina’s measures didn’t satisfy the extremely strict conditions of Article 25,
thus they were illegal.96
On the other hand, the CMS annulment committee, the Continental tribunal, and
the Sempra annulment committee emphasized on the difference between the treaty
defense of necessity given in Article 11 of the US-Argentina BIT and the customary
law defense of necessity given in Article 25 of the ILC Articles on State Responsi-
bility.97 The Continental Casualty tribunal made it clear that the situations regulated
by Article 25 of the ILC Articles on State Responsibility are different from those
regulated by “national security” exception provisions in the US-Argentina BIT.98
The Continental Casualty tribunal inspired from the WTO jurisprudence on
necessary99 laid down a two-prong test to determine whether a measure is necessary
or not.100 First, whether the measure contributed materially to the realization of the
regulatory objective, i.e., whether the measures were apt and did make such a
material or a decisive contribution,101 and second, whether there existed reasonably
available alternative measures, “which were less in conflict or more compliant with
95
See Article 25 of the ILC Articles on State Responsibility; also see Jagota S P (1985) State
responsibility: circumstances precluding wrongfulness. Netherlands Yearbook Int Law 16:249.
96
CMS Gas Transmission Company v. The Argentine Republic, para 304 onward; also see para 353–
378; Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, para 333–334 and
339; Sempra Energy International v. The Argentine Republic, Award, paras 375 and 378
97
Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Annulment
Proceeding, 29 June 2010, para 198; Continental Casualty Company v. The Argentine Republic,
para 167; CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8,
Annulment Proceeding, 25 September 2007, para 129
98
Continental Casualty Company v. The Argentine Republic, para. 167. See also Sempra Energy
International v. The Argentine Republic, Annulment Proceeding, paras 198–200.
99
On WTO’s jurisprudence on “necessary” in context of Article 20 of GATT, see Korea, Measures
Affecting Imports of Fresh, Chilled, and Frozen Beef (Report of the Appellate Body, 2001 WTO,
WT/DS 161, and WT/DS169/AB/R); Dominican Republic, Measures Affecting the Importation and
Internal Sale of Cigarettes (Report of the Appellate Body, 2005 WTO, WT/DS320/AB/R); US,
Measures Affecting the Cross-Border Supply of Gambling and Betting, Report of the Appellate
Body, 2005 WTO, WT/DS/285/AB/R; Brazil, Measures Affecting Imports of Retreaded Tyres
(Report of the Appellate Body, 2007 WTO, WT/DS332/AB/R)
100
For more on “necessary” as nexus requirement in international investment law, see Desierto D
(2012) Necessity and national emergency clauses. In: Malintoppi L and Valencia-Ospina E Sover-
eignty in Modern Treaty Interpretation. Brill/Nijhoff, pp 145–236; Sinha A (2017) The necessary
nexus requirement link in general exception provisions of South Asian bilateral investment treaties
and some insight on its Interpretative approach in the context of south Asia. Chin J Comp Law 5
(1):129–153.
101
Continental Casualty Company v The Argentine Republic, paras 196 and 198
its international obligations while providing an equivalent contribution to the

achievement of the objective pursued”102 (the less restrictive alternative test).
The Deutsche Telekom v India103 tribunal has further contributed and clarified the
necessity doctrine in the context of the essential security interest. Three such
important explanations are noteworthy. First, while interpreting “necessary” in
Article 12 of the India-Germany BIT,104 the tribunal clarified that the treaty defense
of necessity given in the BIT is to be segregated from the customary international
law defense of necessity given in Article 25 of the ILC Articles on State Responsi-
bility.105 The tribunal held that Article 12 of the Germany-India BIT must be
interpreted on its own terms. The elements of the customary international law
defense of necessity given in Article 25 of the ILC Articles on State Responsibility
should not be incorporated into the treaty because the requirements of the former are
stricter in comparison with the treaty defense of necessity.106 The tribunal in Devas v
India clarified another point on “necessary,” as nexus requirement, that the exami-
nation of whether a State’s measures are “necessary” for protecting essential security
interests will be material only if the word “necessary” is present in the security
clause. If not, there is no need to examine whether the measures are “necessary.”107
In such situations, the evaluation shall be based on the nexus requirement given in
the essential security clause in the relevant BIT, such as “directed at,” as was the case
in Devas v India.
Second, the Deutsche Telekom tribunal elucidated that for a measure to be
“necessary” under Article 12 of India Germany BIT, it must not simply be “related
to” protecting essential security interests. Thus, the tribunal emphasized on the
stricter character of “necessity” as a nexus requirement for safeguarding an essential
security interest.
Third, the Deutsche Telekom tribunal laid down a two-prong test to determine
whether a measure is “necessary” to safeguard State’s essential security interest. The
two steps are as follows; fist, the measure must be “principally targeted” to protect
the essential security interest; second, the measure must be objectively required to
achieve the essential security objective taking into account if there were reasonable
alternatives less in conflict or more compliant with international legal obligations.108
The Deutsche Telekom tribunal’s necessity test closely resembles the Continental
Casualty tribunal’s approach to necessity, as both embrace the less restrictive
102
Ibid., para 198; also see Mitchel A, Henckels C (2013) Variations on a theme: comparing the
concept of “necessity” in international investment law and WTO law. Chic J Int Law 14(1):93–164.
103
Deutsche Telekom v. India
104
See Article 12 of the Agreement Between the Republic of India and the Federal Republic of
Germany for the Promotion and Protection of Investments, signed on 10 July 1995.
105
106
Ibid., para 229
107
Mauritius Limited v. India, paras 237-238
108
596 P. Ranjan
alternative test. However, one difference is discernible. While the Continental

Casualty tribunal talks of the measure making a “material contribution” to the
objective, the Deutsche Telekom tribunal held that the measure must be “principally
targeted” to address the issue at stake. Ridhi Kabra correctly observes that the term
“principally targeted” used by the Deutsche Telekom tribunal implies the potential to
contribute to the objective and not the actual contribution, whereas the words
“material contribution” as enunciated by the Continental tribunal, meant the actual
or the real contribution made to attaining the essential security interest.109
The Deutsche Telekom tribunal, after studying the facts of the case in detail,
concluded that the measure (of annulling the contract to reacquire the S-band
spectrum) is only “directed at” achieving the essential security interest and not
“necessary.”110 In other words, the tribunal agreed with the majority decision in
Devas v India, which, on similar facts, decided that India’s decision to reacquire
the S-band spectrum was “directed to” achieving the objective of essential security
interests.111 However, since the nexus requirement in India-Germany BIT is
“necessary,” not “directed to,” which requires a stricter or a stringent nexus
between the measure and the regulatory objective, the Deutsche Telekom tribunal
held that the measure was not “necessary.” The reason tribunal held that the
measure was not “principally targeted” at achieving the security objective is
because India merely referred to various needs, military, and non-military, for
which it needed the spectrum without clearly determining the actual user ad
purpose.112 Not just this lack of determinacy but also the protracted debate
between the different branches of the Indian government for many years after
having annulled the contract also demonstrated the fact that there was no clarity as
regards the usage of the spectrum.113
Interestingly, this lack of eventual purpose of taking back the spectrum that was
either undetermined or was for multiple purposes, led Arbitrator Haigh, in his
dissenting opinion in Devas v India, to conclude that the measure was not even
“directed to” attaining the objective of essential security interest.114 Moreover,
Arbitrator Haigh held that even 3 and half years after the CCS took the decision to
withdraw the spectrum from and annul the agreements, no decision has been taken
109
investment treaty arbitration: CC/Devas v India and Deutsche Telekom v India
110
111
Mauritius Limited v. India, para 335. Arbitrator David Haigh in his dissenting opinion held that
India’s measures were not “directed to” attaining the objective of essential security interest because
India, at the time of annulling the contract and taking the spectrum back from Antrix and Devas, did
not clearly specify as to who would get the spectrum. It only listed multiple objectives for which the
spectrum had been reacquired with military needs being just one of them. Thus, the measure was not
“directed to” achieving essential security interest – see Haigh Dissent, paras 95–96 and 110
112
113
Ibid., para 288
114
Ibid., para 98
about the use of the spectrum, i.e., whether it will be used for defense purposes or for
other societal needs.115
In addition to the annulment of the contract to take back the spectrum not being
“principally targeted” to protect India’s essential security interest, the tribunal also
concluded that India also violated the second part of the two-prong necessity test. In
other words, the Deutsche Telekom tribunal, though summarily, held that reasonable,
least restrictive alternative measures were clearly available to India, which was not
considered.116
In sum, the deciding factor for the Deutsche Telekom tribunal to arrive at a
different result from the Devas tribunal on the issue of essential security interest,
despite the same set of facts, is because of the different nexus requirements. If the
nexus requirement in India Germany BIT had been “directed to” and not “neces-
sary,” the finding of the two tribunals would have converged.
Standard of Review
Standard of review is an important issue in international investment law.117 ISDS

tribunals need to decide that while adjudicating the legality of host state’s actions
vis-à-vis the BIT, whether to accord a high level of deference or to strictly review the
State actions.118 In other words, the quest is to find the right balance between State
compliance with international law and the State’s regulatory autonomy to address
domestic imperatives. Since issues related to security interest are extremely sensitive
for a various reasons, determining the appropriate standard of review is very
important. If the review of determination of essential security interest by the State
or the review of measures adopted to protect essential security interests are too
intrusive, there might be a backlash against the decision of the tribunals. On the other
hand, if the review is too lax, the State’s abusive behavior may go scrutinized, thus
115
Ibid., para 92
116
Deutsche Telekom v. India, para 290. For a criticism of the tribunal’s analysis of the less
restrictive alternative measures being reasonably available to India, see Kabra R (2019) Return of
the inconsistent application of the essential security interest clause in investment treaty arbitration:
CC/Devas v India and Deutsche Telekom v India, p 747.
117
On the issue of deference and standard of review in international investment law, see Henckels C
(2014) The role of standard of review and the importance of deference in investor-state arbitration.
In: Gruszczynski L, Wouter W (eds) Deference in international courts and tribunals: standard of
review and margin of appreciation. Oxford University Press; Schill S (2012) Deference in invest-
ment treaty arbitration: reconceptualizing the standard of review. JIDS 3(3):577–607; Arato J
(2014) The margin of appreciation in international investment law. Va J Int Law 54(3):545–578.
118
See Arato J (2014) The margin of appreciation in international investment law; also see Ranjan P,
Anand P (2018) Investor State dispute settlement in the 2016 Indian model bilateral investment
treaty: does it go too far?. In: Chaisse J, Nottage L (eds) International investment treaty and
arbitration across Asia. Brill Nijhoff.
598 P. Ranjan
making it easier for States to wriggle out of their international law obligations citing
security reservations. An important point with regard to review of essential security
interests, as already signposted, is that they are justiciable. Thus, the State cannot
have complete discretion in determining its essential security interest.
In the Argentine cases while assessing Argentina’s essential security interests,
some tribunals followed a strict standard of review. As already discussed, the
tribunal in CMS v Argentina, though agreed that Argentina faced a severe economic
crisis, differed with the host State on the severity of the crisis saying that the crisis
did not lead to “total economic and social collapse.”119 Likewise, the tribunal in
Sempra v Argentina adopted a strict standard of review and held that although the
Argentine crisis was serious, it wasn’t serious enough to qualify as “one involving an
essential State interest.”120
On the other hand, the tribunal in Continental Casualty v Argentina adopted a
deferential standard of review. The tribunal held that it was heedful of the fact that
passing judgment on the Argentine economic policy during 2001–2002 or censuring
the sovereign choices that made by Argentina as an independent State was not part of
its mandate.121 In other words, the tribunal was willing to accord deference to
Argentina as regards determination, and identification of essential security interest
is concerned. The tribunal set itself a modest goal of only finding out whether the
plea of necessity made by Argentina was justified or not.122 The tribunal, drawing
upon the jurisprudence of the European Court of Human Rights, held that the
objective assessment of what is an essential security interest “must contain a
significant margin of appreciation for the State applying the particular measure.”123
The Devas v India and the Deutsche Telekom v India tribunals have further
cemented the line of jurisprudence that accords deference to States in matters of
essential security interest. Rejecting the strict standard of review that the CMS,
Enron, and Sempra tribunals followed, the two Indian tribunals held that States
degree of deference needs to be granted to States on the issue of whether an essential
security interest exists or not.124
The tribunal in Devas v India held that in the determination of essential security
interest, a “wide measure of deference” shall be given to the host State.125 It was held
that “an arbitral tribunal may not sit in judgment on national security matters as on
any other factual dispute arising between an investor and a State. National security
119
120
Sempra Energy International v. The Argentine Republic, Award, para 348; also see Enron
Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, paras 306–307
121
122
Ibid
123
124
Mauritius Limited v. India, paras 244–245; Deutsche Telekom v. India, para 235
125
issues relate to the existential core of a State.”126 According to the tribunal, the
burden of proof is on the investor who challenges a measure adopted by a State for
safeguarding an essential security interest to show that the measure has been adopted
in bad faith or that the measure is not related to essential security interest.127
Likewise, the tribunal in Deutsche Telekom v India also held that as regards the
existence of essential security interests, a degree of deference is due to State’s
appraisal.128 However, the tribunal also struck a note of caution saying that this
deference to the State is not unlimited.129 Operationalizing this, the tribunal said
that the limits of the term essential security interest given in the treaty couldn’t be
stretched beyond the natural meaning of the term.130 As already mentioned, the
tribunal used this standard to decide that while military needs will qualify as
essential security interest, non-military needs such as public policy requirements
and other societal needs shall not qualify as part of essential security interests.
Ridhi Kabra argues that given the significant time lag in reacquiring the spectrum
and then allocating it for the military raised considerable doubt whether an
essential security interest was at stake.131 Nevertheless, the tribunal granted sig-
nificant deference to India and accepted India’s military needs as part of India’s
essential security interest.
The Deutsche Telekom tribunal emphasized the role of deference in security
matters, not just in the determination of essential security interest but also in
assessing whether the measures adopted by the State were necessary for
safeguarding such security interests. The tribunal held that while necessity doctrine
in the treaty is not self-judging, a margin of deference is owed to the host state’s
determination of necessity.132 The tribunal elaborated this margin of deference by
holding that, one the one hand, it will not undertake a de novo review of the measure
nor adopt “a standard of necessity requiring the state to prove that the measure was
the ‘only way’ to achieve the stated purpose.”133 Thus, the tribunal rejected the strict
standard of review that tribunals like CMS, Sempra, and Enron had adopted. On the
other hand, the tribunal also held that the margin of deference granted to the State
couldn’t be infinite, as otherwise State may easily invoke the essential security
interest clause to escape the substantive obligations that the BIT imposes.134 The
Deutsche Telekom tribunal by enquiring whether the measure was “principally
126
Ibid., para 245
127
Ibid
128
129
Ibid
130
Ibid., para 236; also see the discussion in section II of the chapter on “Essential Security
Interest.”
131
132
133
Ibid., para 238.
134
Ibid
600 P. Ranjan
targeted” at attaining the essential security interest also granted deference to India in
the sense that if the measure has the potential to contribute, as against real or actual
contribution, toward attaining the essential security interest, it shall meet the first part
of the two-prong necessity test.
Conclusion
Essential security interest clause is fast emerging as an important provision in BITs

and international investment law. As more and more countries turn protectonist and
look inwards, in the future, there is a possibility of more and more countries relying
on this provision. ISDS tribunals face a challenging task to interpret the provision in
a rigorous manner that leads to emergency of a coherent jurisprudence. The two
Indian cases discussed in this chapter have contributed in that direction. These two
cases confirm that invoking essential security interests requires a higher threshold to
ensure that these exceptions do not become a cloak to hide abusive protectionist
measures. The interpretation of “necessary” by the Deutsche Telekom tribunal has
strengthened a treaty defense of necessity based on the less restrictive alternative test
inspired from the WTO jurisprudence that the Continental Casualty v Argentina
tribunal laid down. Furthermore, Deutsche Telekom tribunal’s interpretation of the
treaty defense of necessity being different from the customary international law
defense of necessity also reinforces the difference between the two defenses, which
many Argentine tribunals conflated.
One criticism that has been made against Devas v India and the Deutsche Telekom
v India is that both the tribunals wrongly concluded that India reacquiring the
spectrum for the military needs involved an essential security interest. The reason
this criticim is made is becasue the facts show that India took back the spectrum for
multiple reasons without much clarity regarding the purpose for which the spectrum
was to be used. Moreover, for many years the Indian government did not allocate the
spectrum for military needs. This raises doubts as to whether India’s decision to
take the spectrum back was indeed for an essential security interest. This criticism
can be quelled by arguing that both the tribunals gave a margin of deference to India
on this question and, thus, accepted India’s assertion that taking the spectrum back
for military needs was to meet the essential security interest. The approach of the
tribunals was to be sensitive towards India’s security needs. Instead of interefering
with India’s identification of essential security interest, the Deutsche Telekom tribunal
considered it appropriate to examine this issue through a proprer interpretation of the
nexus requirement i.e. necessary. The Deutsche Telekom tribunal held that the
measure adopted by India was not necessary for attaining the essential security
interest but was merely directed at that purpose. Likewise, the Devas tribunal held
that reacquiring the spectrum was directed to protecting the essential security
interest. Thus, the core difference in the decisions of the two tribunals was on the
ground of a stricter nexus requirement given in the India-Germany BIT in compar-
ison with the nexus requirement in the India-Mauritius BIT. These two cases are also
useful in cementing the principle of according a margin of deference to State in
matters of essential security interest. It would be interesting to see whether future

ISDS tribunals are able to develop coherent jurisprudence on the issue of security
interests in international investment law. Such coherent jurisprudence would be
useful both for States and foriegn investors.
Cross-References

Part IV
Investor-State Dispute Settlement (ISDS):
Procedural and Substantial Issues
Investor-State Dispute Settlement (ISDS):
An Introduction 24
Contents
The Rise of Investor-State Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606
Reforming Investor-State Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611
Draft Code of Conduct for Adjudicators in ISDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617
The Future of ISDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620
Abstract
While the Investor-State Dispute Settlement System (ISDS) was already under
scrutiny for a number of years, the COVID-19 pandemic has brought additional
challenges to the global debate.
It may well be that new contractual disruptions and nationalization lead to
additional international investment disputes. In spite of the now generalized
criticism on ISDS, international arbitration remains the preferred method to
resolve ISDS with the International Centre for the Settlement of Investment
Dispute (ICSID) still administering the largest number of investment cases. A
critical examination of the existing ISDS mechanisms is however required. ISDS
mechanisms are indeed facing a profound legitimacy crisis. From the duration of
J. Chaisse (*)
L. Choukroune
S. Jusoh
Institute of Malaysian and International Studies, National University of Malaysia,
Bangi, Selangor, Malaysia

https://doi.org/10.1007/978-981-13-3615-7_60
the process to the costs involved, or the independence and impartiality of the
arbitrators and the accuracy of the decision-making procedure, the arguments against
ISDS are legion. One notable alternative would be the use of settlement mechanisms
such as conciliation, mediation, or negotiation. These mechanisms have been incor-
porated in a number of Bilateral Investment Treaties (BITs), particularly with China
and the EU. The ICSID is also considering a new set of rules for investor-State
mediation. Another reform proposal has taken the form of the Draft Code of Conduct
for Adjudicators, aimed at enhancing the independence and impartiality of all
adjudicators involved in the ISDS process. Other proposed solutions include a
regulated use of third-party funding, advisory centers, and a multilateral investment
court. All ISDS actors including international organizations and governments are
now involved. However, a deeper examination of these solutions is required to
identify the practical constraints faced by ISDS. Not to mention that none of the
proposed reforms are able the solve present ISDS interrogations and the apparent
inaccuracy of a number of decisions in particular. This “Investor-State Dispute
Settlement (ISDS): Procedural and Substantial Issues” part of our Handbook in
international investment law and policy proposes to address quite systematically
contemporary ISDS issues and reform proposals in a long-term critical perspective.
Keywords
UNCTAD · ICSID · ICSID Convention Conciliation Rules · Investor State
Arbitration · ASEAN Comprehensive Investment Agreement · Comprehensive
and Progressive Agreement for Trans-Pacific Partnership · EU-Canada
Comprehensive Economic and Trade Agreement · Asia Pacific Regional
Meditation Organisation
The Rise of Investor-State Dispute Settlement
Until recently, the world saw a manifold increase of International Investment

Agreements (IIAs). These were also accompanied by a large-scale increase of
various Investor-State Dispute Settlement (“ISDS”) mechanisms.1 As a matter of
fact, the Asia-Pacific region recorded a massive foreign investment inflow and
outflow.2 However, subsequent to the year 2016, Global Foreign Direct Investments
1
See generally the UNCTAD data for statistics and updates, at: https://unctad.org/topic/investment.
See as well the UNCTAD World Investment Reports and, for example, World Investment Report
2016 (2016) Investor nationality: policy challenges, at xii, U.N. Sales No. E.16.I.D.4. https://
unctad.org/en/PublicationsLibrary/wir2016_en.pdf; Langford M, Behn D, Hilleren Lie R (2017)
The revolving door in international investment arbitration. J Int Econ Law 20: 301–307; Butler N,
Subedi S, (2017) The future of international investment regulation: towards a World Investment
Organisation? Neth Int Law Rev 64: 43–46.
2
World Investment Report 2016, p 197–198; Stone SF, Jeon, BN (2000) Foreign direct investment
and trade in the Asia-Pacific region: complementarity, distance and regional economic integration. J
24 Investor-State Dispute Settlement (ISDS): An Introduction 607
have been consistently falling.3 In 2019, the United Nations Conference on Trade
and Development (UNCTAD) noted in their report that the Global Foreign Direct
Investment has fallen by 13% to $1.3 trillion.4 Foreign Direct Investment (“FDI”)
flows to developed countries reached a record low, the lowest point since 2004,
while flows to developing countries slightly increased by 2%.5 The possible reasons
for declining FDI rates include increasing asset-light forms of investment and even a
less favorably policy climate.6 Global FDI is likely to face much more pressure in the
current year as a result of the COVID-19 pandemic and is expected to dampen the
effects of the already lackluster growth of the investment regime.7 The Global FDI in
2020 is expected to decrease by almost 40% and may even drop under $1 trillion for
the first time since 2005.8 Difficult economic circumstances might contribute to an
increase of disputes between investors and States and there may be a need to look at
various measures by which these disputes can be prevented and ways by which
investment protections can be increased.9
The primary mode of Dispute Settlement that the parties resorted to resolve a
disagreement was and still is international arbitration.10 The central institution in this
matter continues to be the International Centre for the Settlement of Investment
Disputes (ICSID), which was set up under the auspices of the World Bank on the
basis of the Convention on the Settlement of Investment Disputes between States
and Nationals of other States.11 Consequently, the cases settled by the ICSID are
Econ Integr 15: 461; Chaisse J, Pomfret R (2019) The RCEP and the changing landscape of world
trade. Law Dev Rev 12: 162–164.
3
World Investment Report 2018 (2018) Investment and new industrial policies, 2. http://www.
iberglobal.com/files/2018/wir2018.pdf. 2.
4
World Investment Report 2019 (2019) Special economic zones. https://unctad.org/en/
PublicationsLibrary/wir2019_overview_en.pdf, p 1–10.
5
Ibid.
6
World Investment Report 2019, 7–9.
7
World Investment Report 2020, International production beyond the pandemic https://unctad.org/
en/PublicationsLibrary/wir2020_overview_en.pdf, p 4.
8
Ibid, p 9.
9
Bakry A (2020) The Covid-19 crisis and investment arbitration: a reflection from the developing
countries. Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2020/04/21/the-
covid-19-crisis-and-investment-arbitration-a-reflection-from-the-developing-countries/?doing_
wp_cron¼1598188563.3494489192962646484375; Lovells H (2020) COVID-19: will state mea-
sures give rise to a new set of investment claims?. https://www.hoganlovells.com/en/publications/
covid-19-will-state-measures-give-rise-to-a-new-set-of-investment-claims
10
Vandevelde KJ (2005) A brief history of international investment agreements. U.C. Davis J Int
Law Policy 12: 157, 174–175, 184. Franck SD (2005) The legitimacy crisis in investment treaty
arbitration: privatizing public international law through inconsistent decisions. Fordham L Rev 73:
1536; Coe JJ Jr (2003) Taking stock of NAFTA chapter 11 in its tenth year: an interim sketch of
selected themes, issues, and methods. Vand J Transnatl L 36: 1385.
11
ICSID (2020) ICSID convention. https://icsid.worldbank.org/resources/rules-and-regulations/
convention/overview#:~:text¼The%20ICSID%20Convention%20is%20a,by%20the%20first%
2020%20States.&text¼includes%20final%20provisions%20such%20as,the%20Convention%20
(Chapter%20X)
very diverse in nature both with respect to the States and economic sectors affected
in the dispute.12 A vast majority of the countries in the world are either contracting
States or signatories to the ICSID convention.13 One hundred fifty-four countries in
the world have become a contracting party to the ICSID Convention while 163
countries have become signatories to the ICSID convention.14
During the height of the opposition to the ISDS, few countries like Bolivia,
Ecuador, and Venezuela withdrew from ICSID. Few other countries like Australia,
India, Indonesia, and Malaysia decided to go against the ISDS provisions in their
new IIAs. The withdrawal from ICSID or the refusal to adopt ISDS provisions in the
new IIAs do not mean that the relevant countries are no longer bound by the ISDS
provisions in existing IIAs. During the 6-month effective period of the termination or
withdrawal under Article 71 of the ICSID Convention, there was a case brought by
an investor against Bolivia, i.e., E.T.I Euro Telecom International v. Bolivia.15 As a
result of the views against ISDS and ICSID, ICSID is currently engaged in a
comprehensive overhaul of its rules based on extensive discussions with profes-
sionals and member States and for this purpose has come out with two working
papers which are expected be the basis upon which ICSID rules would be
reformed.16
ICSID remains the preeminent body for resolution of international investment
disputes with a large number of the registered cases in the world being administered
by ICSID.17 Thirty new cases were registered in 2019, the lowest registered cases
since 2015, taking the total of cases administered to 306 while 59 proceedings were
concluded in the same period of time.18 Of the 39 cases, 35 were arbitrations
registered under the ICSID Arbitration Rules, 3 under the ICSID Arbitration (Addi-
tional Facility) Rules, and 1 under the ICSID Convention Conciliation Rules. The
majority of the new cases (35) were brought to ICSID on the basis of Bilateral
12
World Bank Group (2020) ICSID caseload – statistics 2020, p 6. https://icsid.worldbank.org/sites/
default/files/publications/Caseload%20Statistics/en/The%20ICSID%20Caseload%20Statistics%
20%282020-1%20Edition%29%20ENG.pdf
13
See World Bank Group, n. 12.; Parra AR (1993) ICSID and new trends in international dispute
settlement. Am Soc Int Law Proc 87: 3–4.
14
World Bank Group (2019) ICSID annual report 2019, p 11. https://icsid.worldbank.org/sites/
default/files/publications/annual-report/en/ICSID_AR19_CRA_Web_Low_DD.pdf
15
E.T.I Euro Telecom International v. Bolivia, (ICSID, ARB/07/28).
16
ICISD (2018) Working paper #1: proposals for amendment of the ICSID rules. ICSID. https://
icsid.worldbank.org/resources/rules-and-regulations/amendments/wp1; ICSID (2019) Working
paper #2: proposals for amendment of the ICSID rules. ICSID. https://icsid.worldbank.org/
resources/rules-and-regulations/amendments/wp2
17
Norton Rose Fulbright (2017) International arbitration report, p 18. https://www.nortonrose
fulbright.com/-/media/files/nrf/nrfweb/imported/international-arbitration-review%2D%2D-issue-8.
pdf?la¼en-us&revision¼95faf7c7-da59-45c2-8309-432268bf04e5; van den Berg AJ (2019)
Appeal mechanism for ISDS awards: interaction with the New York and ICSID conventions.
ICSID Rev Foreign Invest Law J 34: 11.
18
ICSID Annual Report 2019, p 19.
Investment Treaties while the 4 cases were brought on the basis of the Energy
Charter Treaty.19 Cases were also brought on the basis of various free trade agree-
ments as well as on the basis of consent.20 When going by geographic distribution, it
can be seen that States from every region of the world took part in ICSID pro-
ceedings, in 2019, with over 25% of the cases being instituted from the Eastern
European and Central Asian region.21 A wide array of sectors are also involved in the
disputes, ranging from construction, agriculture, transportation to oil, electric power,
finance, and even water, with the majority of the cases coming from the electric
power and oil industry (21% each).22 The figures are merely meant to illustrate the
vast reach and acceptance of ICSID and this goes to show that even a small change
can impact a wide variety of States and industries.
In simple terms, ISDS is considered as a particular – and central – feature of IIAs
wherein the foreign investor is permitted to seek financial compensation from the
host State for any violations of the provisions contained in the IIASs through binding
mode of dispute resolution (often Investor State Arbitration – ISA).23 As a dispute
resolution mechanism, ISDS relies largely on ISA rather than national courts,
considering the likelihood of corruption, inefficiency, and partiality in a number of
countries.24 Further, there are countries that lack capacity across the judicial system
involving legal practitioners, government legal advisors and judges, to handle
complicated legal matters usually involved in an investor-State dispute. These
countries are normally lower income or lower middle-income countries, where
most of the FDIs are in the form of natural resource seeking or extractive industry,
or at the lower end of manufacturing value chain. This perspective has not always
been shared and a return of the Calvo doctrine on the basis of which national
remedies are preferred is clearly perceptible today25.
In ISA, disputes are generally brought forward by the foreign investor for any
change in law resulting from a violation of the States obligations, which could result
in a breach of legitimate expectations, expropriation (direct/indirect) without ade-
19
See more at Gabriela I, Elisabeta R (2016) The energy charter treaty and settlement of disputes –
current challenges. Jurid Trib 6: 72.
20
Id, p 21.
21
ICSID Annual Report 2019, p 22.
22
Id, page 24.
23
Chaisse J (2015) The treaty shopping practice: corporate structuring and restructuring to gain
access to investment treaties and arbitration. Hastings Bus LJ 11: 225; See Franck, n. 3, 1536; Klett
J (2016) National interest vs. foreign investment – protecting parties through ISDS. Tul J Int Comp
Law 25: 214–215.
24
Eliason A (2018) Evidence partiality and the judicial review of investor-state dispute settlement
awards: an argument for ISDS reform. Geo J Int Law 50: 1.
25
See our Handbook first part’s introduction as well as the chapters dedicated to the Indian example
in particular with its new BIT model favouring domestic remedies.
quate compensation, fair and equitable treatment, etc.26 The conceptual approach is
based on the theory of State responsibility in general public international law.
Through IIAs, ISDS is an exception to the general rule of State responsibility that
only a State may bring a case against another State for breach of its international
obligation under the international law. This is particularly important to bear the later
in mind for the arbitral nature of the process does not make it a private enterprise.
The State being a central actor of the dispute and its resolution, the rules are firmly
grounded in general public international law. In practice, ISDS is utilized today as an
enforcer for corporations to achieve the policy objectives suiting their particular
business interests.27 One of the peculiar feature of ISA is that the States parties to the
IIA have given their advance consent to arbitrate disputes with private parties and
that such offer may be accepted by the latter through the institution of arbitral
proceedings.28 As alluded to above, most recent IIAs, in a form of return to past
approaches, require the foreign investor, on the basis of the Calvo doctrine, to first
institute proceedings at the municipal level and, only after exhaustion of these local
remedies, approach a neutral international forum.29 Some IIAs, such as the ASEAN
Comprehensive Investment Agreement (ACIA), adopts the fork in the road provi-
sion, where investors may have to make a choice of between a forum at the
municipal level or an international forum.30 Countries adopt these approaches in
order to avoid protracted and long cases going through all levels of dispute forums,
from domestic court, domestic arbitration, and international arbitration as illustrated
in the MHS Salvors v. Malaysia.31
26
Wong J (2006) Umbrella clauses in bilateral investment treaties: of breaches of contract, treat
violations, and the divide between developing and developed countries in foreign investment
disputes. Geo Mason Law Rev 14: 141.
27
Wellhausen RL (2016) Recent trends in investor–state dispute settlement. J Int Disput Settl 7:
119–120.
28
Paulsson J (1986) Arbitration without privity. ICSID Rev Foreign Invest Law J 232; Cheng T
(2020) The search for order within chaos in the evolution of ISDS. ICSID Rev Foreign Invest Law J
3; Sornarajah M (2015) Creating jurisdiction beyond consent. In: Resistance and change in the
international law on foreign investment. CUP, pp 136–140.
29
A rather controversial example is the Model India BIT 2016 wherein the foreign investor has to
institute proceedings before domestic courts and wait for at least 5 years before initiating pro-
ceedings before an international tribunal. See Ranjan P, Anand P (2017) The 2016 model indian
bilateral investment treaty: a critical deconstruction. Northwest J Int Law Bus 38. See also
Porterfield MC (2015) Exhaustion of local remedies in investor-state dispute settlement: an idea
whose time has come? Yale J Int Law Online 41: 3. https://cpb-us-w2.wpmucdn.com/campuspress.
yale.edu/dist/8/1581/files/2016/09/porterfield-final-proof-12-04-151-2i9ya2y.pdf
30
The ASEAN Comprehensive Investment Agreement (ACIA), Article 33.1 proviso. See discus-
sion in Chaisse J, Jusoh S (2016) The ASEAN comprehensive investment agreement: the
regionalisation of laws and policy on foreign investment. Elgar.
31
Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/
05/10. See discussion, among others in Jusoh S, Razak F, Mazlan A (2017) Malaysia and investor-
state dispute settlement, learning from experience. JWIT 18(5–6): 890–917.
Reforming Investor-State Dispute Settlement
ISDS is popularly construed as arbitration. Other modes of dispute settlement were

always present, including in investment treaties. Of late, scholars and States have
contemplated more closely mediation and, on few occasions, conciliation as com-
plementary to arbitration. However, these methods are rarely seen as an alternative to
arbitration.32 The lack of awareness of the possibility to resolve investor-State
disputes through other settlement mechanisms like conciliation, mediation, and
negotiation can be assessed from the fact that a mere 1.3% of the total disputes at
ICSID are conciliated despite having a dedicated framework.33 A 2018 Report by the
National University of Singapore (NUS) suggests that the hesitation for adopting
alternative investor-State settlement stems from the fact that (a) it is easier to obtain
budgetary approval for a binding award relative to a voluntary settlement, (b) host
government may be unwilling to publicly accept guilt for arbitrary State actions, and
(c) officials may fear being accused of corruption and have concerns about personal
liability.34 A unique offering was suggested by Prof. Jack Coe where he talked about
“mediation/conciliation as parallel process in arbitration” to nullify the “double-
hatting problem.”35 Modern trade and investment agreements have started providing
for alternative modes of investor-State dispute resolution.36 For instance, the Com-
prehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) pro-
vides for option for voluntary conciliation prior to the institution of arbitral
proceedings.37 Another significant development in this field is illustrated by the
negotiations on an EU-China BIT where both parties have expressed clear intentions
of developing mediation as one of the mechanisms to resolve (for investor-State
32
Coe JJ Jr (2005) Toward a complementary use of conciliation in investor-state disputes – a
preliminary sketch. U C Davis J Int Policy 12: 7.
33
Weinstein D (2019) Making mediation more attractive for investor-state disputes. Kluwer Medi-
ation Blog. Available at http://arbitrationblog.kluwerarbitration.com/2019/03/26/making-mediation-
more-attractive-for-investor-state-disputes/?doing_wp_cron¼1597556661.9520120620727539062500;
See also Nitschke F (2019) The ICSID conciliation rules in practice. In: Titi C, Fach Gómez K (eds)
Mediation in international commercial and investment disputes. Oxford University Press, p 121.
34
Chew S, Reed L, Thomas CJ QC (2018) Report: survey on obstacles to settlement of investor-
state disputes. NUS – Centre for International Law Working Paper 18/01. Available at https://cil.
nus.edu.sg/wp-content/uploads/2018/09/NUS-CIL-Working-Paper-1801-Report-Survey-on-Obsta
cles-to-Settlement-of-Investor-State-Disputes.pdf
35
Coe J. Settlement of investor-state disputes through mediation—preliminary remarks on pro-
cesses, problems and prospects. Available at https://www.researchgate.net/publication/331344136_
Chapter_4_Settlement_of_Investor-State_Disputes_through_Mediation-Preliminary_Remarks_
on_Processes_Problems_and_Prospects; See Jack J. Coe Jr, n. 28.
36
Shan W, Wang L (2015) The China–EU BIT and the emerging ‘Global BIT 2.0’. ICSID Rev 30:
264.
37
See Art. 9.18 to 9.30 of CPTPP. Bath V and Nottage L, ▶ Chap. 97, “International Investment
Agreements and Investor-State Arbitration in Asia.”
mediation and negotiation as hybrid mode of resolution)38 as did the EU-Canada

Comprehensive Economic and Trade Agreement (CETA).39
The EU-Vietnam FTA and EU-Singapore FTA unlike the CPTPP or the CETA
provide for comprehensive rules including issues of objective and scope of media-
tion, initiation of the procedure, selection of the mediator, rules of the mediation
procedure, implementation of a mutually agreed solution, time limits, costs, etc.40
Due to signing of the Singapore Convention, many recent investment treaties
refer to mediation either as a precondition to arbitration or as a stand-alone mech-
anism for resolving disputes.41 In 2018, the ICSID began working on a new set of
rules for investor-State mediation, similar to investor-State arbitration, making them
the first institutional mediation rules designed specifically for investment disputes.42
This hesitations and new developments are addressed in our Handbook’s “Investor-
State Dispute Settlement (ISDS): Procedural and Substantial Issues” part by Chang-
fa Lo on the basis of an interesting illustrative case, the Asia-Pacific Regional
Meditation Organization (ARMO)43. He concludes on the need to create permanent
mediation institution, at the regional level in particular, to trigger more interest and
grow this dispute resolution method further. A large variety of alternative dispute
resolution methods actually exists as demonstrated by Yulia Levashova in another
contribution to this Handbook. She shows indeed, that in Korea or Brazil, the
Ombudsman system “was set up with the purpose of addressing investors’ griev-
ances before they mature into a legal dispute.” The investor-grievance mechanism is
a method to resolve conflicts before they become disputes. Apart from Korea and
Brazil, many countries, like Bosnia, Jordan, Mongolia, Myanmar, and Vietnam have
established the investor grievance system. The system adopts an administrative
38
Art. 9.18 of TPP. See also Marshall M (2017) Investor-state dispute settlement
reconceptionalized: regulation of disputes, standards and mediation. Pepper Disput Resolut Law J
17: 235–250.
39
Art. 8.20 of EU-Canada CETA. See Marshall, n. 26, 236. See also Joubin-Bret A, Legum B
(2014) A set of rules dedicated to investor–state mediation: the IBA investor–state mediation rules.
ICSID Rev 29: 18.
40
Zhao C (2018) Investor-state mediation in a China-EU bilateral investment treaty: talking about
being in the right place at the right time. Chin J Int Law 17: 1. See also Ali SF, Repousis OG (2017)
Investor-state mediation and the rise of transparency in international investment law: opportunity or
threat. Denver J Int Law Policy 45: 239.
41
See more at Freshfields Bruckhaus Deringer (2020) International arbitration illuminating the top
trends in 2020. https://www.freshfields.com/495e22/contentassets/ef85f9eb59e945
ef8d10e93b089e78bb/08100_pg_dr_international-arbitration-trends-2020-interactive_v4.pdf
42
A preview of the completed draft ICSID Mediation Rules released by through Working Paper can
be accessed from Nitschke F (2020) A preview of ICSID’s new investor-state mediation rules.
Kluwer Mediation Blog. Available at http://mediationblog.kluwerarbitration.com/2020/01/10/a-
preview-of-icsids-new-investor-state-mediation-rules/?doing_wp_cron¼1597556688.
8503229618072509765625. See also ICISD (2018) Investor-state mediation. https://icsid.
worldbank.org/services-arbitration-investor-state-mediation
43
See Chang Fa Lo, ▶ Chap. 31, “Past and Future of Mediation for Investment Disputes: The Case
for the Asia-Pacific Regional Mediation Organization (ARMO).”
approach to resolving investor-State conflicts instead of a legal dispute resolution

mechanism.44 This is only an illustration a possible dispute prevention mechanism,
which takes place, one step beyond mediation or conciliation that is even before the
dispute takes shape. Along these lines, the possibility to establish an Advisory
Centre on International Investment Law is currently investigated within the United
Nations Commission on International Trade Law (UNCITRAL) ISDS reform
initiatives45.
Since the early 2000s indeed, ISDS has been marred with criticism with respect to
the system and overall adjudication.46 With the business and investor-friendly
approach of arbitral tribunals like ICSID, there has been an exponential rise in
investor disputes.47 Common criticism levelled against ISDS system can be sum-
marized as follow:
(i) The funds to participate in ISDS come from public budgets and therefore, in
most countries, from taxpayers.48 Moreover, there is no limit as to the costs
and duration of a case, which can last for several years.49 Further, the arbitral
tribunals do not normally issue any order to compensate or make order as to
costs for “winning” State Parties, leaving them with huge legal bills. This very
issue is addressed in Chap. 24, “Investor-State Dispute Settlement (ISDS): An
Introduction” part by Noam Zamir who stresses indeed that the average costs
in investor-State arbitration is around 10–11 million USD (for claimant and
respondent together with tribunal costs)50. This issue has naturally been
identified as key by the UNCITRAL Working Group III, which partly explains
the cost of arbitration in relation to the fragmented nature of investor protec-
tion provisions and the multiplication of interlocutory proceedings.51
44
Jusoh S (2019) Myanmar’s investor-state dispute settlement experience and investor grievance
mechanism. In: Esplugues C (ed) Foreign investment and investment arbitration in Asia. Intersentia,
pp 205–226. https://doi.org/10.1017/9781780688404.008
45
See Yulia Levashova, ▶ Chap. 25, “Prevention of ISDS Disputes: From Early Resolution to
Limited Access.”
46
Dani M, Akhtar-Khavari A (2018) Rethinking the use of deference in investment arbitration: new
solutions against the perception of bias. UCLA J Int Law Foreign Aff 22: 38–39.
47
de las Heras BP (2018) The European Union in international investment governance: a hybrid
approach to dispute settlement. Rom J Eur Aff 18: 78.
48
Boisson de Chazournes L (2005) Making the proceedings public and allowing third party
interventions. J World Invest Trade 1: 105–108.
49
Guven B, Johnson L (2019) The policy implications of third-party funding in investor-state
dispute settlement. CCSI Working Paper 2019. Available at http://ccsi.columbia.edu/files/2017/
11/The-Policy-Implications-of-Third-Party-Funding-in-Investor-State-Disptue-Settlement-FINAL.
pdf; See also Álvarez Zárate JM, Baltag C and others (2020) Duration of investor-state dispute
settlement proceedings. J World Invest Trade 21: 303–310.
50
Noam Zamir, ▶ Chap. 56, “The Issue of Costs: How much does ISDS Cost and Who Bears the
Cost?”.
51
See Zarate, n. 29, 304.
(ii) The issues surrounding independence and impartiality of arbitrators is also

central to ISDS criticism, with additional focus on arbitrators’ fees, qualifica-
tions, and the lack of diversity in their appointments.52 In this regard, Krista
Nadakavukaren Schefer explores the question of “crime” in international
investment arbitration and suggest that “a further attention needs to be given
to investor claims of corruption and corruption-related crimes to ensure that
treaty-based investment arbitration remains substantively and procedurally
fair for all stakeholders”53.
(iii) As far as substantive issues are concerned, arbitral awards are repeatedly
criticized for their divergent interpretations of the Fair and Equitable Treat-
ment (FET) standard.54 Unlike the court system that adopts the doctrine of
precedent, tribunals are not bound by the decisions of the same subject
matter of other tribunals. Each tribunal is free to make its own decisions.
The inconsistency of the interpretation of the fair and equitable treatment
standard has led not only to the modification of treaties by States to either
include a “Minimum Standard of Treatment” obligation instead or an
exhaustive definition of Fair and Equitable Treatment but it has also led to
contradictory decisions about the same facts, such as in CME v Czech
Republic and Lauder v Czech Republic.55To address this problem, a number
of States have modified their treaties to either include a Minimum Standard
of Treatment (MST) or an exhaustive definition.56 A few States have pro-
vided narrow definitions of Fair and Equitable Treatment in their national
laws. Another example is the lack of uniform standards for awarding dam-
ages.57 As a result, tribunals are free to choose their valuation methods,
which often leads to the use of various methodologies and contradictory
decisions.58
52
Giorgetti C and others (2020) Independence and impartiality of adjudicators in investment dispute
settlement: assessing challenges and reform options. J World Invest Trade 21: 447–464. Bjorklund
AK and others (2020) The diversity deficit in international investment arbitration. J World Invest
Trade 21: 411.
53
See Krista Nadakavukaren Schefer, ▶ Chap. 36, “Crime in International Investment Arbitration”.
54
Zhu Y (2018) Fair and equitable treatment of foreign investors in an era of sustainable develop-
ment. Nat Resour J 58: 319. See also Arato J, Brown C, Ortino F (2020) Parsing and managing
inconsistency in investor-state dispute settlement. J World Invest Trade 21: 347.
55
Eric De Brabandere (2018) (Re)Calibration, standard-setting and the shaping of investment law
and arbitration. Boston Coll Law Rev 59: 2607. Available at https://lawdigitalcommons.bc.edu/cgi/
viewcontent.cgi?article¼3708&context¼bclr
56
See Arato, n. 32, 368.
57
See more at Marboe I (2018) Damages in investor-state arbitration: current issues and challenges.
Brill Research Perspectives in International Investment Law and Arbitration, 2.
58
“Consistency, efficiency and transparency in investment treaty arbitration,” report by the IBA
Arbitration Subcommittee on Investment Treaty Arbitration (2018). Available at https://www.
ibanet.org/Document/Default.aspx?DocumentUid¼A8D68C6C-120B-4A6A-AFD0-
4397BC22B569; Arato, n.32, 369.
(iv) In recent times, there have been instances where the domestic proceedings of
the host State was overridden, thereby infringing on a State’s sovereignty.59
As an example, in Puma Energy Holdings v. Benin, the emergency arbitrator,
ordered Benin, i.e., the executive power, to immediately take all available
measures to prevent its court, i.e., the judiciary, from enforcing the Court of
Appeal’s judgment until the arbitral dispute before the CCJA was resolved.60
(v) These procedural abuses, as well as all the above issues, have raised great
concerns among all international investment law actors including civil society
organizations. In this regard, ISDS has evolved towards a more inclusive
mechanism in accepting the presence of “Amicus,” the “friends of the
court” guaranteeing a form of public participation as demonstrated by
Fernando Dias Simoes chapter61.
(vi) ISDS is largely biased towards foreign investors for it being accessible as
matter as cause of action by the investors and not the States themselves.62 This
issue was effectively highlighted in the ICSID proceedings in Ubraser Case63
where State contended that only remedy available for them is through coun-
terclaims. The issue of counterclaims admissibility in investment arbitration
has recently attracted the attention of a large community of scholars and
practitioners alike64. These are particularly interesting when dealing with
environmental or human rights related matters, which directly impact the
State’s sovereignty and regulatory independence.
(vii) It is also perceived by small and SME investors and domestic investor
industry that ISDS as dispute resolution mechanism provides special rights
to resourceful foreign investors identical to universal civil rights accorded to
citizens and claims are brought before tribunals to overturn regulations not
favoring them.65 Indeed, ISDS seems to only protects resourceful investors for
the litigation costs associated with the ISDS system.66 This argument stems
59
Goldhaber MD (2012) The rise of arbitral power over domestic courts. Stanf J Complex Litig 1:
374.
60
Touzet J, de Vaublanc MV (2018) The investor-state dispute settlement system: the road to
overcoming criticism. Kluwer Arbitration Blog. Available at http://arbitrationblog.kluwerar
bitration.com/2018/08/06/the-investor-state-dispute-settlement-system-the-road-to-overcoming-
criticism/?doing_wp_cron¼1597575431.6468479633331298828125
61
See Fernando Dias Simoes, ▶ Chap. 53, “Public Participation: Amicus Curiae in International
Investment Arbitration”.
62
Pauwelyn J (2014) At the edge of chaos? foreign investment law as a complex adaptive system,
how it emerged and how it can be reformed. ICSID Rev 29: 2.
63
Ubraser S.A. v. Republic of Argentina, ICSID Case No. ARB/07/26.
64
See Molly Anning, ▶ Chap. 51, “Counterclaims Admissibility in Investment Arbitration”.
65
Miller S, Hicks G (2015) ISDS: a reality check. Report by CSIS Scholl Chair in International
Business. Available at https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/
publication/150116_Miller_InvestorStateDispute_Web.pdf
66
Caplan L (2009) Making investor-State arbitration more accessible to small and medium-sized
enterprises. In: Rogers CA, Alford RP (eds) The future of investment arbitration. OUP, p 297.
from the high legal and administrative costs facing claimants (and also
respondent States). Parties to arbitrations not only pay the legal advisors and
counsels but they also need to pay for the facilities and secretarial services.
(viii) Not to mention that the enforcement of arbitral awards can reveal complex as
analyzed by Leonardo Borlini and Stefano Silingardi in the context of a hybrid
iSDS system, which borrows from private international law but remains a
general pubic international law device67.
The ISDS regime has been subjected to criticism due to the “concerns about the
‘process’ and ‘outcome’ of investment arbitration,” with respect to the system’s
transparency, independence and impartiality, due process, third party participa-
tion, and consistency and predictability.68 These concerns have set in motion a
process of reforms within the UNCITRAL and ICSID. In October 2016, ICSID
advised its 153 member States that it was beginning the process to further update
the ICSID rules and regulations.69 The Rule Amendment Project of the ICSID is
premised upon a threefold end. First is the modernization of rules based on case
law jurisprudence of the ICSID. The second objective is to render the ISDS model
time and cost-effective while balancing due process considerations and making
ISDS more equitable for investors and States.70 The third ambition is to make
ISDS an environmentally friendly process.71 On the other hand, the UNCITRAL,
at its Fiftieth Session in July 2017, gave mandate to the Working Group III
(WGIII) to contemplate and discuss possible reforms of the ISDS system.72
Within its mandate, the Working Group’s terms of reference were based on a
three-phase mandate on investor-State dispute settlement (ISDS) reform, whereby
WGIII would first identify concerns regarding ISDS; second, consider whether
reform was desirable in the light of those concerns; and third, if WGIII were to
67
See Leonardo Borlini and Stefano Silingardi, ▶ Chap. 57, “Enforcement of Investment
Arbitration Awards”.
68
Sauvant KP, Ortino F. Improving the international investment law and policy regime: options for
the future.
69
ICSID (2019) Proposals for amendment of the ICSID rules. Working Paper No. 3 iii. https://icsid.
worldbank.org/sites/default/files/amendments/WP_3_VOLUME_1_ENGLISH.pdf
70
See ICSID, N.58.
71
Kennar M (2019) Modernizing ICSID’s rules for investment dispute resolution. ICC Dispute
Resolut Bull. Available at https://www.fordham.edu/download/downloads/id/14027/ciam_2019_
cle_materials.pdf
72
Mohamadieh K (2019) The future of investor-state dispute settlement deliberated at UNCITRAL:
unveiling a dichotomy between reforming and consolidating the current regime. South Centre
Investment Policy Brief 16. Available at https://www.southcentre.int/wp-content/uploads/2019/
03/IPB16_The-Future-of-ISDS-Deliberated-at-UNCITRAL_EN.pdf
conclude that reform was desirable, develop solutions to be recommended to

UNCITRAL.73
The possible options suggested by WGIII included: improvement of the current
investor-State arbitration system (for instance, by modifying the appointment rules
or enacting rules of conduct and/or ethics for arbitrators); addition of an appellate
mechanism to the current investment arbitration regime; introduction of a multilat-
eral investment; and no ISDS at all, with two sub-scenarios, namely (i) recourse to
domestic courts only and (ii) State-to-State arbitration.74
Draft Code of Conduct for Adjudicators in ISDS75
Another yet related initiative deals with the drafting of a Code of Conduct for
Adjudicators. On 1 May 2020, the Draft Code was made available to the public.
The Draft Code, through 12 different articles, tries to comprehensively cover and
regulate the various facets of an arbitrator/adjudicator’s role and the responsibility
towards parties and vice versa, in ISDS, ranging from disclosure obligations to ex-
parte communication with parties to even pre-appointment interviews. The term
“adjudicators” purposefully encompasses a broad category of existing and possible
future participants in ISDS adjudicatory processes, including arbitrators, ad hoc
committee members, candidates to become adjudicators, appeal judges, and judges
in permanent bodies.76 In this way, the Code can easily be applied regardless of the
type of reform that might be adopted as a result of the WG III discussions. In its
Article 3, the Draft Code includes a series of general duties. Above all, adjudicators
must be at all times independent and impartial (as specifically defined in Article 4)
and avoid direct or indirect conflicts of interests. Other duties include the duties of
integrity, fairness, competence, diligence, civility, and efficiency. The Code requires,
in its Article 5, extensive adjudicator disclosure as a key policy tool to ensure the
avoidance of conflicts of interest and ensure that parties know as much as possible
prior to an adjudicator’s appointment. In terms of disclosure, adjudicators must be
proactive and must make a reasonable effort to become aware of interests, relation-
ships, or matters that can create a conflict that could be perceived as affecting their
independence and impartiality. Adjudicators also have a continuous duty of
73
https://undocs.org/A/72/17
74
Kaufmann-Kohler G, Potesta M (2019) Reform of ISDS: matching concerns and solutions. EJIL
Talk. Available at https://www.ejiltalk.org/reform-of-isds-matching-concerns-and-solutions/
75
For detailed comments on the Draft, see “Comments on the Draft Code for Adjudicators in ISDS”
(2020) Centre for Arbitration and Research, MNLU-Mumbai, available at http://mnlumumbai.edu.
in/pdf/Comments%20on%20Draft%20Code%20of%20Conduct%20(CAR%20Ed.).pdf
76
Giorgetti C (2020) ICSID and UNCITRAL publish the anticipated draft of the code of conduct for
adjudicators in investor-state dispute settlement. Kluwer Arbitration Blog. http://arbitrationblog.
kluwerarbitration.com/2020/05/02/icsid-and-uncitral-publish-the-anticipated-draft-of-the-code-of-
conduct-for-adjudicators-in-investor-state-dispute-settlement/?doing_wp_cron¼1598194383.
7107789516448974609375#comments
disclosure and should opt in favor of disclosure in case of doubt. In requiring

extensive disclosure, the Article 5 also addresses two important issues that have
generated much debate in ISDS: repeat appointments and issue conflict. Repeat
appointments raise the concern that an adjudicator who is repeatedly appointed by
the same counsel, client, party, or “side” may develop a dependence or affinity with
the nominating party or become biased in its favor. As bias may be unconscious, the
concern is difficult to address. The Article 6 is formulated to give policy makers a
range of options from a complete ban on the double-hatting practice and possibly
other roles (such as expert or agent) to requiring disclosure of any work on other
cases. The provision could also include a time element for disclosure. The draft also
provides a range of options to define what kinds of matters may lead to a double
hatting (for example, those involving the same parties, facts, or treaty). The Article
12 starts by highlighting the importance of voluntary compliance. It then underlines
that the applicable rules related to the removal or challenge of arbitrators, which are
separate and different for each institution, continue to apply.77
The divergence of interpretation of IIAs can be cured through an arbitration-
appeal mechanism. Consistency, which encompasses coherent interpretation of
applicable standards of law, is fundamental to improve predictability, enhance trust
in the ISDS system and develop a homogenous international investment law. A
permanent or semipermanent appellate body might be seen as a solution.78
The Future of ISDS
While all these reform proposals are certainly of interest, a longer-term perspective is
needed as rightly reminded in Roberto Echandi’s chapter, which provides a much-
needed link between treaty drafting and ISDS79. There have been numerous and
often competing solutions proposed to tide over the legitimacy crisis facing the ISDS
system.80 As mentioned above, one potential solution that has increasingly gained
77
Giorgetti C (2020) ICSID and UNCITRAL publish the anticipated draft of the code of conduct for
adjudicators in investor-state dispute settlement. Kluwer Arbitration Blog. Available at http://
arbitrationblog.kluwerarbitration.com/2020/05/02/icsid-and-uncitral-publish-the-anticipated-draft-
of-the-code-of-conduct-for-adjudicators-in-investor-state-dispute-settlement/?doing_wp_
cron¼1597671117.6686971187591552734375
78
Detailed framework on appeal mechanism for ISDS awards can be understood from Albert Jan
van den Berg (2019) Appeal mechanism for ISDS awards: interaction with the New York and
ICSID conventions. ICSID Rev Foreign Invest Law J 34: 1. Available at https://academic.oup.com/
icsidreview/article-abstract/34/1/156/5637244?redirectedFrom¼PDF
79
See Roberto Echandi, ▶ Chap. 29, “Investor-State Conflict Management Mechanisms (CMMs) in
International Investment Law: A Preliminary Sketch of Model Treaty Clauses.”
80
Malcolm Langford and others (2020) Matching concerns and solutions: an introduction. J World
Invest Trade 21: 174.
traction is the promotion of investor-State mediation.81 In the international context,

mediation is said to be “undervalued and overlooked.”82 The proponents of investor-
State mediation argue that mediation is a more productive form of dispute resolution
– with “each party’s interests, needs, and concerns” taken into consideration – while
formulating an outcome that is mutually desirable.83 A mediator does not have the
authority to impose an outcome, but rather, guides the parties towards a settlement.84
A mediation ensures the preservation of the relationship between the parties.85 The
central ethos of mediation is to achieve “a win-win situation for the disputing
parties.”86 The need for mediation has also arisen due to the inadequacy of the
remedies that investment arbitration offers.87 Mediation, as an entirely party-driven
process, offers a more flexible range of remedies.
Mediation has now been endorsed by numerous arbitral institutions.88 As earlier
mentioned, the ICSID has proposed the incorporation of investor-State mediation
rules.89 Other possible solutions proposed to the excessive costs involved in ISDS
mechanisms include the regulated involvement of third-party funding and the setting
up of advisory centers to provide legal aid.90 With respect to inconsistency in the
interpretation given to the substantive investor protections, the proposals to reform
include more exhaustive definitions in investment treaties and a structural reform
that could usher in a “single authoritative judicial voice.”91
While institutional investor-dispute resolution largely takes place under the aegis
of ICSID when the contracting parties (States involved in BIT) have provided for
ICSID as forum for dispute resolution. Additionally, other institutions like SIAC,
LCIA, and MCIA also provides the forum. Ad hoc resolution (which rarely happens)
is generally carried out under the UNCITRAL Rules.
However, the foundational challenges to ISDS mechanisms continue to remain.
Many of the proposed solutions have simply not been successful in practice or have
81
Brooke Skartvedt Güven (2020) Investor-state mediation: an opportunity to advance sustainable
outcomes. Columbia Centre on Sustainable Investment. http://ccsi.columbia.edu/2020/01/03/
investor-state-mediation-an-opportunity-to-advance-sustainable-outcomes/
82
Anna Spain (2010) Integration matters: rethinking the architecture of international dispute
resolution. Univ Pa J Int Law 32: 1–19.
83
Teresa Cheng, SC, (2019) Investor-state dispute settlement reform – mapping the way forward. J
Hong Kong Institute of Chartered Secretaries. http://csj.hkics.org.hk/site/2019/05/19/investor-state-
dispute-settlement-reform-mapping-the-way-forward/
84
See Bret, n. 36, 19.
85
Strong SI (2016) Realizing rationality: an empirical assessment of international commercial
mediation. Wash Lee Law Rev 73: 2010.
86
See Cheng, n. 4, 5.
87
See Cheng, n. 4, 5.
88
See Guven, n. 70.
89
See Guven, n. 70.
90
Gabriel Bottini and others (2020) Excessive costs and recoverability of costs awards in investment
arbitration. J World Invest Trade 21: 286–287.
91
See Arato, n. 46, 340,370.
not been incorporated. For instance, the process of mediation comes with its own
risks. Parties to the mediation may view the process with a myopic lens, without
necessarily focusing on their long-term interests.92 Moreover, as it stands today,
negotiated settlements are far more opaque than ISDS awards.93 In fact, this has
become a significant bar to any meaningful engagement with mediation at the policy
level. Empirical studies that have tried to explore mediated settlements have faced a
significant obstacle due to the lack of “concrete information on the use of mediation/
conciliation in Investor/State disputes.”94
Further, there is no data available on the efficacy of cooling off periods that have
been inserted to ensure dialogue between the parties to arrive at a mediated settle-
ment. The findings of the Queen Mary University of London survey, undertaken in
December 2019, brought forward how investors perceived mediation. Generally,
interviewees felt that mediation should not be made mandatory.95 Another concern
put forth regarding mediation was that it might not be suitable for smaller sized
investors.96 Further, the mediation process could be tainted with investors parallelly
commencing arbitration claims to force a settlement.97 Most importantly, responses
to the survey brought forth the concern that mediation could potentially increase the
time and costs spent on resolving the dispute.98
With respect to the other solutions being mooted by the UNCITRAL Working
Group-III, none of them have been concretely adopted. The process seems to be
moving forward but has continued without any finality. Finally, while the shift to a
multilateral investment Court could ensure greater consistency, its impact on incor-
rect decision-making is less clear – it could very well lead to “consistently incorrect
decisions.”99
Conclusion
There has been a rapid proliferation of IIAs. The primary mode of dispute settlement
used to resolve disputes arising from IIAs was and remains international investment
arbitration. While global FDI has suffered a hit due to the COVID-19 pandemic,
disputes between investors and States will likely be on the rise. There is a need to
92
See Guven, n. 70.
93
Catherine Kessedjian and others (2020) Mediation in future investor-state dispute settlement.
Academic Forum on ISDS Concept Paper 2020/16 7: 8. https://www.jus.uio.no/pluricourts/english/
projects/leginvest/academic-forum/papers/2020/isds-af-mediation-paper-16-march-2020.pdf
94
See Kessedjian, n. 82, 8.
95
96
97
98
99
Anna De Luca and others (2020) Responding to incorrect decision-making in investor-state
dispute settlement: policy options. J World Invest Trade 21: 406–409.
review the existing ISDS mechanisms, with a focus on dispute prevention. The
ICSID remains the largest institution for ISDS, both in terms of contracting parties
and the number of cases, spanning a wide number of regions and sectors. However,
the ISDS mechanisms and investment arbitration have come under a serious legit-
imacy crisis.
One of the primary alternatives to investment arbitration has been the use of
settlement mechanisms such as conciliation, mediation, and negotiation. Such
mechanisms have been incorporated into a number of BITs, particularly including
China and the EU. The need for such mechanisms has been recognized by the
ICSID, which is currently working on drafting a new set of rules for investor-State
mediation. Other criticisms of the ISDS mechanisms include the excessive costs and
duration, the independence and impartiality of arbitrators, the lack of consistency,
and the bias in favor of the investors. One of the recent steps towards reform include
the Draft Code of Conduct for Adjudicators in ISDS.
One of the most prominent solutions to reform the ISDS mechanism is the use of
mediation. Mediation, among many other advantages, could offer parties a wider
range of remedies than just monetary compensation and injunctions. Other notable
solutions include the regulation of third-party funding, advisory centers, and the
move towards a multilateral investment court. However, these solutions continue to
remain only on paper because of practical difficulties and their ineffectiveness to
resolve issues such as accuracy of decision-making.
For all the above reasons, it is time to engage in a critical appraisal of the ISDS
system as well as its critiques and the reform proposals put forward as offered by the
rich chapters composing the quite comprehensive Chap. 24, “Investor-State Dispute
Settlement (ISDS): An Introduction” part of our Handbook.
Cross-References
▶ Arbitral Procedure: Case Management and Selecting the Place of Arbitration

▶ Arbitration Clauses Limited to Compensation due to Expropriation: Relevant
Case Law, Interpretive Trends, and the Case of China’s Treaty Policy and Practice
▶ Enforcement of Investment Arbitration Awards
▶ Evidence in International Investment Arbitration
▶ ISDS Control Mechanisms (Annulment and Setting Aside)
Ratione Temporis)
▶ Selection, Bias, and Ethics of Arbitrators in Investor-State Arbitration
Part V
ISDS Policy in Perspectives
Prevention of ISDS Disputes: From Early
Resolution to Limited Access 25
Yulia Levashova
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626
Dispute Prevention in IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627
Alternative Dispute Resolution Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627
Interstate Cooperation in Dispute Prevention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634
Reflections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637
Conditioning Access to ISDS: Prevention of Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638
Lack of Compliance with Host State Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639
Dispute Prevention Through Investor’s Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644
Abstract
The dispute prevention is currently one of the central themes in the investor-State
dispute settlement (ISDS) reform led by the UNCITRAL Working Group III
(WG). Many States have already included various dispute prevention methods
in their International Investment Agreements (IIAs). For example, in Korea or
Brazil, the Ombudsman system was set up with the purpose of addressing
investors’ grievances before they mature into a legal dispute. These national
bodies are quite effective for the purpose of dispute prevention, especially if
they contain an institutionalized framework that has a system for coordination
between various levels of governments and a system for communication with an
investor. Another method of dispute prevention is to strengthen the cooperation of
Y. Levashova (*)
Nyenrode Business University, Breukelen, Netherlands
Utrecht University, Utrecht, Netherlands
e-mail: Y.Levashova@uu.nl; j.levashova@nyenrode.nl

https://doi.org/10.1007/978-981-13-3615-7_96
626 Y. Levashova
State parties through joint committees and commissions. Inter-State efforts to

prevent disputes also include the possibility to establish an Advisory Centre on
International Investment Law. This initiative is currently investigated within the
UNCITRAL reform process. Another category of preventive methods discussed
in this chapter is based on a system of filtration of certain types of disputes. Some
States in their IIAs have imposed additional conditions for investors’ access to
ISDS. The goal of this chapter is to discuss various options for dispute prevention
and to assess their implications for the ISDS reform.
Keywords
ISDS · Dispute prevention · ADR, IIAs · Due diligence · Foreign investors
Introduction
The reshaping of investor-State dispute settlement (ISDS) is currently high on the

agenda of States and international organizations. Since 2017, the UNCITRAL
Working Group III (WG) is leading and facilitating the ISDS reform process.1 At
its 36th session in 2018, the WG identified three categories of concerns relating to
ISDS: (1) the lack of consistency and predictability of arbitral decisions; (2) short-
comings in the qualifications of arbitrators and decision makers; and (3) the costs and
duration of ISDS cases.2 In its 37th session, the WG considered further issues,
including the prevention of disputes. The promotion of dispute prevention mecha-
nisms is central to the ISDS reform and supported by numerous States. The 39th
session of WG is due to take place in March–April 2020, and the appraisal of dispute
prevention and mitigation listed as a key area of reform is to be discussed during the
session.
Next to the UNCITRAL process, some States have already included various
dispute prevention methods in their International Investment Agreements (IIAs).
The most prominent example of such methods is the Brazilian Cooperation and
Facilitation Investment Agreements (CFIA). This chapter will first consider exam-
ples of dispute prevention mechanisms already embedded in a host State’s legal
framework or included (or proposed to be included) in a number of treaties. The
implications of the prevention of ISDS disputes as a more institutionalized reform
option will be discussed against the general background of the UNCITRAL process.
Secondly, the chapter will evaluate the preventive techniques applied via treaty
drafting. Particular focus will be placed on the requirement of an investor’s due
diligence as a medium to prevent some of the most widespread claims related to the
stability of a host State’s regulatory framework. Lastly, the chapter will offer some
final remarks.
1
UNGA (2017) Supplement No 17 (A/72/17), paras 263–264.
2
UNCITRAL Report of Working Group III (2018), 36th session, Vienna, 29 October–2 November.
25 Prevention of ISDS Disputes: From Early Resolution to Limited Access 627
Dispute Prevention in IIAs
The 2019 UNCTAD issue note provides that, in recent years, States have
“implemented a large number of ISDS reform elements as part of broader IIA
reform.”3 This also includes provisions in IIAs that are aimed at dispute prevention.
Dispute prevention is a broad term and can be described alternative dispute
resolution methods that aim to avoid or resolve conflict before it escalates into a
legal dispute. Dispute prevention mechanisms can be of varying nature. Firstly, these
mechanisms can consist of dispute prevention policies designed by States even before
a specific conflict has arisen. For example, the Peru’s State Coordination and Response
System for International Investment Disputes includes an early alert system for dealing
with conflicts between an investor and a State.4 Preventive techniques also focus on
the strengthening of alternative methods of conflict resolution other than arbitration.
Examples of such methods can be found in Brazilian Cooperation and Facilitation
Investment Agreements (CFIA).5 These include the establishment of a Joint Commit-
tee competent for administrating a dispute prevention procedure; the setting up of
ombudspersons or focal national points; and the facilitation of mediation, among
others. Another category of preventive methods is based on a system of filtration of
certain types of disputes. In some IIAs, States have imposed additional conditions for
investors’ access to ISDS. These conditions may vary. For example, they can comprise
procedural requirements requiring investors to exhaust local remedies before initiating
arbitration proceedings. These types of requirements can be found in the Belarus-India
BIT6 and the United States-Mexico-Canada Agreement (USMCA). Other conditions
limiting the access of investors to ISDS include the legality requirement of an
investment or the exclusion of frivolous claims.7 Some of these categories of dispute
prevention mechanisms are further elaborated upon below.
Alternative Dispute Resolution Methods
Alternative Dispute Resolution (ADR) includes different types of non-adjudicatory

tools usually facilitated by third parties that aim to resolve a conflict between an
3
UNCTAD (2019) Reforming investment dispute settlement: a stocktaking, Issue Note, No 1, p 5.
See also Chaisse J, Donde R (2018) The state of investor-state arbitration – a reality check of the
issues, trends, and directions in Asia-Pacific. Int Lawyer 51(1):47–67
4
Llerena (2018) The Peruvian state’s response to international investment disputes. International
Litigation Blog, p 2. http://international-litigation-blog.com/peru-response-to-international-invest
ment-disputes/
5
Articles 19 and 24 of the Brazil-United Arab Emirates CFIA (2019). Other examples of CFIA
can be found at UNCTAD, Investment policy, International Investment Agreements. https://
investmentpolicy.unctad.org/international-investment-agreements/countries/27/brazil
6
Article 15, Belarus-India BIT (2018).
7
Article 14, Iran-Slovak Republic BIT (2016).
628 Y. Levashova
investor and a State before it escalates into a legal dispute.8 ADR mechanisms make
use of three sets of instruments. The first set of instruments are tools designed to
avoid the conflict altogether through preventive policies or through the earliest
resolution of a conflict usually regulated at a national level. These include the
early resolution of conflicts through the Ombudsman and the National Complaint
Centre, for example. The second set of instruments include traditional ADR mech-
anisms, i.e., mediation and conciliation, to which parties may recourse when the
conflict has already arisen. The third set of instruments are based on cooperation and
investment facilitation and may include a joint body or an advisory centre where a
host State can obtain the necessary expertise about investment strategies, including
prevention methods. These three sets of instruments are discussed in the following
sub-sections.
Early Prevention and Resolution of Conflicts Between an Investor and a

Host State
One option for prevention of ISDS disputes – advocated by Brazil,9 Korea,10 South
Africa,11 Thailand,12 and other States during the UNCITRAL process – is the
establishment of an Ombudsman or similar mechanisms that will assist investors
to resolve conflicts in an amicable manner during the early stages of their inception.
The Ombudsman system envisions a framework where investors can resolve their
differences with a State’s authority before it escalates into a legal dispute. Many
Brazilian CFIAs have already introduced provisions establishing ombudspersons/
focal national points and a Joint Committee. For example, Article 19 of the Brazil-
Guyana CFIA (2018) entitled “National Focal Points or Ombudspersons” notes that
“[e]ach Party shall designate and notify each other an Agency or Authority to act as a
National Focal Point, or Ombudsperson, whose main responsibility shall be to
support investors from the other Party in its territory and also be charged with the
administration and monitoring the implementation of this Agreement.”13 One of the
key tasks of the Ombudsperson/National Focal Point is to prevent difficulties in all
investment issues by working together with the State’s authorities and relevant
investors. Both parties, the investor and the State’s authority, have the possibility
to address their grievances through the Ombudsperson/National Focal Point.
8
Joubin-Bret (2010) UNCTAD.
9
Possible reform of Investor-State Dispute Settlement (ISDS), Submission from the Government of
Brazil (11 June 2019), 28 March 2019. https://undocs.org/en/A/CN.9/WG.III/WP.171.
10
Possible reform of Investor-State Dispute Settlement (ISDS), Submission from the Republic of
Korea (31st July 2019). Available at https://uncitral.un.org/sites/uncitral.un.org/files/wp179_new.pdf
11
Possible reform of Investor-State Dispute Settlement (ISDS), Submission from the Government of
South Africa (17 July 2019). Available at https://undocs.org/en/A/CN.9/WG.III/WP.176
12
Possible reform of Investor-State Dispute Settlement (ISDS), Submission from the Government
of Thailand (8 March 2019). https://undocs.org/en/A/CN.9/WG.III/WP.162
13
Article 19, Brazil-Guyana CFIA (2018).
The Brazil-Guyana CFIA also provides for the establishment of a Joint Commit-
tee that cooperates with the Ombudsperson/National Focal Point in mitigating
conflict situations.14 The Joint Committee is a body that consists of governmental
representatives from both contracting States.15 This Joint Committee has a more
formal role in preventing conflict than the Ombudsperson and it is competent to
administer the dispute prevention procedure when an investor considers that a
measure by a host State has breached the respected agreement.16 The outcome of
the dispute prevention procedure is a report, prepared by the Joint Committee, that
includes a finding on the disputed matter. Where the conflict is not resolved through
this process, an investor may submit the dispute to arbitration.
To summarize, therefore, Brazilian CFIAs include two phases of dispute preven-
tion. First, the Ombudsperson assists investors, as well as States, in resolving any
matters and complaints arising during the investment process. Second, the Joint
Committee resolves the written complaint of an investor regarding an alleged breach
of the agreement. The approach adopted in Brazilian CFIAs is to increase the
responsibility of the State’s government by creating a framework for resolving all
types of issues at an early stage.
The Brazilian approach toward dispute resolution that focuses on dispute preven-
tion has to be considered in the broader context of the country’s investment policy.
Brazil has never enforced BITs with ISDS provisions.17 Despite this, the country was
quite successful in attracting Foreign Direct Investments (FDIs).18 Brazil’s current
investment approach, which is reflected in its recent CFIAs, focuses on strengthen-
ing investment facilitation, rather investment promotion. These CFIAs exclude ISDS
provisions and include a balanced combination of investor protection provisions and
provisions ensuring the State’s right to regulate. Such an alternative approach to
investment treaties is based on the Brazilian government’s view that investors, while
investing in a host State, are more concerned with the “improvement of the institu-
tional framework for investment with foreign governments than in after-the-fact
remedies that would provoke long and expensive litigation.”19 Hence, the focus in
CFIAs is one of effective conflict prevention combined with a possibility for State to
State arbitration. CFIAs shift the investor-State relationship from a model of legal
14
Article 19(5), Brazil-Guyana CFIA (2018).
15
Article 18(2), Brazil-Guyana CFIA (2018).
16
Article 24, Brazil-Guyana CFIA (2018).
17
UNCTAD, Investment policy hub, Brazil, Bilateral Investment Treaties. https://investmentpolicy.
unctad.org/international-investment-agreements/countries/27/brazil
18
It should be noted, however, that Brazil has a large market and developed domestic institutions,
these factors are important for attracting foreign investors. For some developing and least developed
countries with smaller internal markets, this is not the case; therefore, the negotiation of IIAs with
ISDS mechanism might play a more decisive role in attracting FDIs. See: Frenkel M, Walter B
(2019) Do bilateral investment treaties attract foreign direct investment? The role of international
dispute settlement provisions. World Econ 42:1316–1342
19
Possible reform of Investor-State Dispute Settlement (ISDS), Submission from the Government
of Brazil (11 June 2019)
630 Y. Levashova
adjudication to a model of cooperation that is based on institutional support for

resolving an investor’s grievances and inter-State diplomacy.
Korea is another example that has had a positive experience with an Ombudsman
system. Korea is one of the first countries to set up a Foreign Investment Ombuds-
man office that assists foreign investors with all types of issues. If a conflict between
an investor and a State’s authority arises, the Ombudsman can resolve the issue by
directly contacting the relevant ministry and can propose a solution for both
parties.20 According to statistics, the Korean Foreign Investment Ombudsman office
is very effective, resolving 90% of all disputes between 2007 and 2011.21 Until
2018, Korea was never a respondent State in ISDS proceedings. Recent claims
initiated against Korea by foreign investors have inspired additional proposals for
mitigating ISDS conflicts. This is discussed further in section “Interstate Coopera-
tion in Dispute Prevention”
Other countries that have set up national agencies that address complaints of
foreign investors with the goal to prevent ISDS disputes are China, Colombia, Peru,
Jordan, Bosnia, etc.22 Myanmar and Vietnam are in the process of establishing a
similar system through national law.23 In 2006, China established a National Com-
plaint Centre for Foreign-invested Enterprises (NCCFE) that has a similar function
to Ombudsmen. The NCCFE allows investors to file a complaint against the relevant
administrative authority. The NCCFE will then further coordinate and supervise the
complaint.24 The mechanism is aimed at the amicable settlement of conflicts and has
also been incorporated into the recently adopted Chinese Foreign Investment Law
(2019).25 In similar vein, Colombia and Peru have institutions that deal with
potential investment disputes. In Colombia, it is the Directorate of Foreign Invest-
ment and Services established under auspices of the Ministry of Trade; and in Peru, it
is the Peruvian System for Coordination and Response of State in International
Investment Disputes. The Peruvian System has been created to coordinate the
response to ISDS between different State agencies and to design an early alert
20
Nicolas F, Thomsen S, Bang M (2013) Lessons from investment policy reform in Korea. OECD
working papers on international investment, 2013/02. OECD Publishing, p 23. https://doi.org/
10.1787/5k4376zqcpf1-en
21
Vigidal G, Stevens B (2018) Brazil’s new model of dispute settlement for investment: return to the
past or alternative for the future? J World Invest Trade 19:475–512, 488
22
Many countries set up national agencies, such as: Tunisia’s Foreign Investment Promotion
Agency; Investment Development Authority of Lebanon; Israeli Foreign Investments and Industrial
Cooperation Authority; Egypt’s General Authority for Investment and Free Zones.
23
pp 205–226
24
Guiguo W (2011) Chinese mechanisms for resolving investor-state disputes. Jindal J Int Aff
1:204–233, 209
25
Foreign Investment Law of the People’s Republic of China (2019) Adopted during the 2nd
session of the 13th National People’s Congress on March 15, 2019
system for dealing with conflicts between an investor and a State.26 The system for
prevention is based on information sharing that allows the Peruvian State’s author-
ities to receive information about potential investment disputes.27 The Peruvian
system operates primarily through the Special Commission, chaired by a represen-
tative of the Ministry of Economy and Finance, which facilitates and represents the
State’s defense in investment arbitration disputes.
To conclude, States that have an early conflict prevent system in place have
experienced fewer disputes and better coordination between their agencies.28 The
benefits of a unified investment body responsible for conflict prevention and reso-
lution lie in strengthening a State’s capacity to deal with investment disputes by
sharing information between different agencies and coordinating a strategy upon a
conflict’s escalation. As has been discussed in the UNCITRAL preparatory paper on
dispute prevention, the key areas of concern in conflict avoidance are the lack of
awareness of obligations contained within IIAs among relevant civil servants and the
careful monitoring of foreign investors in several economic sectors where ISDS
disputes have often arisen.29 In the past, the lack of coherency between municipal
and federal agencies has led to controversial State policies and decisions that have
resulted in several investment disputes.30 What is more, State’s representations
provided to investors through different governmental channels have resulted in
numerous claims for the frustration of legitimate expectations of an investor under
the fair and equitable (FET) standard.
Furthermore, to improve the quality of preventive measures in host States, special
attention should be directed to economic areas where foreign investors are especially
active. In many States, the extractive industries and public utility sectors involve the
participation of foreign investors through concession agreements and complex
privatization schemes, for example. Consequently, the effective communication of
governmental agencies with foreign investors in these sectors should be a continuous
process that can help in detecting problems at an early stage.
Traditional ADR Techniques: The Example of Mediation31

Another dispute preventive mechanism that features in a number of IIAs involves the
possibility to submit the dispute to mediation or conciliation. Mediation can be
defined as a “confidential, informal, structured and voluntary mechanism, where
disputes are resolved in an amicable and cost-effective process with the assistance
26
Llerena (2018), p. 2.
27
UNCITRAL (2020) Possible reform of investor–state dispute settlement (ISDS) – dispute pre-
vention and mitigation – means of alternative dispute resolution, New York, 30 March–3 April
2020, pp 1–13, 5.
28
However, Indonesia that has witnessed an increase of ISDS has a national system aimed at early
resolution of disputes, though it is not applicable to sub-national authorities.
29
UNCITRAL (2020), p. 6.
30
MTD v. Chile (2004), Bilcon v. Canada (2015), Glamis v. US (2009).
31
This paper focuses on mediation as an example of ADR. Conciliation and negotiation that also fall
under ADR are outside the scope of this chapter.
632 Y. Levashova
from a third party.”32 Many IIAs provide mediation as an option for parties to pursue.
For example, recent EU agreements concluded with Singapore, Vietnam, and Canada
contain elaborated provisions on the mechanism of mediation. Article 8.20 of the EU-
Canada Comprehensive Economic and Trade Agreement (CETA) provides:
1. The disputing parties may at any time agree to have recourse to mediation. 2. Recourse to
mediation is without prejudice to the legal position or rights of either disputing party under
this Chapter and is governed by the rules agreed to by the disputing parties including, if
available, the rules for mediation adopted by the Committee on Services and Investment
pursuant to Article 8.44.3(c). 3. The mediator is appointed by agreement of the disputing
parties. The disputing parties may also request that the Secretary General of ICSID appoint
the mediator. 4. The disputing parties shall endeavour to reach a resolution of the dispute
within 60 days from the appointment of the mediator (. . .).33
This latter provision is also supplemented by a Code of Conduct for Mediators

and the Draft Rules for Mediation presented to the Council by the European
Commission in October 2019.34 Further, even more detailed guidance on mediation
in comparison to CETA has been included in the EU-Vietnam and EU-Singapore
FTAs.
In practice, however, parties are still reluctant to pursue mediation as a means to
settle a dispute.35 According to the empirical study “Survey on Obstacles to Settle-
ment of Investor State Disputes,” there are several reasons for States and investors to
avoid mediation.36 For States, it is a fear of public suspicion that State’s authorities
are agreeing to settle for personal gain. As a result, respondent States are more prone
to proceed with arbitration, rather than resort to mediation, despite the disadvantages
of the former.37 Furthermore, the bureaucratic apparatus in some States make it a
rather lengthy and overcomplicated procedure to get approval from all the relevant
State officials in order to proceed with an alternative route such as mediation. For
investors, the choice of mediation is often overshadowed by the financial motivation
of legal councils and their preference for ISDS. Furthermore, the unwillingness of
investors to recourse to mediation can be explained by their fear of being perceived
32
being in the right place at the right time. Chin J Int Law 18:111–135, 114
33
Article 8.20, CETA (2017).
34
European Commission (2019) Council Decision on the position to be taken on behalf of the
European Union in the Committee on Services and Investment established under the Comprehen-
sive Economic and Trade Agreement (CETA) as regards the adoption of rules for mediation for use
by disputing parties in investment disputes. COM_2019_0458_FIN
35
Weinstein D, Manukyan M (2019) Making mediation more attractive for investor-state disputes.
Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com/2019/03/26/making-media
tion-more-attractive-for-investor-state-disputes/
36
Chew S, Reed L, Thomas C (2018) Report: survey on obstacles to settlement of investor-state
disputes. NUS Centre for International Law working paper 18/01. pp 1–41, 26. https://cil.nus.edu.
sg/publication/survey-on-obstacles-to-settlement-of-investor-state-disputes/
37
Chew et al. (2018), p. 26.
incompetent because of their inability to assess the strength of the case..38 To

overcome the reluctance of States and investors to use mediation, Indonesia pro-
posed to introduce mediation as a mandatory step before the arbitration. In its
UNCITRAL submission, Indonesia introduced a proposal, requiring parties to resort
to arbitration as soon as notification of a dispute was launched and the consultation
procedure between an investor and a State was exhausted.39 Mandatory mediation
requires consent of contracting parties in advance. So far there are no examples of
compulsory mediation clauses in IIAs.40 Nevertheless, the COMESA Investment
Agreement (2017) requires contracting parties to recourse to amicable means of
conflict resolution before resorting to arbitration.41 As such, mediation is not com-
pulsory, but can still be pursued if “no alternative means of dispute settlement are
agreed upon, a party shall seek the assistance of a mediator to resolve disputes
(. . .).”42 Indonesia in its UNCITRAL submission has also provided that it introduced
mandatory mediation into its new agreements.43 However, so far, the text of these
new treaties has not been made publicly available.
Overall, mediation constitutes a cost-effective and quick method of resolving
disputes.44 It has a number of tangible advantages for both parties. Firstly, it is
significantly cheaper than arbitration.45 Secondly, as a result of the consensual
solution provided to both parties, the business relationship between a host State
and an investor can be preserved and continued. On the other hand, arbitration
usually results in a breakdown of relationship between the parties. Nevertheless,
there are some drawbacks to mediation, including the issue of enforcement. The
outcome of successful mediation is a settlement agreement between the parties,
however the enforcement of such an agreement depends, to a large extent, on the
voluntary compliance of the parties. In contrast to the arbitral awards that are directly
enforceable under the New York Convention and/or the ICSID Convention, there is
no mechanism guaranteeing the enforcement of the mediation agreement. The
absence of a guarantee of compliance may therefore discourage a State and an
investor in following the mediation process.46
38
Chew et al. (2018), p. 24.
39
UNCITRAL Submission from the Government of Indonesia (2019), p. 4.
40
Out of 2577 IIAs, 627 IIAs include voluntary conciliation and mediation procedures; none out of
the 2577 IIAs contain compulsory mediation; UNCTAD (2020).
41
Article 26(3), COMESA Investment Agreement (2017).
42
Article 26(4), COMESA Investment Agreement (2017).
43
UNCITRAL Submission from the Government of Indonesia (2019), para 20.
44
European Commission (2017) Consultation Document: prevention and amicable resolution of
disputes between investors and public authorities within the single market, p 3. https://ec.europa.eu/
info/sites/info/files/2017-investment-protection-mediation-consultation-document_en_1.pdf
45
Weinstein and Manukyan (2019).
46
being in the right place at the right time. Chin J Int Law 18:111–135, 133
634 Y. Levashova
Interstate Cooperation in Dispute Prevention
Another means by which dispute prevention can be strengthened is through coop-

eration between States. This option has been discussed in multiple States’
UNCITRAL submissions.47 The Korean government has expressed the view that
the “accumulation of expertise, experience, knowledge and institutional capacity
plays a crucial role in an effective response to investment disputes.”48 This requires a
systematic approach that is based on the collection of expertise and experience on
dispute prevention from different countries. Korea and Thailand proposed to explore
the option of establishing an “Advisory Centre on International Investment Law” to
become a focal point for the accumulation and circulation of institutional informa-
tion and States’ best practices.49 Korea has proposed that one of the key objectives of
an Advisory Centre should be to advise developing States on how to avoid conflict
by providing education on dispute prevention and managing potential disputes,
among others.50 In the same vein, Thailand emphasized that such a centre would
be instrumental in assisting developing States, which lack resources and institutional
capacity, in resolving investment disputes.51 The idea of an Advisory Centre is not
completely new. Such a centr exists under the WTO, whose goal is to support and
provide legal advice to developing and least developed countries.52
The idea of creating a similar centre in the context of ISDS has been explored
during the UNCITRAL process. In its report from its 38th session, UNCITRAL
provided that the establishment of an Advisory Centre received general support from
States. As such, preparatory works will be undertaken aiming at exploring the scope
of services of an Advisory Centre. It is not yet clear what the main focus of such a
centre will be and who will be the main beneficiaries. For example, one idea is to
provide a full range of services to the least developed countries, with other countries
that want to use the services of the centre would be obliged to pay a fee. It is clear
that States supporting the establishment of the centre agree that prevention efforts
should constitute the core of its activities. The sharing of best practices about dispute
prevention, legal advice on the ISDS system, and the training of governmental
officials about IIAs should be part of the centre’s activities. The latter services
may positively contribute to the prevention of ISDS cases. However, many issues
regarding the Advisory Centre have yet to be clarified, including, for example, its
regional scope, financing, and beneficiaries. In this regard, the Working Group has
proposed to undertake preparatory work in exploring the specific issues that are to be
considered in setting up such centre. In terms of prevention, these preparatory tasks
include the assessment of capacity building of developing and least developed States
47
European Union, Turkey, Korea, Thailand.
48
UNCITRAL Submission from the Republic of Korea (2019), p. 5.
49
UNCITRAL Submission from the Government of Thailand (2019), p. 5.
50
UNCITRAL Submission from the Republic of Korea (2019), p. 5.
51
52
WTO, ACWL (2019).
in organizing and participating in arbitration. In this vein, training of governmental

officials has to be reviewed in respect of (i) treaty negotiation and interpretation; (ii)
dispute prevention and risk assessment; and (iii) specific skills relating to investment
proceedings, e.g., cross-examination. The Working Group has also proposed to
analyze knowledge sharing mechanisms that assemble data and act as a focal point
of information.53
An Advisory Centre can be the correct platform to assist developing States.
Undoubtedly, developing and least developed countries are at a disadvantage in
terms of expertise and resources in comparison to developed States when having to
defend themselves in ISDS cases. In its submission, Mali illustrated the latter point,
providing that “African States find themselves involved in arbitral proceedings,
often without being sufficiently prepared, given the lack of a strategy document
for negotiations, with only limited expertise in complex legal issues.”54 In this
respect, an intergovernmental agency that can provide training and knowledge for
the State’s relevant governmental stakeholders could assist developing and least
developed States to respond to investment disputes in an efficient and effective
manner.
In designing such a centre, it is important to recognize that States have different
problems in terms of dealing with ISDS cases. In some countries, the lack of
cooperation between different agencies is more of a pressing challenge than the
lack of expertise and finance in dealing with disputes. Hence, a “one size fits all”
approach will not be appropriate in creating the Advisory Centre. In fact, the
possibility of having several regional advisory centres would perhaps be more
effective in offering advice on dispute prevention and in providing legal services
tailored to a specific country in the region. Currently, such initiatives already exist,
albeit in their inception stages. For example, South Eastern European (SEE) econ-
omies are focusing on the prevention of disputes, emphasized in the Regional
Investment Reform Agenda (RIRA) for the Western Balkan Six (WB6) adopted in
2018.55 The objective of the RIRA is to harmonize the investment policies of WB6
with the EU investment policies in the context of the SEE 2020 Strategy, Central
European Free Trade Agreement (CEFTA), and EU accession plans.56 In the MAP
REA framework (REA MAP), a number of key reform areas in the field of invest-
ment have been identified. In relation to the ISDS, the central focus of the REA MAP
is on the mapping and aligning of the legal framework for investments, including the
ISDS provisions with the EU standards and international best practices.57 Another
53
UNCITRAL, Report of Working Group III (2019), para 44.
54
UNCITRAL Submission from the Government of Mali (2019), p. 2.
55
It includes all the SEE countries.
56
Regional Investment Reform Agenda for the Western Balkans Six (2018) World Bank Group, 11
May 2018. https://www.rcc.int/docs/410/regional-investment-reform-agenda-for-the-western-bal
kans-six
57
Regional Investment Reform Agenda for the Western Balkans Six (2018), Table: Policies
Framework and Reform Actions.
636 Y. Levashova
aspect underlined in the REA MAP regarding the ISDS is to strengthen the preven-
tion mechanism in the region.58 This includes strengthening the mandate of the
SEEIC-CEFTA Joint Working Group on Investment that has been conceived as a
regional platform for managing grievances of investors and preventing investment
disputes.
The development of the “Guidelines on Dispute Prevention,” as proposed by
Thailand is a complementary initiative to the Advisory Centre. It is proposed that the
Guidelines should contain States’ experiences and good practices on how to prevent
a dispute during the negotiation stage and treaty-drafting and pre-arbitration phases.
The Guidelines should also include information on how to use domestic remedies for
ISDS management and how to encourage dialogue between host States and foreign
investors.59
Joint Committees or Commissions Established by State Parties

Another method of dispute prevention is to strengthen the cooperation of State
Parties through joint committees and commissions for the purpose of the early
resolution of disputes. Under international law, parties have “competence to interpret
a treaty, but this is subject to the operation of other legal rules.”60 The treaty may
confer competence on tribunals to interpret the treaty, as has been done in many IIAs
that delegate the power to decide on investment disputes between States and
investors.61 In several IIAs, treaty parties have found it useful to institutionalize
their competence to interpret treaty provisions through empowering a treaty organ
usually composed of the treaty parties’ representatives. Such a treaty organ, which is
usually referred to as a joint committee or commission, can be instrumental in
dispute prevention. Through the exchange of information and consultation initiated
by one of the treaty parties, a joint committee or commission can resolve the conflict
at the early stage of its inception.62 Article 2001(2) of the North American Free
Trade Agreement (NAFTA) establishing the Free Trade Commission is an example
of a mechanism that institutionalizes the decision of a treaty organ on the interpre-
tation of agreement. According to Article 2001(2) of the NAFTA, the FTC has the
authority to “(a) supervise the implementation of this agreement; (b) oversee its
further elaboration; (c) resolve disputes that may arise regarding its interpretation or
application.”63 Similar examples of treaty organs exist in more recent IIAs.64 As was
58
Regional Investment Reform Agenda for the Western Balkans Six (2018), Table: Policies
Framework and Reform Actions.
59
60
Crawford J (2008) Brownlie’s principles of public international law, 8th edn. Oxford, p 378
61
Roberts A (2010) Power and persuasion in investment treaty interpretation: the dual role of states.
Am J Int Law 104(2):179–225, 180
62
UNCITRAL (2020), para 25.
63
Article 2001(2) of the NAFTA.
64
Out of 2577 IIAs, 121 IIAs incorporate a treaty organ established by state parties that, among
other functions, promotes early dispute resolution. UNCTAD, Treaty mapping (2019).
already addressed in section “Early Prevention and Resolution of Conflicts Between

an Investor and a Host State,” the Brazilian CIFAs provide for the establishment of a
joint committee that in cooperation with the national ombudsperson has authority to
resolve conflicts between an investor and a host State in its early stages.
The joint committees or commissions usually take actions upon the request of one
of the parties. These types of “built-in treaty mechanisms” allow States to control the
interpretation and application of their treaties, including the early resolution of
disputes before they advance into legal conflicts.65
Reflections
Not all disputes will and should be prevented. In some instances, a conflict can only
be resolved through courts or arbitration. However, many disputes, especially these
that arose out of States’ inconsistent decision-making, can be prevented through the
national pre-care system. Therefore, the institutionalization of dispute prevention
policies on a national level presents a constructive and cost-effective approach.
There are countries that have invested in such preventive polices. Brazil, Korea,
and Peru have established bodies responsible for addressing early grievances
between an investor and a host State. Coordination systems between different
governmental agencies in issues related to foreign investment are also important in
strengthening dispute prevention. Such systems focus on information sharing and
early alert mechanisms. This helps to prevent a lack of coherency in decision-making
between municipal and federal agencies that in the past often resulted in controver-
sial State’s policies challenged by investors in ISDS cases.
Prevention efforts can also be facilitated through interstate cooperation. One of
the recent proposals referred to during the UNCITRAL reform process is to set up an
Advisory Centre on International Investment Law. It is not yet clear what the scope
of services provided by the Centre will be, who the beneficiaries will be, and how it
will be financed. Several States, e.g., Korea and Thailand, support the creation of a
Centre that assists developing and least developed countries in dealing with ISDS
disputes. It also agreed that preventive practices, e.g., sharing best practices and
expertise on ISDS, should be at the core of the Centre’s activities. In a nutshell, this
idea has many advantages. In particular, developing and the least developed coun-
tries are often ill equipped to manage claims when faced with arbitration proceed-
ings. However, whether this Centre will be effective in preventing disputes also
depends on national efforts to coordinate their strategy in addressing FDI issues. The
Centre is not panacea for developing countries, and it is only one part of multifaceted
effort in preventing ISDS. On a national level, a centralized institution facilitating the
activities of an investor and helping to address their grievances is a first step. On an
65
Gordon K, Pohl J (2015) Investment treaties over time: treaty practice and interpretation in a
changing world. OECD working papers on international investment 2015/02, p 26. http://www.
oecd.org/investment/investment-policy/WP-2015-02.pdf
638 Y. Levashova
inter-State level, dispute prevention can be effectively supported through joint

committees established by the parties, as well as through extensive provisions on
traditional ADR, conciliation and mediation.
Conditioning Access to ISDS: Prevention of Investment Disputes
Dispute prevention is mostly associated with institutional efforts of States to mitigate

or to resolve conflict in the early stages of their inception. However, if these efforts
are unsuccessful, the focus should be on the prevention of certain types of disputes
that may, for example, negatively affect the general public. In this respect, the issue
of conflict prevention is closely connected to treaty interpretation and treaty drafting.
States in their IIAs have been more inclined to impose additional requirements,e.g.,
compliance with domestic law, as a condition for an investor to bring their claim to
arbitration.
The reason for introducing certain substantive conditions is the concern of host
States about their flexibility to regulate in the public interest without violating IIAs.
There have been a number of claims in which investors have challenged a variety of
State decisions in sensitive public areas, e.g., renewable energy,66 waste manage-
ment,67 public health issues,68 and access to water.69 In the past 10 years, many
States have undertaken efforts to rebalance their IIAs in order to, on the one hand,
provide policy space for host States to regulate in public interest and, on the other
hand, to ensure the effective protection of investors.70 As part of these attempts,
different proposals have been made to limit the range of claims that can be submitted
to ISDS, thereby preventing some investors from initiating investment disputes. The
growing importance of an investor’s responsibilities in international investment law
has an impact on a State’s preventive measures. The regime of international
66
Charanne Construction v. Spain, SCC Case No. 062/2012 Award (21 January 2016). See Chaisse
J (2016) Renewables re-energized? The internationalization of green energy investment rules and
disputes. J World Energy Law Bus 10(1):269–281
67
Tecmed v. Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003); Waste Management v.
Mexico (Case II), ICSID Case No. ARB(AF)/00/3 Award (30 April 2004).
68
Philip Morris v. Uruguay, ICSID Case No. ARB/10/7 Award (8 July 2016); Apotex v. US, ICSID
Case No. ARB(AF)/12/1 Award (25 August 2014). See Chaisse J (2013) Exploring the confines of
international investment and domestic health protections – general exceptions clause as a forced
perspective. Am J Law Med 39(2/3):332–361
69
Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award
(24 July 2008); Suez and Interagua v. ArgentinaSuez, Sociedad General de Aguas de Barcelona, S.A.
and Interagua Servicios Integrales de Agua, S.A. v. Argentine Republic and AWG v. Argentina, ICSID
Case No. ARB/03/19 Decision on Liability (30 July 2010). See Qian X (2018) Challenges of water
governance (and privatization) in China-traps, gaps, and law. Ga J Int Com Law (1):49–91; Chaisse J,
Polo M (2015) Globalization of Water Privatization – Ramifications of Investor-State Disputes in the
“Blue Gold” Economy. Boston Coll Int Comp Law Rev 38(1):1–64
70
European Commission (2019) Investment: objectives of the EU investment policy. http://ec.
europa.eu/trade/policy/accessing-markets/investment/
investment law, as it currently stands, provides little opportunity to hold foreign

investors accountable for those human rights, environmental and labor violations
that are pertinent to investment, as these subjects are rarely a part of investment
treaties or investment contracts.71 However, limiting the access of ISDS because of
the misconduct of a certain investor provides opportunities to enforce responsibili-
ties of investors, as well as to prevent some investment disputes.
As a part of these attempts, different proposals have been made to limit the range
of claims that can be submitted to ISDS, thereby preventing some investors from
initiating ISDS cases. For example, the investor’s conduct can be subject to the
limitations of access to ISDS through the incorporation of the legality requirement of
an investment. Also, an investor’s due diligence that is frequently brought up by
tribunals in the context of the FET standard has the potential to reduce some claims
relating to the violation of the FET standard, which is the most frequently invoked
provision in investment arbitration. The subsequent section will analyze these two
options.
Lack of Compliance with Host State Law
In IIAs, the requirement of the legality of foreign investment as a jurisdictional

condition for ISDS may prevent claims where an investor has violated national law.
Most treaties require that an investment has to be in accordance with domestic law.
However, some IIAs make this requirement more explicit by linking it to dispute
settlement. The Iran-Slovak BIT (2016) includes limitations on access to ISDS
provisions, specifying that “an investor may not submit a claim under this Agree-
ment where the investor or the investment has violated the Host State law.”72 The
BIT clarifies that a tribunal shall dismiss the investor’s claim upon his involvement in
serious violations of the host State law,e.g., fraud, tax evasion, or corruption.73 The
draft Colombia Model BIT (2017) also includes a Corporate Social Responsibility
(CSR) clause which stipulates that for the purpose of accessing the ISDS, an investor
has to accept the binding obligations of a host State under human rights and
environmental treaties. In Cortec Mining v. Kenya, the tribunal declined jurisdiction
71
The imbalance between the rights and obligations of host States and investors is explained as
follows: “(. . .) the international legal system reflects an asymmetry between rights and obligations
of TNCs. While TNCs are granted rights through hard law instruments, such as bilateral investment
treaties and investment rules in free trade agreements, and have access to a system of investor-state
dispute settlement, there are no hard law instruments that address the obligations of corporations to
respect human rights.” United Nations Human Rights Council (UNHRC) (2015) Concept note
proposed under the responsibility of the designated Chair, Ambassador Maria Fernanda Espinosa,
Permanent Representative of Ecuador to the UN in Geneva, for the first session of the open-ended
intergovernmental working group on transnational corporations and other business enterprises with
respect to human rights, 6–15 July 2015, Geneva, para 4.
72
73
640 Y. Levashova
over an investor’s claim for an unlawful revocation of the mining license under the
Kenya-United Kingdom BIT, even without an explicit provision requiring compli-
ance with domestic law. The tribunal agreed with the respondent State that the
investor had failed to comply with the environmental impact assessment require-
ments imposed for the mining projects under Kenyan law.74 The tribunal explained
that such an investment as licence constitutes “the creature of the laws of the Host
State,” and therefore in order to give rise to protection, it has to be made in
accordance with the domestic law.75
The requirement of the legality of investment under national law as a condition
for bringing a claim can be a filter mechanism preventing opportunistic investors
from lodging proceedings without proper compliance with the State’s rules and
regulations introduced in the interest of general welfare. Nevertheless, this approach
raises problems in that, ultimately, reliance is placed upon a tribunal’s interpretation
of whether an investor has complied with domestic law. For example, in determining
whether an investor has committed “serious violations of the host state law” under
the Iran-Slovak Republic BIT (2016), the tribunal would have to assess the serious-
ness of such a violation under national law. This may result in an intrusive review of
the application of domestic laws and policies.
Dispute Prevention Through Investor’s Due Diligence
The prevention and mitigation of ISDS cases also depend on investors’ efforts to
conduct due diligence before investing in a host State. By conducting an investiga-
tion into a host State’s regulatory framework an investor may, to some extent, predict
whether adversary regulatory changes are likely to occur. The due diligence process
that aims at mitigating business risks can help in preventing disputes based on a
State’s regulatory instability. By conducting a proper due diligence investigation, an
investor can avoid and manage these risks, thereby reducing the potential for legal
conflict. From a host State’s perspective, the number of FET claims based on the
change of a regulatory framework could be reduced by clarifying in their IIAs or
additional protocols that an investor has a duty to conduct due diligence as a
requirement for the protection of his legitimate expectations.
Breach of the FET standard is one of the most frequent bases for ISDS claims. In
the majority of IIAs (especially older treaties that are still in force), the FET standard
has been concisely formulated, simply requiring States to provide “fair and equitable
treatment” to foreign investments.76 As emphasized by Schreuer and Dolzer, from
the early inception of the FET standard in IIAs, the purpose of this clause was to “fill
74
Kenya, ICSID Case No. ARB/15/29, Award (22 October 2018).
75
Cortec Mining v. Republic of Kenya (2018), para 319.
76
For example, according to the UNCTAD Mapping Project that includes 2,577 IIAs, 1,986 IIAs
contain an unqualified FET standard provision.
gaps that may be left by the more specific standards, in order to obtain the level of
investor protection intended by the treaties.”77 In interpreting these openly formu-
lated FET standard clauses, investment tribunals were faced with the task of defining
the meaning and scope of the standard. This involved determining what conduct
would give rise to responsibility and liability under the FET standard. In several
investment decisions, especially in the early period of decisions on the FET standard,
tribunals established a broad scope of the host State’s obligations under the FET
standard.78 This included, for example, the host State’s obligation to act with full
“transparency” towards an investor,79 to respect the “legitimate expectations of the
investor,”80 or to provide a “stable and predictable legal and business framework.”81
Presently, the protection of the legitimate expectations of an investor constitutes a
central element of the FET standard.82 The tribunal’s conclusion that a State has
frustrated the legitimate expectations of an investor almost always leads to a finding
of a breach of the FET standard.83 The investor’s legitimate expectations are usually
based on (i) a specific representation made by the host State to an investor regarding
their investment, or (ii) an assumption on the part of the investor that the general
regulatory framework relied upon by it at the time the investment was made will
remain stable.
Under the concept of legitimate expectations in international investment law,
States are required to maintain a certain degree of stability and predictability in their
regulatory framework, as this is relied upon by investors when making
77
p 122 and Weiler T (2013) The interpretation of international investment law: equality, discrimi-
nation, and minimum standards of treatment in historical context. Brill, p 289. In discussing the US
practice, for example, Weiler observed that the FET standard has the potential of being a “catch-all
provision” from the very beginning.
78
Paparinskis M (2013) The international minimum standard and fair and equitable treatment.
Oxford University Press, p 112 and Sonarajah M (2015) Resistance and change in the international
law on foreign investments. Cambridge University Press, p 247. Sonarajah observed that “the law
on the fair and equitable standard is of recent vintage, created largely through interpretations placed
on the phrase by arbitrators who favoured expansion.”
79
Tecmed v. Mexico (2003), para 167.
80
Examples where the tribunal relied primarily on the breach of legitimate expectations in the
assessment of the FET standard include Eureko BV v. Republic of Poland [2005] UNCITRAL
Arbitration, IIC 98, Partial Award (19 August 2005), para 235; Azurix Corp. v. The Argentine
Republic, ICSID Case No. ARB/01/12 Award (14 July 2006); CMS Gas Transmission Co. v. The
Argentine Republic, ICSID Case No. ARB/01/8 Award (12 May 2005), paras 274–276; LG&E
Energy Corp., LG&E Captial Corp. & LG&E International v. The Argentine Republic, ICSID Case
No. ARB/02/1 Decision on Liability (3 October 2006) and others.
81
Occidental v. Ecuador, LCIA Case No. UN3467 Final Award (1 July 2004), para 183; PSEG v.
Turkey, ICSID Case No. ARB/02/5 Award (19 January 2007), para 253; LG&E Energy Corp v. The
Argentine Republic (2006), para 131.
82
Bonnitcha (2014), pp. 161–162 and Laird et al. (2015), p. 105.
83
Levashova (2019) The right of states to regulate in international investment law: the search for
balance between public interest and fair and equitable treatment. Kluwer International
642 Y. Levashova
investments.84 Tribunals have considered there to be a breach of an investor’s

legitimate expectations where a host State makes substantial subsequent changes
to the legal framework that were effective at the time when the investment was made,
and which have resulted in serious financial losses being suffered by the investor or
in the inability of the investor to continue operating their investment.85
In this regard, many States are concerned with their right to adopt and change
their laws for public good as these regulatory changes may trigger investment
claims. Currently, a significant number of ISDS claims relate to a State’s changes
to renewable energy policies. Spain, Italy, and the Czech Republic are among the
respondent States that currently face investment claims because of alterations to their
regulatory frameworks for renewable energy.86 These host States’ changes to the
regulatory renewable energy regime were primarily motivated by an increasing
electricity tariff deficit. The deficit resulted from the difference between the subsidies
in the form of feed-in tariffs, granted by these host States to producers of renewable
energy, and the tariffs that had to be paid by consumers.
In these cases, the investor’s due diligence has been a significant factor in the
determination of a State’s liability. In some cases, tribunals have even provided that
exercising due diligence is necessary in order for an investor to have his legitimate
expectations protected under the FET standard. Investors are expected to conduct
proper due diligence before investing in a host State by demonstrating their reason-
able efforts to collect information about the rules and regulations that are pertinent to
the proposed investment. In some cases, due diligence extends to an investor’s duty
to assess the possible risks related to the broader economic situation and sociopolit-
ical background of a host State.
In Stadtwerke Munchen and others v. Spain, the tribunal provided that for an
investor’s expectations to be reasonable, it “must also arise from a rigorous due
diligence process carried out by the investor.”87 In this case, the tribunal assessed the
investor’s due diligence, which was based mostly on the communication with
governmental and semi-governmental agencies that provided information to suggest
that the legal framework would continue to apply. According to the tribunal, these
communications did not qualify as a rigorous due diligence process. The tribunal
84
Vandevelde (2010), p. 66.
85
Valenti (2014), p. 41.
86
E.g. Antaris Solar GmbH and Dr. Michael Göde v. Czech Republic, PCA Case No. 2014-01,
Award (8 May 2018); Natland and others v. Czech Republic (2013); Masdar Solar & Wind
Cooperatief U.A. v. Kingdom of Spain (2018); CSP Equity Investment Sarl v. Kingdom of Spain
(2013); DCM Energy and others v. Kingdom of Spain (2017); Aharon Naftali Biram, and others v.
Kingdom of Spain (2016); FREIF Eurowind v. Kingdom of Spain (2017); Portigon AG v. Kingdom
of Spain (2017); ESPF Beteiligungs GmbH and others v. Italian Republic (2016); Sun Reserve
Luxco Holdings SRL v. Italy (2016); Eskosol S.p.A. in liquidazione v. Italian Republic (2015);
Blusun S.A., J.-P. Lecorcier AND M. Stein v. Italy (2016). For example, Spain has been subject to 50
investment claims (almost all of them, except one, lodged between 2011 and present), whereas the
regulatory changes to renewable energy framework were the subject matter of the dispute in more
than 90% of all cases. UNCTAD (2020) Investment policy hub.
87
Stadtwerke Munchen and others v. Spain (2019), para 264.
further underlined that “legitimate expectations must be grounded in the law and not
based upon promotional literature about what the law says.”88 Comparably, in
Antaris v. Czech Republic, the tribunal denied the investor’s claim for the protection
of legitimate expectations, as there was “no evidence of any real due diligence.89
At the same time, in similar renewable energy cases, some tribunals have not
mandated any specific form of due diligence from an investor. Examples of this latter
category can be found within three recent decisions against Spain: SolEs Badajoz v.
Spain, Cube Infrastructure v. Spain, and Novenergia v. Spain. In these cases, the role
of the due diligence enquiry was limited. In SolEs Badajoz v. Spain and Cube
Infrastructure v. Spain, the tribunals stated that there was no requirement to conduct
a formal due diligence process and that it cannot be considered a pre-condition to a
successful claim for the protection of legitimate expectations.90
As demonstrated by case law above, the form and content of what constitutes
proper due diligence are not clearly defined. Nevertheless, tribunals increasingly
refer to the importance of this duty and, in some cases, emphasize that an investor’s
protection will depend on the performed due diligence. In Isolux v. Spain, Antaris v.
Czech Republic, Belenergia v. Italy and Stadtwerkhe Munchen v. Spain, tribunals
found that the host State did not violate the investor’s expectations, mostly because
an investor had not demonstrated any (or only limited) due diligence efforts before
investing in the host State.91
At present, no treaties refer to investor’s due diligence in the context of the FET
standard, or as a condition to access to ISDS. By introducing the investor’s obliga-
tion to conduct formal due diligence process that requires legal assessment of a
regulatory framework can certainly prevent some of the conflicts arising out of an
investor’s claim of stability.
Furthermore, the notion of an investor’s due diligence does not have to be limited
to legitimate expectations. A human rights due diligence performed by an investor
can be an effective mechanism in preventing corporate human rights related abuses.
Some treaties have already included human rights due diligence. The Netherlands
Model Investment Agreement (2019) contains a provision emphasizing the impor-
tance of an investor’s duty to conduct a due diligence process in order to identify,
prevent, mitigate, and account for the environmental and social risks and impacts of
its investment.92 Corporate human right due diligence that was initially conceptual-
ized through the work of the UN Special Representative on Business and Human
Rights, John Ruggie, has been incorporated in numerous national and regional laws
88
Stadtwerke Munchen v Spain (2019), para 287.
89
Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. v. Kingdom
of Spain (2018), para 432.
90
Cube Infrastructure Fund SICAV and others v. Kingdom of Spain (2019), para 396; SolEs Badajoz
GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/38, Award (July 2019), para 331.
91
Antaris v. Czech Republic (2018), para 440; Belenergia v. Italy (2019), para 587.
92
Article 7(3), The Netherlands Model BIT (2019).
644 Y. Levashova
mandating companies to perform due diligence processes in different sectors.93 By

drawing from examples from other legal sectors, jurisdictions, and fields of law, a
careful drafting of the required investor’s due diligence processes, including specific
steps in conducting such risk assessment procedures, may benefit States and inves-
tors in early mitigation and ultimately the prevention of investment disputes.
Conclusion
Prevention of disputes is currently one of the central themes in the ISDS reform
process. States are resolving to improve the prevention of disputes on both a national
and an inter-State level. Some countries such as Brazil are convinced that prevention
mechanisms and State-to-State arbitration can replace ISDS, as they argue that the
improvement of the institutional framework for investment is far more important for
investors than the existence of traditional ISDS provisions in treaties. In the case of
Brazil, this approach is effective. However, many other States are not ready to
eliminate ISDS. Rather, the objective is to improve the ISDS system by introducing
effective procedural and substantive safeguards for addressing violations under an
IIA in a balanced manner. This involves the integration of prevention policies and
mechanisms at both the national law and international treaty level.
Dispute prevention mechanisms vary. Some of them, e.g., the Ombudsman
system in Korea or Brazil or the NCCFE in China, are established with the purpose
of addressing investors’ grievances before they mature into a legal dispute. These
national bodies are quite effective for the purpose of dispute prevention, especially if
they contain an institutionalized framework that has a system for coordination
between various levels of governments and a system for communication with an
investor.
Another method of dispute prevention is to strengthen the cooperation of State
parties through joint committees and commissions for the purpose of resolving
disputes at an early stage. Some IIAs have incorporated joint committees consisting
of representatives of contracting parties with the aim to exchange information and to
resolve conflicts at the early stages. Inter-State efforts to prevent disputes also
include the possibility to establish an Advisory Centre on International Investment
Law. This is currently being discussed within the UNCITRAL reform process. The
Centre’s purpose is to help developing and least developed countries in dealing with
ISDS disputes. Dispute preventive services, including the provision of legal advice
and sharing of best practices, will be the core activity of the Centre. Overall, such a
Centre – modelled upon the WTO Advisory Center – will assist developing and least
developed countries, which often have insufficient expertise and financing, to
93
UK Modern Slavery Act (2015); The Netherlands Child Labor Due Diligence Bill (2019); France,
Law on the Duty of Vigilance (2017). At the moment of writing, many States, including Finland,
Germany, Switzerland for example, are in the process of adopting/approving mandatory human
rights due diligence for companies.
manage the ISDS claims and to prepare for arbitration. However, the success of this
Centre will depend on national efforts to coordinate their strategy in addressing the
FDI issues.94
ADR methods other than arbitration, such as mediation, have also received
increasing attention in recent years. In EU agreements with Canada, Vietnam, and
Singapore, efforts were made to strengthen recourse to mediation by disputing
parties by incorporating detailed provisions on mediation and by issuing mediation
rules. However, both States and investors are currently reluctant to turn to mediation
instead of ISDS. States’ authorities are discouraged to have recourse to mediation as
an alternative to ISDS, because of their fear of being suspected to settle for personal
gain fear of being suspected to be corrupt as a result of not proceeding to ISDS,
discourage States to have recourse to mediation as an alternative to ISDS. For
investors, the choice of mediation is often surpassed by their concern of being
perceived as incompetent and weak due to their inability to assess the strength of
the case. Indonesia has proposed mediation as a mandatory step before proceeding to
investment arbitration. This option may generate resistance from States, as media-
tion is a priori, a voluntary mechanism that is based on cooperation between both
parties. Furthermore, the issue of somewhat problematic enforcement of a settlement
agreement resulting from successful mediation may create additional challenges.
The last category of preventive methods discussed in this chapter is based on a
system of filtration of certain types of disputes. The examples are the investment
claims with a strong public interest dimension. States in their IIAs have been more
inclined to include public interest provisions and to impose certain conditions on an
investor prior to being able to bring their claims to arbitration. The legality require-
ment of an investment has featured in some IIAs as a condition for accessing ISDS.
The requirement of legality as a condition for bringing a claim may prevent
opportunistic investors from lodging proceedings without proper compliance with
the State’s rules and regulations introduced in the interest of general welfare.
The prevention of FET claims can be also linked to an investors’ efforts to conduct
due diligence before investing in a host State. Many FET claims are based on
investor’s allegations of lack of stability in a State’s regulatory framework. In a
growing body of FET cases, tribunals have emphasized the importance of an investor’s
due diligence especially when an investor argues that his legitimate expectations have
been frustrated. Tribunals differ in defining the threshold of required due diligence.
States, on the other hand, are able to regulate this issue in their treaties. The number of
FET claims based on the change of a regulatory framework could be reduced by
clarifying in their IIAs or additional protocols that an investor has a duty to conduct
due diligence as a requirement for the protection of his legitimate expectations. The
due diligence process that aims at mitigating business risks can help in preventing
disputes based on a State’s regulatory instability.
94
Sauvant K (2019) An Advisory Centre on International Investment Law: key features academic
forum on ISDS. Paper 2019/14, 10 September 2019
The Politics of Investor-State Dispute
Settlement: How Strategic Firms Evaluate 26
Investment Arbitration
Srividya Jandhyala
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648
States’ Motivations for Investor-State Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649
Investor-State Dispute Settlement as Credible Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649
Investor-State Dispute Settlement to Depoliticize Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651
Firms’ Engagement with Investor-State Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653
Firms’ Anticipatory Strategies for Political Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 654
Firms’ Strategies for Managing Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658
Role of Investor-State Arbitration in Managing Investment Disputes . . . . . . . . . . . . . . . . . . . . . 659
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662
Abstract
The spread of investor-State dispute settlement is attributed to two key motiva-
tions: assisting host States in overcoming credible commitment problems and
enabling home States in depoliticizing disputes. This chapter evaluates the mixed
evidence for both arguments. It then focuses on the multinational firm to examine
how strategic firms may utilize investor-State arbitration to further their objec-
tives in global operations and manage political risks. Access to investor-State
arbitration strengthens the political risk management toolkit of firms. The biggest
effect on firms may be related to their bargaining with governments and the
settlement of investment disputes that do arise rather than on influencing firms’
investment decisions in the first place or preventing disputes altogether.
Keywords
Investor-State arbitration · Credible commitment · Depoliticization · Political
risk · Strategic risk management · Dispute settlement
S. Jandhyala (*)
ESSEC Business School, Singapore, Singapore
e-mail: srividya.jandhyala@essec.edu

https://doi.org/10.1007/978-981-13-3615-7_72
648 S. Jandhyala
Introduction
With the global spread of investment protection treaties, foreign investors have
found a potent tool in investor-State arbitration to address disputes with host
governments. Foreign investors can convert a dispute with the host government –
which might otherwise be settled through diplomacy, informal means, or domestic
courts – to a public international law dispute to be settled by an arbitration tribunal
outside the jurisdiction of the host country. By 2019, there were nearly 1000 treaty-
based claims brought by foreign investors against both developed and developing
countries,1 challenging actions such as revocation of licenses, breach of investment
contracts, changes in domestic regulations, withdrawal of subsidies, and direct
expropriation. They have also proved to be extremely costly for host governments (in
terms of compensation awarded by the tribunal to the investor),2 often in sensitive
areas of regulation, making investor-State arbitration one of the most controversial
aspects of global economic governance.
Investor-State dispute settlement was incorporated into trade and investment
treaties to serve two primary objectives. From the perspective of host States,
investor-State arbitration was expected to solve problems of credible commitment
and hence attract greater foreign direct investment. From the perspective of home
States, investor-State arbitration was expected to depoliticize disputes and provide
greater policy space for governments. On both accounts, the evidence has been
mixed; and authors have questioned the effectiveness of investor-State dispute
settlement in driving and achieving the objectives of home and host States.3,4,5
Yet, the spillover effects of investor-State arbitration could be significant for
multinational firms. A large literature in strategic management and international
business has determined that firms will leverage a variety of strategies to effectively
manage political risks and enhance their profitability. From this perspective, access
to investor-State arbitration strengthens the toolkit available to firms. And the
biggest effect on firms may be related to their bargaining with governments and
the settlement of investment disputes that do arise rather than on influencing firms’
investment decisions in the first place or preventing disputes altogether.
This chapter will discuss how multinational firms can strategically use investor-State
arbitration to further their objectives in global operations and manage political risks. I
1
UNCTAD (2019) International investment agreements, IIA Issues Note. United Nations
2
Yukos Oil Company was initially awarded more than USD 50 billion in its case against Russia, and
Occidental Petroleum was awarded roughly USD 1.7 billion in a case against Ecuador
3
Aisbett E (2009) Bilateral investment treaties and foreign direct investment: correlation versus
causation. In: Sauvant KP, Sachs LE (eds) The effects of treaties on foreign direct investment.
Bilateral investment treaties, double taxation treaties, and investment flows. Oxford University
Press, Oxford
4
Gertz G, Jandhyala S, Poulsen LNS (2018) Legalization, diplomacy, and development: do
investment treaties de-politicize investment disputes? World Dev 107:239–252
5
26 The Politics of Investor-State Dispute Settlement: How Strategic. . . 649
will begin by outlining two political justifications and the associated empirical evidence
for investor-State dispute settlement: offering credible commitments and depoliticization
disputes. Next, I will focus on how firms use various strategies – including investor-State
arbitration – as an effective tool in managing political risk. I will highlight the potential
role of investor-State dispute settlement in the bargaining and settlement of investment
disputes. A note on the terminology is warranted. I use the term investment dispute to
refer to a conflict or disagreement between a firm and a host government related to the
firms’ property rights protection, whether or not any legal claims have been filed.
States’ Motivations for Investor-State Dispute Settlement
Investor-State Dispute Settlement as Credible Commitment
Scholars of political science and international relations have argued that a key
motivation for host countries’ adoption of treaties with investor-State arbitration
clauses – particularly by developing countries with weak rule of law – has been the
promise of increased foreign direct investment. Although host governments would
like to attract foreign investment, they face a classical time-inconsistency problem.
When firms make asset-specific sunk investments, they are vulnerable to govern-
ment-led ex post opportunistic behavior. Once the firm’s investment is sunk, host
governments gain bargaining power vis-à-vis the firm and can unilaterally change
policies or terms of the investment to appropriate greater share of the returns from
the investment.6 Thus, the host government faces a challenge: it would like to attract
foreign investment but is unable to credibly commit that it would not extract quasi
rents after firms make investments. And rational firms, anticipating the host govern-
ment’s actions, would restrict their ex ante investments.
In this situation, an investment treaty with access to investor-State arbitration can
offer a credible commitment against opportunistic State behavior. Because the host
State will have to pay full compensation for expropriation, providing access to
investor-State arbitration is a costly commitment. Further, there are legal costs and
reputational spillovers of responding to investor claims. Host countries suffer con-
siderable losses of foreign direct investment when arbitration claims are filed against
them and even greater losses when they lose a dispute.7 In addition, should a
government spurn the decision “of a neutral third authoritative third party with
which it has voluntarily precommitted to comply, a range of important actors –
public and private – are likely to infer that the government is an unreliable economic
partner.”8 Consequently, providing a legal remedy allows the host countries to make
6
Vernon R (1971) Sovereignty at bay. Basic Books, New York
7
Allee TL, Peinhardt CW (2011) Contingent credibility: the impact of investment treaty violations
on foreign direct investment. Int Organ 65(3):401–432
8
Elkins Z, Guzman AT, Simmons BA (2006) Competing for capital: the diffusion of bilateral
investment treaties, 1960–2000. Int Organ 60(4):811–846, 824
650 S. Jandhyala
more credible commitments and firms to make greater investments in the host
country.9,10
Investment promotion, through credible commitments, was a crucial driver in the
global adoption of investment treaties with investor-State dispute settlement clauses.
Indeed, many developing countries justified their consent to investor-State arbitra-
tion with the argument that it would promote investment by foreign firms.11 In the
case of NAFTA’s Chapter 11, Mexico explicitly noted that the obligations “tied in”
the government (and future governments) from reneging on their commitments to
protect foreign investors (cited in Poulsen).12
If this argument holds, we should expect a positive relationship between a firm’s
investments and investor-State dispute settlement. Empirical studies, however, remain
inconclusive. While some studies do suggest that the presence of investor-State dispute
settlement clauses in treaties is associated with flows of foreign direct investment,
others find no relationship or only conditional effects.13,14,15,16,17,18,19,20,21,22 Indeed,
9
Chaisse J, Bellak C (2015) Navigating the expanding universe of investment treaties – creation and
use of critical index. J Int Econ Law 18(1):79–115
10
Jandhyala S, Henisz WJ, Mansfield ED (2011) Three waves of BITs: the global diffusion of
foreign investment policy. J Confl Resolut 55(6):1047–1073
11
Poulsen LNS (2015) Bounded rationality and economic diplomacy: the politics of investment
treaties in developing countries. Cambridge University Press, Cambridge
12
Poulsen LNS (2018) Politics of investment treaty arbitration. In: Schultz T, Ortino F (eds) Oxford
handbook of international arbitration
13
Aisbett E (2009) Bilateral investment treaties and foreign direct investment: correlation versus
causation. In: Sauvant KP, Sachs LE (eds) The effects of treaties on foreign direct investment. Bilateral
investment treaties, double taxation treaties, and investment flows. Oxford University Press, Oxford
14
Albino-Pimentel J, Dussauge P, Shaver JM (2018) Firm non-market capabilities and the effect of
supranational institutional safeguards on the location choice of international investments. Strateg
Manag J 39(10):2770–2793
15
Buthe T, Milner H (2009) Bilateral investment treaties and foreign direct investment: a political
analysis. In: Sauvant KP, Sachs LE (eds) The effects of treaties on foreign direct investment. Bilateral
investment treaties, double taxation treaties, and investment flows. Oxford University Press, Oxford
16
Colen L, Persyn D, Guariso A (2014) What type of FDI is attracted by bilateral investment
treaties? LICOS Discussion Paper. http://ssrn.com/abstract=2400429
17
Danzman SB (2016) Contracting with whom? The differential effects of investment treaties on
FDI. Int Interact 42(3):452–478
18
Jandhyala S, Weiner RJ (2014) Institutions sans frontières: international agreements and foreign
investment. J Int Bus Stud 45(6):649–669
19
20
21
Rose-Ackerman S (2009) The global BITs regime and the domestic environment for investment. In:
Sauvant KP, Sachs LE (eds) The effects of treaties on foreign direct investment. Bilateral investment
treaties, double taxation treaties, and investment flows. Oxford University Press, Oxford
22
Salacuse JW, Sullivan NP (2005) Do BITs really work?: an evaluation of bilateral investment treaties
and their grand bargain. Harv Int Law J 46(1):67–130
many firms – even among the largest corporations – were simply unaware of invest-
ment treaties and investor rights they offered,23 and countries’ investment promo-
tion agencies rarely highlighted investor-State dispute settlement to attract foreign
investors.24 In addition, the pricing and availability of firms’ political risk insurance
appear unrelated to their access to investor-State arbitration.25 And a survey of large
multinational firms found that investment arbitration was considered to be an ineffec-
tive method of dealing with political risk.26
Taken together, the evidence suggests that although investor-State dispute settle-
ment may be an important factor in firm’s investment decisions under certain
conditions, the effect on foreign investment decisions of firms in general is rather
limited.
Investor-State Dispute Settlement to Depoliticize Disputes
An alternate motivation for the adoption of investor-State dispute settlement – for

home countries – is to depoliticize disputes. Prior to the establishment of the dispute
settlement mechanism, firms relied on their home governments for diplomatic
support to secure their investments abroad. Home governments often intervened
on behalf of their investors. But the interventions could compromise diplomatic
relations between States and sometimes even devolve into questions of war and
peace. In an extensive study of the American experience, Maurer27 demonstrates
how the US government was often dragged into investment disputes between firms
and host governments and their actions to protect the investor’s assets came at the
cost of American foreign policy.
Investor-State dispute settlement can be one potential solution to this problem. By
allowing firms to file claims against a sovereign State in an international forum
without the involvement of their home governments, investment disputes could
become depoliticized. This consideration was present in the ICSID Convention
which would “offer a means of settling directly, on the legal plane, investment
23
Yackee JW (2010) How much do U.S. corporations know (and care) about bilateral investment
treaties? Some hints from new survey evidence. In: Columbia FDI perspectives, vol 31. Vale
Columbia Center on Sustainable International Investment, New York
24
Yackee JW (2015) Do Investment Promotion Agencies Promote Bilateral Investment Treaties? In:
Bjorklun AK (ed) Yearbook on international law and policy vol. 2013–2014. Oxford University
Press, New York, pp 529–552
25
Poulsen LS (2010) The importance of BITs for foreign direct investment and political risk
insurance: revisiting the evidence. In: Yearbook on international investment law and policy.
pp 539–574
26
MIGA (2013) World investment and political risk. World Bank, Washington, DC
27
Maurer N (2013) The empire trap: the rise and fall of US intervention to protect American
property overseas, 1893–2013. Princeton University Press, Princeton
652 S. Jandhyala
disputes between the State and the foreign investor and insulate them from the realm
of politics and diplomacy.”28 It allowed home governments to direct firms to a legal
channel while credibly denying diplomatic engagement. Home governments could
call back their gunboats and diplomats and thus save bureaucratic resources and
political capital while still providing significant rights for investors. Reflecting on the
historical US context, Maurer29 suggests that the investor-State dispute settlement
system insulates the American government from investor pressure to intervene in
disputes, allowing it to “gracefully exit from the sorts of continual confrontations”
that diplomatic protection entailed. Even in the contemporary period, the depolitici-
zation of investment disputes remains a key argument. As Echandi30 notes, an
important role for investment treaties “is to depoliticize international investment-
related conflicts.” As late as 2015, the US government contended that the role of
investor-State dispute settlement was to “resolve investment conflicts without cre-
ating state-to-state conflicts.”31
However, it is not evident that depoliticization was a significant initial concern for
other countries. Poulsen32 notes that historically the UK government, unlike the USA,
was quite successful in rejecting firms’ demands for greater diplomatic intervention in
investment disputes. Similarly, depoliticization was not important for the Germans
either, especially since they lacked significant diplomatic tools in the early Cold War
period.
Empirical tests of the depoliticization hypothesis have been rather limited. One
recent study examining US government intervention in investment disputes concluded
that access to treaty-based investor-State dispute settlement had no impact on whether
the USA chose to intervene diplomatically in the dispute.33 The authors concluded that
strong diplomatic pressure is applied only in small number of cases, but this was not
conditioned by the presence or absence of investor-State dispute settlement. The
example of Occidental Petroleum’s dispute over a concession contract in Ecuador is
particularly striking. The US diplomatic intervention in this dispute was significant; a
28
ICSID (1968) Consultative meeting of legal experts, summary record of proceedings, 1963. In:
History of the ICSID convention, vol II-1. p 242
29
Maurer N (2013) The empire trap: the rise and fall of US intervention to protect American
property overseas, 1893–2013. Princeton University Press, Princeton. p 435
30
Echandi R (2016) Be careful with what you wish: saving developing countries from development
and the risk of overlooking the importance of a multilateral rule-based system on Investment in the
twenty-first century. In: European yearbook of international economic law 2016. Springer, Cham,
pp 233–271, 246
31
USTR (2015) ISDS: important questions and answers, United States trade representative archive
blog. https://ustr.gov/about-us/policy-offices/press-office/blog/2015/march/isds-important-questions-
and-answers. Accessed 23 Oct 2019
32
Poulsen LNS (2015) Bounded rationality and economic diplomacy: the politics of investment
treaties in developing countries. Cambridge University Press, Cambridge
33
free-trade agreement between the USA and Ecuador was cancelled over the dispute.
This occurred despite the Occidental Petroleum notifying American officials nearly
2 years before the contract cancellation that they intended to pursue a claim should
Ecuador cancel their contract.34
Another recent report describes the many reasons why home governments may
continue to be diplomatically involved in investment disputes, regardless of the
firms’ access to investor-State dispute settlement35: investments by a country’s firms
remain a political matter; State-owned firms and sovereign wealth funds invest
overseas; State-backed political insurance is prevalent, and even private political
risk insurance often encourages firms to seek diplomatic assistance; firms may
mobilize home governments to bring State-to-State claims in investors’ interests;
and tribunals are sensitive to political signals from States. The study concludes that
investor-State dispute settlement does not appear to mechanically depoliticize dis-
putes but “may provide greater comfort for governments to refrain, at their discre-
tion, from intervening or limiting their intervention.”36 In the absence of sufficient
empirical evidence, the question of whether depoliticization occurs in practice
remains uncertain.
Firms’ Engagement with Investor-State Dispute Settlement
The credible commitment and depoliticization arguments conceptualize the role of

investor-State arbitration in different ways. The former considers investor-State
dispute settlement largely as a tool to lower the likelihood of direct or indirect
expropriation. In other words, investor-State dispute settlement is expected to play
a preemptive role in the management of political risk. The latter argument, however,
is focused on how disputes should be resolved when they do occur. This is an
important difference with implications for how firms leverage investor-State dispute
settlement for their objectives – which is protecting their assets and enhancing their
profitability.
A large literature in business management has demonstrated that when firms
anticipate a potential policy reversal by host governments, they can draw on
several strategic tools to mitigate the impact of the change before the reversal is
decided. Locating in countries with more credible commitments through investor-
State dispute settlement is one of several potential strategies. A diverse range of
entry-based, operational, or political strategies have been documented and sum-
marized below. These preemptive or anticipatory strategies can help to buffer firms
34
Ibid.
35
Pohl J (2018) Societal benefits and costs of international investment agreements. OECD working
papers on international investment. OECD Publishing, Paris. pp 50–54
36
Ibid., p 54
654 S. Jandhyala
from any potentially adverse effects of policy reversals on firm performance.

Nonetheless, preemptive strategies do not completely insulate firms from ex post
policy changes. As a result, firms – even ones with well-developed anticipatory
strategies – can find themselves mired in disputes with host governments. When
they do find themselves facing investment disputes, especially due to unexpected
events or shocks, firms have fewer traditional tools to effectively manage the
dispute. Actively challenging or managing the host government’s actions can be
costly for firms.37 As I will argue below, it is in managing a dispute when it has
already occurred that investor-State dispute settlement can prove to a valuable tool
with both direct and indirect effects.
Firms’ Anticipatory Strategies for Political Risk Management
Firms recognize that opportunistic governments can change the rules of the game
ex post to lower the value of their investments – a risk often referred to as political
risk. Anticipating the possibility of future expropriations, strategic firms will take
ex ante actions to limit their vulnerability. A large literature in strategic manage-
ment and international business has documented a variety of strategies used by
firms to manage political risks, and I highlight some of them below. Within this
context, the added benefit of access to investor-State arbitration may arguably be
limited. Indeed, historical and contemporary survey evidence suggests that only
about 15% of firms, even among the world’s largest, were even familiar with the
investment arbitration system or believed it would affect a host country’s invest-
ment climate.38
Entry Strategies
A first set of ex ante strategic choices to minimize political risk relates to
firms’ entry into a market or country. Some studies document how firms avoid
politically risky or unstable locations.39,40 This effect, however, is conditional on
firm characteristics. For example, firms from risky home countries perceive
political risks in the host country to be lower than other firms.41 Similarly, prior
37
Blake DJ, Jandhyala S (2019) Managing policy reversals: consequences for firm performance.
Strategy Sci 4(2):111–128
38
St John T (2018) The rise of investor-state arbitration: politics, law, and unintended consequences.
Oxford University Press, Kettering. pp 20–21
39
Flores RG, Aguilera RV (2007) Globalization and location choice: an analysis of US multina-
tional firms in 1980 and 2000. J Int Bus Stud 38(7):1187–1210
40
Jandhyala S (2013) Property rights and international investment in information technology
services. Strateg Manag J 34(7):877–889
41
Holburn GLF, Zelner BA (2010) Political capabilities, policy risk, and international investment
strategy: evidence from the global electric power generation industry. Strateg Manag J 31(12)
experience in corrupt environments may moderate the general tendency to avoid

corrupt locations.42 Prior experience in diverse institutional conditions appears to
mitigate the entry-deterring effect of host country political risk.43,44,45,46
Others argue that firms price political risk into their initial market entry either by
acquiring political risk insurance or by incorporating the risk into their financial
valuations. One study of the global oil and gas industry, for instance, found
evidence of a political risk discount; firms had lower valuations of oil reserves in
politically risky countries than similar assets in jurisdictions with lower political
risks.47
A significant literature exists on entry mode strategies. This relates to firms’
decisions on ownership structures, equity shares, and partnering approaches. In
general, firms will limit resource commitments in markets with high political risks
so as to retain greater flexibility.48,49,50 Higher levels of political risk are associated
with lower-commitment entry modes. One study found that in countries with low
political risks, Japanese firms were twice as likely to enter with a sales distribution
facility than a joint venture, but in countries with high political risks, they were 50%
more likely to enter with joint ventures.51 Another study indicates that countries with
lower political risks (as indicated by political institutions and rule of law) tended to
attract higher levels of mergers and acquisitions, as opposed to joint ventures and
greenfield investments.52
42
Cuervo-Cazurra A (2006) Who cares about corruption? J Int Bus Stud 37(6):807–822
43
García-Canal E, Guillén MF (2008) Risk and the strategy of foreign location choice in regulated
industries. Strateg Manag J 29(10):1097–1115
44
Henisz WJ, Delios A (2001) Uncertainty, imitation, and plant location: Japanese multinational
corporations, 1990–1996. Adm Sci Q 46(3):443–475
45
Jandhyala S (2013) Property rights and international investment in information technology
services. Strateg Manag J 34(7):877–889
46
Perkins SE (2014) When does prior experience pay? Institutional experience and the multina-
tional corporation. Adm Sci Q 59(1):145–181
47
Click RW, Weiner RJ (2010) Resource nationalism meets the market: political risk and the value
of petroleum assets. J Int Bus Stud 41:783–803
48
Delios A, Henisz WJ (2000) Japanese firms’ investment strategies in emerging economies. Acad
Manag J 43(3):305–323
49
Lee H, Biglaiser G, Staats JL (2014) The effects of political risk on different entry modes of
foreign direct investment. Int Interact 40(5):683–710
50
Oxley JE (1999) Institutional environment and the mechanisms of governance: the impact of
intellectual property protection on the structure of inter-firm alliances. J Econ Behav Organ 38
(3):283–309
51
Delios A, Henisz WJ (2003) Policy uncertainty and the sequence of entry by Japanese firms,
1980–1998. J Int Bus Stud 34(3):227–241
52
Lee H, Biglaiser G, Staats JL (2014) The effects of political risk on different entry modes of
foreign direct investment. Int Interact 40(5):683–710
656 S. Jandhyala
Operational Strategies
A second set of strategies focuses how firms can leverage their operational activities
to lower their political risks. Early work in international business recognized the
increased bargaining power for firms (vis-à-vis the State) with mobile investments,53
in contrast to natural resources or infrastructure investments. More recent work has
highlighted how the threat of relocating is more credible for firms with experience in
multiple locations.54,55 By leveraging geographic diversification, a firm operating in
different regions can lower its overall political risk.
A related but different source of advantage arises when firms develop opera-
tional strategies that minimize their exposure to and dependence on the external
institutional environment in a host country. Trade internalization is one opera-
tional response to political risk. Tighter integration of a host country subsidiary
within the multinational firm’s global production and trading network will create
internal markets for the subsidiary’s output, assure demand for the subsidiary’s
products, rely on complementary assets from other subsidiaries, and generate
information and knowledge exchange between managers; thus, the firm’s risk of
expropriation is lowered.56 In high-tech industries, firms operating in weak
intellectual property protection countries can create interdependencies within
projects by distributing parts across locations and creating cross-country
collaborations.57
Other research indicates that experience in the host country and familiarity with
the political system and its players reduced the threat of failure by 80%.58 Further,
firms that engage with domestic partners face lower political risks. For example,
when multinational firms are embedded within domestic supply chains, partner firms
have incentives to protect one another’s property rights. Multinational firms with
extensive supplier links in a host country can leverage the economic integration to
lower their own political risk.59
53
Kobrin SJ (1987) Testing the bargaining hypothesis in the manufacturing sector in developing
countries. Int Organ 41(4):609–638
54
Janeba E (2002) Attracting FDI in a politically risky world. Int Econ Rev 43(4):1127–1155
55
Jia N, Mayer KJ (2017) Political hazards and firms’ geographic concentration. Strateg Manag J 38
(2):203–231
56
Feinberg SE, Gupta AK (2009) MNC subsidiaries and country risk: internalization as a safeguard
against weak external institutions. Acad Manag J 52(2):381–399
57
Zhao M (2006) Conducting R&D in countries with weak intellectual property rights protection.
Manag Sci 52(8):1185–1199
58
Henisz WJ, Delios A (2004) Information or influence? The benefits of experience for managing
political uncertainty. Strateg Organ 2(4):389–421
59
Johns L, Wellhausen RL (2016) Under one roof: supply chains and the protection of foreign
investment. Am Polit Sci Rev 110(1):31–51
Political Strategies
In addition to the entry and operational strategies, firms also rely on political
strategies to minimize the adverse effects of political risk. Under conditions of
high uncertainty in value appropriation, and high governance costs of coordinating
and renegotiating investment and policy terms, partnerships between firms and
political actors can be useful.60,61 Ties with political actors can range from public-
private partnerships to more arms-length relationships. These include campaign
contributions,62,63 lobbying,64 or developing political connections.65,66 Such part-
nerships are useful not only because political actors are uniquely positioned to
constrain the likelihood of adverse ex post changes but also because they align the
interests of the firm and political actors. A growing number of studies highlight how
partnerships with elite political actors, such as ruling parties, legislators, judges,
bureaucrats, and other institutional actors, can benefit firms, especially in developing
countries. Some studies have shown that politically connected firms receive prefer-
ential treatment from governments.67,68 Similarly, higher campaign contributions by
firms increase the likelihood of policymakers supporting their preferred legislation.69
Politically connected firms also have greater confidence in the legal system,70 lower
uncertainty in investment opportunities,71 greater legitimacy,72 increased survival
60
Kivleniece I, Quelin BV (2012) Creating and capturing value in public-private ties: a private
Actor’s perspective. Acad Manag Rev 37(2):272–299
61
Rangan S, Samii R, Van Wassenhove LN (2006) Constructive partnerships: when alliances
between private firms and public actors can enable creative strategies. Acad Manag Rev 31
(3):738–751
62
Fremeth AR, Holburn GL, Vanden Bergh RG (2016) Corporate political strategy in contested
regulatory environments. Strategy Sci 1(4):272–284
63
Holburn GL, Vanden Bergh RG (2014) Integrated market and nonmarket strategies: political
campaign contributions around merger and acquisition events in the energy sector. Strateg Manag J
35(3):450–460
64
Ridge JW, Ingram A, Hill AD (2017) Beyond lobbying expenditures: how lobbying breadth and
political connectedness affect firm outcomes. Acad Manag J 60(3):1138–1163
65
Faccio M (2006) Politically connected firms. Am Econ Rev 96(1):369–386
66
Hillman AJ, Hitt MA (1999) Corporate political strategy formulation: a model of approach,
participation, and strategy decisions. Acad Manag Rev 24(4):825–842
67
Khwaja AI, Mian A (2005) Do lenders favor politically connected firms? Rent provision in an
emerging financial market. Q J Econ 120(4):1371–1411
68
Stratmann T (2002) Can special interests buy congressional votes? Evidence from financial
services legislation. J Law Econ 45(2):345–373
69
Mian A, Sufi A, Trebbi F (2010) The political economy of the US mortgage default crisis. Am
Econ Rev 100(5):1967–1998
70
Li H, Meng L, Wang Q, Zhou L-A (2008) Political connections, financing and firm performance:
evidence from Chinese private firms. J Dev Econ 87(2):283–299
71
Haveman HA, Jia N, Shi J, Wang Y (2017) The dynamics of political embeddedness in China.
Adm Sci Q 62(1):67–104
72
Zhu H, Chung C-N (2014) Portfolios of political ties and business group strategy in emerging
economies. Adm Sci Q 59(4):599–638
658 S. Jandhyala
rates,73 and are more likely to invest in countries with high expropriation
risks.74,75,76
Firms’ Strategies for Managing Investment Disputes
Although firms can prepare effectively for events that have a high likelihood of
occurrence and substantial warning, anticipatory strategies are less effective in
dealing with ex post policy changes. Since firms have to develop their strategic
responses after the policy change, it imposes a heavy burden on their managerial
resources. In addition, political events leading to investment disputes tend to idio-
syncratic, such that firms lack established routines they can default to. Some
strategies available to firms include renegotiation, challenging the host government
in domestic courts or international arbitration, leveraging domestic and international
stakeholder networks, and claiming compensation under political risk insurance.
These strategies are not mutually exclusive, but challenging host government actions
can be expensive for firms, resulting in a decline in operational performance.77
One strategic response of firms managing investment disputes is exit. In the midst
of an investment dispute, firms are likely to revise upward their assessment the
political risks they face and revise downward their assessment of their own capabil-
ities to manage political risk. As a result, they are likely to divest or exit not just from
the host country but also from other countries that are politically, economically, or
socially similar.78,79
Other options include engaging in formal or informal dispute settlement (includ-
ing investor-State arbitration which is discussed below) and making political risk
insurance claims. However, one study of 459 senior executives from multinational
firms investing in developing countries estimated that the most effective method of
addressing a dispute with a host government was to renegotiate the contract or
73
Hiatt SR, Carlos WC, Sine WD (2018) Manu Militari: the institutional contingencies of stake-
holder relationships on entrepreneurial performance. Organ Sci 29:547–753
74
Bertrand O, Betschinger M-A, Settles A (2016) The relevance of political affinity for the initial
acquisition premium in cross-border acquisitions. Strateg Manag J 37(10):2071–2091
75
Duanmu J-L (2014) State-owned MNCs and host country expropriation risk: the role of home
state soft power and economic gunboat diplomacy. J Int Bus Stud 45(8):1044–1060
76
Li J, Meyer KE, Zhang H, Ding Y (2017) Diplomatic and corporate networks: bridges to foreign
locations. J Int Bus Stud 49:1–25
77
78
However, one recent study found that nearly a third of the firms reinvest in the host State
following an investment dispute. Wellhausen RL (2019) International investment law and foreign
direct reinvestment. Int Organ 73:839
79
Blake DJ, Moschieri C (2017) Policy risk, strategic decisions and contagion effects: firm-specific
considerations. Strateg Manag J 38(3):732–750
investment.80 Such a renegotiation can be challenging, especially in the shadow of

an ongoing dispute. Some authors have begun to examine how diplomatic support
can play an important role in these renegotiations.81 Diplomatic missions such as
embassies and consulates develop and maintain relationships with key host country
actors in government, business, and civil society. They can facilitate dispute resolu-
tion by functioning as mediators and by pressuring host States to address investors’
complaints by linking individual disputes to the broader bilateral diplomatic rela-
tionship.82,83 However, this support is not always forthcoming, and diplomats vary
in their proclivity to engage in investment disputes.84
An alternate strategy to manage an ongoing dispute is to seek the support of other
stakeholders. Policy reversals can be challenged by engaging with mediators, the
media, suppliers, employees, and investors to frame the dispute.85 For example,
Bonardi and Keim86 discuss how firms can engage with supporting interest groups
and the media to drive political and public opinion in their favor.
Role of Investor-State Arbitration in Managing Investment Disputes
In contrast to the long list of potential ex ante strategies designed to limit the
likelihood of political risk, strategies to manage an investment dispute appears rather
limited. It is in this context that firms have begun to use investor-State arbitration,
perhaps in a manner not initially designed to, and in ways that potentially trigger
greater criticism of the system. Below, I discuss a few of these mechanisms.
Investor-State Arbitration as Insurance

While many firms may consider challenging host governments’ policy reversals
through renegotiations, these efforts may not always be successful. Even significant
diplomatic intervention may be insufficient to challenge host governments’ actions.
As a measure of last resort, firms may turn to investor-State arbitration as an option
to recover at least a part of their investment. One example of such a strategy is
perhaps the case already referred to above – Occidental Petroleum in Ecuador (as
80
MIGA (2013) World investment and political risk. World Bank, Washington, DC, p 51
81
Wellhausen RL (2015) Investor–state disputes: when can governments break contracts? J Confl
Resolut 59(2):239–261
82
Gertz G (2018) Commercial diplomacy and political risk. Int Stud Q 62(1):94–107
83
84
Jandhyala S, Gertz G, Poulsen LNS (2019) Corporate political activity abroad: Investment
diplomacy and the limits of firm power. Working Paper
85
Bach D, Blake DJ (2016) Frame or get framed: the critical role of issue framing in nonmarket
management. Calif Manag Rev 58(3):66–87
86
Bonardi J-P, Keim GD (2005) Corporate political strategies for widely salient issues. Acad Manag
Rev 30(3):555–576
660 S. Jandhyala
cited in Gertz et al.).87 The firm’s dispute with the Ecuadorian government related to
a cancelled oil exploration contract. The firm tried to resolve the conflict and even
sought diplomatic assistance to do so. The case became one of the most important
issues on the USA-Ecuador bilateral relationship, and a free-trade agreement being
negotiated between the two countries was suspended over the dispute. Yet, the
dispute was not resolved. Ultimately, the firm filed an investment treaty claim at
ICSID and was awarded more than $1 billion in compensation. Similarly, in an
empirical study of the sale of oil reserves, Jandhyala and Weiner88 find that only
large firms – with the resources and capabilities to potentially use the investor-State
arbitration system – paid a premium for assets protected by treaties that provided
access to investor-State dispute settlement.
Investor-State Arbitration as a Bargaining Tool

An alternate strategic use of investor-State arbitration may be to tilt the balance of
bargaining power in renegotiations related to an ongoing dispute between the firm
and the host government. In other words, the threat of initiating an investor-State
arbitration may provide additional bargaining power for firms in their renegotiations
with the host government, even if they never intend to pursue the claim to a tribunal
verdict. Firms are thus able to obtain more favorable agreements in the renegotiation.
Potentially referring to such strategic actions by firms, Poland’s Treasury Ministry,
announcing plans to cancel Bilateral Investment Treaties with the EU Member
States, noted that arbitration proceedings “are often used as an additional element
of pressure on Poland’s economic relations.”89 Another example comes from Tele-
nor’s dispute in India. The Norwegian telecommunications company began offering
cellular services in India in 2009. Following a corruption scandal and a ruling by the
Indian Supreme Court in February 2012, the Government of India cancelled telecom
licenses that had previously been awarded to the firm. In the weeks and months that
followed, Telenor attempted to manage the fallout of the cancellation in several ways
including seeking diplomatic support, negotiating with the Indian government over
relicensing fees, suing the country’s telecommunications regulator in the highest
court, and seeking compensation from its Indian partners (for a detailed description,
see Blake and Jandhyala).90 But, importantly, Telenor also relied on the option of
investment arbitration to seek a favorable outcome. This was not because an
arbitration tribunal decided in their favor. While the firm did signal their intention
to bring arbitration claims, no tribunal was constituted. Rather, Telenor decided
against pursuing the claim following the governments’ decision to allow the firm to
87
88
Jandhyala S, Weiner RJ (2014) Institutions sans frontières: international agreements and foreign
investment. J Int Bus Stud 45(6):649–669
89
Waldoch M, Onoszko M (2016) Poland plans to cancel bilateral investment treaties with EU.
Bloomberg
90
set off $260 million on payments due for the new licenses.91 In other words, it
appears that Telenor used investment arbitration as a strategic negotiating tool,
allowing them to obtain concessions and better outcomes on their other bargaining
strategies. Indeed, an early draft version of India’s 2015 Model Bilateral Investment
Treaty appeared to allude to just this type of bargaining in determining that an
investor “shall not use or threaten to use this article [Article 14: Settlement of
Disputes between and Investor and a Party] in order to obtain money, property, or
any other thing of value from the Host State, or otherwise compel the Host State to
act or refrain from acting” (Article 14.1 of India’s draft 2015 Model BIT, emphasis
added). Another example relates to Enron’s operations in Argentina. In discussing
the Stamp Tax Dispute the company faced in 2000, the company’s top managers
explicitly considered using investor-State arbitration as a tool to obtain their pre-
ferred policies in bargaining with the State. One official wrote, “We used the BIT
threat once before when they tried to re-trade TGS’s rates in violation of the sales
agreement. . . . This time we may have to go all the way and litigate.”92
Investor-State Arbitration as Enforcement of Property Rights Protection

Because multinational firms may face significant challenges in operating in foreign
countries, some disputes originate not from government policies but from other
commercial relationships, for example, with partners, suppliers, or vendors. A
multinational firm may rely on domestic courts or other formal or informal mecha-
nisms to resolve the commercial dispute. However, faced with challenges in
enforcing the award, multinational firms may turn to investor-State arbitration.
Thus, investor-State arbitration serves as an alternate mechanism to enforce previ-
ously granted property rights. The case of White Industries Australia Limited (WIAL)
v India illustrates this motivation. In 1989 Coal India, an Indian State-owned
company, contracted White Industries Australia Limited (WIAL) to supply machin-
ery and develop a coal mine for a fee of approximately A$ 206.6 million. Once the
coal mine was in operation, a dispute arose over WIAL’s performance bonus. In
1999, WIAL sought recourse before the International Chamber of Commerce’s
International Court of Arbitration and received a favorable ruling.93 However,
given the protracted delays in India’s legal system, WIAL could not get Coal India
to pay. Over 10 years, the company unsuccessfully tried to have the arbitral award
enforced through the legal system, including appealing to the Supreme Court in
2004. By 2010, WIAL turned to investor-State arbitration on the grounds that the
91
Herbert Smith Freehills (2014) A BIT more Indian investment arbitration. Herbert Smith Freehills
note. http://hsfnotes.com/arbitration/2014/05/16/a-bit-more-indian-investment-arbitration/. Accessed
25 Oct 2019
92
http://www.enron-mail.com/email/kean-s/aadepartment/Stamp_Tax_Dispute.html, accessed
25 October 2019
93
Satyanand PN (2016) Once BITten, forever shy: explaining India’s rethink of its bilateral
investment treaty provisions. AIB Insights 16(1):17
662 S. Jandhyala
significant delay in Indian courts to enforce the previously granted arbitration award
violated the India-Australia BIT and was awarded A$4 million by the tribunal.94
Investor-State Arbitration for Policy Freeze

Perhaps the most contentious of firms’ strategic use of investor-State arbitration is
seeking a policy freeze (or regulatory chill). This refers to the idea that a host
government’s obligation to pay compensation for policy change makes it difficult
for them to regulate in socially desirable areas. According to this argument, firms file
arbitration claims, even when they do not expect to win an award, because it delays
the implementation of an unfavorable policy (for the firm) not just in the host State
but also in other countries observing the arbitration.95 This argument is highly
debated in the policy and legal communities. However, firms could potentially use
investor-State arbitration in this way. The most cited example relates to the Philip
Morris’s case against the Australian government over plain packaging regulations
related to tobacco products. Philip Morris was expected to lose the case on merits,
but the long legal process stymied the international momentum toward plain pack-
aging, thereby giving the company a few years before other countries adopted
similar regulations. For example, although the New Zealand government considered
similar plain packaging rules, they adopted a “wait and watch” approach. They
waited until the legal challenges against the Australian government were resolved
before enacting their own regulations, delaying the policymaking process by
3 years.96,97
Conclusion
The conventional narrative suggests that the investor-State arbitration system was
driven by governments’ goals and initiatives. By providing access to investor-State
arbitration, host governments could make more credible commitments and home
governments could depoliticize disputes. However, the evidence has been mixed on
both accounts. In contrast, firms, and the representation of their private interests,
were largely missing actors in the early spread of investor-State dispute settlement -
by some accounts firms were not instrumental actors in the early adoption of the
94
Ranjan P (2012) The white industries arbitration: implications for India’s investment treaty
program. Investment Treaty News
95
Pelc KJ (2017) What explains the low success rate of investor-state disputes? Int Organ
71(3):559–583
96
Chaisse J (2013) Exploring the confines of international investment and domestic health pro-
tections – general exceptions clause as a forced perspective. Am J Law Med 39(2/3):332–361
97
Crosbie E, Thomson G (2018) Regulatory chills: tobacco industry legal threats and the politics of
tobacco standardised packaging in New Zealand. N Z Med J 131(1473):25–41
treaty-based regime.98 Nonetheless, the system’s evolution might have provided

multinational firms with significant and potent tools to protect their investments
and manage political risks. Beth Simmons has noted that “the private right to sue a
government for damages and to choose the forum in which to do so constitutes the
most revolutionary aspect of international law relating to foreign investment in the
past half-century.”99 Others contend that the investment regime itself is now
“enforced by the thousands of foreign investors, principally multinational enterprises
with the wherewithal to invest overseas and to protect their financial interests when
these are threatened through international arbitration.”100
The empirical literature on how firms use investor-State arbitration has focused
primarily on the question of location choice, i.e., these studies ask whether access to
investor-State arbitration influences firms’ ex ante choice of country to locate their
operations. As discussed above, the evidence suggests that investor-State arbitration
has only conditional effects in limited circumstances. However, this chapter has
argued for another pathway by which investor-State arbitration can influence firms’
investments. Rather than tying host governments’ hands or preventing investment
disputes in the first place, investor-State arbitration strengthens firms’ toolkits in the
management of investment disputes. I identified four potential ways by which this
occurs: investor-State arbitration as insurance, as a bargaining tool, in the enforce-
ment of previously granted property rights, and for policy freeze. The effect on
bargaining and settlement of disputes that do arise may be more important – for
firms – than that on influencing investment decisions or preventing disputes alto-
gether. Indeed, treaty shopping by firms suggests some support for this view. When
firms restructure their investments already under threat so as to benefit from treaty-
based investor-State arbitration, they do so to strengthen their hand during ex post
renegotiation.
Nonetheless, firm’s strategies to leverage investor-State arbitration to influence
the resolution of investment disputes are not without controversy. It is precisely
some of these strategies that have led to the system being described as a way “to let
multinational companies get rich at the expense of ordinary people.”101 Framed this
way, States that have been involved in investor-State arbitration claims are calling
for reforms or exit from the system. Several stakeholders have focused on issues
surrounding the arbitration process itself – for instance, should it be secret, decided
by commercial lawyers acting as arbitrators in cases involving public policy, with
one-sided rights. Others argue that the system is a weak bargain for States who
accept significant constraints on sovereignty for little in terms of returns. It is clear
98
St John T (2018) The rise of investor-state arbitration: politics, law, and unintended consequences.
Oxford University Press, Kettering
99
Simmons BA (2014) Bargaining over BITs, arbitrating awards: the regime for protection and
promotion of international investment. World Polit 66(1):12–46, 17
100
Alvarez JE (2009) Contemporary foreign investment law: an “Empire of Law” or the “Law of
Empire”. Am Univ Int Law Rev 24(5):811–842, 823
101
Economist (2014) The arbitration game
664 S. Jandhyala
that the investor-State arbitration system can and should be reformed in many ways
to make it more balanced and one that sustains development. But while foreign
investment continues, disputes between firms and host governments will inevitably
arise and will need to be managed. Finding a middle path is the challenge.
Acknowledgments I would like to thank Veronika Korom and the editors for comments on earlier
drafts.
Investor State Dispute Settlement and Host
Country Regulation: Insights from 27
Economic Theory
Eckhard Janeba
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666
Economic Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668
Modeling ISDS and Its Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669
Stage 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670
Stage 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
Stage 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 671
Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
Insights from the Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
Strategic Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673
Dynamic Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675
Regulatory Chill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676
Design of Compensation Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678
Abstract
Investor State dispute settlement (ISDS) resolves disputes between foreign inves-
tors and host country governments about changes in regulation and other harmful
measures. Economic theory provides a framework to evaluate the incentive and
distributional effects of ISDS on the basis of game-theoretic models. These allow
for an analysis of the role of information available to courts and its verifiability,
the impact of ISDS on the amount of inward foreign investment, and the potential
blocking of legitimate regulation. The chapter presents in a nontechnical way key
elements of formal models and provides insights from selective articles in the
theoretical literature on ISDS.
E. Janeba (*)
Department of Economics, University of Mannheim, Mannheim, Germany
e-mail: janeba@uni-mannheim.de

https://doi.org/10.1007/978-981-13-3615-7_119
666 E. Janeba
Keywords
Investor State dispute settlement · Regulatory chill · Hold-up problem
Introduction
International Investment Agreements (IIA) are widely used throughout the world, as
more than 2600 are in force by the end of 2019 (see UNCTAD).1 IIAs are designed
to protect firms that invest in foreign countries against certain subsequent host
government measures, including outright nationalization, unless appropriate com-
pensation is paid. Some regulatory measures may be economically equivalent to
nationalization or outright expropriations, but are different in character and appear-
ance. These so-called indirect expropriations are host country attempts to exploit the
relative immobility of foreign investors after establishment, through which a host
government obtains a larger share of the economic rent. In practice, indirect expro-
priations by opportunistic governments are difficult to distinguish from legitimate
regulatory policy adjustments to protect the environment, strengthen work place
safety, or improve work conditions. Legitimate regulations that do not require
compensation, so-called carve outs, are specified in IIAs, yet often in vague terms.
Investor-State dispute settlement (ISDS) procedures are part of many international
investment agreements. They specify the rights of firms that allow them to appeal to an
international panel of experts such as the International Centre for the Settlement of
Investment Disputes (ICSID) if they believe that the host government has violated the
terms of the investment agreement, for example, by arguing that a carve out rule does
not apply in the specific case. UNCTAD2 reports that by 2019 more than 1000 ISDS
cases have been recorded. Of the cases that were decided on the base of merit, 61%
were in favor of the investor, and 39% in favor of the host country.
As a system of conflict resolution, ISDS is heavily contested. Critics such as
Gerstetter and Meyer-Ohlendorf3 and Tienhaara4 and some nongovernmental orga-
nizations believe that ISDS systematically favors foreign investors, creates a parallel
legal system, and undermines the host country’s autonomy in setting regulatory
policy, called regulatory chill. Proponents, by contrast, point to the need for the
protection of investors because without it foreign investment is reduced or even
abandoned. That would be problematic not only for the foreign investor, but also for
1
UNCTAD (2020) The changing IIA landscape: new treaties and recent policy developments. IIA
issues note no. 1, July
2
UNCTAD (2020) Investor-state dispute settlement cases pass the 1,000 Mark: cases and outcomes
in 2019. IIA issues note no. 2, July
3
Gerstetter C, Meyer-Ohlendorf N (2013) Investor-state dispute settlement under TTIP – a risk for
environmental regulation? Ecological Institute, Berlin
4
Tienhaara K (2011) Regulatory chill and the threat of arbitration: a view from political science. In:
Brown C, Miles K (eds) Evolution in investment treaty law and arbitration. Cambridge University
Press, Cambridge, UK, pp 606–627
27 Investor State Dispute Settlement and Host Country Regulation: Insights. . . 667
the host country because foreign direct investment (FDI) generates a number of
benefits for the latter, coming in the form of positive technological spillovers,
contributions to host country government finances, and often higher wages than in
domestic industries.5
Given the enormous rise of FDI in the last decades and the widespread use of IIAs
it is somewhat surprising that compared to scholars from legal and political science
the interest of economists in IIAs in general and ISDS in particular has been limited.
After early theoretical work by Aisbett et al.6 a recent surge of work by economists is
changing that picture. Economic analysis can be valuable in at least two dimensions:
First, to provide quantitative evidence on the effects of IIAs and ISDS on the amount
of investment and regulation in host countries, and second to assess from a norma-
tive perspective the merits of ISDS relative to not having ISDS, or relative to
alternative schemes of investor protection. As part of the normative agenda, econ-
omists may also help in designing an “optimal” ISDS scheme.
While the focus of this article is on the second dimension, it is worthwhile to
briefly comment on the first dimension. In a meta-study Felbermayr7 estimates that
IIAs encourage foreign direct investment (FDI) by about 25%, an effect driven
mostly by agreements between industrial countries on the one hand and developing
or middle income countries on the other hand. A major challenge in identifying the
causal effect of IIAs on FDI is that an investment agreement between a pair of
countries is not a random event, but the formation of an agreement may depend on
the existing level of FDI and its future potential. Hence, FDI may trigger the
formation of an investment agreement, instead of the other way round. Taking into
account the econometric problem of endogenous investment agreements,
Felbermayr still finds a positive effect of 23% of IIAs on FDI.
There is much less work on the effects of IIAs on host country regulatory policies
and the existence of regulatory chill (the second dimension). The reason is evident: if
a host government does not regulate out of fear of losing a lawsuit, this is not easily
observable. The lack of evidence does not mean that regulatory chill does not exist.
Anecdotal evidence suggests that it does exist.8
The difficulties in empirical analyses make theoretical economic contributions
valuable. Economic theory provides a mathematical framework for analyzing the
incentive and distributional effects of ISDS by using game-theoretic models. In such
models, players (host government, foreign investor, ISDS panel), their payoff
5
Hale G, Xu M (2016) FDI effects on the labor market of host countries, working paper series 2016-
25. Federal Reserve Bank of San Francisco, revised 21 Sep 2016
6
Aisbett E, Karp L, McAusland C (2010) Police powers, regulatory takings and the efficient
compensation of domestic and foreign investors. Econ Rec 86(274):367–383; Aisbett E, Karp L,
McAusland C (2010) Compensation for indirect expropriation in international investment agree-
ments: implications of national treatment and rights to invest. J Glob Dev 1(2):6
7
Felbermayr G (2018) Was wissen wir über den Effekt von Investitionsschutz- und –förderverträgen
(IFV) auf ausländische Direktinvestitionen? ifo Schnelldienst 71(3):17–24
8
Bonnitcha J (2014) Substantive protection under investment treaties: a legal and economic
analysis. Cambridge University Press, Cambridge
668 E. Janeba
functions (host country welfare, profits, world welfare), and decision variables
(regulation, investment level, filing of lawsuits, decision on compensation), as well
as sequencing of moves, are specified. By solving such models, economists are in a
position to analyze the role of certain model parameters, such as the quality of court
decision making, the potential harm from nonregulation, or the fixed cost of
investing in a foreign country, or more fundamentally the merits of ISDS.
The purpose of this chapter is to provide a nontechnical introduction into the
general structure of such models, describe important insights from the literature,
and briefly discuss strengths and weaknesses of the approaches. The chapter is
not meant to be a comprehensive survey, but rather highlights selective contri-
butions, in order to give readers a better understanding of the work done by
economists.
The remainder of this chapter is organized as follows: First, the economic issue
of foreign investment in the face of regulatory risk is described. Then, typical
features of game-theoretic models of ISDS are explained. Following this part,
insights from four recent articles are summarized. Finally, conclusions including a
brief discussion of strengths and weaknesses of theoretical economic models are
presented.
Economic Issue
The theoretical economics literature on ISDS has focused on the case of indirect
expropriation. From a conceptual standpoint, outright expropriation is straightfor-
ward as it is easily observable. By contrast, indirect expropriation is harder to
observe and to verify in court. While IIAs specify the range or nature of legitimate
regulations that do not require compensation to be paid to foreign investors, defini-
tions are often vague. Take for example the following clause in the US Model
Bilateral Investment Treaty 2004 Annex B: “Except in rare circumstances, non-
discriminatory regulatory actions by a Party that are designed to protect legitimate
public welfare objectives, such as public health, safety and the environment, do not
constitute indirect expropriations.”9 The definition of legitimate objectives is not
well defined however.
Like outright expropriation, unfavorable regulations generate a hold-up problem
for the foreign investor, who enters the host country by making an (at least partially)
irreversible, costly investment. A host government is in the position to regulate the
firm afterwards (ex post), perhaps simply to gain a bigger share from the foreign
firm’s profits, perhaps to address legitimate policy issues, such as environmental
damages from production. If the host government’s temptation to regulate ex post is
anticipated ex ante, the foreign investor reduces the investment because the lower
profits from sales do not cover the initial sunk investment cost. This leads to
9
Download from Office of United States Trade Representative on July 15, 2020 https://ustr.gov/
archive/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf
underinvestment and overregulation. The terms underinvestment and overregulation

result from a comparison to a benchmark, called the first best or the efficient
allocation, which is obtained when the sum of foreign investor’s profits and host
country welfare are maximized. Host country welfare includes all possible external
effects from the investment like environmental damages, the benefits from regulation
as well as taxes paid by the foreign investor. The profit of the foreign firm is a source
of wealth, whose use is typically not further specified.
Can the underinvestment problem be solved? Any promise by the host govern-
ment to the foreign firm not to regulate ex post, or not to change regulation in an
unfavorable direction, is not credible. In the language of game theory such
promises are “cheap talk.” To fix the problem, different solutions come to mind.
For example, upfront subsidies paid by the host government to the investor at the
time of the investment could reduce the underinvestment problem, but may not
completely offset it (see below). Another option is a national treatment clause, as
included in the US Model Treaty cited above, which requires the host government
to treat foreign investors and domestic firms alike. Typically, this is not sufficient to
fully solve the underinvestment problem because the host government considers
only the benefits and costs of regulation for domestic firms (but not the profit of
foreign firms). Admittedly, the problem is reduced the smaller is the share of
foreign firms.
A further potential remedy is the legal system. The foreign firm appeals to a court
in the host country if it perceives an unfair treatment. There is still the danger of
overregulation if a court in the host country does not fully account for the welfare of
the foreign investor in its decision, as seems plausible if the national court is biased
toward its own government or the law does not provide strong protection for non-
citizens. For this reason, ISDS may be a credible solution to the hold-up problem, as
a third party outside the host country works as an independent arbiter. Seen that way,
ISDS is a commitment device to solve a hold-up problem.
Does this make ISDS a good thing? The answer would be yes if host country
regulation occurred only for the purpose of capturing economic rents and did not
have any legitimate policy reason. To the extent that the latter plays a role, ISDS may
constrain host country sovereignty and prevent legitimate regulation. At first glance,
the latter view seems not fully convincing because the host country could regulate
and compensate the firm for foregone profits, if a certain regulation is highly
desirable from the host country perspective. As argued below, however, this requires
a lot of information and high-quality decision making by a court.
Modeling ISDS and Its Effects
In this section the basic structure of game-theoretic models of ISDS is explained.

While specific modeling choices in the literature differ, there are some common
features that are worth being emphasized, see Fig. 1 for illustration.
The core economic model comprises stages 1 and 2, while the legal remedy
comes in stage 3.
670 E. Janeba
Stage 1 Stage 2 Stage 3
time
Foreign firm Random shock to Regulation set by Firm decides on Court/ISDS panel
makes benefit or cost of host government lawsuit against decides on
irreversible investment for and possible host government compensation to
investment host country compensation firm
Fig. 1 Time line of typical model
Stage 1
In stage 1, a foreign investor, also called a foreign firm, makes an investment in a

host country (FDI). The investment is costly and at least partially irreversible, that is,
it cannot or only at high cost be reversed. At the time of investment, the expected
foreign firm’s profit reads
Profit of foreign firm ¼ Sales Production Costs Investment cost

þ Compensation payment ð1Þ
All variables might be uncertain and therefore the firm needs to form expectations
about their values at time of investment. The firm enters the country if its expected
profit is nonnegative. As discussed below, it is sometimes assumed that domestic
firms in the host country make an investment at the same time as the foreign firm,
and sometimes there is more than one foreign firm considering an investment.
After the investment, a stochastic event occurs at the end of stage 1, which is
modeled as the realization of a shock to some variable. The probability distribution
of the stochastic variable is known to everyone, including the foreign investor and
the host government. In most cases, the shock affects the costs or benefits of the
investment to the host country. For example, the environmental damage from
production becomes clear to the host government only after the investment has
been made. Because the probability distribution is known, everyone including the
foreign firm can form expectations about the realization of the shock, which the
foreign investor uses at the time of the investment decision.
The realization of the shock is observable to the host government, but may or may
not be known by others, and even if observable, may or may not be verifiable in
court. If not verifiable, a contract that allows tough regulation for “bad” realizations
of the shock variable is not feasible. The reason for this particular modeling
assumption is key for understanding the economic approach of modeling ISDS: A
“bad” realization of the stochastic variable gives the government a legitimate reason
to regulate at stage 2. At the same time, however, an opportunistic host government
can exploit the lock-in of the foreign investor and tightens regulation at the expense
of the now immobile firm. If the realization of the stochastic variable is not
verifiable, it is difficult for outsiders, such as a court, to disentangle the reason for
changes in host country regulation.
Stage 2
In stage 2 the government sets regulation affecting the profit of the foreign investor
and may voluntarily offer compensation to the foreign firm for lost profits due to
regulation. In some cases, regulation is a binary decision, like production is allowed
or not, sometimes this is a continuous choice, such as setting a standard that affects
the optimal production choice of the firm. The regulatory decision affects the firm’s
sales and costs from production. For example, if production is prohibited, sales and
short-run costs are zero, so that investment cost cannot be recovered in the absence
of a sufficient compensation payment.
It is assumed that the government maximizes the welfare of its own country, as
shown in (2), which takes into account the benefits (e.g., employment, technical
spillovers, tax payments) and costs (e.g. external effects like pollution) related to the
investment of the foreign firm, as well as the profits of domestic firms that operate in
the same industry.10 By assumption, however, the host government ignores the profit
of the foreign investor.
Host country welfare ¼ Host net benefits from FDI

þ Profits of domestic firms
Compensation payment ð2Þ
Stage 3
Consider now stage 3, which brings court challenges and ISDS into the picture. The
firm has the option to file a lawsuit against the host government in case of unfavor-
able regulation without compensation. Sometimes the firm’s decision to appeal is
modeled as an explicit choice, while in other cases the decision is automatic,
following a worsening of regulatory setting or simply the prohibition of production.
A court then decides whether the claim is legitimate or not. If it is legitimate, the host
government needs to compensate the firm for its loss of profits, and may have to pay
for court costs (not shown in (2)). If not legitimate, the host government keeps its
regulation as is and does not pay compensation. In most cases, the court is modeled
in a reduced form, making a mechanical decision based on the information available
and a given objective function.
10
Employment and wages can be ignored if a flexible labor market is assumed and thus the workers
would be employed at the same wage in any case. If the labor market is not flexible, the employment
and wage effects from FDI need to be taken into account.
672 E. Janeba
The amount of information available to the court is a key aspect. The court
observes the regulatory decision of the host government, knows the amount of
investment, and knows the probability distribution of the shock. If it does not
know the realization of the shock, it must base its decision on the expected value
of the shock, or on a signal about its realization. The quality of a court decision can
be described by the preciseness of the signal, or by the likelihood of finding the true
value of the realization of the shock.
The objective function of the court plays an important role as well. In some cases
the court is assumed to be non-biased and to maximize world welfare, consisting of
host country welfare (2) and profits of foreign firm (1)
World welfare ¼ Host country welfare þ Profit of foreign firm

¼ Host net benefits from FDI þ Profits of domestic firms
þ Sales Production Costs Investment cost ð3Þ
Note that the compensation payment nets out and that fixed investment cost are
exogenous and thus a constant at stage 3.
The court could be a national court, and in that case its objective may be to
maximize host country welfare (2), or world welfare (3) but with a weight on foreign
profits less than one. Alternatively, the court could be an investor-State dispute
settlement panel, which takes profits of the foreign firm fully into account, as
shown in (3). A bias toward foreign investors could be modeled by assuming that
the ISDS panel ignores part or all of host country welfare in (3). An ISDS panel may
differ from a national court in a number of other ways by, for example, granting
higher compensation to the foreign firm, or by having a different ability in identify-
ing the realization of the shock.
Equilibrium
The structure shown in Fig. 1 can be expressed as a mathematical model that is

phrased in game-theoretic terms: The model specifies players (foreign and domestic
investors, host country government, court), their objective functions (profits, host
country welfare) and choice variables (investment, regulation, court decision on
compensation), as well as the order of events. The solution concept is subgame-
perfect Nash equilibrium, which means that along any path of the game players make
rational, payoff-maximizing decisions given decisions of other players, and antici-
pating rationally future play (using expectations formed over stochastic events). The
subgame-perfect Nash equilibrium can be found by solving the game in backwards
fashion, that is, by solving the last stage of the game (either 3 or 2) first, given
previous possible paths, and then move to the next earlier stage (2 or 1), and so on.
To illustrate the concept of subgame perfection, consider an initial promise by the
host government to the foreign investor to pay compensation in case of tough
regulation in stage 2. This promise is not credible in the absence of legal appeal
(no stage 3) because at stage 2, when the firm has entered the country and cannot
reverse its investment, host country welfare (2) is maximized by paying no

compensation.
For the purpose of normative evaluation, the outcome under ISDS (stages 1 to 3)
can be compared to two other situations: against the outcome without ISDS (stages 1
to 2), and to the situation where world welfare is maximized from an ex ante
perspective, that is, taking the amount of investment into account. The latter is
crucial. Even if an ISDS panel maximizes world welfare ex post (at stage 3), that
is, after the investment and regulatory decisions have been made, this does not
guarantee an efficient allocation from an ex ante perspective, that is, maximizing
world welfare (3) from the perspective of the beginning of stage 1. In other words,
the investment decision may be distorted, thus leading to overall inefficiency, even if
there is ex post regulatory efficiency.
Insights from the Literature
In the remainder of this chapter, a few insights from recent articles are presented. The
choice of papers is selective, and not intended to provide a full overview, but rather
focuses on specific and interesting results.
Strategic Investment
ISDS tends to reduce the overregulation problem resulting from the hold-up problem
and thereby increases both world welfare and host country welfare if more foreign
investment flows to the host country. Konrad11 challenges this view: In a model with
one foreign and one host country (domestic) firm, all investors influence the regu-
lation set in stage 2 through the size of their investments, because at stage 2 the host
government weighs the cost and benefits of regulation, which in turn depend on the
size of the initial investments. In other words, by investing a lot the host govern-
ment’s net benefit of higher regulation decreases, thus inducing less regulation ex
post.
An application of this idea is the nuclear power industry. Large investments are
required to build a nuclear power plant. The number of firms in the industry is
relatively small, and many countries have both domestic and foreign firms operating
within their borders. The external effects from the usage of nuclear power, due to
nuclear meltdowns or the difficult disposal of waste, are potentially very large and
not fully known when the power plant was built. For example, the Fukushima and
Chernobyl events may have changed the perspective on the social costs of nuclear
power, and correspond to the stochastic event in the modeling structure shown in
Fig. 1.
11
Konrad KA (2017) Large investors, regulatory taking and investor-state dispute settlement. Eur
Econ Rev 98:341–353
674 E. Janeba
In terms of policy, countries reacted differently to the Fukushima catastrophe, and

the profits of domestic firms could have played a role in the decision. France, for
example, which relies a lot on nuclear energy, including from domestic firms,
decided to continue production, while Germany chose to phase out nuclear energy
production. Production from domestic firms in Germany is smaller than in France.
Interestingly, Vattenfall, a Swedish company producing nuclear energy in Germany
challenged Germany’s phase-out decision under an ISDS procedure.
To understand the intuition behind the role of strategic investment, Konrad
compares the outcome of the game with stages 1 to 3 with the one with stages 1 to
2 only. The ISDS decision in stage 3 is mechanical and non-biased. The shock in
stage 1 reflects a negative environmental externality if firms are allowed to produce,
whose realization is known to all players afterwards (and thus is contractible). In
stage 2 the government allows production or prohibits it in a nondiscriminatory way
(i.e., the decision applies for domestic and foreign firms alike).
In the absence of ISDS, the game ends with a bad outcome for firms when the
government prohibits production in stage 2, as standard theory predicts. The out-
come is beneficial for the host government however if the externality is sufficiently
large. With ISDS, prohibiting production leads to an automatic appeals process,
which is decided in favor of the firm (and thus compensation) if the realized shock is
lower than some threshold, and no compensation if the shock is above the threshold.
A key aspect is that the threshold depends on the levels of investment by domestic
and foreign firms.
The non-biased court compares the social cost from the externality with the
social benefits from production (¼profits of domestic and foreign firms) at the time
of appeal. Note the difference in objectives between the host government and the
ISDS panel: both engage in a cost-benefit analysis, but only the court is assumed to
take profits of the foreign firm into account and thus maximizes world welfare,
while the government maximizes host welfare. The influence of investments on
regulation occurs both with and without ISDS, but the strength of the effects
differs.
Without ISDS, the host government decision in stage 2 depends only on the
investment of the domestic firm, but not on the investment of the foreign firm. When
anticipated in stage 1, this leads to higher investment of the domestic firm compared
to the foreign firm. Moreover, the domestic firm invests too much relative to what
would be optimal ex ante if world welfare was maximized. As a result, the over-
investment leads to too permissive regulation from a world welfare perspective.
Under ISDS, the ex post efficient regulation provides the same ex ante incentives
in terms of investment for both firms. In that sense, ISDS sets a level playing field.
Moreover, each firm invests more than it would do so in the absence of ISDS. The
reason is that with the credible threat of induced compensation under ISDS (exter-
nality is observable to panel) the host government in stage 2 is forced to take foreign
profits into account. The host government therefore behaves as if it maximized world
welfare, which when anticipated in stage 1 leads to more investment by both firms.
Yet, higher investments lead to too permissive regulation from a normative
perspective.
The latter suggests that world welfare under ISDS is necessarily smaller than
without ISDS. This is not always so however, because the higher investment levels
lead to higher firm profits, which are counted positively in world welfare (3). Konrad
shows that world welfare under ISDS can be higher or lower than without ISDS
depending on model parameters. ISDS may thus have negative effects on world
welfare because large investors can exploit the efficiency orientation of the host
government that is induced by ISDS ex post.
Dynamic Regulation
Kohler and Stähler12 analyze the dynamics of regulation with and without ISDS in a
two period model. The compensation mechanism enforced by ISDS relates to the
difference in regulations over time: Compensation to the firm for lost profits needs to
be paid when regulation is tightened and an ISDS panel believes the government
lacks good reason for more regulation. Like in the previously discussed model
of Konrad, the likelihood of compensation affects regulation in both periods and
thus entry of foreign firms. This feedback effect has important consequences for the
normative evaluation of ISDS.
The setup in Konrad and Stähler differs from Fig. 1 in the following way. In an
initial period (called period 1), the host government sets a regulatory policy for that
period, taking the deterministic externalities from production in that period into
account. In addition, the host government may provide an investment subsidy to
foreign investors to make the country a more attractive investment place. After the
decision of the host country, a large number of foreign firms decide about entry into
the host country. If a firm enters, it is committed to stay there for the current and the
following period (lock-in). The entry decision is based on the expected discounted
profit from both periods. Entry is costly (fixed cost), and firms differ in their entry
cost, so that depending on the extent of expected regulation some but not all foreign
firms invest.
In the second period, the host government learns about the value of the external
effect in that second period, as the realization from a random draw. This information
is not verifiable by a third party, such as a court. Based on the information the host
government sets the regulation for period 2. In contrast to Fig. 1, the host govern-
ment sets regulatory decisions in two periods. The investment decision is in between
those, after regulation is set for period 1, but before regulation is adjusted in period 2.
Absent ISDS, the outcome is not efficient from a world welfare perspective.
There is too much regulation in period 2, which induces too little firm entry initially,
despite the government’s option to provide an entry subsidy upfront. Yet the result is
more subtle than this: The level of regulation in period 1 is efficient from a world
welfare perspective, because the regulatory standard for the initial period is set
12
Kohler W, Stähler F (2019) The economics of investor protection: ISDS versus national treatment.
J Int Econ 121:103254
676 E. Janeba
before firms decide on entry. This implies that the host government takes the firms’
entry conditions (invest or not) implicitly into account.
Now consider the possible role of ISDS: In the last stage, the panel decides on
compensation but does not observe the realization of the externality shock in period 2. It
receives a noisy (undistorted) signal about the true value, which is known only to the
government. It is assumed that the panel maximizes world welfare and therefore must
form beliefs about the legitimacy of the regulatory tightening (which is justified if
external costs have increased) against the chance that the host government is opportu-
nistic and exploits the weak situation of the firm once it is locked in.
Modeling ISDS as a marginal increase in compensation from zero (¼ no ISDS),
ISDS leads to less stringent regulation in period 1 and period 2 if the signal about the
stochastic benefit from FDI is sufficiently large and more firms enter. Hence, ISDS
can relax the overregulation problem in period 2, but leads away from efficient
regulation in period 1. Moreover, ISDS increases host country and world welfare
levels, if and only if it leads to more firm entry. The net effect on firm entry from
opposing regulatory changes is ambiguous however.
In addition, Kohler and Stähler show that a marginal increase in investor protec-
tion (by increasing the compensation payment under ISDS) induces more stringent
regulation in both periods if the level of protection is already sufficiently high. Thus
the effect of further investor protection on regulation is non-monotone: first decreas-
ing, then increasing.
The contribution of Kohler and Stähler is to focus on the endogeneity of lost
profits, and thus the level of compensation to be paid, which the host government is
able to manipulate through initial regulation. Moreover, they show that upfront
subsidies to attract FDI cannot completely offset the hold-up problem.
Regulatory Chill
A controversial issue in the literature on ISDS is that it leads to regulatory chill: a

government abstains from regulation if it is afraid of losing in court like an
international tribunal under ISDS. At first glance, the danger of regulatory chill
seems remote in so far as the host government can compensate the foreign firm for
lost profits if the negative externalities from foreign investment turn out to be large.
If the host government does not compensate the firm and foregoes regulation, then it
seems that regulation would not have been justified from a world welfare perspective
either. In its compensation decision, the host government weights compensation of
lost profits against the benefits of tighter regulation, exactly as maximization of (3)
would require.
Janeba13 shows that no regulation is prevented that is beneficial from a world
welfare perspective, but from a host county perspective this is not true. Hence, there
13
Janeba E (2019) Regulatory chill and the effect of investor state dispute settlement. Rev Int Econ
27(4):1172–1198
is no regulatory chill from a world but from a host country perspective. The reason is
that courts may err in assessing the claims for compensation and that may lead to
unjustified lawsuits against host governments. In other words, there is not only a
commitment problem leading to overregulation, but there is also the danger of too
little regulation because opportunistic firms may exploit the legal system to their
favor.
Turning to the model, in the absence of court challenges the framework in Janeba
corresponds to the one displayed in Fig. 1. With court challenges the modeling is the
same, with the exception that the shock in stage 1 does not affect the external benefits
or cost of the investment, but rather relates to the necessity of compensation under
the law. This assumption is inspired by the vague definition of indirect expropriation
and can be formally modeled as a stochastic process: with a certain probability the
State of nature requires compensation to be paid, while in others it does not. From an
ex ante perspective, it is uncertain which State of nature occurs. In addition, it is
assumed that a court does not always recognize correctly the State of nature.
There are two types of error: A court may award compensation to the firm when it
should not, and it pays not compensation to the firm even though it should. Because
of the former, lawsuits may be brought to a court by an opportunistic foreign investor
in order to extract rents from the government. While host government and foreign
firm know when a claim is legitimate, it is not verifiable to outsiders.
In stage 3 the foreign firm decides whether to challenge regulation without
compensation in court, which is costly. The firm maximizes expected profits,
which takes the probability of winning the court case into account. Suppose court
costs are low relative to the potential compensation payment. Janeba shows that only
rightful lawsuits are filed by the firm (those lawsuits where the intention of the law is
that the firm gets compensation), when court quality is high. By contrast, when court
quality is intermediate the firm always challenges the government, that is, in both
States of nature. Hence rightful and frivolous lawsuits occur.
The firm behavior in stage 3 feeds back into the regulatory decision of the host
government in stage 2. When the court quality is high, the host government behaves
optimally from a world welfare perspective: Regulate plus paying no compensation
when the State of nature speaks against compensation, and either no regulation
(externality low) or regulation plus compensation (externality large) when the State
of nature makes compensation legitimate. By contrast, when the court quality is
intermediate, the host government may or may not regulate depending on the
externality, but when it regulates it never compensates the firm for lost profits and
takes a gamble in court.
The latter opens the possibility of regulatory chill. While there is never
underregulation ex post from a world welfare perspective, and hence no regulatory
chill from a normative perspective, regulatory chill from a host country perspective
may occur. That is, the host government does not regulate, even though the State of
nature is such that no compensation should be paid: In case of intermediate court
quality the host government is afraid of being forced to pay compensation to the
firm, and going to court is in expected terms not beneficial when the court errs with
sufficient likelihood. This situation happens when the externality is intermediate. If
678 E. Janeba
the externality were high, regulation plus compensation of lost profits would be
superior.
The legal system just described could be any court, a national court or an
international tribunal under ISDS. The framework allows Janeba to model differ-
ences between national courts and tribunals. For example, tribunals may have
superior quality in decision making, which may be plausible in case of weak legal
systems in some developing countries. Alternatively, the strength of investor pro-
tection could be better because the awarded compensation is higher. He shows that a
marginal improvement in court quality has no effect when court quality is suffi-
ciently high, but may benefit the host government in a situation of regulatory chill.
Finally, simultaneous changes in court quality, compensation payments and likeli-
hood of a State of nature making compensation necessary by law may make both
host government and foreign government better off.
Design of Compensation Schemes
The focus of most articles in the literature is on comparing the outcome under ISDS
with the one without. It is interesting to ask, however, how an optimal ISDS scheme
should look like, in particular by analyzing under which circumstances and how
much compensation should be paid. These questions are asked by Horn and
Tangeras.14 To do so, they introduce a stage prior to the foreign investor’s investment
decision: stage 0, in which countries negotiate the terms of the compensation scheme
if under ISDS compensation to the firm is awarded. The rest of the setup corresponds
to the one shown in Fig. 1. At the end of stage 1 a shock is realized involving an
externality for the host country, if production is allowed by the host government in
stage 2. The externality is observed by all parties and in the base case of the model it
is also verifiable in court. In the absence of ISDS there is overregulation and
underinvestment. With ISDS, the government in stage 2 either permits production
or regulates the firm and compensates it. There is no option to regulate and not to
compensate, due to ISDS.
Horn and Tangeras analyze to what extent host governments should be allowed to
regulate without compensation. The extent is called police powers carve out. The
smaller the carve out, the better for the firm, and vice versa for the host government.
In the model the carve out is defined by a set of values of the externality. Two
compensation schemes are considered. Under a general compensation scheme, the
host government pays a payment to each foreign investor if it regulates. The payment
may or may not relate to a firm’s profits. Under a carve-out compensation scheme,
the host government compensates each firm for its loss in profits if it regulates,
but only if the externality crosses a certain threshold, and does not pay otherwise.
14
Horn G, Tangeras T (2019) Economics of international investment agreements, revised manu-
script, October 4, 2019
The two schemes differ therefore in terms of conditionality on the externality and the
nature/size of payment.
The key insight of Horn and Tangeras is the following: the carve-out compensa-
tion scheme implements in a number of situations the jointly efficient outcome that
would be obtained if the governments negotiated a treaty with side payments. It thus
provides a foundation for full compensation, and not only partial compensation of
profits, and the legitimacy of carve outs, that is, the existence of situations when
compensation should not be paid. Both features are in line with observable charac-
teristics of actual international investment agreements.
The main conclusion in Horn and Tangeras generalizes earlier findings by Aisbett
et al, who show the benefits of carve outs, which lower expected compensation and
thus lead to efficient firm entry into the host country.
Concluding Remarks
Economic theory makes normative assessments about the costs and benefits of ISDS
possible. The game-theoretic approach to ISDS shows that there are often subtle
feedback effects from ISDS on regulatory decisions by host governments or invest-
ment decisions by foreign firms that in turn influence the efficiency of the overall
outcome from an ex ante perspective, such as the role of strategic investment by
large investors or the dynamics of regulation over time. In addition, theoretical
models can be used to formalize and assess concepts like regulatory chill that are
hard to measure empirically.
The existing theoretical approaches have some weaknesses however. For exam-
ple, in the formal models ISDS is still largely a black box, more or less institution
free. Take critics of ISDS who claim that ISDS panels favor investors due to the
panelists background.15 While economists have modeled the quality of court deci-
sions, they have not assumed them to be biased. This assumption could be changed
however. For example, in Kohler and Stähler, described above, the signal about the
external cost could be biased in a direction that favors the firm.
While economic theory provides novel insights, it is difficult to assess the
empirical relevance and quantitative importance of the effects discussed in this
article. In theoretical models one can compare easily outcomes with and without
ISDS, but in practice counterfactuals cannot be observed. Comparing countries with
ISDS with those that do not is bound to fail, as many other things differ between the
two set of countries, and not all of these differences are observable and are easily
controlled for in an econometric analysis. In order to make progress, economic
theory needs to work out specific model implications, for which quasi-random
data can be used to analyze the effects of institutions empirically.
15
Gaukrodger D, Gordon K (2012) Investor–state dispute settlement: a scoping paper for the
investment policy community. OECD working papers on international investment, no. 2012/3).
OECD, Paris
680 E. Janeba
Cross-References
▶ Arbitration Clauses Limited to Compensation due to Expropriation: Relevant

Case Law, Interpretive Trends, and the Case of China’s Treaty Policy and Practice
Application
▶ The Politics of Investor-State Dispute Settlement: How Strategic Firms Evaluate
Model Instrument for Management of
Investment Disputes 28
Alejandro Carballo Leyda
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682
The Model Instrument on Management of Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 684
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685
Responsible Body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692
Financial Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702
Confidentiality and Dissemination of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703
Use of Negotiation, Mediation, and Other Amicable Settlement Mechanisms . . . . . . . . . . . . 705
Final and Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 706
Abstract
If not timely addressed, conflicts between foreign investors and host States may
escalate into full disputes. Those disputes often involve essential public policies,
attract great scrutiny of the media, and implicate claims for substantial monetary
damages as well as risks of reputational damage and of losing investments.
Independently of the ongoing discussions on potential reforms to the Investor-
State Dispute Settlement (ISDS) system, effective conflict prevention and dispute
management mechanisms are and will still be fundamental. The Model Instru-
ment on Management of Investment Disputes seeks to provide government
officials with a comprehensive overview of the legal, institutional, and practical
issues that need to be considered for the effective management of investment
A. Carballo Leyda
General Counsel and head of the Conflict Resolution Centre, Energy Charter Secretariat, Brussels,
Belgium
e-mail: alejandro.carballo@encharter.org

https://doi.org/10.1007/978-981-13-3615-7_19
682 A. Carballo Leyda
disputes (including the use of negotiation, mediation, and conciliation). The

Model Instrument could be voluntarily used by governments as a reference or
guide to develop or update their framework for managing investment disputes
taking into account their specific administrative needs as well as cultural/legal
particularities.
Keywords
Conflict prevention · Responsible body · Dispute management · Mediation ·
Strategy for resolving disputes · Early alert mechanism
Introduction
In 2017 the Energy Charter Secretariat conducted a survey and analyzed the domes-
tic legislation of several Contracting Parties to the Energy Charter Treaty (ECT) to
identify potential obstacles and concerns of States that may still hinder the effec-
tiveness of investment mediation. The main findings of the research showed that
most government officials were concerned by the lack of a clear domestic legal
framework. In most cases, the State agency dealing with an investment dispute has to
rely on ad hoc authorizations (by the Cabinet or the head of State) to settle it (or even
to enter into discussions with foreign investors). This lack of a clear legal framework
not only diminishes the legitimacy of any potential settlement agreement but, more
importantly, disincentives government officials to enter into investment mediation
due to fears of possible allegations of corruption and abuse of power leading to
(civil/criminal) liability and lack of funding for the process. The research also
pointed out the absence of an early, independent assessment of the dispute to
ascertain the best (most effective) course of action (including the possibility of
solving the dispute by negotiation or mediation).
In additional workshops and seminars, as well as in further discussions with
government officials, it was mentioned that the lack of a clear domestic legal
framework referred, in many cases, to the overall management of investment
disputes and not only to its amicable settlement. Most Investment Contracts and
International Investment Agreements (IIAs)1 entered into by States contain specific
International Dispute Settlement Mechanisms that usually are not well known and
familiar to those public entities directly involved in potential disputes arising out of
them. Furthermore, investment disputes are typically complex and rarely affect a
single Public Entity, so proper internal coordination is crucial to managing those
disputes effectively.
Therefore, the Energy Charter Secretariat was requested to draft a Model Instru-
ment that could be used voluntarily as guidance by States seeking to implement or
update their own functional and comprehensive domestic legal and institutional
1
Capitals are used for terms defined in the Model Instrument.
28 Model Instrument for Management of Investment Disputes 683
framework for the management of investment disputes (including effective use of

negotiation, mediation, and conciliation).
The Model Instrument has been developed with the support of the Investor-State
Mediation Task Force of the International Mediation Institute (IMI) based on
discussions with international institutions and government officials dealing with
investment dispute resolution, as well as on several existing documents from Europe,
Asia, and Latin America: Chile (Decree of 2016),2 Costa Rica (Regulation of 2009),3
Croatia (Decisions of 2013 and 2014),4 the Dominican Republic (Decree of 2015),5
Latvia (Legal provision of 2017)6, Slovakia, Peru (Law of 2006),7 and Vietnam
(Decision of 2014).8 In addition, other documents could be considered: Colombia
(Decree of 2013, Resolution of 2014 and Directive of 2016)9 and Kyrgyz Republic
(Regulation of 2014 amended in 2016).10 Some of them simply created a lead
agency to manage investment disputes, while others also included prevention
tools, information and coordination systems, provisions for the elaboration of a
strategy for the resolution of investment disputes, etc.
An initial workshop with government officials from several countries, the World
Bank, UNCITRAL (UN Commission on International Trade Law), AALCO (Asian
African Legal Consultative Organization), and UNCTAD (UN Conference on Trade
and Development) took place in Brussels on 6 July 2018 to discuss an initial draft.
The Secretariat had additional discussions, among others, during the UNCITRAL
Trade Law Forum on 11 September in South Korea, the Seminar on investment
dispute resolution organized by AALCO on 20 October in Tanzania, and at a seminar
on 3 December 2018 in Washington, DC with the participation of the World Bank
and ICSID (International Centre for Settlement of Investment Disputes).
On 23 December 2018
2
Decreto 125 crea comité interministerial para la defensa del estado en controversias
internacionales en materias relativas a inversiones y regula la coordinación para la solución de
dichas controversias.
3
Reglamento para la Prevención y Atención de las Controversias Internacionales en Materia de
Comercio e Inversión N 35452-MP-COMEX.
4
Odluku o osnivanju Međuresornog povjerenstva za postupanje po zahtjevima stranih ulagača
vezanim uz sporove koji proizlaze iz dvostranih ugovora Republike Hrvatske iz područja poticanja i
zaštite ulaganja.
5
Decreto No. 303-15.
6
Noteikumi Nr. 228 Pārstāvī bas nodrošināšanas kārtī ba starptautisko ieguldī jumu strīdu
izskatī šanā.
7
Ley N 28933 que establece el Sistema de coordinación y respuesta del estado en controversias
internacionales de inversion.
8
Decision No. 04/2014/QD-TTg of the Prime Minister on promulgation of regulation on coordina-
tion in resolution of international investment disputes.
9
Decreto 1939 de 2013 por el cual se reglamenta la atención de controversias internacionales de
inversión; Resolución 305 de 2014; Directiva Presidencial N. 2 de 2016.
10
Положение о Центре судебного представительства Правительства Кыргызской
Республики (В редакции постановления Правительства КР от 10 июня 2014 года № 320,
7 сентября 2016 года № 487).
Recognising the value of an early and effective resolution of investment disputes,

Considering that the Model Instrument will assist States in enhancing their management
of investment disputes while keeping their own particular needs and circumstances,
the Energy Charter Conference took note on the Model Instrument on Investment
Dispute Management and recommended Contracting Parties to consider it with the under-
standing that there is no requirement to enact the Model into their domestic laws
The Energy Charter Secretariat stands ready to provide technical assistance and
capacity building for governments preparing an implementing document based on
the Model Instrument. The Secretariat also welcomes comments concerning the
Model Instrument and its explanatory note, as well as information regarding its
implementation.
During 2019, Albania, Azerbaijan, Gambia, and Nigeria will have seconded
officials at the Energy Charter Secretariat to develop their instrument based on the
Model. Other States have expressed their interest in receiving support for developing
their instrument during 2020.
The Model Instrument on Management of Investment Disputes
While parts of the Model Instrument may seem too detailed, the aim has been to
cover as many practical issues as possible based on the experiences and needs of
consulted government officials dealing with investment disputes. It is for the State
implementing the Model Instrument to decide the level of detail needed and
whether some issues should be better developed by ancillary documents. Besides,
the title (“Model Instrument”) provides States (following UNCITRAL practice)
with the flexibility to implement it by way of a Protocol, Decree, Decision, Law,
Order, or any other instrument they consider more fit according to their legal
system.
Preamble
Whereas
I. [x] has entered into international investment agreements that contain International
Dispute Resolution Mechanisms, and the government and its agencies may also enter
into contracts with foreign investors that contain dispute resolution mechanisms;
II. Foreign investment disputes, if not addressed early and adequately, may implicate
important public policies, political and financial considerations, legislative and regula-
tory activities, and possibly the international reputation of [x];
III. [x] is committed to preventing and managing foreign investment disputes before formal
dispute resolution becomes necessary, by facilitating efficient and coordinated inter-
institutional actions; and to effectively and efficiently resolving such disputes;
IV. [x] has determined to follow such efficient and coordinated inter-institutional actions, as
set out in this Instrument.
The preamble is an optional section that usually lists the reasons and purpose of
the enacted instrument (e.g., Costa Rica, the Dominican Republic, Chile, and
Colombia). It, therefore, may differ from State to State, though the underlying
principle may be the same: adequate preparation, management, and internal coordi-
nation are crucial to managing investment disputes effectively. The preamble can
help explain government officials not familiar with investment disputes why the
enacted document is needed and relevant.
General Provisions
[Article 1
Declaration of public interest
The prevention and management of International Investment Disputes involving [x] and any
actions necessary to ensure its effective resolution or adequate defence are declared to be
matters of public interest.]
Article 1 contains an optional provision, the use of which will depend on the legal
system and legislative tradition of the enacting State. Some States may want to
underline the particular importance they attach to the settlement of investment
disputes by declaring it as a matter of “public interest” since the State’s public
policies, reputation, and political/financial factors are at stake (e.g., Costa Rica and
the Dominican Republic – Chile refers to “strategic matter of key importance”).
However, for other States, such declaration may have no particular use.
Article 2
Scope and purpose
1. This Instrument shall guide [x] in seeking to manage and resolve International Investment
Disputes against [x].
2. The terms of this Instrument shall guide any Public Entity as defined in Article 3.
3. This Instrument addresses tasks, powers, decision-making, information-sharing, financial
considerations, coordination among State agencies, relevant organisations and individ-
uals, and representation of the State in the resolution of International Investment Dis-
putes, with the following purposes:
a) Ensuring the effective and timely managing of the International Investment Disputes
by optimising the cooperation and coordination within Public Entities;
b) Allowing an early warning mechanism and associated procedure to enable resolu-
tion, where appropriate, of any emerging International Investment Dispute;
c) Establishing the sole and exclusive representation of the State towards the dispute,
the claiming investor, the tribunal, the public opinion and any other related stake-
holder of the
d) Defining the procedure for coordination between Public Entities involved in the
resolution of an International Investment Dispute;
e) Defining the procedures for the preliminary assessment and conduct of negotiation,
mediation and conciliation, as well as their interaction with investment arbitration
proceedings;
f) Conducting dispute resolution mechanisms and concluding a settlement agreement if
possible
g) Defining the procedure for the hiring of external legal counsel and experts
h) Setting rules for the expenses involved in an International Investment Dispute and
defining a system of financial oversight and payment of associated costs, settlement
agreements and awards;
i) Centralising and dealing with public access to information on concluded interna-
tional agreements and contracts with investment dispute settlement mechanisms, as
well as information on potential, pending and decided International Investment
Disputes; and
j) Addressing questions of confidentiality and dissemination of information, in
relation to the existence, resolution, and outcome of an International Investment
Dispute.
The Model Instrument does not deal with trade or other types of disputes (e.g.,
State to State) since they are of a different nature and may involve different
Responsible Bodies and procedures. However, some States may decide to have
one single instrument to deal jointly with investment and trade disputes (e.g., the
Dominican Republic and Costa Rica).
While the Model Instrument focuses on the management of investment disputes
(allowing States more flexibility in deciding whether to address prevention mecha-
nisms in a separate instrument), it still contains several useful tools for the prevention
of investment disputes such as centralization of information (Article 6), consistency
(Article 7), and early warning mechanism (Article 8). Prevention tools are designed
to facilitate the early identification and resolution of investors’ grievances, thereby
avoiding the escalation of conflicts into full legal disputes. On the other hand,
management tools allow for an effective and coordinated response from the host
State to an already existing legal dispute. While some States extend the competence
of the Responsible Bodies to conflict prevention (e.g., the Dominican Republic and
Costa Rica), others prefer to have a different entity (and even a different set of rules)
to deal with it.
Article 3
Definitions
1. International Investment Disputes according to this Instrument are those disputes derived
from:
a) [‘Investment Contracts’, entered into between Public Entities and foreign investors,
that direct disputes to international dispute settlement mechanisms; and]
b) ‘International Investment Agreements’, entered into by [x] with other States or
[Regional Economic Integration Organisations / International Organisations] that
establish procedures for the settlement of disputes between investors of one
Contracting State and the other Contracting State in which an investment is made
by such investor.
2. International Dispute Settlement Mechanisms include arbitration, negotiation, mediation,
conciliation and other procedures and techniques to which [x] or its Public Entities gave
their express consent in the International Investment Agreements and Investment Con-
tracts as defined in paragraph 1 of this Article, or agreed by the parties to the International
Investment Dispute.
3. Public Entity includes but is not limited to:
[ a) the Government of [x] including its Ministries;
b) other [central/federal] public entities;
c) the Office of the President;
d) the Parliament;
e) the courts and the state prosecutors;

f) [regional/local] public entities;
g) municipalities;
h) State owned enterprises.]
4. Involved Public Entities are those Public Entities that (i) have been expressly mentioned
in the notification of the dispute; (ii) were involved in the drafting, negotiation, conclu-
sion and/or execution of the International Investment Agreement or Investment Contract
of which the dispute derives; or (iii) were directly or indirectly involved in the adoption
and/or implementation of the measures that form subject-matter of the dispute.
5. Foreign Investors are legal entities or individuals parties to Investment Contracts or
satisfying the criteria on foreign investors according to [x] law [on Foreign Investment],
or International Investment Agreements of which [x] is a contracting party.
6. Responsible Body is:
a) Option 1: The Ministry of [. . .], hereinafter ‘the Ministry': in the case of International
Investment Disputes arising out of International Investment Agreements;
Option 2: The Inter-Institutional Commission, hereinafter ‘the Commission’: in case
of International Investment Disputes arising out of International Investment
Agreements;
Option 3: Other option that better reflects the particularities of the State while
providing required coordination.
b) The Public Entity that leads the negotiations or signed, on behalf of the Government,
a contract with foreign investors: in case of International Investment Dispute arising
out of an Investment Contract.
The Model Instrument covers investment disputes arising out of both Interna-
tional Investment Agreements and Investment Contracts since those disputes involve
similar complexities and concerns (although the State may decide to designate
different Responsible Bodies). Still several disputes between foreign investors and
host governments are contractual (e.g., 16% of ICSID registered cases up to the end
of 2018 are contract-based disputes; around 38% of investment cases of the 2018
PCA docket arose out of contracts involving a State or other Public Entity; over 15%
of the 810 ICC cases filed in 2017 involved a State or State entity – with only four
cases based on an IIA).11 Sometimes investors invoke simultaneously one or more
IIA, together with an Investment Contract and/or the investment law of the host
State.
International Dispute Settlement Mechanisms are defined by the pre-agreed pro-
cedures included in the IIA or the Investment Contract but also by agreement
between the foreign investor and the host State before or after the dispute emerge.
Several investment laws of a host State allow parties to an investment dispute –
concerning the rights and obligations set forth in the investment law – to agree to
international arbitration under UNCITRAL or ICSID arbitration rules (only 9% of
ICSID registered cases up to the end of 2018 have the investment law of the host
State as the only basis for jurisdiction).12
11
ICSID caseload statistics, Issue 2019-1; PCA Annual Report 2018; 2017 Dispute Resolution
Statistics of the International Court of Arbitration of the International Chamber of Commerce (ICC).
12
ICSID caseload statistics, Issue 2019-1.
The Model Instrument also gives a non-exhaustive list of Public Entities, which
will inevitably differ from State to State taking into account their own needs and
administrative organization. For example, some States would prefer/be required to
involve regional or local authorities, while others would consider only their central
authorities.
Involved Public Entities are those who have a direct link to the subject matter of a
dispute (e.g., they are in charge of the sector in which the dispute arose), which were
involved in the measure or act that triggered the conflict, or which possess informa-
tion relevant for its resolution. The definition of Involved Public Entities is inclusive
and dynamic as each dispute may have different Public Entities involved. The
economic activities of foreign investors, in particular in sensitive sectors such as
energy, are usually highly regulated resulting in frequent interaction with several,
sometimes competing, authorities of the host State. Since some of these Public
Entities are not familiar with the international and contractual obligations undertaken
by the State, they may inadvertently violate those commitments. Consequently, it is
useful to consider practical capacity building activities on international investment
obligations for government officials interacting directly with foreign investors (e.g.,
such a requirement is expressly included in Colombia’s Directive).
While the Model Instrument uses the expression of “Responsible Body,” another
frequent used term is that of “Lead Agency.” The Model suggests having different
Responsible Bodies to deal with disputes arising out of international contracts (see
Article 9 below) and IIAs (see Article 10 below). However, some States may prefer
to have a single Responsible Body dealing with all investment disputes (e.g., Chile,
Colombia, Czech Republic, Kyrgyz Republic, Peru, and Slovakia), while others
even include trade disputes under the control of the Responsible Body (e.g., the
Dominican Republic and Costa Rica). Regarding the structure of the Responsible
Body, some States opt for an Interinstitutional Commission (e.g., Croatia, Chile,
Colombia, Peru, Costa Rica), while others identify a single ministry or agency (e.g.,
Slovakia, Czech Republic).
Some States have set up temporal institutional mechanisms (Responsible Bodies)
to deal with a particular investment case, e.g., Guatemala established in 2009 a
temporal Interinstitutional Commission to support its defense in two investment
arbitrations.13 The commission was intended to function until the awards were
issued or an amicable settlement reached. However, in 2018 the government
extended the scope and temporal application of the commission to cover (i) a new
investment case – considering not only arbitration but also negotiations and concil-
iation – as well as any other controversy related to the energy sector and (ii) to follow
up judicial proceedings related to the awards issued in investment arbitration cases.14
13
Acuerdo gubernativo número 128-2009.
14
Acuerdo gubernativo número 94-2018.
Article 4
General Principles of Coordination
1. Efficiency. The Responsible Body and other Involved Public Entities shall coordinate
their efforts in the management of International Investment Disputes proactively, ade-
quately, timely, efficiently as prescribed in this Instrument to protect the rights and
interests of [x].
2. Comprehensiveness. Coordination for the prevention and management of International
Investment Disputes shall be continuously provided at all stages of the International
Investment Dispute, in particular the notification of the potential dispute, cooling off or
amicable settlement period, arbitration, potential negotiation, mediation and conciliation
(prior to, during or after the arbitration), resolution and enforcement.
3. Inclusiveness. The coordination shall include both current public employees of the
Involved Public Entities and those who are no longer actively employed by the
Involved Entities. Their attendance may be required at different stages of the pro-
ceedings, including participation in the capacity of witnesses. [Delay or refusal to
cooperate by a current public employee may be subject to administrative sanction
under the Law on . . .].
4. Cooperation. All Public Entities are subject to a general cooperation duty.
Once the dispute has arisen, efficiency is critical. During investment arbitration
proceedings, States are bound by strict deadlines imposed by the tribunal. Therefore,
it is advisable that the composition of the team dealing with the dispute should take
place at the very beginning when the Responsible Body is notified or otherwise
becomes aware of the likelihood of the dispute. If the Responsible Body starts
determining the team after a notice of arbitration is received, it may miss some
crucial deadlines and reduce any potential window for negotiation or mediation with
the foreign investor.
It is useful that the Responsible Body designates one person within it as the
coordination point. Thus, any notice of dispute would go immediately to that person,
and he/she would have the authority to (i) compose the team dealing with the dispute
at stake and (ii) appoint or recommend an external counsel (if needed). The team
should include one ultimate decision-maker to whom the external counsel (if
engaged) will have direct access when a quick decision has to be made. The principle
of comprehensiveness stipulates that coordinated actions are required at all phases of
the dispute settlement.
International Investment Disputes may be triggered by events that took place
years ago. Institutional memory is therefore crucial. When the dispute arrives,
employees of the Involved Public Entities may have retired, moved, or changed
office. Hence, it is important to envisage the principle of inclusiveness calling former
employees for cooperation in the resolution of a dispute, including the provision of
evidence.
However, acting as a witness usually is not a mandatory activity. Therefore, to
ensure public officials’ full cooperation in dispute settlement proceedings, they
should be assured that none of their statements will be used against them. Further-
more, the imposition of any liability on public officials for noncooperation may
produce adverse effects: public officials called to give testimony will want to
reduce their own risk (giving reduced evidence) rather than collaborate with the
defense.
Article 5
Content of Coordination
The coordination between Public Entities and the Responsible Body includes, but is not
limited to the following:
a) Centralisation of information as stated in Article 6.
b) Consistency of Dispute Settlement Provisions as stated in Article 7.
c) Early Alert Mechanism as prescribed in Article 8.
d) Coordination at all stages of the management of the International Investment Dispute,
including amicable settlement, arbitral/conciliation/mediation proceedings and enforce-
ment as described in Chapter II of this Instrument.
Article 6
Centralisation of Information and Transparency
1. The Ministry / Commission shall serve as a repository for all concluded International
Investment Agreements and Investment Contracts. The conclusion of International
Investment Agreements or Investment Contracts shall be notified, together with one
signed copy, within the period of [fifteen] working days to the Ministry / Commission.
2. The Ministry / Commission shall publish the texts of International Investment Agree-
ments [and Investment Contracts] within [fifteen] working days on its website in the
public registry subject to the confidentiality requirements of Law on [. . .].
3. The Ministry / Commission shall, to the extent possible and in accordance with the
applicable legislation of [x], provide transparent access to the information on concluded
and pending International Investment Disputes.15
The centralized storage of all data on concluded IIAs and Investment Contracts is
crucial for both dispute prevention (these IIAs and contracts should be duly reviewed
for risk assessment and could serve as basis/reference for negotiation of future IIAs
or contracts) and dispute management (the travaux préparatoires of concluded IIAs
may serve as additional source of treaty interpretation). A publicly available example
is the Colombian website that contains the applicable domestic legal framework for
the management of investment disputes, IIAs in force, and reference to investment
arbitration disputes against Colombia.16
While many States provide that people’s ability to receive information is a
fundamental constitutional right, often public access to information is subject to
specific national legislation, which can differ in scope, requirements, and extension.
Therefore, the Model Instrument refers to the relevant domestic law.
This centralization of information is part of an important prevention tool known
as stocktaking, which aims at providing a comprehensive understanding of the
national investment environment. Other processes and audits to be considered are:
• Early analysis of potential gaps between specific provisions of domestic law and
international treaties binding on the State
• A comprehensive study into problems, conflicts, and disputes the host State
experienced in the past
15
UNCITRAL Rules of Transparency may apply to a certain extent.
16
https://defensajuridica.gov.co/Paginas/dji/index.aspx
• Monitoring of sensitive sectors prone to international disputes or on which the

State’s economy may be too dependent
• Overview of the host State agencies most frequently involved in the conflicts to
consider capacity building and other measures
Article 7
Consistency
1. The Ministry / Commission shall draft and provide a model of the investment dispute
settlement clause to be used in negotiations of future International Investment Agree-
ments and Investment Contracts with the aim of achieving greater consistency and
standardisation.
2. In case of deviation from the model clause referred to in paragraph 1 of this Article, the
negotiating Public Entity shall submit the wording of such clause to the Ministry /
Commission for approval before the conclusion of negotiations, together with the
reasons for such alternative wording. The Ministry / Commission shall issue its [binding
opinion/recommendations] [within . . . working days].
3. The Ministry / Commission shall ensure consistency on the State declarations and defence
arguments in different International Investment Disputes.
[4. The Ministry / Commission may establish a set of rules and practices for contracting
external legal counsels and other experts.]
Many States have a Model Bilateral Investment Treaty (Model BIT), which is
used as the basis for negotiation of IIAs but also reflects the investment policy of the
State. However, contracts that often lack transparency are negotiated under
high pressure, and their negotiators are not always fully aware of the international
obligations and investment policy of the State. Therefore, it is important to
seek consistent dispute settlement provisions in IIAs and Investment Contracts (as
well as with the dispute resolution provisions of the investment law of the State).
Such consistency would facilitate similar administration of the disputes resulting in
more predictability. Therefore, it is helpful to have the Responsible Body involved
in the drafting of IIAs and Investment Contracts (e.g., the Dominican Republic
or Peru).
Furthermore, taking into account the increased transparency and public access to
investment arbitration, as well as the number of parallel or related proceedings, it is
advisable for States to be consistent in their arguments in cases with similar subject
matters in order to avoid contradictions (or claimants using a previous argument of
the State against it), as well as to avoid inconsistencies with their investment and
other national policies.
Article 8
Early Alert Mechanism
Any Public Entity that is notified or otherwise becomes aware of the existence or
likelihood of an International Investment Dispute involving [x] shall notify the Responsible
Body in writing immediately. The notification should include all the relevant information
and documents in its disposal that are related to the International Investment Dispute.
A poor interaction, sharing of information, and coordination between different

public entities usually result in the escalation of conflicts with foreign investors.
A quick and coordinated reaction can help to defuse a critical grievance or even a
dispute at its early stages.
While many investors lack experience in investment disputes, they have time to
carefully prepare their claim with the support of their legal counsels. On the contrary,
procedural deadlines often start running for the State before it has identified the
agency or Ministry responsible for the case. Therefore, even if arbitral institutions
and tribunal can provide with extensions, time is of the essence for the States. As an
example, the Svea Court of Appeal in 2016 refused the State’s objections that it had
not been afforded enough time to the appointment and challenge of arbitrators.17
The IIAs and Investment Contracts usually do not contain contact details of the
responsible official or Public Entity to whom investor should address its concerns.18
Thus, the investor may lose a lot of time trying to reach out to the relevant entity,
while the latter may not be aware of the existence of potential problems with the
foreign investor (in some cases, the investor may send notices to several ministries,
with copy to the President or Prime Minister – even to several embassies – with the
risk that each entity considers that the others are dealing with the problem). This lack
of information and communication may result in the escalation of conflicts into full
disputes instead of facilitating their potential resolution at the initial stage.
Hence it is essential to have a well-functioning mechanism which enables a swift
exchange of information. An online preventive system could be undertaken to ensure
better connectivity between different layers of Public Entities: it could be a digital
platform containing all IIAs and Investment Contracts of the State with International
Dispute Settlement Mechanisms, as well as some information about the Responsible
Body. Public Entities would be obliged to notify the Responsible Body, via this
digital platform, of any threat of a dispute with foreign investors.
Alert mechanisms are contained in the instruments of Chile, Colombia, the
Dominican Republic, Peru and Vietnam.
Responsible Body
Article 9
Responsible Body for Resolution of Disputes Arising out of Contractual Obligations
1. The Public Entity that negotiated or signed on behalf of [x] contracts with foreign
investors shall be responsible for the resolution of disputes arising out of those contracts.
17
Case T 2675-14, judgment of 9 December 2016. The State argued, among others: the complexity
of the dispute; the fact that it was a sovereign state; that the sending of documents took time to reach
the appropriate Ministry; that it could not easily understand English; that it must be afforded a
reasonable time to retain counsel; and that the appointment of an arbitrator required careful
consideration and communication. However, the arbitral institution had granted several time
extensions.
18
Some new IIAs identify the specific agency that should receive notifications (e.g., annex 9-d of the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP) in case of an
investor claim, though it is not clear whether such entity will be in charge of the defence and
representation of the State.
2. In case the Public Entity referred to in the previous paragraph has ceased to exist due to
the internal restructuring or any other event, the Public Entity that succeeded it or took
over the functions of the Public Entity that has ceased to exist shall be responsible for the
resolution of International Investment Disputes arising out of the contracts negotiated or
signed by the dissolved Public Entity.
3. In exceptional cases, the Ministry / Commission shall decide on the appointment or
designation of the responsible Public Entity.
The Public Entity that negotiated or signed on behalf of a State a contract with a
foreign investor is the most familiar with the subject matter of a dispute arising out of
that contract. Therefore, it is reasonable to designate it as Responsible Body for
disputes arising out of the contract, e.g., Vietnam.
The succession of responsibility should be ensured from the Public Entity that has
ceased to exist to the Public Entity that took over its functions. Since the
restructuring of Public Entities is often officially documented, this would eliminate
any ambiguity in the identification of the Responsible Body.
Some exceptional cases may appear, such as when there is no clarity on which
one is the responsible Public Entity (because of shared competences, or when several
Public Entities had been signed the contract, or when competences relative to a
dispute at stake shifted to another Public Entity). In such circumstances, the Minis-
try/Commission will need to intervene and appoint the Responsible Body. The
Model Instrument could include a deadline for the appointment of the Responsible
Body in such cases.
Article 10
Responsible Body for resolution of Disputes Arising out of International Investment
Agreements
Option 1 (a single unit, department or person)
1. The Ministry of [. . .] shall be responsible for representing [x] in case of International
Investment Disputes arising out of International Investment Agreements.
2. It shall expressly appoint a specific unit, department or person within it to carry out all the
functions and responsibilities entrusted to the Ministry according to this Instrument.
3. The Ministry of [. . .] shall act as the legal representative of [x] for the purposes of this
Instrument.
Option 2 (an inter-institutional commission)

The Inter-Institutional Commission for the Settlement of International Investment Dis-
putes, the Commission, is hereby created to coordinate, prevent and manage dispute
settlement proceedings initiated against [x] pursuant to International Investment
Agreements.
Option 3: other option that better reflects the particularities of the State while providing
the required coordination
Option 1: In some States, an existing Ministry (e.g., Ministry of Justice or

Ministry of Finance) is the sole responsible for the resolution of all investment
disputes arising out of IIAs. This option enables the designated Ministry to create a
full-time team of qualified and experienced lawyers who can either defend the State
in case of smaller, manageable claims or work as a focal point between the external
counsel and other concerned public entities in case of larger, complex claims.
However, such Ministry usually has many other additional tasks not related to the
dispute settlement. For that reason, it is useful to specify which particular unit/
department/person will carry out all the functions and responsibilities of the Respon-
sible Body. Additional internal regulation can identify the relevant department or
unit within the Ministry. The responsible Ministry ought also to be the one autho-
rized to represent the government, diminishing the risk of inconsistencies and
unnecessary bureaucratic delays.
Option 2: In contrast to Option 1, this option (an Interinstitutional Commission)
envisages the creation of a separate, specific body with the sole responsibility of
managing and representing the State in investment disputes. In different jurisdic-
tions, the Interinstitutional Commission has different titles but plays a similar role.
This body could be a stand-alone entity with legal capacity or a Commission
composed of representatives of various ministries (as suggested by the Model
Instrument).
The Interinstitutional Commission may have a different composition and work
frames depending on the State administrative structure. The Model Instrument
contains in an annex more detailed provisions on how the commission could be
set up and operate. Those additional provisions could be included in the adopted
instrument or ancillary implementation documents. The Model Instrument suggests
an indicative list which includes officials from:
• The Ministry of Justice, as the main body that regulates State legal policy and
conducts the State’s legal defense.
• The Ministry of Foreign Affairs, which is responsible for international represen-
tation of the State (international communication, the involvement of diplomatic
channels, etc.).
• The Ministry of Finance, as the main body responsible for the allocation of
financial resources for the dispute settlement and execution of decisions and
awards.
• The Ministry of Economy, which in many States carries out the tasks in the fields
of tax, budgeting, and conducts negotiations of IIAs.
• The Office of the Investment Ombudsman or similar body in charge of preventing
investment disputes: The ombudsman is a public official with a mandate to
process impartially the complaints received from private individuals or compa-
nies regarding decisions, actions, or omissions of public administration. Its role
may vary from the settlement of specific issues at an early stage to formulating
general proposals addressed to the public administration. In particular, an invest-
ment ombudsman aims both at protecting the interests of the investment and at
improving the investment climate of the host State.
Despite the long list of suggested representatives, it is advisable to take a limited

number of permanent members to enable the Commission to make quick decisions.
Moreover, the Commission should not include the highest authorities (otherwise,
there is a risk of their unavailability). The Model Instrument envisages that the
members of the Commission will execute their functions within their responsibilities
at their respective ministries and, as a result, will not be additionally remunerated for
being part of the Commission.
As a consequence of the general cooperation duty prescribed in Article 4 of the
Model Instrument, the Commission may invite other Public Entities to collaborate
on a specific case, e.g., when the invited Public Entity is at the origin of the dispute or
possesses relevant information for its settlement (i.e., where the dispute involves
reforms in the renewable energy sector, Ministry of Energy may be involved).
Involved Public Entities can share with the Commission their knowledge of the
facts, explain their relationship with the investor, and inform about other aspects of
the sector. In some States, the participation of the Involved Public Entities is
mandatory.
For the smooth organization and running of the Commission’s meetings, it is
suggested that a Chair (who can be a representative of any ministry or institution
involved in the Commission) could assume functions of general coordinator and a
minimum set of tasks which would ensure that the process is not delayed or disrupted
as a result of administrative issues. The Chair could be the primary contact point for
the external counsel, if engaged, to facilitate the adoption of swift decisions. Even if
there are no pending disputes against the State, meetings of the Commission can be
useful occasions to discuss potential disputes and lessons learnt from the concluded
cases, as well as to exchange views concerning developments in international
dispute settlement.
The Secretariat of the Commission is expected to manage the international
dispute resolution process. Nevertheless, the Commission may appoint advisers
from other public entities and agencies, as well as external advisers to cooperate
with the Secretariat for managing the specific case. The role of the Secretariat could
be exercised by a designated department/unit of the Ministry forming part of the
Commission (this option would save costs and is the approach followed in the Model
Instrument), or a stand-alone Secretariat could be created (this would imply addi-
tional costs for the government, but coordination would be better ensured and could
be more efficient in case there are several disputes against the State). As for the
Secretariat’s functions, it could provide purely technical support to the Commission
(such as preparing meeting facilities, printing documents, sending documentation,
etc.) or have broader functions (an approach followed in the Model Instrument). In
any case, a balance should be kept between functions of the Secretariat and the
Commission, having in mind that the latter is the Responsible Body. Misbalance and
unclear division of functions may lead to a situation where the Commission is
responsible for the Secretariat’s mistakes.
Option 3: The final option provides for the possibility of better reflecting the
particularities of the State while providing required coordination. For example, the
State may be represented by the legal department of the relevant ministry with
competence over the subject matter of the dispute (similar to the option suggested
to disputes arising out of Investment Contracts). This ad hoc approach might appear
as cost-efficient since the ministry is the most knowledgeable about the substance of
the dispute, but it also entails some risks, since there would not be an internal legal
team specialized in investment arbitration or mediation.
Article 11
Functions of the Responsible Body
The Responsible Body shall have the following functions:
(a) To coordinate the management of International Investment Disputes against [x], includ-
ing amicable dispute resolution proceedings.
(b) Elaboration and completion of documents for submission to the international arbitration
or competent international tribunals.
(c) Elaboration of Strategy on Resolution of International Investment Disputes, as stipulated
in Article 12 of this Instrument.
(d) To ensure effective defence of [x] interests (as defendant or claimant).
(e) To coordinate the process of contracting legal counsel, experts and external advisers,
where needed.
(f) In charge of communication with investors and replying to the notice of arbitration,
(g) To request cooperation and support from the different governmental entities and agen-
cies whose assistance is required for the preparation of the case, along with the provision
of information, documents and assistance. Such information shall be provided within the
deadlines, with the representative of the entity assuming liability for compliance with
such deadlines.
(h) To act as the sole official institutional channel for notification of progress reports and
results of proceedings in accordance with the legislation in force governing
confidentiality.
(i) To appoint arbitrators, mediators or conciliators as may be the case in accordance with
the dispute settlement mechanism in place.
(j) To represent [x] in International Investment Disputes, to participate in hearings of
international arbitration or competent international tribunals, including assistance to
the legal counsel (if any) to represent [x].
(k) To assume the prime responsibility for, and coordinate with competent Public Entities in
relation to the enforcement of awards, decisions of international arbitration tribunals or
competent international tribunals.
(l) To coordinate the compliance with awards and other decisions by international arbitra-
tion or competent international tribunals.
(m) To make proposals to the [Ministry of Finance] on the allocation of the additional
resources for the purposes of dispute settlement proceedings with a foreign investor.
(n) To coordinate and conduct settlement negotiations, as well as to draft, negotiate and
conclude settlement agreements.
(o) Any other functions that may be necessary and appropriate to address matters relating
to International Investment Disputes involving [x] or for the prevention of future
disputes.
The functions are inherent to the Responsible Body, regardless of whether the
dispute in question is arising out of contractual obligations or IIAs, and whether
the Responsible Body is an Interinstitutional Commission or a Ministry. While some
functions may vary depending on the legal system of the State, the idea is that the
Responsible Body should be the central focal point and have enough competences to
run the dispute settlement process from the very beginning (amicable settlement)
until the very end (enforcement). It should also be given exclusive authority, as the
sole legitimate representative in relation to the investor and the tribunal. While the
particular Public Entity involved in the dispute may be constrained by its limited
competence and policy priorities, the Responsible Body can benefit from a broader
perspective and could better assess the potential liabilities derived from the interna-
tional obligations of the State. It is also important that the Responsible Body ensures
adequate restraint of other State agencies avoiding abuse of power over the investor
during the resolution of the dispute (e.g., unnecessary audits).19
Article 12
Elaboration of a Strategy for Resolving International Investment Disputes
1. Within [thirty] working days after receiving notice of a dispute or a similar notice from a
foreign investor, the Responsible Body shall coordinate with Public Entities, organisa-
tions, relevant agencies and legal experts (if any) to elaborate an early assessment of the
dispute and a strategy for resolving the International Investment Dispute. All of them will
take close note of all deadlines and timings and make every effort to ensure that all
submissions and other communications are filed within such limits unless extensions of
time can be and have been arranged.
2. The strategy for resolving International Investment Disputes shall include provisions on
amicable dispute settlement and an assessment of the benefits of an amicable settlement
of the dispute.
3. [In case of International Investment Disputes arising out of Investment Contracts, the
Public Entity responsible for the resolution of a dispute, shall send the proposed strategy
for resolving the International Investment Dispute to the Ministry / Commission for
consultation. The Ministry / Commission shall give its opinion and advice with respect to
the draft strategy within [ten] working days after its receipt. The Public Entity in charge
shall take into consideration the opinion and advice given by the Ministry / Commission.]
4. During the implementation of the strategy, the Responsible Body shall assume the prime
responsibility for revising such strategy, in coordination with any relevant Public Entity,
individual and legal expert.
5. [In case of amendments to the strategy, the Public Entity responsible for the resolution of
a dispute arising out of Investment Contracts, shall submit any such amendments to the
Ministry / Commission for consultation. The Ministry / Commission shall give its
opinion and advice with respect to the amendments to the strategy within [five] working
days after its reception.]
A strategy for resolving International Investment Disputes is a cost-benefit

analysis of the case (the lack of precedent in investment arbitration complicates
this analysis, in particular in cases were several IIAs with slightly different wording
are invoked by the claimants) and a road map for the Responsible Body. The
Strategy may contain the following:
• Summary of the dispute and legal instruments invoked.

• Assessment of the dispute which could include an analysis of the strengths and
weakness of both parties, as well as any potential objections to jurisdiction or
admissibility.
• Introduction of the dispute settlement process and explanation of the tasks
required of the relevant public entities, organizations, and individuals.
• Proposals with respect to the hiring of external legal counsel, experts, the
appointment of mediator, or/and arbitrator.
• Plan on handling mediation, negotiation, and conciliation.
19
See Caratube International Oil Company v. the Republic of Kazakhstan, ICSID case N. ARB/08/
12, Decision on Provisional Measures, 31 July 2009.
• Whether to consolidate different claims or to request any setoff.

• Estimation of expenses for resolution of international investment dispute.
• The usefulness of amicable dispute settlement procedures and their benefits for a
particular dispute. Some assessment criteria can be found in Article 23 of the
Model Instrument.
The size and complexity of the dispute would determine the level of detail of the
strategy. It may also require additional coordination between the Responsible Bodies
for disputes arising out of IIAs and Investment Contracts (since investors may decide
to raise in different for some claims under the contract and others under the relevant
IIA – or the handling of the contractual claim may raise issues of later complaints
under the IIA–). In any event, it is advisable that the Responsible Body or the
external counsel prepare a short memo with a preliminary evaluation of the claim.
The Strategy should be developed under the coordination of the Responsible Body,
but in close cooperation with any other Public Entities, the involvement of which
would be needed.
Article 13
Elaboration and Completion of Documents for Submission to International Arbitration or
Competent International Tribunals
1. The Responsible Body shall coordinate with relevant Public Entities, individuals, legal
counsels and experts (if any) in drafting and completing documents for submission to the
international arbitration or competent international tribunals.
2. In case the documents are prepared by external counsels or experts, the Responsible Body
shall approve these documents before submission to international arbitration or compe-
tent international tribunals.
3. Relevant public entities, individuals, legal counsels and experts (if any) shall provide
their comments in writing to the drafts of documents to be submitted to international
arbitration or competent international tribunals within [seven] working days after receiv-
ing a written request from the Responsible Body unless the Responsible Body sets
another deadline for reply.
4. All of them will take close note of all deadlines and timings and make every effort to
ensure that all submissions and other communications are filed within such limits unless
extensions of time can be and have been arranged.
The Responsible Body will prepare documents for submission to international

arbitration or competent international tribunals in close consultation with other
stakeholders (Involved Public Entities) as well as third parties (hired legal counsels,
witnesses, experts), if appropriate. Such consultation may be necessary in case of a
complex dispute, involving many parties or when special knowledge is needed. This
allows taking into consideration the interests of all relevant stakeholders, and
ensuring that all relevant information is included in the documentation.
When necessary, the Responsible Body may delegate the function of document
preparation to the external counsel. Nevertheless, the Responsible Body is still
accountable and must check all the documentation before it is submitted to the
tribunal. It is essential to consider that other actors of international law may invoke
State pleadings (if made public) as evidence of State practice regarding customary
law. Also, there may be concerns about confidentiality and sensitivity of documents,
which would require careful consideration by the Responsible Body.
Within the general cooperation duty, the relevant Public Entities, individuals,
legal counsels, and experts shall provide, within the scope of their powers, their
comments to the draft documents. Usually, the comment/information provider is
responsible for the accuracy and compliance of the information provided. The Model
Instrument sets an indicative deadline of 7 working days, which can be adapted or
substituted by the word “promptly.”
The general cooperation duty is also relevant to document production since, in
many cases, documents requested by the arbitral tribunal or the claimant may still be
only in the hands of different local authorities requiring significant logistical efforts
to obtaining them in time.
Article 14
Representation of the Government in International Arbitration Proceedings or Compe-
tent International Tribunals
1. The Responsible Body represents [x] in International Investment Disputes, and partici-
pates in hearings of international arbitration or competent international tribunals.
2. The Responsible Body shall, in coordination with relevant Public Entities, decide on the
participation of other Public Entities, individuals and legal counsels (if any) in the
hearings before international arbitration or competent international tribunals.
Many States have no specific entity officially designated to represent them before
international courts and arbitral tribunals, so different agencies and ministries are
involved over time depending on the circumstances. Other States, on the contrary,
have designated a particular agency for its representation in any international pro-
ceedings, not only for investment cases.
While in some States, the Responsible Body has the function to represent the
State before the international proceedings (e.g., the Dominican Republic or Kyrgyz
Republic), in others it only has support and coordination functions (e.g., Costa
Rica, Croatia, Guatemala, or Vietnam). Nevertheless, as the principal coordinator
of dispute resolution, it is advisable that the Responsible Body takes part in
hearings, ensuring that the State’s position is correctly delivered. When appropri-
ate, the Responsible Body may delegate (under its supervision) the function of
participation and representation of a State to other Public Entities or an external
legal counsel.
Article 15
Recognition and Execution of Settlement Agreements or Awards, Decisions and Orders
of International Arbitral Tribunals or Competent International Tribunals
1. The recognition and execution in [x] of settlement agreements or awards, decisions of
international arbitral tribunals or competent international tribunals shall be carried out in
compliance with the relevant international treaties to which [x] is a contracting party and
[x] legislation.
2. The Responsible Body shall coordinate with the competent Public Entity in handling the
execution in [x] of settlement agreements, awards, decisions and orders of international
arbitration tribunals or competent international tribunals.
A positive record of strict compliance with award obligations is viewed favorably

by tribunals while deciding on provisional measures. Furthermore, it improves the
reputation of the host States to attract foreign investors.
The recognition and execution of international arbitral awards and decisions
much depend on the national legislation of the host State (usually based on
UNCITRAL’s Model Law on International Commercial Arbitration) and the obli-
gations assumed pursuant to the international agreements to which the State is a
party (e.g., the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards).
On 16 July 2016, the Energy Charter Conference welcomed the willingness of the
Contracting Parties of the Energy Charter Treaty to facilitate effective enforcement
in their area of settlement agreements with foreign investors in accordance with the
applicable law and the relevant domestic procedures. In addition, the Singapore
Convention on International Settlement Agreements Resulting from Mediation
would apply to investment settlement agreements unless a contracting party declares
(according to its Article 8) that it shall not apply the convention to settlement
agreements to which it is a party, or to which any governmental agencies or any
person acting on behalf of a governmental agency is a party, to the extent specified in
the declaration.
Execution in the host State of settlement agreements, awards, decisions, and
orders of international arbitration tribunals or competent international tribunals
implies the payment of financial compensation or performance in kind (for instance,
issuance of a license). These actions should be accomplished by the Public Entity, in
whose competence falls the implementation of those issues. Therefore, the Respon-
sible Body has to coordinate the execution of foreign decisions with the competent
Public Entities (e.g., payment of financial compensation would probably be coordi-
nated with the Ministry of Finance).
While in the case of Latvia, the Responsible Body has to prepare an informa-
tive report on the award and recommendations for further action; Vietnam’s
instrument contains a specific obligation to coordinate the enforcement of foreign
decisions.
Article 16
Enforcement in Foreign Countries of Awards, Judgments, Decisions and Orders of
International Arbitral Tribunals or Competent International Tribunals
The Responsible Body shall assume the primary responsibility for, and coordinate with
the Ministry of [Foreign Affairs] and other competent Public Entities regarding, the enforce-
ment in foreign countries of awards, judgments, orders and decisions of international arbitral
tribunals or competent international tribunals.
There are cases where enforcement of awards and decisions takes place in another
State. Coordinated action between the Responsible Body and a competent Ministry
(often, Ministry of Foreign Affairs) is therefore convenient. Vietnam’s instrument
expressly empowers the Responsible Body with the prime responsibility (in coordi-
nation with the Ministry of Foreign Affairs) in executing in foreign countries such
decisions.
Article 17
The hiring of Legal Counsel
1. The Responsible Body may contract external legal counsel and other legal experts. It
should assess as soon as possible after notice of a potential dispute whether such external
support is needed.
2. The Responsible Body shall elaborate criteria, terms of cooperation and conditions of
contract with the external legal counsel and other legal experts.
3. The Responsible Body shall analyse the candidates and sign the contract with the selected
legal counsel and other legal experts.
While a team of in-house State lawyers may be cost-effective for a State involved
in multiple disputes, it takes time and resources to develop an experienced and
knowledgeable team focused only on investment disputes. In case of complex and
high-value disputes, States may consider using an external counsel instead of or in
addition to the in-house State lawyers (in the latter case, it could be used as a tool of
capacity building of the in-house team of lawyers). External counsels provide not
only additional expertise and human resources but also independent evaluation of
the case at hand based on their own experience. External counsels usually either have
an office in the host State or partner with a local law firm (which facilitates
communication in the local language, translation of documents, coordination meet-
ings, etc.).
It is important to make the selection process clear, predictable, efficient, trans-
parent, and straightforward. Some States convene procurement contests to preselect,
for a period of time, one or several external potential counsels to which it can refer in
case a dispute arises (this way they do not need to lose time with procurement when a
notice of arbitration is received).
Even if external counsels are engaged, it is still relevant for the Responsible Body
to participate not only in the hearings but also during the first session (or video/
teleconference) with the tribunal to better understand the procedural issues and
instruct the external counsels.
It is rare that the governmental agency will consider engaging outside counsel
solely to advise and/or represent it in the mediation/conciliation of a dispute (i.e.,
other than arbitration counsel). However, independent, external mediation counsels
(not involved in the arbitration process) may better assist government agencies in
evaluating legal disputes in terms of interests (instead of positions) and potential,
alternative solutions other than monetary payment.
Article 18
The hiring of Technical Experts and Invitation of Witnesses
Depending on the nature of the International Investment Dispute, the Responsible Body
shall coordinate with the relevant agencies, individuals, and legal counsel (if any) in
deciding on the hiring of technical or legal experts and inviting fact witnesses.
Very complex disputes may require additional knowledge and skills in different
sectors, which the Responsible Body may not possess. Furthermore, a State might
need to support its position by inviting a fact witness. In such cases, the Responsible
Body may engage external technical experts for the preparation of expert opinions
and reports or fact witnesses for providing testimony. The hiring procedure should be
coordinated with the relevant agencies, individuals, and external legal counsel (if
any).
Financial Issues
Article 19
Allocating Expenses for the Resolution of International Investment Disputes
1. The general budget of [x] shall establish the budgetary items to cover the expenses
generated by preventive and defence proceedings of [x].
2. If the Responsible Body is the Ministry/ Commission or any other central State body, the
expenses for the resolution of International Investment Disputes shall be covered from
the central budget.
3. If the Responsible Body is a local public body, the expenses for the resolution of
International Investment Disputes shall be covered from the local budget according to
regulations on budget decentralisation.
4. The Responsible Body shall use the regular funding allocated for the resolution of
existing [and expected] International Investment Disputes at the beginning of the finan-
cial year. If new International Investment Disputes arise following the allocation of
budget or in other exceptional cases, at the proposal of the Responsible Body, the
Ministry of [Finance] shall decide on additional funding not contemplated in the general
budget of [x] in force.
5. The Public Entity or agency responsible for the measure, action or omission giving rise to
the potential conflict or dispute shall be liable for the costs relating to the prevention and
defence proceedings of [x].
The timely financing of expenses for the resolution of investment disputes is

essential. This refers not only to the arbitral proceedings (including administrative
costs of institutions, hiring of legal and technical experts, travels, etc.) or proceed-
ings before domestic courts (e.g., in relation to the challenge of an award) but also
the costs incurred in potential negotiations and mediations, as well as any compen-
sation awarded or agreed in a settlement (if any). Since those financing needs may
not follow the regular budget cycle of the State, it is vital to have a precise
mechanism for securing them.
The Model Instrument envisages the possibility for the Responsible Body to
request the competent Ministry (often a Ministry of Finance) a budget increase for
the resolution of investment disputes if needed. Some States (e.g., the USA)20 have
set up a specific international litigation fund covering only for international arbitra-
tion but also other proceedings for the peaceful resolution of disputes. Others include
more or less detailed provisions in their instrument (e.g., Chile, Colombia, the
Dominican Republic, Peru, or Vietnam).
The Model Instrument contains a potential liability clause for the Public Entity
whose action or inaction led to a dispute. It envisages that in case the Public Entity’s
behavior is found in breach of a contract or IIA, the costs relating to the prevention
20
22 USC § 2710.
and defense proceedings will be compensated from the financial resources dedicated
for this Public Entity. Some States (e.g., the Dominican Republic and Peru) contain a
similar specific provision in their instrument.
Confidentiality and Dissemination of Information
Article 20
Confidentiality
Representatives and employees of Public Entities in the exercise of their functions pre-
scribed by this Instrument shall at all times comply with the obligation of confidentiality and
due diligence, whether legal or contractual, regarding the use of information they may have
access to relating to the different proceedings, especially information corresponding to cases
to which they are parties. The above obligations shall also apply to public employees that no
longer actively exercise their functions.
Despite the general trend toward transparency in investment disputes, preserva-

tion of confidentiality regarding specific issues is crucial. Full transparency in
investment dispute management could undermine the defense of the State in related
or similar cases. However, the defense of a State concerns a wide range of persons,
including former civil servants, experts, witnesses, and others which might not be
bound by applicable legislation on confidentiality. Therefore, all persons engaged in
defending the State in investment disputes should be bound by strict confidentiality,
the breach of which should be enforceable via liability for damage caused by a
breach of this duty. Some States (e.g., Colombia and the Dominican Republic)
contain a similar specific provision in their instrument.
Furthermore, the threat of cyberattacks in international dispute resolution is a real
risk, especially when States are involved. Therefore, specific measures should be
adopted to protect sensitive data from unauthorized access and to react promptly in
case of a security breach.21 The type of measures could vary depending on whether
the data is only for internal use (e.g., privileged communications with external
counsel or with different government agencies) or has to be communicated to the
tribunal and the other party (e.g., the first procedural order or the mediation agree-
ment could address specific cybersecurity measures to be adopted).
Article 21
Information to Third Parties
The Ministry / Commission shall be responsible for communicating information to third
parties, whether physical or legal, which are not parties to preventive or defence proceedings
involving the State. The Ministry / Commission shall act as the sole official channel of [x] for
21
E.g., In Caratube International Oil Company LLP and Mr Devincci Salah Hourani v. Kazakhstan
(ICISD case N. ARB 13/13, Award 27 September 2017 –mentioning the 2015 decision on
production of ‘Leaked Documents’) the tribunal authorised the submission on the record of non-
privileged leaked documents in relation to certain documents that were allegedly publicly available
on the internet as part of some 60,000 documents obtained through the hacking of the Respondent’s
government systems and later leaked on a publicly available website.
provision of information to the public and coordination in oral, written and electronic media
of the institutional position of [x] regarding International Investment Disputes within the
constraints of any legal or contractual obligation [x] or its representatives have entered into.
Investment disputes are a matter of public interest and attract considerable media
attention. The Model Instrument suggests that the Responsible Body should provide
information to third parties with a single voice since the Ministry/Commission are
both (i) central government bodies, thus having certain authority to disclose infor-
mation on behalf of the State, and (ii) may adequately evaluate the consequences of
providing some particular information and, as a result, make a selection of what to
disclose. Colombia expressly requests particulars exercising public functions and
civil servants to avoid in their public statements and press/media releases any value
judgment on a (potential) controversy without prior consultation with the Respon-
sible Body.
Latvia’s instrument expressly provides the publication of specific information
about an investment case unless the specific IIA, procedural rules, or agreement with
the other party State otherwise (additional information could be published if agreed
with the investor and under the applicable procedural or IIA rules). Similarly,
Canada publishes information on ongoing and concluded investment cases against
it under NAFTA or other IIAs. Other States’ national legislation requires full
publication of awards or settlement agreements. In addition to potentially applicable
rules on transparency (e.g., the 2014 UNCITRAL Rules on Transparency in Treaty-
based Investor-State Arbitration), it is important for the parties to address in the first
procedural order the extent to which procedural documents can be made public.
Several cases reflect the tension that sometimes exists between the host State and
the foreign investor in relation to media.22 In those cases, each side accused the other
of waging a media war and tried to respond to perceived negative publicity as well as
to alleged misleading and damaging leaks. The tribunals allowed the parties to
engage in public discussion of the case (including comments on the progress of
the case and summary of the parties’ positions), provided it was not used to
aggravate, disrupt, or exacerbate the proceedings.23 Sometimes the relevant Ministry
publishes a public statement after the award has been rendered (or even a press
conference),24 though it is often the investor – or its lawyers – who makes public
statements.
22
Biwater Gauf (Tanzania) Ltd. v. the United Republic of Tanzania, ICSID case N. ARB/05/22,
Procedural Order 3, 29 September 2006; United Utilities (Tallinn) B.V. et al. v Republic of Estonia,
ICSID case N. ARB/14/24, Decision regarding provisional measures, 12 May 2016.
23
In the Biwater case, the tribunal also allowed the parties to publish their own documents and some
tribunal decisions.
24
Published in YouTube and the web of the Presidency of the Dominican Republic about their
success in a DR-CAFTA arbitration. June 2016.
It is crucial to have an early media plan (even more nowadays when social media
can widely spread a message within hours) and an identified spokesperson. A press
briefing could also be compiled for the media containing background information
and the essential messages about the case to direct attention to the right issues
avoiding inaccuracies or misunderstandings.
Use of Negotiation, Mediation, and Other Amicable Settlement

Mechanisms
Article 22
Alternative Dispute Resolution Methods
1. The importance is hereby recognised of Alternative Dispute Resolution (ADR) methods
such as negotiation, conciliation and mediation, which allow a more agile, efficient, and
effective resolution of disputes. [x] shall prioritise the use of ADR methods.
2. [x] shall make all reasonable efforts to provide for the use of conciliation, mediation and
other ADR methods in its International Investment Agreements and Investment Con-
tracts, as an additional mechanism to be used prior to, during or after the submission of
disputes to international arbitration.
3. Any consultations, negotiation, conciliation, mediation, good offices and other ADR
methods that may be used to resolve disputes arising in relation to International
Investment Agreements shall be managed by the Responsible Body, including matters
relating to contracting of legal counsel, experts and external advisers in accordance
with the regulations in force governing public procurement, among others. The
corresponding expenses shall be met in accordance with the terms of Article 19 of
this Instrument.
4. The Responsible Body shall have settlement authority for the purposes of the negotiation
and conclusion of settlement agreements with foreign investors on behalf of [x], and
foreign investors shall be entitled to rely on the Responsible Body having that authority
on behalf of [x].
This article emphasizes the importance and usefulness of the amicable dispute
settlement mechanisms. In 2016, the Energy Charter Conference endorsed a Guide
on Investment Mediation (CCDEC2016 12) as a helpful, voluntary instrument to
facilitate the amicable resolution of investment disputes. It also encouraged
Contracting Parties to voluntarily consider to use mediation as one of the options
at any stage of the dispute to facilitate its amicable solution and to consider the good
offices of the Energy Charter Secretariat. Besides, most IIAs and Investment Con-
tracts include provisions on the amicable settlement of disputes.
However, in many cases, the specific national provisions authorizing a particular
ministry or agency to defend and represent the State before international courts and
tribunals do not clearly and expressly cover (provide the legal basis for) negotiation,
conciliation, or mediation with foreign investors. Therefore, Article 22 intends to
provide this legal basis similar to the examples of Colombia, Chile, the Dominican
Republic, Peru, or Vietnam.
The Responsible Body is expected to take the lead in amicable procedures but can
also hire legal counsels or advisers, who may have more experience and facilitate
creative solutions.
One of the problems faced during the use of amicable dispute settlement pro-
cedures is the lack of authority to conclude a settlement. To provide some clarity, the
Model Instrument suggests that the Responsible Body will have the authority to
negotiate and enter into or recommend an agreement. This provision has equal
importance for investors, who may identify by themselves whether their counterpart
in the mediation/conciliation proceedings can settle a dispute.
Article 23
Assessing the Use of Amicable Dispute Settlement Mechanisms
In order to assess the usefulness of amicable dispute settlement mechanisms with foreign
investors for a particular dispute, the Responsible Body may consider, among other issues,
whether:
(a) the monetary costs of pursuing international litigation or arbitration are too high in
comparison with what a party can expect to recover by a decision in its favour;
(b) the effect of an international decision against [x] becoming public;
(c) a fast resolution is of the utmost importance;
(d) maintaining a relationship is more important than the formal outcome, as well as the
likelihood of continuing such a relationship in case of settlement;
(e) matters of fundamental principle are at stake;
(f) both parties can involve their respective decision-making authorities;
(g) a foreign investor would seek some non-monetary relief;
(h) neither side is certain that it will prevail in litigation or arbitration;
(i) the dispute can have an impact on the reputation of the State; and
(j) the investment has an important impact on the economy or security of [x].
The Model Instrument includes an open set of criteria that the Responsible Body
could assess in choosing whether or not to engage in alternative dispute resolution
mechanisms.
Article 24
Dispute Resolution Clauses Included in International Investment Agreements and
Contracts
All reasonable efforts shall be made to ensure that every dispute resolution clause
includes, as a minimum, a period for consultation, negotiation, mediation or any other
amicable dispute settlement mechanism between the parties before the dispute may be
submitted to international arbitration or a competent international tribunal.
The Model Instrument underlines the need to provide in IIAs and Investment
Contracts the possibility for an investor to request amicable dispute settlement before
the dispute is submitted to arbitration or before another tribunal. The purpose is to
discuss in good faith the dispute and to exchange views over its causes and the
interests involved, identifying possible solutions based on mutual advantages.
Final and Transitional Provisions
Article 25
Implementation provisions
1. All Public Entities shall ensure the implementation of this Instrument and timely report to
the Ministry / Commission about any relevant issues during the implementation of this
Instrument.
2. The Ministry / Commission may propose any additional legal framework necessary for
implementing this Instrument.
In implementing the Model Instrument, it is vital that the State takes into account
its specific organizational needs as well as cultural/legal particularities to make the
Instrument work effectively. Therefore, in some cases, the State will need to modify
or leave out some of the provisions of the Model Instrument, while in others, the
State may need to consider whether complementary amendments to other domestic
laws or regulations are required to ensure the overall coherence of its national law.
Also, States will need to take into account transition issues and capacity building
programs for government officials. In fact, for the instrument to be a useful tool of
managing investment disputes officials who have to implement it need to be familiar
with it. Regular reporting facilitates an evaluation of the Instrument’s efficiency.
[Article 26
Liability
In the event of any omission or breach of the provisions contained in this Instrument by
any Public Entity, its representatives and public employees responsible for the breach or
omission may become subject of an administrative investigation that could lead to sanction,
in accordance with the law on . . .]
Enforcement is vital for effective compliance. While most domestic legislations

contain provisions on confidentiality, liability for damages, and diligent performance
of public duties, the interests at stake are very relevant in the case of International
Investment Disputes. Therefore, the State may want to remind in the Instrument the
need for a proper and diligent application of the enacted legislation, e.g., the
Dominican Republic.
Article 27
Entry into force
1. This Instrument shall enter into force from the date of its enactment.
2. The Ministry / Commission shall also be in charge of International Investment Disputes
derived from International Investment Agreements notified prior to the enactment of this
Instrument. Public Entities currently handling those International Investment Disputes
are required to transfer without delay the case file and other corresponding documentation
to the Ministry / Commission.
The entry into force of the proposed Model Instrument will depend on the
legislative form chosen by the State. Various legal rules require different procedures
for entry into force (e.g., intragovernmental commentary procedure, adoption by the
parliament, and publishing in the Official Gazette).
Pending investment disputes initiated before the entry into force of the Instrument
should also be dealt with consistently. Therefore, the Model Instrument suggests that
the Responsible Body takes care of these pending cases. Appropriate handover rules
might need to be adopted for the smooth transfer of all files and information.
Investor-State Conflict Management
Mechanisms (CMMs) in International 29
Investment Law: A Preliminary Sketch
of Model Treaty Clauses
Roberto Echandi
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711
Investor-State CMMs: Recent Developments in International Investment Rulemaking . . . . . . 717
Relevant Provisions in Existing IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717
Investor-State Conflict Management Clauses: The Example of Brazil’s Cooperation
and Facilitation Investment Agreements (CFIA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720
Current Discussions on CMMs in International Investment Fora (UNCITRAL
and WTO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725
Mainstreaming CMMs in IIAs: A Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734
Justification: The Rationale of Mainstreaming CMMs in IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734
Clarifying the Content of Substantive Legal Principles of the Law to Be Used
for Rule-Based Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737
Clauses Fostering Streamlining Procedures for Obtaining Government Permits
and Approvals to Start and Operate a Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744
Toward Investor-State CMM Model Clauses in IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 745
Final Reflections and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754
Lead Private Sector Specialist, Trade Unit, World Bank Group (WBG) & Non-resident fellow
World Trade Institute (WTI) University of Bern. The views expressed in this note do not represent
the views of the WBG and are the exclusive responsibility of the author.
R. Echandi (*)
Trade and Regional Integration Unit, World Bank Group, Washington DC, USA
e-mail: Rechandi@ifc.org

https://doi.org/10.1007/978-981-13-3615-7_51
710 R. Echandi
Abstract
This chapter builds on recent research led by the author demonstrating the lack of
appropriate legal infrastructure, both at the domestic and international level,
enabling host States and investors to manage their conflicts early enough before
investors discontinue their investment projects and grievances escalate into
fullblown legal disputes. Such absence of legal infrastructure is not only over-
emphasizing ISDS as the only outlet to deal with grievances between investors
and States but is also claiming a significantly high opportunity cost for investors
and States alike. This is the gap that investor-State Conflict Management Mech-
anisms (CMMs) aim to fill. The fundamental elements of protocols to establish
investor-State CMMs at a domestic level have been explained elsewhere
(Echandi 2013; World Bank 2019). This chapter takes the discussion one step
forward. It aims to start the discussion about what kind of model clauses countries
negotiating International Investment Agreements (IIAs) should consider incor-
porating in those instruments thereby complementing measures adopted at
national level. Within this context, this chapter has two fundamental objectives.
First, it attempts to justify the need to foster greater clarity between the notion of
dispute prevention and investor-State conflict management for investment reten-
tion and expansion, explaining why such distinction is not just conceptual but
very practical. Second, this chapter also argues that future IIAs should also
include specific clauses on investor-State CMMs, and not only ISDS, and for
such purpose presents a preliminary proposal on the elements that model clauses
on investor-State CMMs should include.
Keywords
Investor-State conflict management · Dispute prevention · Investment retention
and expansion · IIAs
29 Investor-State Conflict Management Mechanisms (CMMs) in International. . . 711
Introduction
Over the last two decades, the debate around International Investment Law has
mainly gravitated around the pros and cons of investor-State dispute settlement
(ISDS) procedures1,2,3,4,5,6,7,8. Such debate, which is still ongoing, has generated
a backlash against a relatively young rule-oriented regime which, without doubt,
should be modernized and adjusted as a result of the learning curve resulting from
its application. However, a negative consequence of such debate has been that it
is distracting the attention of investment stakeholders away from what should
be the main focus of the discussion about international investment law: how
to make it to contribute to enhance investors’ confidence to undertake foreign
direct investment (FDI) projects beyond their home States in developing
countries9,10.
1
UNCITRAL (2020) United Nations Commission on International Trade Law, “Possible reform of
investor-State dispute settlement mechanisms (ISDS), Dispute prevention and mitigation -means of
alternative dispute resolution. Note by the Secretariat, A/CN.9/WGIII/WP.190, 15 January 2020,
Working Group III (Investor-State Dispute Settlement Reform)
2
Franck S (2018) Arbitration costs: myths and realities in investment treaty arbitration. Oxford
University Press
3
Franck S (2005) The legitimacy crisis in investment treaty arbitration: privatizing public interna-
tional law through inconsistent decisions. Fordham Law Rev 73:1521
4
Kingsbury B, Schill S (2009) Investor-state arbitration as governance: fair and equitable treatment,
proportionality and the emerging global administrative law. NYU School of Law, Public Law
Research paper no. 09-46. https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id¼657655
5
Miller S, Hicks G (2015) Investor-state dispute settlement: a reality check. Center for Strategic &
International Studies, Washington, DC. https://csis-prod.s3.amazonaws.com/s3fs-public/legacy_
files/files/publication/150116_Miller_InvestorStateDispute_Web.pdf
6
Oldenski L (2015) What do the data say about the relationship between investor-state dispute
settlement provisions and FDI? PIIE, Washington, DC. https://piie.com/blogs/trade-investment-
policy-watch/what-do-data-say-about-relationship-between-investor-state
7
Osmanski E (2018) Investor-state dispute settlement: is there a better alternative? 43 Brook. J Int
Law 639. https://brooklynworks.brooklaw.edu/bjil/vol43/iss2/13/
8
Van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press. https://
global.oup.com/academic/product/investment-treaty-arbitration-and-public-law-9780199217892?
cc¼us&lang¼en&
9
Alvarez J (2011) The public international law regime governing international investment. Pock-
etbooks of the Hague Academy of International Law, The Hague
10
Vandevelde K (2010) Bilateral investment treaties: history, policy and interpretation. Oxford
University Press
712 R. Echandi
Recent research lead by the author11,12,13,14 demonstrates that paradoxically,

while developing countries compete in costly promotion campaigns and incentives
to attract FDI, every year around one-quarter of all investors in these economies
discontinue their FDI projects due to unresolved grievances caused by irregular
administrative conduct which, in the majority of the cases, arise with subnational or
specialized regulatory agencies. Most conflicts leading to FDI withdrawals stem
from alleged adverse regulatory changes, breaches of contract, de facto expropria-
tions, transfer and convertibility restrictions, and more recently from lack of trans-
parency and predictability in dealing with public agencies and delays in obtaining
the necessary government permits to start or operate businesses15.
Further, research has also shown that most States lack appropriate legal infra-
structure, both at domestic and international level, enabling host governments and
investors to manage their conflicts early enough before investors decide to discon-
tinue their investment projects and grievances escalate into full-blown legal disputes.
Such absence of legal infrastructure is not only overemphasizing ISDS as the only
outlet to deal with grievances between investors and States but is also claiming a
significantly high opportunity cost for investors and States alike: around USD100
billion in FDI lost annually16.
11
Echandi R (2021 forthcoming) Straightening the rationale of international investment law from
litigation to consolidating relationships: the role of investor-state conflict management mechanisms.
University of St. Thomas Law Review, Minneapolis
12
Echandi R (2013) Complementing investor-state dispute resolution: a conceptual framework for
investor-State conflict management. In: Echandi R, Sauvé P (eds) Prospects in international
investment law and policy. Cambridge University Press
13
Echandi R (2014) Investor-state conflict management: a preliminary sketch. TDM 1. https://
transnational-dispute-management.com/article.asp?key¼2083
14
World Bank (2019) Retention and expansion of foreign direct investment: political risk and policy
responses World Bank Group. Working paper no. 144312. World Bank Group, Washington,
DC. http://documents.worldbank.org/curated/en/528401576141837231/pdf/Political-Risk-and-Pol
icy-Responses-Summary-of-Research-Findings-and-Policy-Implications.pdf
15
DC. http://documents.worldbank.org/curated/en/528401576141837231/pdf/Political-Risk-and-
Policy-Responses-Summary-of-Research-Findings-and-Policy-Implications.pdf
16
DC. http://documents.worldbank.org/curated/en/528401576141837231/pdf/Political-Risk-and-
Policy-Responses-Summary-of-Research-Findings-and-Policy-Implications.pdf
Recent literature has already explained how investor-State conflict management

mechanisms (CMMs) can fill such legal infrastructure vacuum17,18,19. Investor-State
CMMs allow host countries and investors to address effectively their grievances at a
very early stage by setting up coordination protocols under a lead government
agency and tracking tools to monitor and appraise the number and effects of
grievances arising out government conduct, preventing conflicts from causing FDI
project cancellations and reducing the incidence of full-blown legal disputes20.
Investor-State CMMs are rooted in the notion that investor-State grievances and
disputes are not only different, but are also the result of a continuum. Disagreement
can lead to conflict, i.e., a process of “expressing dissatisfaction, disagreement, or
unmet expectations with any organizational interchange”21. A legal dispute is an
unattended conflict that has escalated and degraded into a “defined, focused dis-
agreement framed in legal terms and with expectations of relief”22. While conflicts
are usually dealt with between parties themselves through the flexible use of diverse
problem-solving techniques, adjudication of legal disputes entails the application of
legal frameworks by a third party.
States are multilayered and administratively complex. It is not easy for govern-
ments to identify and address investors’ grievances before they degrade into dis-
putes. Investor-State CMMs enable a lead agency or joint body to swiftly coordinate
an adequate State-wide response to a conflict while it is still in an early stage. CMMs
can be contractual or institutional23. Contractual CMMs are preagreed, embedded in
contracts between investors and countries; they are particularly useful for public-
private partnerships. Institutional CMMs exist within the administrative structure of
host countries, entailing the establishment of a lead agency in charge of identifying,
17
Echandi R (2020 forthcoming) The blind side of international investment law and policy: the need
for investor-state conflict-management mechanisms fostering investment retention and expansion.
Columbia FDI Perspectives, forthcoming 2020
18
Echandi R (2019) The debate on treaty-based dispute settlement: empirical evidence (1987–2017)
and policy implications. ICSID Rev Foreign Invest Law J 34(1) Winter 2019. https://doi.org/10.
1093/icsidreview/siy024
19
Echandi R (2018) Bilateral investment treaties and investment provisions in preferential trade
agreements: recent developments in investment rulemaking. In: Yannaca-Small K (ed) Arbitration
under international investment agreements: a guide to key issues. Oxford University Press, Oxford
20
Echandi R, Gonstead HCM (2017) Investor-state conflict management: systemic investment
response mechanisms (SIRMS) and shared decisions system design (SDSD). In: Cottier T,
Nadakavukaren K (eds) Elgar encyclopedia of international economic law. Edward Elgar Publish-
ing, Cheltenham. https://www.e-elgar.com/shop/gbp/elgar-encyclopedia-of-international-eco
nomic-law-9781784713539.html
21
Constantino C, Sickles Merchant C (1996) Designing conflict management systems. Jossey-Bass,
San Francisco. Investment Treaty System, American Society of International Law, AJIL Unbound
22
Smith S, Martinez J (2009) An analytic framework for dispute systems design. Harv Negot Law
Rev 14
23
714 R. Echandi
filtering, tracking, and attempting to resolve investor-State conflicts at an early

stage24 – similar to the various ombudsperson offices recently established in many
countries, inspired by the Korean Foreign Investment Ombudsman experience25.
Further, it is important to differentiate between “conflict management” and
“dispute prevention.” Although CMMs may be useful to prevent disputes, their
most important role is to prevent investor-State grievances from inducing investors
to give up and discontinue their investments. Indeed, evidence shows only a minor
fraction of investors who discontinue their FDI projects due to grievances with
governments and seek redress through investor-State dispute settlement (ISDS) –
the overwhelming majority withdraws quietly26,27. Thus, ISDS may be successfully
prevented, and yet be too late to prevent the withdrawal or cancellation of planned
FDI expansion projects.
The fundamental elements of protocols to establish investor-State CMMs at a
domestic level have been explained elsewhere28,29. This chapter takes the discussion
one step forward. It aims to start the discussion about what kind of model clauses
countries negotiating International Investment Agreements (IIAs) should consider
incorporating in those instruments thereby complementing measures adopted at
national level.
This chapter argues that most IIAs contain very few clauses and mechanisms
which, when applied, not only have been quite ineffective to prevent ISDS, but also
are more geared toward dispute prevention rather than toward an early management
of the investor-State conflict with a view to retain and expand FDI in the host
country. This trend is starting to change. The notion of fostering an early manage-
ment of conflicts well before escalation has started to be addressed in various
international fora, such as the G20, the discussion on ISDS reform in the context
of the UNCITRAL working group III, and the structured discussions on investment
24
25
Kim JI (2017) Foreign investment Ombudsman of Korea, Office of the Foreign Investment
Ombudsman, KOTRA, Seoul, Korea, 2017
26
Echandi R (2020 forthcoming) The blind side of international investment law and policy: the need
for investor-state conflict-management mechanisms fostering investment retention and expansion.
Columbia FDI Perspectives, forthcoming 2020
27
28
29
facilitation at the WTO. Further, the new Cooperation and Facilitation Investment
Agreement (CFIA) Model developed by Brazil has for the first time focused on
CMMs which, if properly administered and complemented by ISDS, may not only
prevent disputes, but also help host countries to retain and expand investment. Such
initial steps are, however, incipient. Further, such discussions still tend to merge
dispute prevention policies with conflict management geared toward investment
retention and expansion, still failing to conceive the latter as one of the key
objectives of IIAs and the international investment.
Within this context, this chapter has two fundamental objectives: First, it attempts
to justify the need to foster greater clarity between the notion of dispute prevention
and investor-State conflict management for investment retention and expansion,
explaining why such distinction is not just conceptual but very practical. Second,
this chapter also argues that future IIAs should also include specific clauses on
investor-State CMMs, not only ISDS, and for such purpose presents a preliminary
proposal on the elements that model clauses on investor-State CMMs should
include. In this regard, this chapter proposes and will include examples of model
clauses that should at least cover the following five different elements.
First, IIAs could include clauses clarifying specific substantive investment pro-
tection standards, in particular those elements more generally embedded in the fair
and equitable treatment (FET) standard – as new generation IIAs already have
clarified standards such as indirect expropriation. Such clauses clarifying the sub-
stantive elements of the FET standard are particularly important to facilitate invest-
ment stakeholders to be able to negotiate in the shadow of the law and solve
grievances in a nonlitigious manner. The focus on drilling on the FET standard
stems from the fact that empirical evidence30,31 shows that issues related to trans-
parency and predictability in agencies carrying out their administrative activities
rank among the most frequent causes of FDI grievances between investors and host
governments in developing countries.
Second, the international investment regime should also contemplate including
clauses establishing general parameters that host countries could follow in order to
set up their own investor-State CMMs, yet providing for enough policy space for
country customization of these mechanisms. This is an area where the new Brazilian
CFIA model could serve as a useful point of reference.
Third, the international investment regime could benefit from including clauses in
IIAs providing for a forum where both investors and governments could raise
enquiries in a nonlitigious setting about the application in practice of substantive
standards of protection including IIAs, as well as to share experiences, and promote
30
31
University Press
716 R. Echandi
development of data and statistics and peer to peer learning about the establishment
of investor CMMs at a domestic level.
Fourth, IIAs could include clauses ensuring that investor-State CMMs do not
substitute but rather complement already available avenues for adjudication, such as
ISDS or State-to-State dispute settlement. And fifth, IIAs could also include clauses
calling for the establishment of an International Investment Advisory Center which
can support countries in interpreting IIAs, contributing to facilitate negotiation in the
shadow of international investment law, away from litigation, and provide inputs to
the international investment practice forum referred to in the third category of
clauses referred to above. As will be further explained in this chapter, a good news
is that although such clauses have not been explicitly framed within the explicit label
of “investor-State CMMs,” most of these clauses have in fact been already under
discussion and negotiation in the context of the World Trade Organization (WTO)
Structured Discussions on Investment Facilitation. Within this context, this chapter
aims to raise awareness about the fact that most of the provisions which could be
used to mainstream investor-State CMMs into the international investment regime
are already in the pipeline of investment rule making.
In addition to this introduction, this chapter has three additional sections.
Section “Investor-State CMMs: Recent Developments in International Investment
Rulemaking” presents an overview of the incipient evolution of positive law on
investor-State CMMs to provide context to the discussion. The section starts by
presenting an overview of the existing provisions on alternative means to arbitration
in IIAs, showing that most of those treaties contain very few clauses and mecha-
nisms which, when applied, not only have been quite ineffective to prevent ISDS,
but also are more geared toward dispute prevention rather than toward an early
management of the investor-State conflict with a view to retain and expand invest-
ment in the host country. Section “Investor-State CMMs: Recent Developments in
International Investment Rulemaking” then continues to develop the context of the
discussion by focusing on the new Brazilian Model Cooperation and Facilitation
Investment Agreement (CFIA) which has pioneered the concept of investment
facilitation and early and nonlitigious approach to deal with investor-State conflict.
Rulemaking” also examines the current ongoing discussions at the UNCITRAL
Working Group 3 on ISDS reform and the WTO Structured Discussions on invest-
ment facilitation, and to what extent those discussions are evolving in the direction
of promoting investor-State dispute prevention or rather whether they also go a step
further in the direction of fostering investor-State conflict management with a view
to effectively promote investment retention and expansion. The last part of
Rulemaking” explains why existing IIAs tend to focus more on dispute prevention
than conflict management enabling retention and expansion.
Section “Mainstreaming CMMs in IIAs: A Proposal” develops the proposal for
model clauses to mainstream investor-State CMMs into IIAs. Section “Mainstreaming
CMMs in IIAs: A Proposal” addresses each of the five types of clauses referred to
above. The section starts with a justification and explaining the rationale of
mainstreaming CMMs in to IIAs. The analysis then differentiates between the substan-
tive legal principles of law that should enable rule-based negotiation as part of investor-
State CMMs, focusing on the type of investor-State grievances that research has
shown are a frequent cause of FDI discontinuance: arbitrary changes in the applica-
tion of existing laws and regulations, lack of transparency and predictability in
administrative action, and excessive delays and red tape on procedures required for
obtaining government permits and approvals to start and operate businesses32.
Section “Mainstreaming CMMs in IIAs: A Proposal” also delineates the four additional
elements that model clauses on investor-State CMMs should address: establishing the
key principles guiding the establishment of CMMs at the domestic level; providing for
key protocols of State-to-State level cooperation to implement CMMs; ensuring that
investor-State CMMs do not substitute but rather complement ISDS provisions in IIAS;
and providing key elements to set up complementary international support mechanisms
for CMMs in the form of an International Investment Law – Advisory Center. Last but
not least, section “Final Reflections and Conclusion” presents some final reflections
and conclusions.
Investor-State CMMs: Recent Developments in International

Investment Rulemaking
Relevant Provisions in Existing IIAs
IIAs have never envisaged ISDS as the one and only exclusive means to address
investor-State disputes. IIAs have included various types of provisions to foster other
means of dispute resolution. Such clauses could be classified in three broad categories:
first, general clauses inviting the parties into a dispute to seek amicable resolution of their
disputes; second, “cool off” periods included as a prerequisite prior to invoking ISDS;
and third, more recently, joint commissions lead by the State parties to the respective IIA
in order to consider any matter which may facilitate the administration and execution of
the treaty, including problems related to its application or interpretation33.
Regarding the first type of clause, for a long time, IIAs have included language –
albeit hortatory – for both investors and governments to explore finding ways for
amicable solutions for their disagreements34. These treaties often require the parties
to a dispute to first seek amicable settlement through negotiations and consultations
32
33
UNCTAD (2007) Bilateral investment treaties 1995–2006: trends in Investment Rulemaking,
New York and Geneva. United Nation, United Nations Publication, Sales No.E.06.II.D.16
34
Polanco R (2019) The return of the home state to investor-state disputes: bringing back diplomatic
protection? In: Cambridge international trade and economic law. Cambridge University Press,
Cambridge
718 R. Echandi
conducted seriously and in good faith, and only when such negotiations and con-
sultations fail should international arbitration be considered35.
This is what has been denominated in the investment jargon as the “two-tiered”
dispute settlement clause, providing first for some form of alternative dispute
resolution before culminating, at the second tier, with a resolution of the investor-
State dispute by an arbitral tribunal. The first tier may foresee negotiations, media-
tion or conciliation, or make reference to amicable settlement without indicating how
this is to be achieved. Recent treaties provide more guidance on the requirements the
investor must meet to fulfill under the first tier as well as detailed alternative dispute
resolution provisions, including stand-alone mediation provisions36,37.
Second, in addition to such hortatory language, and with a view to promote the
parties to the dispute to actually make an effort to settle their disputes amicably, most
IIAs also mandate the parties to respect “cooling-off” periods prior the submission of
a claim to arbitration, during which the parties may attempt amicable settlement.
Such “cooling off” periods usually oscillate between 3 and 18 months – counted
from the time of the submission of the notice of intent for arbitration until the
arbitration procedure actually starts38.
Regardless of the purpose that such cooling off periods may have, empirical
evidence39 shows that by the time the conflict has crystalized into a legal claim, the
conditions necessary to facilitate a solution to the conflict may no longer exist. From
the side of the investor, by the time the conflict has escalated into a legal claim for
damages, the investment project will likely be already discontinued40. From the side
of the host government, by the time the competent authority receives a request for
35
36
37
Cambridge
38
39
40
compensation for damages, public authorities may no longer be able to swiftly use
taxpayers’ money to compensate, requiring then an arbitration process as a political
cover to legitimize such outcome41.
Third, an increasing number of IIAs have started to establish joint-commissions
or committees comprising authorities of the State parties to the treaty to promote
regular exchange of information regarding the application of the agreement. The
types, functions, and nature of these joint commissions or committees have been
explained in detail in literature42,43. For purposes of this chapter, the relevant aspect
to note is that among the roles of such State-to-State bodies, there is the exchange of
views regarding various types of issues, including some which may be pertinent to
prevent disputes. Further, if a dispute nevertheless arises, most agreements provide
for language which would enable the commissions to explore implementing a
dispute settlement mechanism based on consultations, negotiations, and mediation.
In this regard, most joint committees or commissions have not been established with
the explicit mandate to deal with investor-State conflicts, albeit as said before, they
would have authority to step in. In that sense, the commissions would operate
“reactively” at the State-to-State level, on the basis of a request by either party’s
government44.
A common feature of these three types of provisions included in most IIAs is that
they enable the parties in the dispute or the State contracting parties to react in order
to prevent investor-State arbitration. In this sense, existing provisions in IIAs may be
useful as potential dispute prevention alternatives. However, neither the “two-tiered”
dispute settlement clause, the “cool-off” period, nor the joint commissions have been
designed with a view to provide adequate means to quickly address an investor-State
conflict early enough to prevent divestments. This fact may explain why in practice
numerous investor-State disputes are settled, but only once they have reached
the adjudication phase45, well after the host country may have already lost the
41
42
Cambridge
43
UNCTAD (2011) United Nations conference on trade and development, “Investor-state disputes:
prevention and alternatives to arbitration II”. In: Proceedings of the Washington and Lee University
and UNCTAD joint symposium on International investment and alternative dispute resolution, held
on 29 March 2010 in Lexington, Virginia, USA, United Nations, New York/Geneva, United
Nations, UNCTAD/WEB/DIAE/IA/2010/8
44
45
Echandi R, Kher P (2014) Can international investor–state disputes be prevented? Empirical
Evidence from Settlements in ICSID Arbitration, ICSID Rev Foreign Invest Law J 29(1):41–65.
https://doi.org/10.1093/icsidreview/sit034
720 R. Echandi
investment project affected by the dispute46. Despite these normative trends in IIAs,
new stakeholders have started to notice the importance of going beyond ISDS
prevention and start thinking about conflict management with a view to strengthen
investor-State relationships and retain and expand investments (Echandi and
Gonstead).
In addition to early discussions at the G20, UNCITRAL, and WTO which have
started to take notice of the various pilot projects implemented by the WBG
leveraging CMMs47 for investment retention and expansion, the government of
Brazil has been a pioneer incorporating into international investment rulemaking
means to promote solutions to investor-State conflicts through nonlitigious means48.
However, Brazil’s Cooperation and Facilitation Investment Agreements (CFIA)
have also totally discarded the private right of action granted by most IIAs to
investors to enforce investment protection guarantees. Section “Investor-State Con-
flict Management Clauses: The Example of Brazil’s Cooperation and Facilitation
Investment Agreements (CFIA)” below explains the key features of the Brazilian
CFIA model in more detail.
Investor-State Conflict Management Clauses: The Example of Brazil’s

Cooperation and Facilitation Investment Agreements (CFIA)
As stated before, perhaps one of the most notorious innovations of the Brazilian
CFIA model in investment rulemaking is the inclusion of nonlitigious means to
address investor-State conflicts. However, at the same time, the Brazilian model has
also entailed the total elimination of the private right of action of investors to invoke
an IIA to directly enforce investment protection guarantees. A Brazilian expert
summarizes the policy rationale behind this substantive shift in approach in the
following way:
“[T]he CFIA fosters a cooperative approach, focusing on investments facilitation and

dispute prevention for a more productive business environment. Brazil’s response to the
criticisms of the current regime was to move away from the adversarial approach and to
adopt a cooperative approach, focusing on the elements of mutual benefit to investors and
states. The premise of the CFIAs is the long-term perspective that states need to cooperate
and maintain fluent and organized dialogue with investors to foster sustained investments. It
46
47
48
Figueiredo de Oliveira R (2020) The useful institution of an investment ombudsperson, Columbia
FDI perspectives. In: Sauvant K, Busser A (eds) Columbia center on sustainable investment,
no. 273, March 9, 2020
is a new concept of agreement focused on stimulating and supporting mutual investments

(adopting the concept of investment facilitation), aiming at boosting reciprocal investment
flows and opening new and sustainable integration activities between the states.”49
Literature has already started to describe and comment the features of the CFIA
model in detail50,51,52,53. For purposes of this chapter, the main focus is to analyze
the CFIA from the perspective as to whether it provides for adequate means to foster
efficient CMMs to retain and expand investments.54 The CFIA establishes two
different mechanisms to address investor-State conflicts, one is a domestic level,
and the other at State-to-State level.
At domestic level, under the CFIA model, each contracting State must create a
centralized mechanism – either an investment ombudsman or a focal point – which
will be responsible to receive and address queries and grievances from investors at
an early stage. Such ombudsman or focal point is expected to analyze the queries or
grievances submitted and if applicable, to coordinate with other governmental
entities involved in the conflict through expedited proceedings, with a view to revert
to the investor with answer or solution to the problem or query. In the case of Brazil,
the government has established an Ombudsman within the Chamber of Foreign
Trade (CAMEX), an inter-ministerial body responsible for formulating, adopting,
49
Veira Martins (2017) Brazil’s Cooperation and Facilitation Investment Agreements (CFIA) and
recent developments, analysis, investment treaty news, June 12, 2017. International Institute for
Sustainable Development (IISD), Geneva
50
Veira Martins (2017) Brazil’s Cooperation and Facilitation Investment Agreements (CFIA) and
recent developments, analysis, investment treaty news, June 12, 2017. International Institute for
Sustainable Development (IISD), Geneva
51
Choer Moraes H, Hees F (2018) Breaking the BIT mold: Brazil’s pioneering approach to
investment agreements. Paper presented to the symposium on the BRICs approach to the invest-
ment agreements
52
Cambridge
53
Figueiredo de Oliveira R (2020) The useful institution of an investment ombudsperson, Columbia
FDI perspectives. In: Sauvant K, Busser A (eds) Columbia center on sustainable investment,
no. 273, March 9, 2020
54
In 2013, the Chamber of Foreign Trade (CAMEX) issued a mandate for the negotiation of
agreements with African countries, based on the guidelines of the newly developed CFIA model.
This mandate was expanded in 2015, right after the conclusion of the first agreements with Angola,
Malawi, and Mozambique, to include all countries interested in negotiating agreements under the
CFIA model with Brazil. Brazil has also signed CFIAs with Chile, Colombia, Mexico, and Peru and
has concluded negotiations with India and Jordan. Negotiations based on a 2015 proposal by Brazil
have recently been concluded by the MERCOSUR Working Subgroup on Investments (SGT 12),
with the signing of the Cooperation and Facilitation Investment Protocol to the Treaty of Asunción
on April 7, 2017. The Ombudsman for Direct Investment and a National Committee on Investment
were established in September 2016 within the structure of CAMEX, including regulations for both
institutional frameworks. (Veira Martins (2017) Brazil’s Cooperation and Facilitation Investment
Agreements (CFIA) and recent developments, analysis, investment treaty news, June 12, 2017.
International Institute for Sustainable Development (IISD), Geneva)
722 R. Echandi
and coordinating trade and investment policies at federal level. Article 4 of the 2015
Brazil-Malawi CFIA55 illustrates this approach:
“Article 4
Focal Points or “Ombudsmen”1
1. Each party shall designate a National Focal Point, or “Ombudsman”, which shall have as
its main responsibility the support for investor from the other Party in its territory.
2. In Brazil, the “Ombudsman” shall be in the Chamber of Foreign Trade – CAMEX 2.
3. In the Republic of Malawi, the National Focal Point shall be the Malawi Investment and
Trade Centre 3.
4. The National Focal Point, among other responsibilities, shall:
(a) Comply with the guidelines of the Joint Committee and interact with the National
Focal Point of the other Party, in accordance with this Agreement;
(b) Interact with the relevant government authorities to assess and recommend, when
appropriate, referrals for the suggestions and complaints received from the
Government and investors of the other Party, providing information to the
Government or interested investors about any undertakings resulting from such
suggestions and complaints;
(c) Mitigate conflicts and facilitate their resolutions in coordination with relevant Gov-
ernment authorities and in partnership with pertinent private bodies;
(d) Provide timely and useful information on regulatory issues on general investment or
on specific projects; and
(e) Report activities and milestones to the Joint Committee, when appropriate.
5. Each Party shall draw up rules of procedure for the operation of its National Focal Point,
expressly stipulating, when appropriate, time limits for the implementation of each of its
functions and responsibilities.
6. Each Party shall designate only one agency or authority as its National Focal Point, which
shall give prompt replies to notifications and requests by the Government and investors
from the other Party.
7. The Parties shall provide the means and resources for the National Focal Point to perform
its functions, as well as ensure its institutional access to other government bodies
responsible for the terms of this Agreement.
1. For the purpose of this Agreement, “Ombudsman”/“Ombusdmen” are terms only

applicable to Brazil, and are an exact synonym for “Focal Point”/“Focal Points”.
2. The Chamber of Foreign Trade (CAMEX) is part of the Government Council of
the Presidency of the Federative Republic of Brazil. Its main body is the Council
of Ministers, which is an interministerial body.
3. The MITC is a government agency responsible for investment and trade promo-
tion operating under the INVESTMENT AND EXPORT PROMOTION ACT.”
55
Text available at UNCTAD Iternational Investment Agreements Navigator at https://
investmentpolicy.unctad.org/international-investment-agreements/countries/27/brazil
Originally, the Brazilian government conceived the ombusdman as only accessi-

ble to those investors covered by a CFIA.56 However, more recently the government
opted to make it accessible to all foreign investors and even to domestic investors
facing problems abroad.57
The ombudsman/focal point established under the CFIA clearly fits with most
of the key elements of a CMM protocol geared to foster investment retention and
expansion. It establishes a lead agency empowered to deal with other authorities
of the government with a view to resolve investor-State conflicts. Article 4 above
explicitly States that there will be only one lead agency acting as focal point or
ombudsman, and that “[t]he Parties shall provide the means and resources for
the National Focal Point to perform its functions, as well as ensure its institu-
tional access to other government bodies responsible for the terms of this
Agreement.”
The system also provides for information sharing, in the sense that by establishing
the lead agency not only by treaty, but also by domestic regulation, it ensures
publicity to ensure that both public agencies and investors alike are informed
about the existence of the mechanism and how it works. Further, the treaty also
mandates the lead agency to coordinate additional information-sharing activities, by
including within its mandate “to provide timely and useful information on regulatory
issues on general investment or on specific projects.” Further, in this regard, it is
worth noting the explicit inclusion of an information-sharing clause explicitly
directed toward the private sector in many CFIAs. For instance, in the Brazil-
Malawi CFIA, Article 6 explicitly provides the following:
“Article 6
Interaction with the Private Sector
1. Recognizing the key role played by the private sector, the Parties shall disseminate
among the relevant business sectors general information on investment, regulatory
frameworks and business opportunities in the territory of the other Party.”
Clearly, a critical part of general information on investment and regulatory frame-

works that the Parties are mandated to disseminate among private sector representatives
is the very existence and mechanisms on how to access the ombusdmen/focal point
services. This is important not only for information-sharing purposes, but also for the
correct functioning of early alert mechanisms. Indeed, such as other investment
ombudsmen in other parts of the world, the system envisaged in the CFIA relies in a
reactive approach to early alerts brought by investors themselves when an issue or
56
See Presidência da República, Secretaria-Geral, Subchefia para Assuntos Jurídicos DECRETO N°
8.863, DE 28 DE SETEMBRO DE 2016. Available at http://www.planalto.gov.br/ccivil_03/_
Ato2015-2018/2016/Decreto/D8863.htm
57
See Presidência da República, Secretaria-Geral, Subchefia para Assuntos Jurídicos DECRETO N°
9.770, DE 22 DE ABRIL DE 2019. Available at http://www.planalto.gov.br/ccivil_03/_Ato2019-
2022/2019/Decreto/D9770.htm
724 R. Echandi
conflict arises. In this regard, it is the investor itself, the one who, knowing that there is a
lead agency mandated to support the resolution of investment-related problems, will
voluntarily knock the door and submit the issue for the consideration of the ombuds-
man. In this regard, it is also a positive aspect of the CFIA model that is envisaging the
ombudsman/focal point as a facilitator for investors in a nonlitigious context.
Regarding problem-solving techniques, once again, as other ombudsmen in the
world, the CFIA model is envisaging the lead agency to undertake “rule-based”
negotiation with the other agency(ies) involved in the conflict, giving the latter the
mandate and authority to report to high instances of government. In this regard, it is
worth noting that in the Brazil-Malawi CFIA, Part III of the Treaty, where most of
the core investment rights and duties for investors are included, is called “Risk
Mitigation and Dispute Prevention.” Clearly, this is an example of the recognition of
the rights and obligations included in IIAs as tools for political risk mitigation. By
integrating the substantive investment rights and obligations with a nonlitigious
system to managing conflicts at an early stage, the CFIA is positioning the treaty
as a point of reference for the ombudsman/focal point to conduct its negotiations
with the agencies generating the issue. In fact, this point becomes more clearly
evident when considering the political economy incentives derived from the inclu-
sion of the State-to-State joint committee which may be called to intervene if the
investor convinces its home government to do so.
Indeed, as far as political decision-making is concerned, the CFIA also rightly
recognizes the critical role that international pressure may generate over domestic
agencies as means to foster a more effective “negotiation in the shadow of the
law” between the ombudsman/focal point and the agency generating the conflict.
In this regard, the CFIA model complements the mechanisms operating at the
domestic level with a State-to-State Joint Committee promoting cooperation,
including explicitly a mandate and procedures to address investor-State griev-
ances and attempt to prevent dispute escalation. The dispute prevention compo-
nent works through a mechanism in which representatives of the investors and
governments involved can share their views on the issue raised by the investors
and look for a solution on a common ground. If the parties fail to find a common
ground, then as a last resort, the governments involved can then initiate interna-
tional State-to-State arbitration. Article 13 of the Brazil-Malawi CFIA illustrates
this point:
“Article 13
Disputes Prevention
1. The National Focal Points, or “Ombudsmen”, shall act in coordination with each other
and with the Joint Committee in order to resolve any disputes between the Parties.
2. Before initiating an arbitration procedure, any dispute between the Parties shall be
assessed through consultations and negotiations between the Parties and previously
examined by the Joint Committee.
3. A Party may submit a specific question of interest of an investor to the Joint Committee:
(a) To initiate the procedure, the Party of the interested investor shall submit, in writing,
its request to the Joint Committee, specifying the name of the interested investor
and the encountered challenges and difficulties;
(b) The Joint Committee shall have 60 days, extendable by mutual agreement by
60 additional days, upon justification, to submit relevant information about the
presented case;
(c) In order to facilitate the search for a solution between the Parties, whenever possible,
the following shall participate in the bilateral meeting:
(i) Representatives of the interested investor;
(ii) Representatives of the governmental or non-governmental entities involved in
the measure or situation under consultation.
(d) The procedure for dialogue and bilateral consultation ends by the initiative of any
Party upon presentation of a summarized report in the subsequent Joint Com-
mittee meeting, that shall include:
(i) Identification of the Party;
(ii) Identification of the interested investors;
(iii) Description of the measure under consultation; and
(iv) Position of the Parties concerning the measure.
(e) The Joint Committee shall, whenever possible, call for special meetings to review the
submitted matters.
4. The meeting of the Joint Committee and all documentation, as well as steps taken in the
context of the mechanism established in this Article, shall remain confidential, except for
the submitted reports.
5. If the dispute cannot be resolved, the Parties to the exclusion of the investors may resort
to arbitration mechanisms between States, which are to be agreed upon by the Joint
Committee, whenever the Parties find it appropriate.”
In sum, from the analysis of the CFIA under the lens of CMMs, it is evident that
Brazil has made an important contribution bringing into international rulemaking the
figures of the ombudsmen and the Joint Commissions, envisaging the possibility of
inviting private sector to participate in the latter. In addition to the inclusion of these
nonlitigious mechanisms to address investor-State grievances, a central feature of the
CFIA is the absence of a private right of action of investors at international level,
making them depend either on domestic courts or arbitration – Brazil allows for it in
certain contracts – or on convincing their respective home States to spouse their
claims and elevate them at State-to-State dispute settlement. Clearly, as a policy to
prevent ISDS, these measures will be very effective. The question is whether the
absence of a credible and imminent pressure for international adjudication will in
practice have the effect of eroding the political clout of the ombudsman vis-à-vis
other domestic agencies. A situation that may be exacerbated by the fact that Brazil
is a federal country, and that subnational State authorities can take regulatory
measures affecting investors – especially through taxes and other administrative
means.
Current Discussions on CMMs in International Investment Fora

(UNCITRAL and WTO)
The Introduction of CMMs in International Investment Policy

Discussions: From the WBG to the G20
The first international institution bringing into international attention the importance
for host countries to set up CMMs aiming to retain and expand investment was the
726 R. Echandi
World Bank Group, which, on the basis of research originally undertaken at the
World Trade Institute (WTI) of the University of Bern in 2011, as early as 2013
started to develop the “Systemic Investment Response Mechanism” (SIRM)58. The
notion of investment retention and expansion then started to be discussed as part of
the exchanges on investment facilitation at the Trade and Investment Working Group
(TIWG) under the German Presidency in 201759. On that occasion, the G20 TIWG
did not produce any official framework for investment facilitation. However, one of
the contributions of the G20 German Presidency was the launching, under the G-20
Finance Track, of the G-20 Compact with Africa (CWA) Initiative, aimed at pro-
viding a framework for boosting private investment and increasing the provision of
infrastructure in Africa.
In such framework, although policy makers clearly saw close relation between
investment retention and expansion on the one hand, and dispute prevention on the
other, they clearly differentiated between the two, expressing the need for govern-
ments to tackle both issues, but emphasizing on the need to strengthen the investor-
State relationship.
“55. Reducing political risks is thus critical not only to attract, retain and expand
investments in host countries, but also to prevent potentially costly investor-State
disputes. . . When disputes escalate, they not only can result in the award of costly costs
and damages, but they can also destroy the potential of having long-term harmonious
relations with investors. Arbitration disputes can continue for several years until a final
outcome is reached. In certain cases, despite all the resources spent, the outcome can leave
investors and host States dissatisfied. Structural mechanisms to anticipate and prevent
disputes may help minimize the need to recur to investor-State dispute settlement.”60
The G20 CWA framework not only differentiated between ISDS prevention and
investor-State CMMs, but also recognized the need to address the lack of legal
infrastructure enabling those CMMs to operate:
“56. There has been a clear gap in terms of availability of an institutional mechanism
that can enable governments to identify, track, and manage grievances arising between
investors and public agencies as early as possible, well before the aggrieved investor
considers or even submits a legal claim. An early warning and tracking mechanism to
58
59
AfDB, IMF, WBG (2017) The G-20 compact with Africa: a joint AfDB, IMF and WBG report,
G-20 finance ministers and central bank governors meeting, March 17–18, 2017. Baden-Baden,
Germany, Paragraph 55. https://www.compactwithafrica.org/content/dam/Compact%20with%
20Africa/2017-03-30-g20-compact-with-africa-report.pdf
60
The G-20 Compact with Africa: A Joint AfDB, IMF, and WBG Report, G-20 Finance Ministers
and Central Bank Governors Meeting, March 17–18, 2017, Baden-Baden, Germany, Paragraph 55.
Text available at https://www.compactwithafrica.org/content/dam/Compact%20with%20Africa/
2017-03-30-g20-compact-with-africa-report.pdf
identify and resolve complaints and issues that arise from government conduct could help fill
this gap, ultimately preventing legal disputes and facilitating harmonious relations between
investors and governments. This mechanism, called a Systemic Investor Response Mecha-
nism (SIRM) and initiated by the WBG, enables countries to collect data and helps identify
patterns in government-generated grievances affecting investments. Furthermore, SIRM
quantifies investment retained or expanded as a consequence of addressing grievances, as
well as investment lost as a consequence of not addressing them.”61
Further the G20 CWA officially recognized SIRM as an important instrument to

promote investment retention and expansion, and to strengthen investor-State rela-
tionships. In this way, the G20 explicitly sponsored the SIRM as one of the
mechanisms to be tested to facilitate investment in Africa:
“57. For a reform-oriented government, a SIRM enables a lead government agency to

bring to the attention of high levels of government problems affecting investments in
order to address them before they escalate further. The operation of the SIRM includes
the following:
• Identify specific patterns and origins of government conduct generating grievances and
augmenting perceptions of political risks;
• Measure affected investment as “evidence” to advocate for timely changes; and
• Strengthen capacity of the “offending” institutions to minimize the recurrence of such
events.”62
As a result of the G20 CWA recognition of the SIRM, the British Government
acceded to undertake two additional pilots in Africa, one in Rwanda and another in
Ethiopia.
Discussions in the Context of the UNCITRAL Working Group III

on Reforms to the ISDS
Discussions about reform of the ISDS system have become the focus of various
initiatives of different international organizations such as UNCTAD, ICSID, and the
United Nations Commission on International Trade Law (UNCITRAL).
UNCITRAL received a mandate to set up a working group (Working Group III) –
on Investor-State Dispute Settlement Reform to assess concerns of different parties
finding possible solutions to address them. The UNCITRAL Working Group III
began its work in November 2017 and comprises Member States, observer States, as
well as observer intergovernmental and nongovernmental organizations. The Work-
ing Group III was entrusted with a broad mandate which would ensure that the
deliberations, while benefiting from the widest possible breadth of available exper-
tise from all stakeholders, would be Government-led.63 Further, the working group
would proceed to identify and consider concerns regarding ISDS, and consider
61
Ibid. Paragraph 56
62
Ibid, Paragraph 57
63
Paragraph 264 of the Report of the United Nations Commission on International Trade Law, 50th
session, A/72/17P
728 R. Echandi
whether reform was desirable in the light of any identified concerns; if the working
group were to conclude that reform was desirable, relevant solutions would be
developed to be recommended to the Commission64. For this, the Working Group
III meets twice a year to tackle its broad mandate.
The group has made substantial progress by identifying concerns and considering
whether reform in those areas was desirable. These concerns fell into three catego-
ries: The first concern pertains to consistency, coherence, predictability, and correct-
ness of arbitral awards;65 the second concern pertains to arbitrators and decision-
makers;66 and the third concern pertains to cost and duration of ISDS cases.67 The
37th session in New York was devoted to addressing and identifying some additional
concerns and creating a workplan for carrying out phase three of the mandate –
developing possible ISDS reform options. At the 38th session, the working group
agreed on a project schedule on reform options and requested the secretariat to
undertake preparatory work on dispute prevention and mitigation as well as on
means of alternative dispute resolution.
Responding to that mandate, UNCITRAL Secretariat prepared a discussion note
on possible reform to ISDS, focusing on dispute prevention and mitigation and
means of alternative dispute resolution.68 This document not only summarizes the
submissions of the different parties to the working group on this subject, but also
serves as information source for the discussions, making reference to a broad range
of published information on the topic of dispute prevention and mitigation and ADR.
Thus, among other uses, this document can be a useful “thermometer” of the current
views and priorities of different States on this subject. Further, the vocabulary used
in the discussions can also be useful to examine the extent to which the concepts of
dispute prevention, on the one hand, and investment retention and expansion
through CMMs, on the other, are being mingled or differentiated. In this regard,
one of the first paragraphs of the paper illustrates how both concepts are being
currently integrated under the term “dispute prevention and mitigation.”
“5. The Submissions that address the matter of dispute prevention and mitigation underline
the need for mechanisms to prevent and reduce the occurrence of investor-State disputes. As
mentioned in the Submissions, dispute prevention is a means to improve the business
environment, to retain investments and to resolve investors’ grievances swiftly. Focus-
ing on the “prevention” of disputes, rather than “post-dispute” regulation, is presented as a
cost-effective approach to the reform of ISDS. The Submissions also provide information on
dispute prevention and mitigation measures developed at national level, in investment
treaties, as well as disputes prevention initiatives and programmes available at the interna-
tional level.” (emphasis added)
64
(para. 264 of the Report of the United Nations Commission on International Trade Law, 50th
session)
65
(UNCITRAL Working Paper no. 150)
66
(UNCITRAL Working Paper nos 151 and 152)
67
(with focus on arbitration proceedings; UNCITRAL working paper no. 153)
68
UNCITRAL, Working Group III, Thirty-ninth session, New York 30 March-3 April 2020,
A/CN.9/WG.III/WP.190. Available at https://undocs.org/en/A/CN.9/WG.III/WP.190
As can be observed by the definition of dispute prevention above, dispute

prevention, investment retention, and early management of investor-State disputes
are terms which are being used interchangeably in the context of UNCITRAL
Working Group III. Such approach may be explained by the fact that discussions
at UNCITRAL are still at a very early stage, and they have focused on how to reform
ISDS, rather than on in each individual approach to manage investor-State conflict.
As governments are still embarked on an ISDS-centric discussion, anything that is
different from ISDS and that may serve as an alternative to it, no matter what they
may be, are lumped together under one term. This stage of the discussion may also
explain why the note not only focuses on dispute prevention and mitigation, but also
on means of alternative dispute resolution.
It is important to note, however, that from a technical point of view, the note by
the UNCITRAL Secretariat is an excellent piece, and makes reference to the most
relevant literature existing on dispute prevention, conflict management, and ADR. It
differentiates between measures countries can undertake at national level and steps
to be considered when drafting international investment agreements. Among the
steps identified that governments can take at national level are those very similar to a
CMM basic protocol,69 that is: (a) identifying a lead agency, (b) mapping of
information and making it available, (c) monitoring communication with investors,
(d) information sharing and awareness raising on investment obligations among
government officials and training, and (e) discussing early settlement and handling
disputes. In addition, the note also makes reference to State-to-State cooperation in
dispute prevention, and the need for capacity building tackling cross-border issues
arising out of ISDS. In that regard, it is worth quoting one of the key questions the
note proposes the parties to consider:
“27. the Working Group may wish to note that the question of dispute prevention and
mitigation is closely connected to the reform option of establishing an advisory center
possibly tasked with dispute prevention and capacity building activities. Such center
would provide the basis for a systematic sharing of knowledge and practices on dispute
prevention. The Working Group may wish to consider whether as already indicated in
relation to the establishment of an advisory center, information about dispute prevention
and mitigation measures currently adopted by States, and provided by regional and interna-
tional organizations would need to be gathered with a view to identifying possible overlaps
69
It is worth noting that the UNCITRAL Note also makes reference to the SIRM conflict manage-
ment mechanism developed by the WBG:
“The World Bank Systemic Investment Response Mechanism (SIRM), developed by the World
Bank, serves as an early warning and tracking system. SIRM collects data and identify patterns of
political risks that impact investments, and quantifies investments lost or gained as a result, forming
a basis for potential reform or steps to minimize the recurrence of investment-related problems.
SIRM needs to be adapted to the political economy circumstances of every country. However, four
elements remain common, namely (1) the empowerment of a lead agency that implements the
system; (2) an early-alert mechanism and tracking tool to communicate problems to the lead agency,
(3) problem-solving methods available to the lead agency and other agencies to find a solution,
including exchanges of information, consultations, or legal opinions, and (4) political decision-
making at higher levels when the lead agency is unable to recommend a solution.”
730 R. Echandi
and gaps. This would include considering: (i) available models developed at the national
level, and whether more guidance would need to be provided in that respect, (ii) the need for
the development of model clauses on dispute prevention in investment treaties, including
mechanisms for the establishment of joint committee or commission, and (iii) possible
coordination among available programs and initiatives on dispute prevention and mitigation
at the international level.”
Despite the still general terminology of “dispute prevention and mitigation,” the
UNCITRAL Note is on point suggesting three key steps that would be necessary for
States to undertake in the near future: first, to consider available models of conflict
management developed at national level, such as the ombusdmen established in
countries such as Korea, Georgia, or Brazil, or the Commissions established in
countries such as Peru, Costa Rica, and Colombia, both models which contain the
fundamental elements of the model CMM protocol70; second, the development of
model conflict management clauses in investment treaties, not only providing for the
lead agency or focal point to operate domestically, but also, like the Brazilian model
CFIA, providing for the establishment of joint committee or commission; and third,
possible coordination among available cooperation or support programs at interna-
tional level by various international institutions and partners. Despite these accurate
recommendations, UNCITRAL Working Group III is still far from reaching a
stage where any text may be negotiated. Thus, it may be more likely that in addition
to the CFIA model promoted by Brazil, the issue of investor-State CMMs may reach
the stage of multilateral investment rulemaking in the context of the imminent
negotiations on investment facilitation at the WTO.
Discussions in the Context of the Work on Investment Facilitation at

the WTO
The third main international forum in which the issue of investor-State conflict
management is gradually been addressed is in the WTO. Discussions on investment
facilitation for development have registered steady progress at the WTO since the
topic was first mooted in 2016. From the Informal Dialogue held throughout 201771
to the Joint Ministerial Statement cosponsored by 70 members at MC11 later that
year, to the current Structured Discussions, the initiative has gathered increased
support and momentum among members, many of which regard it as a development-
enhancing rulemaking journey divorced from the more contentious elements of
investment governance (i.e., investment protection, investment liberalization, and
investor-sate dispute settlement) and aimed at improving investment climates and
reducing regulatory compliance costs in a manner analogous to the WTO’s landmark
Trade Facilitation Agreement for trade in goods.
70
71
In 2017, the WTO Informal Dialogue on Investment Facilitation for Development held six
meetings (24 May, 28 June, 18 July, 25 September, 23 October, and 10 November)
The goal laid out in the Joint Ministerial Statement on Investment Facilitation for
Development is to develop a multilateral framework on investment facilitation. In
keeping with the first part of that goal, the structured discussions first sought to identify
the possible elements of such a framework before moving on to develop textual
language on identified elements. Meetings during the first year (2018) of the structured
discussions were organized thematically in accordance with the joint ministerial
statement. They addressed elements of a multilateral framework by focusing on:
(i) Improving the transparency and predictability of investment measures

(ii) Streamlining and speeding up administrative procedures and requirements
(APRs)
(iii) Enhancing international cooperation, information sharing, the exchange of best
practices, and relations with relevant stakeholders, including dispute prevention
Interestingly, the fact that members have agreed not to discuss investment protec-
tion or ISDS has not impeded them from including the subject referred to in item (iii)
above, opening the door for WTO Members to discuss nonlitigious approaches toward
investor-State conflict management, investment retention, and expansion.
In November 2018, the investment facilitation coordinator produced a “checklist
of issues” identified by members in the five meetings held during the year. Following
the guidance made explicit in the joint ministerial statement, discussions of invest-
ment facilitation at the WTO do not address market access, investment protection,
and investor-State dispute settlement. Rather, the structured discussions have
focused on the possible elements of a WTO-anchored investment facilitation frame-
work, addressing its interaction with existing WTO provisions, with current
investment-related commitments made by members, and with the investment facil-
itation work of other international organizations.72
The current (second) phase of the structured discussions has been focusing on
developing the possible elements of a multilateral framework on investment facili-
tation for development. Discussions have been anchored in text-based examples
submitted by members (rooted for the most part in bilateral investment instruments
and in the investment chapters of preferential trade agreements) on how to develop
the possible elements of the framework, drawing additionally on the “Checklist of
Issues raised by Members” noted above.
72
Work on investment facilitation has been conducted in cooperation with – and drawing on the
expertise of – international organizations such as the ITC, OECD, UNCTAD, and the World Bank
Group, all of which were invited to participate in the meetings and make presentations on the topics
under consideration
732 R. Echandi
As was done in 2018 for the checklist, the investment facilitation coordinator
prepared under his responsibility a compendium of the text-based examples sub-
mitted for discussion at the meetings.73 This compendium aims at organizing the
examples submitted in a coherent and user-friendly manner. It is a tool intended to
facilitate open, transparent, and inclusive discussions. While the content, structure,
and wording of the compendium do not prejudge the position or views of members
on any of the elements and issues under discussion, the compendium serves a
useful “living document” purpose that stands to be updated in light of Members’
submissions of examples and inputs put forward during ongoing structured
discussions.
Early in 2020 and drawing from suggestions by participating members and
bilateral consultations with interested delegations, the investment facilitation coor-
dinator made the following two proposals in order to facilitate the work in the next
phase and in the run-up to the 2020 WTO Ministerial Meeting (MC12): first, to
prepare a “Streamlined Text” building on the working document and factoring in the
views that participating members had expressed during the detailed substantive
discussions held in the past months; and second, moving into “negotiating mode”
as of March 2020, giving a “warming-up” period for participating members to
prepare for the start of negotiations. Those proposals were adopted by the members
participating in the structured discussions on investment facilitation.
The “Streamlined Text” has not been open for public circulation yet. However,
research undertaken by the author for this chapter shows that there are two specific
items proposed for negotiations which would be directly relevant to bring investor-
State CMMs into the aegis of the WTO Investment Facilitation Agreement. Both of
these elements seem to be based on proposals inspired in the Brazil CFIA. The first
element included in the “Streamlined Text” is a proposal calling WTO Members to
set up a contact/focal point/ombudsperson type of mechanism. And the second, the
designation of complementary mechanism to facilitate communication between
States on matters related to investment facilitation.
Regarding the first proposed element, the current discussions seem to be
evolving toward requesting a commitment for each member participating in the
investment facilitation agreement to designate, maintain, or establish, to the extent
practicable and in a manner consistent with its legal system, either a contact/focal
point or an appropriate mechanism, which would be responsible for responding to
investment-related enquiries from investors. In addition, such contact/focal point
73
For the meeting on “elements aimed at improving the transparency and predictability of invest-
ment measures” held on 4 March 2019, 14 submissions containing text-based examples were put
forward by the following 45 Members: Australia; Brazil; Canada; China; Costa Rica; the European
Union (29); Hong Kong, China; Guatemala; the Republic of Korea; Mauritius; Pacific Alliance
(Chile, Colombia, Mexico and Peru); Panama; Switzerland; and Uruguay. For the meeting on
“streamlining and speeding up administrative procedures and requirements (APRs)” held on
11 April 2019, nine submissions were put forward by the following 37 Members: Australia; Brazil;
Canada; China; European Union (29); Guatemala; Hong Kong, China; the Russian Federation; and
Switzerland. In addition, examples were provided by Egypt at the meeting on 11 April 2019
or mechanism will also assist investors from any other member not only in
obtaining information from relevant competent authorities, but also by seeking to
resolve investment-related difficulties in collaboration with relevant competent
authorities of the host country. As a result, those tasks would thereby facilitate
the solution of grievances or problems with investors, and, as a consequence,
prevent disputes.
In addition to the establishment of a contact/focal points or mechanism to deal
with investor-related enquires or problems, the streamlined text is also envisaging
promoting cross-border cooperation on investment facilitation through the desig-
nation of contact/focal points or mechanisms to facilitate communication between
the members and cooperate on matters relating to investment facilitation, includ-
ing exchange of information and sharing of experiences regarding the implemen-
tation of the investment facilitation framework to be negotiated, collection of data
and statistics relating to investment, and any other issue of interest to the
members.
These two core elements would enable WTO Members participating in an
eventual investment facilitation agreement to set up investor-State CMMs at the
domestic level, complementing such mechanism with State-to-State cooperation to
facilitate the use of international law to be used as point of reference for nonlitigious
means of conflict management. Although negotiations have not started and it may be
premature to elaborate on how an investment facilitation agreement in the WTO may
look like, it is worth noting that the notion of nonlitigious CMMs for investment is
being considered as core elements of an eventual investment facilitation agreement.
Further, given the explicit exclusion of investment protection and ISDS from the
agenda on investment facilitation, the WTO discussions show an emerging under-
standing by members on the key difference between nonlitigious conflict manage-
ment and dispute resolution.
Clearly, the level of granularity of the discussion at the WTO is far from the
required one to properly design CMMs fostering investment retention and expan-
sion. However, the initial items already included in the “Streamlined Text” provide
enough legal “hooks” to further develop the necessary infrastructure for their proper
operation and also start levering international investment law in a context different
from the adjudicatory one.
In addition to the mechanism providing ombuds services for investors at the
domestic level, the establishment of State-to-State collaboration mechanisms would
enable States to set up committees to elevate, in case it was necessary, investor-State
issues to an international platform involving governments as well as investors.
Further, the possibility to discuss exchange of information and investment statistics
would open the door for governments to start cooperating to begin collecting data on
investment and/or jobs retained or expanded as a result of early and efficient
resolution of investor-State grievances. As will be explained in the following section
below, such a development would represent a significant milestone and shift in the
political economy of investor-State relations. Last but not least, State-to-State
cooperation on investment facilitation would also open the door to set up capacity-
building initiatives, such as the establishment of an Advisory Center on International
734 R. Echandi
Investment Law, to support the domestic lead agencies in charge of leveraging IIAs
to negotiate “in the shadow” of the law the solution of investor-State conflicts with
peer public agencies. These points will be further developed in section
“Mainstreaming CMMs in IIAs: A Proposal” below.
Mainstreaming CMMs in IIAs: A Proposal
Justification: The Rationale of Mainstreaming CMMs in IIAs
The trends in the evolution of investor-State conflicts also show one of the key
challenges for governments in times of globalization: the growing tension between
the single State paradigm at the core of domestic and international legal systems on
the one hand, and on the other, the governance fragmentation derived from the
multilayered agency composition of most governments worldwide – which has been
exacerbated in the last three decades by administrative decentralization.
Just as globalization is pressuring investors to compete in more interactive and
contestable markets, it is also pressuring governments to set up mechanisms to
ensure a minimum level of administrative coherence among dozens, hundreds, or
even thousands of agencies comprising the public administration, both at national
and subnational level. The capacity to ensure coherent, regular government conduct
based on the fundamental norms and principles of IIAs among a plethora of
administrative actors is becoming challenging for governments. However, such
challenge should not be ignored by promoting the elimination of international
rules fostering administrative discipline. On the contrary, this calls for more efficient,
creative, and pragmatic mechanisms to foster the rule of law, especially if FDI and
development are to be promoted.
The legal infrastructure to enable investor-State CMMs to properly operate to
retain and expand FDI is the major responsibility of national and subnational
governments. That is the “domestic dimension” of investor-State CMMs74. How-
ever, given the political economy tending to prevail in complex administrative and
political organizations such as States, for domestic CMMs to properly work, there is
a need for mechanisms exerting supranational political pressure inducing collabora-
tion among the multiple agencies operating at the domestic level. This chapter argues
that exerting such pressure is the critical role of IIAs, which, if properly combined
with institutional outlets at national level, may significantly contribute to a better
functioning of public administrative bodies in States.
Furthermore, this chapter is backing the argument that just as IIAs can be useful
to implement CMMs at a domestic level, the latter can act as formidable vehicles to
74
implement IIAs as well75. Indeed, if the term legal implementation is understood as

the process to effectively translate into practice the juridical values of substantive
law, then CMMs could be visualized as the mechanisms to ensure a nonlitigious
effective implementation of IIAs on the ground.
The WBG SIRM pilots have shown a very practical way for countries to leverage
IIAs in a nonlitigious manner to induce desired patterns of behavior among domestic
regulatory agencies and to mitigate political risks in cross-border investment trans-
actions76. In a nutshell, a practical way is to use IIAs as point of reference for a lead
agency to “negotiate in the shadow of the law” with peer domestic public agencies in
order to address an investor-State conflict.
The WBG SIRM pilots have also shown the critical importance of using IIAs – as
opposed to other legal basis – as the basis to foster negotiation in the shadow of the law
in investor-State CMMs77. In addition to other functions that IIAs play in the broader
context of investor-State relations, contrary to other sources of law, IIAs play two key
roles that are absolutely critical to enable governments make CMMs work as invest-
ment retention and expansion tools: One is external and another is internal78. The
external function of IIAs for purposes of investor-State CMMs is the same for which
these instruments were conceived in the first place: to signal cross-border investors of
the existence of a tool to mitigate political risk when investing abroad. Indeed,
empirical evidence shows the significant weight international investors ascribe to
political risk derived from irregular government conduct79. The fact that countries
have a minimum standard of protection provided at treaty level, somewhat protected
against the uncertainty derived from the pendulum of domestic politics and potential
policy reversals, provides a greater degree of predictability than domestic legislation.
A second critical role IIAs play in enabling the proper functioning of investor-State
CMMs has to do with the key role the lead agency of a CMM is called to play in
75
76
77
78
Echandi R (2011) What do developing countries expect from the international investment regime?
In: Álvarez JE, Sauvant KP (eds) The evolving international investment regime: expectations,
realities, options. Oxford University Press, Oxford/New York
79
736 R. Echandi
disciplining its peer domestic agencies within government. Investment-related con-

flicts can arise regarding multiple topics and can also call into question the interpre-
tation of various kinds of specific legislation such as tax, customs procedures,
environmental or labor protection, health, and so on. Specialized agencies are
entrusted in overseeing the correct application of such specialized legislation. Empir-
ical evidence shows that most of the investor-State conflicts arise precisely with
subnational or specialized regulatory agencies80. However, no lead agency in charge
of a CMM can claim expertise in every subject covered by domestic regulations.
Therefore, CMM lead agencies may not have any legitimacy to challenge or second-
guess a particular decision of a specialized regulatory agency on technical grounds.
Without legitimacy, a lead agency cannot fulfill its function. This is precisely the
role that IIAs can play: Although a lead agency may not be able to claim expertise on
a myriad of technical areas and subjects, it may claim expertise in IIAs and
international investment law, which binds the State as a whole, and applies on a
horizontal cross-sector basis and at all levels of government. Thus, in situations
when a particular measure of a specialized agency is generating an investor-State
conflict, the lead agency may use IIAs as the point of reference to frame the rule-
based negotiation process with its peer.
So far, we justified the key role that IIAs can play in fostering the domestic
operation of investor-State CMMs. Taking this analysis one step further, we now
turn to the question of what governments could do when negotiating IIAs to facilitate
their implementation in a nonlitigious manner. Promoting the use of CMMs, based
on “negotiation in the shadow if IIAs,” entails tackling two different types of
dimensional challenges: a “substantive” and a “procedural” one81.
From a substantive point of view, levering the principles and commitments
for “rules-based” negotiation requires a high degree of clarity and precision on
the provisions of IIAs. Simply stated, the clearer and more precise the obligations
of IIAs are, the easier it will be for the lead agency to make reference to those
commitments when negotiating domestically with its peers. Clarity will prevent
discussions about the real meaning and breadth of a particular obligation
and lesser the need for the parties applying the agreement to elucidate their
application in specific practical situations82. Indeed, as shown by the abundant
80
81
Echandi R (2012) Investor-state dispute prevention: a conceptual framework. NCCR trade
working paper, no. 2011/46, NCCR trade regulation, Swiss National Center of Competence and
Research, Bern. https://www.wti.org/research/publications/245/investor-state-dispute-prevention-
a-conceptual-framework/
82
Echandi R (2012) Investor-state dispute prevention: a conceptual framework. NCCR trade
working paper, no. 2011/46, NCCR trade regulation, Swiss National Center of Competence and
Research, Bern. https://www.wti.org/research/publications/245/investor-state-dispute-prevention-
a-conceptual-framework/
literature83, evidence shows that over the last three decades a significant number
of investor-State disputes have arisen as a result of lack of clarity of certain key
substantive provisions of IIAs84,85.
In addition to the “substantive” considerations referred to above, enabling a lead
agency to negotiate in the “shadow of IIAs” entails a “procedural” dimension, in the
sense of developing the necessary procedures and steps to enable the lead agency to
use “rules-based” negotiation with peer domestic agencies to manage investor-State
conflicts well before the investor opts to withdraw the investments and potentially
escalating the conflict into full-blown legal disputes. As shown by the WBG SIRM
pilots, the legal infrastructure to enable a CMM to properly function to retain and
expand investment must respond to the specific political economy of
intragovernment dynamics. Such dynamics are highly idiosyncratic to the political
culture of each country. However, despite such specificities, IIAs could include
specific commitments which could facilitate national governments to set up and
operate investor-State CMMs.
This section presents a concrete proposal on how provisions in IIAs could
facilitate the operation of investor-State CMMs to retain and expand investment,
recognizing both the substantive and procedural dimensions explained above. Fur-
ther, this proposal also differentiates between specific commitments for individual
governments to be included in provisions of IIAs, and complementary initiatives
which would entail collective State-to-State cooperation to create an appropriate
eco-system fostering investor-State CMMs.
Clarifying the Content of Substantive Legal Principles of the Law

to Be Used for Rule-Based Negotiation
The empirical evidence on ISDS86,87,88 (UNCTAD 2020) shows that the most
frequent breaches found in ISDS proceedings are violations of the fair and equitable
83
84
UNCTAD (2011) United Nations conference on trade and development, “Investor-state disputes:
prevention and alternatives to arbitration II”. In: Proceedings of the Washington and Lee University
and UNCTAD joint symposium on International investment and alternative dispute resolution, held
on 29 March 2010 in Lexington, Virginia, USA, United Nations, New York/Geneva, United
Nations, UNCTAD/WEB/DIAE/IA/2010/8
85
Franck S (2005) The legitimacy crisis in investment treaty arbitration: privatizing public interna-
tional law through inconsistent decisions. Fordham Law Rev 73:1521
86
87
University Press
88
UNCTAD (2020) World investment report 2020, UNCTAD/WIR/2020, International Production
Beyond the Pandemic 16 Jun 2020, United Nations, Geneva
738 R. Echandi
treatment (FET) or minimum standard of treatment standards. In addition to the

political economy factors behind this trend89, there seems to be consensus that
another factor at the root of the high number of claims based on fair and equitable
treatment grounds is the vague and diverse wording used in this standard of
protection in IIAs negotiated during the early 1990s90.
The use of vague wording in an international agreement has the effect of granting
a significant degree of discretion to tribunals when interpreting treaty clauses. With
many thousands of IIAs using similar – yet different – wording, combined with
many arbitrators with different legal cultures and ideologies interpreting those texts,
it is not surprising that interpretations of the FET standard have not always been
precise nor consistent in international law jurisprudence. This has generated a degree
of uncertainty among governments and investors alike, and likely contributed to a
higher number of disputes. This has led many States to modify their IIAs and include
more precise language when drafting their FET clauses, with a view to limit the
breadth of this standard and also limit the discretion of arbitration tribunals when
interpreting it91.
As part of the trend of limiting the breadth and fostering greater precision of the
FET standard, governments have attempted to make it clear that this standard of
protection is not intended to have a low violation threshold. Indeed, there seems to be
an emerging common understanding that the FET standard included in IIAs is to
have the same spirit or content than the minimum standard of treatment under
Customary International Law92. Thus, such standard is not envisaged then to
apply on all situations, but only on those which are so egregious and arbitrary,
than any reasonable person would know it93.
The relevance for the discussion of the new trends tending to limit the breadth and
application of the FET standard stems from the fact that, in addition to the empirical
evidence on ISDS, data on the main causes leading investors to discontinue invest-
ment projects are precisely patterns of similar irregular conduct that would resemble
the type of behavior to be prevented by a FET standard94. Lack of transparency and
89
90
Munchlinksy P (2012) Fair and equitable treatment, (UNCTAD). http://unctad.org/en/Docs/
unctaddiaeia2011d5_en.pdf
91
Yannaca-Small, Katia (Ed) (2018) Arbitration Under International Investment Agreements: A
Guide to the Key Issues. Second Edition. Oxford University Press, Oxford
92
Echandi R (2018) Bilateral investment treaties and investment provisions in preferential trade
agreements: recent developments in investment rulemaking. In: Yannaca-Small K (ed) Arbitration
under international investment agreements: a guide to key issues. Oxford University Press, Oxford
93
Munchlinksy P (2012) Fair and equitable treatment, (UNCTAD). http://unctad.org/en/Docs/
unctaddiaeia2011d5_en.pdf
94
predictability in dealing with public agencies, sudden changes in laws and regula-
tions, delays in obtaining necessary government permits, and approvals to start or
operate a business are precisely the most common patterns of irregular government
conduct leading investors to discontinue their projects95. Are these types of behav-
iors inconsistent with the FET standard of protection? Not only it is not an easy
question to answer, but also it may be an undesirable question to ask from a public
policy approach. Clearly, even with the more precise type of provisions included in
new generation of IIAs, whether a particular government conduct is consistent or not
with the FET standard is a question which will tend to arise mostly in dispute
resolution/adjudication/litigation contexts, simply because the standard has been
conceived as an obligation of conduct the violation of which entails the breach of
a threshold. Indeed, the FET standard is an obligation of conduct, not of result.
Within this context, in order to foster a nonlitigious use of IIAs, more specific and
clear commitments, focusing on obligations of result to be complied by States, may
significantly facilitate the use of IIAs as a parameter to negotiate “in the shadow of
the law.” As shown by recent research96, the most frequent types of irregular
government conduct that are affecting investment retention and expansion in devel-
oping countries are: (i) lack of transparency and predictability in dealing with public
agencies, (ii) sudden/arbitrary changes in the laws and regulations, and (iii) delays in
obtaining the necessary government permits and approvals to start or operate a
business. While the first two could be grouped under practices related to transpar-
ency and due process in administrative action, the third one rather relates to the
efficiency and speed for administrative permits and approvals.
Thus, subsection “Going Beyond the FET Standard in Disciplining Administra-
tive Action” below focuses on how to translate the general obligation of conduct of
fostering transparency and due process in administrative action into more concrete
obligations of result specifically targeted to the type of administrative behavior
generating greater divestments. Given its different nature, subsection “Clauses
Fostering Streamlining Procedures for Obtaining Government Permits and
Approvals to Start and Operate a Business” below focuses on concrete ideas on
how to streamline administrative processes and procedures to avoid unnecessary
delays in obtaining government permits necessary to start and operate businesses.
Going Beyond the FET Standard in Disciplining Administrative Action

Restrictions on transfer and convertibility restrictions, breach of contract, and
expropriations are the other more impactful irregular government conduct generating
95
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divestments. However, contrary to the first three referred to above, and contrary to
the FET standard, there seems to be emerging convergence in the literature that
international investment rulemaking has made significant progress clarifying the
disciplines on transfers, expropriation, and umbrella clauses (Yannaca-Small 2018).
As stated before, despite that many governments have also made significant progress
in clarifying IIA clauses on the FET standard, it is not clear whether such clauses
would be precise enough to foster “rule-based negotiation” in domestic CMMs.
Thus, in this section, we focus our attention on proposing concrete texts to tackle these
three specific issues, which could be considered by countries when negotiating their
IIAs, and complement existing treaty provisions to facilitate nonlitigious CMMs.
The recognition to foster greater transparency, predictability, and streamlining of
administrative practices and procedures affecting investor-State relations has grad-
ually become recognized as critical as part of the discussions on investment facili-
tation, first in the G20, and more recently in the structured discussions on investment
facilitation at the WTO. In fact, it is in the latter context, where the specific text
proposals have started to be discussed. Indeed, in early 2020, members participating
in those discussions have agreed to start working on a “negotiation mode”97.
Although it is premature to determine whether those negotiations will in the end
be officially launched and concluded, there are several proposals which are not only
on point, but are also concrete enough that, if adopted, would be very useful to
clarify in detail expected patterns of government behavior, thereby facilitating
“rules-based” negotiation in the context of CMMs. We present a summary of
describing the specific types of clauses that are being considered by WTO Members.
Clauses Providing for Greater Transparency and Predictability in Public

Agencies’ Administrative Action
WTO Members participating in the investment facilitation discussions are consid-
ering specific clauses which could be on point to tackle the lack of transparency and
predictability in dealing with public agencies. More specifically, members are
considering provisions focusing on the reduction and simplification of administra-
tive procedures and documentation requirements, and specific criteria to ensure that
authorization procedures do not become an undesired barrier to the retention and
expansion of investments98.
Regarding the first aspect, that is, the reduction and simplification of administra-
tive procedures and requirements, WTO members are considering the inclusion of a
general clause to ensure that any new measure affecting investments, including those
related to administrative procedures and documentation requirements, is clear,
transparent, objective, and widely published before their entry into force. Further,
with a view to ensuring that those measures of general application do not unduly
97
WTO (2020) World Trade Organization, Investment facilitation for development news archives,
Geneva. https://www.wto.org/english/news_e/archive_e/infac_arc_e.htm
98
complicate or delay investments, a clause is being discussed requiring each member

to ensure that any such criteria that it adopts or maintains are based on objective and
transparent parameters, such as competence and the ability to engage in the activity,
and are relevant to the investment sector/activity to which they apply. In addition,
specific language is being considered mandating administrative procedures and
documentation requirements to be plainly written, concise, well organized, easy to
understand, reasonable, impartial, and do not act as barriers to the establishment,
operation, expansion, or disposition of investments99.
Second, regarding authorization procedures, WTO members participating in the
investment facilitation dialogue are considering provisions mandating members that
require authorizations to allow the establishment, operation, expansion, or disposi-
tion of an investment in their territories, to ensure that their relevant competent
authorities, to the extent practicable, permit submission of an application at any time
throughout the year and without requiring applicants to be invited by the relevant
competent authorities to do so, further, wherever possible, to accept copies of
documents that are authenticated in accordance with the contracting party’s laws
and regulations, in place of original documents. In addition, members are consider-
ing specific language that would apply when authorities are processing applications.
Such a clause may provide that members shall:
(i) To the extent practicable, provide an indicative time frame for the processing of
an application and make publicly available that time frame when established; at
the request of the applicant, provide without undue delay information
concerning the status of the application;
(ii) To the extent practicable, ascertain without undue delay the completeness of an
application for processing under the contracting party’s domestic laws and
regulations;
(iii) If the relevant competent authorities consider an application complete for
processing under the member’s domestic laws and regulations, within a rea-
sonable period of time after the submission of an application considered
complete under its laws and regulations, ensure that the processing of the
application is completed; and the applicant is informed of the decision
concerning the application, to the extent possible in writing;
(iv) Ensure that the authorization, once granted, enters into effect without undue
delay in accordance with the terms and conditions specified therein100.
Discussions are also covering parameters disciplining administrative conduct

when competent authorities of a member consider an application to be incomplete
under the member’s domestic laws and regulations. In that regard, discussions are
99
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742 R. Echandi
considering language to provide that such authorities shall, without undue delay,
inform the applicant that such application is incomplete; to identify the additional
information required to complete the application, and to provide the applicant with
the opportunity to provide the additional information that is required to complete the
application. Regarding the treatment for rejected applications, the WTO discussion
has considered that if an application is rejected, the relevant competent authorities of
a member shall, to the extent possible, either upon their own initiative or upon
request of the applicant, inform the applicant in writing and without undue delay of
the reasons for rejection; the time frame for an appeal or review against the decision;
and if applicable, the procedures for resubmission of an application101.
Last but not least, another key important point discussed in the WTO structured
discussions on investment facilitation relates to fees and charges. In this regard, it has
been considered that each member shall ensure that the authorization fees and
charges charged by its relevant competent authorities for processing an application,
including those charged for the amendment or renewal of such authorization, are
reasonable, transparent, based on authority set out in a measure, commensurate with
the costs incurred to process the application, and do not in themselves restrict the
investment102.
Clauses Promoting Greater Predictability in Changes of Laws and Regulations

The discussions on investment facilitation at the WTO are focusing on at least four
aspects which are critical to tackle the issue of sudden/arbitrary changes in laws
and regulations. First, the talks have started to discuss language on advanced
publication and opportunity to comment on specific laws and regulations. In this
regard, members are considering providing: to the extent practicable and in a
manner consistent with its legal system, each member shall publish in advance
any laws and regulations and procedures of general application that it proposes to
adopt; investors and other interested parties – including other Members – with a
reasonable opportunity to comment on those proposed measures, and endeavor to
consider the comments received with respect to such proposed measures. If
implemented, this type of clause would certainly prevent sudden and unpredictable
changes in laws and regulations. Further, by promoting “a notice and comment”
approach previous to an amendment or enactment of new measures, the participa-
tion of affected stakeholders would decrease the probability of arbitrariness in
rulemaking or amendments103.
Second, the WTO investment facilitation text under discussion also includes
clauses providing for consistent, reasonable, objective, and impartial administration
101
102
103
of laws and regulations to a particular investor. Members are considering provisions

mandating that to achieve such objective, each member shall comply with three key
principles: (i) Whenever possible, when an investor of another member is directly
affected by a proceeding, the latter is provided with reasonable notice, in accordance
with domestic procedures, of when a proceeding is initiated, including a description
of the nature of the proceeding, a statement of the legal authority under which the
proceeding is initiated, and a general description of any issue in question; (ii) an
investor of another member that is directly affected by a proceeding shall be afforded
a reasonable opportunity to present facts and arguments in support of that legal or
physical person’s position prior to any final administrative action, when time, the
nature of the proceeding, and the public interest permit; and (iii) administrative
procedures affecting the investor are fully compliant and in accordance with the host
country’s legal system104.
Third, the investment facilitation discussions at the WTO are also considering a
clause calling for independence of competent authorities. Such provision would
provide that members shall ensure that the relevant competent regulatory authorities
in a particular area/sector reach and administer their decisions in a manner indepen-
dent from any other investor established in the host country105.
Fourth, members participating in the investment facilitation discussions are
also considering including specific provisions on appeal and review of adminis-
trative decisions. In particular, the ideas being considered are to ask each member
to establish or maintain tribunals or judicial, quasi-judicial or administrative
procedures, which provide, on request of an affected investor, for the prompt
review of and, where justified, appropriate remedies for administrative decisions
affecting the investment. Such tribunals shall be impartial and independent of the
office or authority responsible for applying administrative measures, and they
shall not have any substantial interest in the outcome of the matter. Where such
procedures are not independent of the agency entrusted with the administrative
decision concerned, the member shall ensure that the procedures in fact provide
for an objective and impartial review. Further, a clause on appeal and review
would also mandate each member to ensure that, in any such tribunals or pro-
cedures, the parties to the proceedings are entitled to a nondiscriminatory treat-
ment, afforded a reasonable opportunity to support or defend their respective
positions, and decision is based on the evidence and arguments submitted or,
where required by that member’s domestic law, on the record compiled by the
administrative authority106.
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744 R. Echandi
Clauses Fostering Streamlining Procedures for Obtaining

Government Permits and Approvals to Start and Operate a Business
For a long time, procedural streamlining has been considered among policy makers
as one of the best approaches to effectively address unnecessary delays in obtaining
necessary permits and approvals to start or operate a business. This is the underlying
premise of the ease of doing business index which was launched by the World Bank
Group in 2003 and is still being updated on yearly basis since then. Such premise
was also a key underlying principle of the 2010 experiment of the WBG Investment
Across Borders Report 107, which basically was an attempt to translate the ease of
doing business approach to cross-border investment transactions. The logic behind
procedural streamlining is not to foster de-regulation of economic activity, but rather
an examination of the number of steps and processes required for a particular
administrative process to take place. Success on procedural streamlining is measured
in terms of private time/cost savings indicators for private sector resulting from the
elimination of unnecessary segments of the administrative process maps for a
particular regulation.
With 47% of the investors surveyed, empirical evidence108 shows that delays in
obtaining necessary government permits and approvals to start or operate a business
are the third most frequent factor generating 22% of the total divestments attributed
to irregular government conduct by investors109. Within this context, the question
arises as to what type of clauses could governments include in their IIAs in order to
facilitate, once again, “negotiation in the shadow of investment law” to facilitate the
task of a lead agency entrusted with the task of ensuring a coherent and law-abiding
administrative action across more than one government agency in the context of an
investor-State conflict.
The structured discussions on investment facilitation at the WTO once again are
evidence that members are already paying attention to this issue and considering
concrete language to include in an eventual investment facilitation agreement.
In a nutshell, WTO members are exploring two concrete avenues to streamline
and expedite administrative processes and procedures affecting investments. One is
the establishment of concrete provisions specifying how different governments
107
WBG (2010) – World Bank. (2019). Retention and Expansion of Foreign Direct Investment (Vol.
2) : Political Risk and Policy Responses World Bank Group. Washington, D.C.: World Bank Group.
http://documents.worldbank.org/curated/en/387801576142339003/Political-Risk-and-Policy-
Responses
108
World Bank (2019) Retention and expansion of foreign direct investment: political risk and
policy responses World Bank Group. Working paper no. 144312. World Bank Group, Washington,
109
would promote “one stop shop/single window-types” of mechanisms. The other

relates to promoting the use of ICT/E-Government including electronic applications
to administrative process and procedures110.
Regarding the one stop shop/single window-types of mechanisms, WTO mem-
bers are considering including specific clauses in an eventual investment facilitation
agreement mandating each member, to the extent practicable, avoid requiring an
applicant/investor to approach more than one competent authority for each applica-
tion for authorization to invest in its territory. Such type of clause would also provide
that members shall endeavor to establish or maintain a single window at national or
subnational level, as they consider appropriate for the submission of documents
necessary for investment applications. Where members have established or do
maintain such single window mechanisms, they should ensure that such mechanisms
do not add to, nor detract from, the competencies and responsibilities of relevant
competent authorities involved in the authorization to invest; all information pro-
vided by investors through these mechanisms are protected according to the pro-
visions of the applicable national legislation111.
Regarding the use of ICT/E-Government, including electronic applications, WTO
members are considering provisions promoting the use of submission of applications
online, and the use of electronic forms, documents, and accept copies of documents
that are authenticated in accordance with the member’s domestic law, in place of
original documents. In addition, WTO Members are also considering provisions
promoting procedures allowing the option of electronic payment for fees and charges
collected by relevant competent authorities for processing an application, including
those charged for the amendment or renewal of an authorization112.
Toward Investor-State CMM Model Clauses in IIAs
Designing model clauses to promote the use of investor-State CMMs to properly

implement IIAs entails differentiating among three different, but complementary
type of provisions, each with their own rationale and functionality. First, there would
be those clauses guiding the contracting parties of an IIA on the establishment of an
investor-State CMM, and on which should be the key institutional features, func-
tions, and attributions of the lead agency tasked with coordinating the mechanism. A
second category of clauses would be those setting up instances at State-to-State level
enabling dialogue among governments or between the latter and affected stake-
holders in order to support the proper operation of the CMMs at a domestic level.
110
111
112
746 R. Echandi
Last but not least, a third type of clauses would be those which could provide for
collective cooperative efforts among interested stakeholders promoting capacity
building and other complementary initiatives to support the mainstream of
investor-State CMMs in the international investment regime. We refer to each
category of provisions in the three following sections.
Guiding the Establishment of a CMM at the Domestic Level

Governments do not need any IIA to set up an investor-State CMM. They can
establish it on their own initiative. However, the inclusion of a specific pro-
vision committing the contracting parties to an IIA to set up an investor-State
CMM can significantly facilitate the task to reform champions within governments.
IIAs can generate the right political economy incentives both to politicians and
bureaucrats alike to facilitate the establishment of investor-State CMMs. Including
commitments into international agreements entails the need for governments to
undertake action within their own domestic policy agenda to fulfill those obligations,
thereby forcing governments to spend political capital – which will be translated into
resources – to comply with them.
Why would politicians be interested in incorporating investor-State CMMs into
their IIAs? Simply because of basic economics. The cost of setting up an investor-
State CMM capable of retaining and expanding investments and tracking in concrete
figures its success in doing so is around 10% of the average cost of just one single
ISDS case113. This does not count the significant impact that setting up an investor-
State CMM may have in terms of enabling politicians quantify the number of jobs
retained and expanded as a result of fostering a more coherent operation of the public
administration. Responding to the need to create more and better jobs is the most
pressing demand modern societies ask to their governments. Further, bureaucrats
have a need to show their respective superiors that their actions contribute to respond
to the demands the latter have from their own respective bosses. Last but not least,
the inclusion of investor-State CMMs – including their tracking mechanisms –would
entail including the mechanism to measure the practical impact of an IIA at a
domestic level.
Logically, the most obvious avenue for IIAs to foster the establishment of
investor-State CMMs is to include a specific clause committing the contracting
parties to the agreement to set up the legal infrastructure required for its operation.
It would be important for any IIA including a CMM clause to provide enough space
for contracting parties to establish a mechanism adjusted to their own political
realities. While in some countries the figure of ombudsperson may be a viable
alternative, in other countries the use of multisector committees or commissions
led by a secretariat may be more appropriate. For CMMs to work, they have to
113
respond to the idiosyncrasy of the host country, regardless of whether the lead
agency is, for instance, an ombudsperson office, an inter-ministerial commission,
or a department within the Office of the President or a particular ministry.
In this regard, the clauses used in many of the Brazilian CFIAs could be used as a
starting model, which in fact, with some modifications, has already been proposed as
an alternative to be included in a potential investment facilitation agreement at the
WTO. The only key aspect that it would be advisable to explicitly include, in a model
investor-State CMM clause based on the Brazilian CFIA, would be to include within
the explicit mandate of the lead agency the responsibility to set up a tracking and
monitoring mechanism, following each grievance registered and measuring the impact
of the solution – or failure – of a conflict in terms of jobs and investment retained and
expanded or lost. To illustrate this approach, the following paragraph shows an
illustration of what could be a model investor-State CMM to be included in an IIA.
“Article XX: Investor-State Conflict Management Mechanism

Each Contracting Party shall to the extent practicable and in a manner consistent with its
own legal system designate, maintain or establish a Lead Agency which shall have the
following responsibilities:
(a) responding to enquiries from investors regarding investment laws and regulations
(b) assisting investors in obtaining information from other relevant competent authorities;
(c) assisting investors by seeking to resolve investment-related difficulties in collaboration
with relevant competent authorities;
(d) facilitating an early resolution of grievances or conflicts regarding measures adopted or
maintained by a government affecting investors and their investments with a view to
foster investment retention, expansion and prevent dispute escalation;
(e) to recommend to the competent authorities, as appropriate, measures to improve the
investment environment;
(f) to elevate unresolved problems to the appropriate decision-making instances within the
government to seek a prompt resolution to the issue;
(g) to set up, including through ICT tools, appropriate mechanisms to register, track,
monitor and measure the impact of an early solution to the problem in terms of jobs
and investment retained and expanded.
(h) to set up and apply key performance indicators (KPIs) to measure the performance of the
Lead Agency on a yearly basis and elaborate an annual report for consideration of the
Cabinet of Government of the Contracting Party. The publication of such report shall be
within the discretion of the Contracting Party.”
The proper functioning of an investor-State CMM requires data to generate the right
political economy incentives enabling its operation. We recall the importance for a lead
agency to have “an excuse, a carrot and a stick” at its disposal to foster collaboration
among its peer agencies. In that analogy, the excuse legitimizing the intervention of the
lead agency vis-à-vis its peers is the need for it to comply with its mandate to retain and
expand investment by ensuring full implementation with an IIA that binds the host
State as a whole. The “carrot” offered by the lead agency to the “offending” agency
would be to share the credit with the high political instances of government of having
retained and expanded a particular amount of jobs and investments that are important
for the development of the country. Continuing with this analogy, the “stick” in this
scenario would be the threat of the lead agency being forced to elevate the matter to
748 R. Echandi
high instances of government showing not only the amounts of investment and jobs at
risk derived from not solving the grievance, but also the high cost that an eventual ISDS
case may entail for the country – thus the importance of conceiving investor-State
CMMs as complementary rather than substitute for ISDS. More on this point follows
below. In sum, these political economy dynamics would simply not be possible without
the availability of the lead agency to produce data quantifying investment and jobs at
risk of being lost if the grievance is not properly addressed.
State-to-State Level Cooperation for CMMs

Even though the operation of investor-State CMMs fostering investment retention
and expansion would predominantly operate within the domestic jurisdiction of the
host State, as has been repeatedly demonstrated in previous parts of this chapter,
exogenous political pressure involving different degrees of State involvement in the
matter may play a critical role supporting the lead agency in fostering a more
effective “negotiation in the shadow of the law” with peer national agencies. For
instance, the Brazilian CFIA model complements the ombudsman operating at the
domestic level with a State-to-State joint committee promoting cooperation, includ-
ing explicitly a mandate and procedures to address investor-State grievances and
attempt to prevent escalation to legal disputes. In the CFIA model, the dispute
prevention component works through a mechanism in which representatives of the
investors and governments involved can share their views on the issue raised by the
investors and look for a solution on a common ground. If the contracting parties fail
to find a common ground, then as a last resort the governments involved can initiate
international State-to-State arbitration.
Exogenous political pressure to domestic CMMs via State-to-State cooperation
may take many forms, levels of intensity, and may operate at different moments of
the investor-State conflict. A critical question – Which would be the right form and
degree of external pressure that could facilitate the operation of the domestic CMM?
Discarding from the outset any possibility of home States providing diplomatic
protection to their investors, a situation which would not be applicable in a conflict
management but rather a dispute resolution scenario, the question that remains is
what would be the appropriate degree and form of external pressure a lead agency in
charge of a domestic investor-State CMM may need to facilitate its task. It is difficult
to answer this question precisely “in abstracto.”
However, as a point of departure, it would be useful to provide governments with
instances which could be leveraged and adjusted to get the “right balance” of
political pressure in cases of need. Indeed, the mere fact for investors or governments
to have the option to elevate any issue, enquiry, or grievance to an international
forum where more than one government may become aware of the problem repre-
sents in itself a form of external pressure, which if required could be modulated if the
resolution of the grievance is not progressing at the national level.
Within this context, rather than visualizing a joint-investment committee operat-
ing under a subsidiary approach, that is, that could be invoked only when domestic
outlets may not have rendered any result in resolving a grievance, it may be more
convenient and flexible to conceive a joint-investment committee operating under a
complementary approach. A joint-investment committee would have regular peri-

odic sessions, where any unresolved issue, or even any preliminary enquiry, could be
discussed among contracting parties to an IIA, regardless of whether that problem
could be resolved at a domestic level. Indeed, the mere discussion of an issue in an
international committee could be the right type of pressure that a lead agency may
need to foster a resolution to a grievance at domestic level.
The experience of the WTO SPS and TBT Committees addressing specific trade
concerns, well before any indication of dispute escalation, is a good illustration of
the potential nature that a joint-investment committee could have to complement
domestic investor-State CMMs. In fact, it has been widely recognized how the
experience of the WTO SPS and TBT Committees has enabled members to negotiate
in the shadow of the WTO Dispute Settlement Understanding (DSU).
Literature has demonstrated how both the SPS and TBT Committees have
addressed a significant number of “specific trade concerns” that, in the overwhelm-
ing majority of cases, never escalate into formal trade disputes114. As stated by Horn,
Mavroidis, and Wijkstrom, by raising specific trade concerns, “. . . Members often
are not only requesting information or clarification; they also send a strong signal
that they already have reasons to believe that obligations under the agreements have
not been met”115. These dynamics evidence nothing else than rule-based negotiation
among WTO members in order to resolve problems and concerns affecting their
traders. Thus, in a nutshell, the role of the joint-investment commissions may be to
enable “the negotiation in the shadow of investment law” happening at two levels
simultaneously, domestic and external, and in fact the latter facilitating the former.
Drawing on the text of the Brazilian CFIA model, the discussions on investment
facilitation at the WTO and UNCITRAL Working Group III and on the consider-
ations explained above, a possible model clause for a joint investment committee to
complement model clauses providing for the establishment of domestic CMMs may
look like the text below.
“Article XX: Joint Investment Committee
1. The Contracting Parties hereby establish a Joint Investment Committee for the adminis-
tration of this Agreement (hereinafter referred as “Joint Committee”).
2. This Joint Committee shall be comprised of government representatives of the
Contracting Parties designated by their respective Governments.
114
Horn H, Mavroidis P, Wijkstrom E (2013) In the shadow of the DSU: addressing specific trade
concerns in the WTO SPS and TBT committees, Research Institute of Industrial Economics IFN
working paper no. 960, 2013, Columbia University Law School, The Center for Law & Economic
Studies working paper no 494 (2013). https://scholarship.law.columbia.edu/faculty_scholarship/
2377/
115
Horn H, Mavroidis P, Wijkstrom E (2013) In the shadow of the DSU: addressing specific trade
concerns in the WTO SPS and TBT committees, Research Institute of Industrial Economics IFN
working paper no. 960, 2013, Columbia University Law School, The Center for Law & Economic
Studies working paper no 494 (2013). https://scholarship.law.columbia.edu/faculty_scholarship/
2377/
750 R. Echandi
3. The Joint Committee shall meet at such times, in such places and through such means as
the Parties may agree. Meetings shall be held at least once a year, with alternating chairs
between the Contracting Parties.
4. The Joint Committee shall have the following functions and responsibilities:
(a) Afford the Contracting Parties the opportunity of consulting on any matters relating
to the operation of this Agreement or the furtherance of its objectives;
(b) Consult the private sector and civil society, when applicable, on their views on
specific issues related to the operation of this Agreement and the work of the
Joint Committee; and
(c) Coordinate the implementation of the mutually agreed cooperation and investment
facilitation agendas, including the following:
(i) exchange of information and sharing of experiences regarding the implementa-
tion of international investment agreements;
(ii) collection of data and statistics relating to investment, including investment
retention and expansion resulting from early resolution of investment-
related issues;
(iii) exchange of information with respect to investment opportunities
(iv) any other issue of interest to the Parties.
(d) Resolve any concerns, issues or grievances concerning Parties’ investment in an
amicable manner.
5. The Parties may establish ad hoc working groups, which shall meet jointly or separately
from the Joint Committee.
6. The private sector may be invited to participate in the ad hoc working groups, whenever
authorized by a Contracting Party.
7. The Joint Committee shall establish its own rules of procedure.”
A model clause along the lines of the one above has several key elements worth
explaining. First, it would set up a permanent State-to-State dialogue platform which
would meet periodically. This would be important to enable governments to develop
yearly working calendars – if not subject to shorter periods – to organize their work
and dialogue with investors. Second, building on the experience of the WTO SPS and
TBT committees, this provision would enable the contracting parties to set a venue
where both, governments and even investors, may submit “specific investment
concerns,” enquiries, or issues for clarification. Such specific investment concerns
may not even have escalated to a particular grievance or conflict but may be a simple
clarification. Yet, such outcome may be extremely useful to foster negotiations in the
shadow of the law, both at the domestic level or international level.
Third, the committee would be open to the private sector. A key question to
elucidate would be whether investors themselves could have direct access to such
instance, or instead may require a State to “spouse” the enquiry or issue for it to
become part of the agenda. The Brazilian CFIA model leaves to the discretion of
both governments the determination as to whether or not they may invite private
sector representatives to sessions of the State-to-State joint committee. Such an
approach may have the advantage of allowing governments prevent any potential
overflow of cases. However, to prevent one of the parties to block any discussion of
an existing issue raised against it, a potential approach would be to require the
consent of just one party to bring an issue for the consideration of the committee.
Further, the provision illustrated above also leaves open the possibility for the
contracting parties to set up a subcommittee where the private sector could have
direct access to raise enquiries or concerns. The mere existence of such right for
investors to activate that subcommittee could be a significant tool to boost investors’

confidence, even if such right was not exercised in practice. Further, such approach
could ensure that relatively small investors, who may not be able to attract the level
of attention of their home government to spouse a State-to-State discussion of a
conflict, could also have access to the rule-based negotiation mechanism.
Fourth, the illustrative clause cited above would also emphasize the importance for
governments to cooperate in producing data and statistics on key relevant aspects. It is
said that “what gets measured gets done.” Given the importance of FDI for develop-
ment, and the fact that due to the lack of effective implementation of IIAs on the
ground there are significant amounts of investments and jobs being lost as a result of
irregular government conduct, it would be warranted to seek international State-to-
State cooperation in compiling data and eventual statistics on investment retained and
expanded as a result of good regulatory practices. Such an outcome would be of
critical importance, as countries could agree on exchange of good practices and data
on how to collect information on the amounts of investment and jobs retained and
expanded as a result of properly addressing investor-State conflicts arising out of
irregular government conduct. Further, this type of information would even represent a
useful tool for investment promotion agencies trying to position their countries in the
radar of investors. Such data would also complement existing political risk rankings
developed by private risk assessment agencies based on investors’ perceptions.
Investor-State CMMs and ISDS: Complements Rather than Substitutes

Investor-State CMMs and ISDS have very different functions, and their use entails
contrasting implications. Thus, CMMs are not a substitute for ISDS nor to State-to-
State dispute settlement. The same is true vice versa. Within this context, a policy
question arises as to whether to an extent the approach followed by the Brazilian
CFIA model, which does not grant investors any private right of action to invoke
international investor-State arbitration, may be preferable as combining CMMs with
the traditional clauses of ISDS. Clearly, at the end of the day, whether to select one
approach over the other is a policy decision which belongs to each government.
However, an important point to be made here is that, despite that CMMs and ISDS
are two distinct things, they in the end may complement each other.
To an extent, it could be expected that the more successful CMMs are in the
context of the application of an IIA, the lesser the chance for ISDS to be invoked by
investors – which as has been demonstrated in this thesis are the minority of the total
number of investors affected by irregular government conduct. However, as shown
by the experience of the WBG SIRM pilots and the empirical research on ISDS
settlements116,117 in practice for negotiations in the shadow of the law to take place,
116
Echandi R (2019) The debate on treaty-based dispute settlement: empirical evidence (1987–
2017) and policy implications. ICSID Rev Foreign Invest Law J 34(1) Winter 2019. https://doi.org/
10.1093/icsidreview/siy024
117
Echandi R, Kher P (2014) Can international investor–state disputes be prevented? Empirical
evidence from settlements in ICSID arbitration. ICSID Rev Foreign Invest Law J 29(1):41–65
752 R. Echandi
it is important for the parties involved to envisage the possibility of costly litigation
in case an agreement is not reached.
Clearly, the prospect of a dispute enables the parties involved in the conflict to
better assess the opportunity cost of not reaching an agreement. Given that empirical
evidence shows that well before an investor begins to think about litigation in case of
a serious dispute with the host government the FDI project may be cancelled
altogether, it could be argued that the threat of having an ISDS case may be much
less important that could be otherwise thought. However, the importance of a threat
for arbitration may be absolutely critical in the political economy at the domestic
level, in the process of negotiation in the shadow of the law between the lead agency
in charge of the CMM and its peer public agencies involved in the conflict. In this
regard, the more economically and politically costly ISDS may be for a government,
the higher the political cost for the “offending” agency which has been perceived as
noncollaborating with the lead agency in charge of the CMM. Without such political
pressure, it is very likely that the political strength of the lead agency at the domestic
level may be significantly eroded.
These considerations also shed light on another relevant issue for IIAs eventually
incorporating both CMMs and ISDS. Should the former be a prerequisite for the
latter? Once again, observing the political economy of investor-State conflict, it is
not very complex to solve this question. First, and contrary to the perceptions of
some, empirical evidence demonstrates that in practice, most of the investors do not
seem to be waiting at the first opportunity to submit an ISDS case118. Simply said,
investors are interested in doing business, not disputes.
Second, given that a critical role for ISDS to act as a tool to empower the lead
agency in charge of a CMM precisely acting as a deterrent for conflict escalation, the
more real the possibility of invoking ISDS is, the greater the level of persuasiveness
the lead agency may have at the domestic level. Having said this, and as an incentive
for those investors who may in the end opt for litigation, one alternative to consider
could be to exempt the investors submitting claims from the 90-day “cooling off
period” only in those situations when the investor has in good faith used the
domestic investor-State CMM to previously reach a solution to the problem. Such
possibility would have to be pondered in greater detail, but it is mentioned here as an
example of the ways in which investor-State CMMs and ISDS or State-to-State
dispute resolution may interact.
Based on the two reasons explained, it seems that current ISDS clauses in IIAs
may work in combination with new provisions on CMMs. The use of CMMs should
occur not because it is legally mandatory, but because it represents a faster, cheaper,
and most efficient means to address problems between investors and States. Yet,
even with CMMs working efficiently, there will always be some cases which due to
many factors will escalate to ISDS. But even in this scenario, such escalation may
happen not because governments and investors do not have any other outlet to
118
Dupont C, Schultz T, Angin M (2016) Political risk and investment arbitration: an empirical
study. J Int Dispute Settle 2016(03)
address a dispute, but rather, because adjudication may the most appropriate mech-
anism to resolve that particular matter.
Complementary Support: Advisory Center

In addition to specific clauses in IIAs there is an emerging recognition that setting up
an Advisory Center could provide the basis for a systematic sharing of knowledge
and practices on international investment law. Establishing such Advisory Center is
now a priority for many governments119. UNCITRAL Working Group III has put the
issue at the top of its agenda for ISDS reform, and the Dutch government has
commissioned a feasibility study. Further, the European Commission is considering
an advisory center for its proposed Multilateral Investment Court120. Despite the
recognition of the useful role that an advisory center could play, there is not yet a
clear idea as to whether such a center will in the end be actually established, and
there is even less agreement on the governance, financing, and mandate that such a
center could have.
Any discussion about the potential establishment of an Advisory Center on
International Investment Law usually starts by making reference to the experience
of the Advisory Centre on WTO Law (ACWL) established in 2001. The ACWL
mandate is to provide developing States with training, confidential advice on WTO
law, and assistance or financial support during WTO dispute-settlement proceedings.
The center receives funding from developed and developing States, including
voluntary contributions and (below-market) fees from dispute-settlement
proceedings.121
The potential features of an Advisory Center on International Investment Law
have been discussed elsewhere122. As part of this chapter, we then focus on some
specific reflections on the type and modalities of services such a center should
provide to properly support investor-State CMMs aimed at retaining and expanding
investments, and not just preventing ISDS.
As explained before, based on the experience of SIRM pilots, at the domestic
level, institutional investor-State CMMs basically rely on the negotiation in the
shadow of investment law between the lead agency and its peers. Similarly, the
discussion at joint investment committees also relies on the same problem-solving
119
UNCITRAL (2020) United Nations Commission on International Trade Law, “Possible reform
of investor-State dispute settlement mechanisms (ISDS), Dispute prevention and mitigation -means
of alternative dispute resolution. Note by the Secretariat, A/CN.9/WGIII/WP.190, 15 January 2020,
120
Sharpe J (2019) An international investment advisory center: beyond the WTO model. Blog Eur
J Int Law, July 26, 2019. https://www.ejiltalk.org/an-international-investment-advisory-center-
beyond-the-wto-model/
121
For a description of its mandate and work, see Advisory Center on WTO Law website. See
https://www.acwl.ch/
122
Sauvant K (2019) An advisory centre on International investment law: key features, Academic
Forum on ISDS concept paper 2019/14. https://www.jus.uio.no/pluricourts/english/projects/
leginvest/academic-forum/papers/papers/sauvant-advisory-center-isds-af-14-2019.pdf
754 R. Echandi
approach. In such context, providing interested stakeholders with an honest broker

producing rigorous legal advisory opinions on a particular issue or situation would
be very useful. At a domestic level, such independent advisory opinion would be
extremely helpful to increase the bargaining power of the lead agency when dealing
with peer agencies involved in grievances. Similarly, such type of advisory opinions
would also be very useful in discussions in joint investment committees. However,
in practice, this is much simpler to be said than done. For this approach to work, the
advisory opinions would have to be produced in extremely short time frames and at a
very low cost.
Indeed, for a lead agency to be able to rely on external advice, an advisory center
would need to be able to respond to an enquiry and produce an “early legal neutral
evaluation” in a matter of days or weeks at the most. Further, such service would
need to be rendered at such low cost that domestic lead agencies would not need to
seek big budgets which would be politically unfeasible to get. These realities suggest
that an Advisory Center for Investment Law would need an extremely sleek, fast,
focused, and low-cost operation. Thus, it would be unlikely that such a center could
provide advisory opinions and at the same time undertake tasks of legal representa-
tion of States in ISDS proceedings. This aspect is important to be underlined, as most
of the current discussions on a potential Advisory Center for Investment Law
envisage such institution as providing not only advice, but also legal representation
services in ISDS cases and on top of that, capacity-building activities.
Final Reflections and Conclusion
Field research123 has found that most governments have not yet “connected the dots”
among investment retention and expansion, political risk derived from irregular
government conduct, and implementation of international investment agreements
(IIAs). However, various governments nevertheless have started to take steps in
different – yet convergent – directions. Two patterns have become evident.
First, those countries focusing on investment retention and expansion had
deployed aftercare programs. The case of Korea, with its Foreign Investment
Ombudsman Office (OFIO), has been considered as one of the most sophisticated
aftercare programs in the world. A second strand of policies undertaken by many
governments have prioritized the focus on the political risk side of the equation,
rather than the investment retention and expansion. This has been the experience of
various Latin American countries, which, over the last two decades, have been most
frequently hit by claims submitted by foreign investors to international investment
arbitration under IIAs. Within this context, it is not surprising that over the last
123
decade, the issue of investor-State dispute settlement (ISDS) dispute prevention

started to strongly resonate among Latin American countries, which started to take
pioneering steps in this field.
These two sets of experiences revealed that while some countries have started to
concentrate their attention on the beginning of the investor-State conflict continuum,
focusing on addressing problems affecting investors at an early stage before they
have escalated to grievances and placing the FDI at risk of withdrawal of expansion
cancellation, efforts by other countries have focused on the opposite side of spec-
trum. In these later cases, governments frequently hit by ISDS have started to focus
their inter-institutional coordination efforts on properly responding and managing
ISDS disputes, and more recently focusing on efforts to prevent international legal
dispute escalation – dispute prevention. The problem with both of these approaches
is that none of them fully connects the dots between the two extremes of the investor-
State conflict continuum.
While aftercare may focus on investment retention, it may have to deal with
issues that go beyond government conduct placing FDI at risk of withdrawal or
cancellation of expansion. It is often very difficult for investment promotion agen-
cies (IPAs) to learn about grievances arising with investors who usually do not
interact with those agencies in the first place. On the contrary, dispute prevention
policies focus on preventing escalation of grievances into international legal dis-
putes, but not on FDI retention and expansion. Agencies interested in preventing
investor-State arbitration are often those in charge of implementing IIAs, Ministries
of Trade and Investment, and/or Ministries of Justice or Attorney General’s offices
which are in charge of representing the host State in international arbitration pro-
ceedings (hereinafter “competent agencies”). These competent agencies often have
staff with technical skills and, in certain circumstances, may even have enough
political clout to settle certain ISDS disputes. However, because the mandate of these
competent agencies is focused on negotiating, implementing, or enforcing IIAs, they
traditionally get involved in investor-State grievances once the latter have in fact
escalated into legal disputes.
A fundamental finding derived from observing successful problem-solving tech-
niques in various CMM pilot projects undertaken by the WBG is the critical role that
IIAs – more than domestic law – play in enabling a lead agency in charge of
administering the CMM to negotiate in the “shadow of the law” when seeking the
collaboration of peer agencies in attempting to resolve a grievance. The same can be
said of the very persuasive effect that diplomatic pressure exerted by investors’
home-State governments can have in invoking previously agreed international
commitments with the host countries. Pilots demonstrate that rather than fostering
power-oriented politics, IIAs are starting to play a catalytic role in fostering patterns
of rule-based negotiation among different agencies within a host government, even
to the benefit of domestic investors.
Within this context, practical experience is revealing a very practical way for
countries to leverage IIAs in a nonlitigious manner to induce desired patterns of
behavior among domestic regulatory agencies. From this perspective, it could be
argued that institutional investor-State CMMs are very useful tools to properly
756 R. Echandi
implement IIAs on the ground, and more in tune with their original intent: mitigate
political risks in cross-border investment transactions.
International investment law has a social and developmental function, and it
entails much more than dealing or preventing investor-State disputes. In other
areas of international economic regulation, such as trade in goods, policy makers
have included within the treaties a set of mechanisms ensuring, both at international
and domestic level, means to ensure the full implementation of the agreements on the
ground. Such an approach has not been typically followed in the negotiation of most
IIAs. Because most investment protection guarantees included in IIAs already
existed in domestic laws, probably many negotiators took for granted that in practice
government conduct would adhere to such standards of behavior – underestimating
the difficulty in ensuring a coherent behavior among dozens or even hundreds of
administrative agencies within a State. ISDS is not a mechanism to promote enforce-
ment of IIAs on the ground. Instead, it is a mechanism to seek redress for damages
caused by treaty violations, that is, for situations when IIAs have not been
implemented. Investor-State CMMs instead may empower a lead agency to coordi-
nate and discipline the multiple agencies existing within the administration to foster
a more coherent compliance with the principles embedded in IIAs. Work has already
started in developing specific coordination protocols and tracking mechanisms to
operate at domestic level enabling the establishment of institutional investor-State
CMMs within municipal jurisdictions124,125. However, a complementary step pro-
moting State-to-State cooperation to promote the development of investor-State
CMMs could be undertaken internationally by developing model clauses to be
incorporated in IIAs.
As explained by this chapter, most IIAs contain very few clauses and mechanisms
which, when applied, not only have been quite ineffective to prevent ISDS, but also
are more geared toward dispute prevention rather than toward an early management
of the investor-State conflict with a view to retain and expand FDI in the host
country. Although this trend is gradually starting to change, most international
discussions on alternatives to ISDS still tend to merge the notions of dispute
prevention policies geared to prevent arbitration with conflict management mecha-
nisms geared toward FDI retention and expansion. Having said this, it is encouraging
that the idea of fostering an early management of conflicts well before escalation has
started to be addressed in various international fora, such as the G20, the discussion
on ISDS reform in the context of the UNCITRAL working group III, and the
structured discussions on investment facilitation at the WTO. Further, the new
Cooperation and Facilitation Investment Agreement (CFIA) Model developed by
124
125
Brazil has for the first time focused on CMMs which, if properly administered and
complemented by ISDS, may not only prevent disputes, but also help host countries
to retain and expand investment.
This chapter has suggested five fundamental types of model clauses to be
considered when developing model investor-State CMMs clauses for future IIAs.
First, clauses further developing the FET standard to address issues related to
transparency, predictability, and red tape affecting regular administrative action,
geared to facilitate rule-based negotiation as part of investor-State CMMs, focusing
on the type of investor-State grievances that research has shown are a frequent cause
of FDI discontinuance: arbitrary changes in the application of existing laws and
regulations, lack of transparency and predictability in administrative action, and
excessive delays and red tape on procedures required for obtaining government
permits and approvals to start and operate businesses126. Second are the clauses
establishing the key principles guiding the establishment of CMMs at the domestic
level. Third are the clauses providing for key protocols of State-to-State level
cooperation to implement CMMs through a forum to exchange experiences, data,
and peer-to-peer learning as well as allowing private-public discussions on the
application of international investment protection guarantees included in IIAs.
Fourth, clauses ensure that investor-State CMMs do not substitute but rather com-
plement ISDS or State-to-State provisions in IIAS, and fifth clauses to provide key
elements to set up complementary international support mechanisms for CMMs in
the form of an International Investment Law – Advisory Center. The good news is
that most of these types of clauses have already been discussed in the context of the
WTO Structured Discussions on Investment Facilitation127. Therefore, this chapter
has demonstrated that most of the provisions which could be used to mainstream
investor-State CMMs into the international investment regime are already in the
pipeline of investment rulemaking.
In a globalized world where patterns of international production are leading every
day to a higher level of interaction among foreign and local investors, governments,
and civil society, there is an evident need for an international investment regime
promoting the maximization of the positive impact of foreign investments in host
countries as well as the mitigation of any potential negative effect. Just as globali-
zation is pressuring investors to compete in more interactive and contestable mar-
kets, it is also pressuring governments to set up mechanisms to ensure a minimum
level of administrative coherence among dozens, hundreds, or even thousands of
agencies comprising the public administration, both at national and subnational
level. Capacity to ensure coherent, regular government conduct based on the
126
127
758 R. Echandi
fundamental norms and principles of IIAs among a plethora of administrative actors

is becoming challenging for governments.
Nowadays, the most frequent and pressing political demand posed by civil
society to their respective governments is the generation of jobs and better stan-
dards of living. Such objectives cannot be reached if investment projects are
constantly cancelled. CMMs incorporating tracking mechanisms provide a great
opportunity for both bureaucrats and governments as a whole with an instrument to
quantify the results of their efforts to retain and expand investment, and their
associated jobs and externalities. By measuring politically attractive data, govern-
ment officials have an incentive to behave in line with the behaviors that IIA
principles aim to promote. All these challenges should not be ignored by promot-
ing the elimination of international rules fostering administrative discipline. On the
contrary, this calls for more efficient, creative, and pragmatic mechanisms to foster
the rule of law, especially if FDI is to be leveraged for development. This is
precisely the role that CMMs aim to fulfil.
Cross-References
▶ Prevention of ISDS Disputes: from Early Resolution to Limited Access

▶ The Politics of Investor-State Dispute Settlement: How Strategic Firms Evaluate
Mediation as an Alternative Method
to Settle Investor-State Disputes 30
Herman Verbist
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760
DATA on Use of Mediation in Investor-State Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761
International Chamber of Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761
Permanent Court of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762
Stockholm Chamber of Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762
International Centre for Settlement of Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762
Initiatives of UNCITRAL to Promote Mediation in Investor-State Disputes . . . . . . . . . . . . . . . . . . 765
UNCITRAL Model Law on International Commercial Mediation and International
Settlement Agreements Resulting from Mediation 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765
UNCITRAL Convention on International Settlement Agreements Resulting from
Mediation 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766
UNCITRAL Mediation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769
UNCITRAL Notes on Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769
UNCITRAL Working Group III on Possible ISDS Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770
Initiative of ICSID to Elaborate Mediation Rules for Investor-State Disputes . . . . . . . . . . . . . . . . 772
Initiative of the Energy Charter Treaty to Promote Mediation for Investor-State Disputes . . . 774
Initiative of the International Bar Association to Promote Mediation in
Investor-State Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 776
Obstacles to the Use of Mediation for the Settlement of Investor-State Disputes . . . . . . . . . . . . . 777
Report of National University of Singapore Centre for International Law
(CIL) – September 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777
Report of Academic Forum Task Force on ISDS Reform – June 2020 . . . . . . . . . . . . . . . . . . . . 779
Dr.jur.; attorney at the Brussels Bar and Ghent Bar, partner with the law firm Everest Attorneys;
designated as conciliator by Belgium to the ICSID Panel of Conciliators and Arbitrators; visiting
lecturer at the Europa-Institut of Saarland University, Saarbrücken, for a course “Case Study
Investment Mediation” in Summer 2020. The author thanks Ms. Maureen Martins, attorney at the
Brussels Bar, associate with the law firm Everest Attorneys for her assistance in the preparation of
this contribution.
H. Verbist (*)
Everest Attorneys, Ghent and Brussels, Belgium
e-mail: herman.verbist@everest-law.be

https://doi.org/10.1007/978-981-13-3615-7_104
760 H. Verbist
Initiatives Taken by Some States to Promote Mediation in Investor-State Disputes . . . . . . . . . . 780

Interest of Civil Society in Investor-State Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 783
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 785
Abstract
In the context of investor-State disputes, there is typically a public interest. Inves-
tors, the State, and civil society have different interests, but to some extent also have
shared interests. For the resolution of an investment dispute to the satisfaction of
both the investor, the State and the civil society, mediation offers an ideal tool in
order to find the shared interests that may lead to an amicable settlement of the
dispute. A legal framework is important, since only the Law can, for example, give
certain capacities such as defining competence, determining responsibilities,
assessing the urgency of procuring professional services or negotiating while
representing the State. Given that mediation is generally considered to be a
confidential dispute settlement process, and given that investment disputes have a
public interest, a framework must be sought in order to meet the concerns of civil
society also in mediation with special techniques for reduced confidentiality. This
chapter first provides data available on investor-State disputes submitted to medi-
ation. It thereupon describes the work done by UNCITRAL, ICSID, the Energy
Charter Secretariat as well as the IBA in order to promote mediation in investor-
State disputes. It examines the current obstacles to the use of mediation as a method
to settle investor-State disputes, explores initiatives taken by some States and
explains how mediation can become successful by including civil society.
Keywords
UNCITRAL · ICSID · IBA · Working Group III
Introduction
Even though arbitration continues to be the go-to dispute solution mechanism for
resolving investor-State disputes, there are alternative methods available to settle
investor-State disputes.1 Recent Investment Treaties contain provisions on mediation.2
This is the case of i.a. the Comprehensive Economic and Trade Agreement (CETA)
signed on 30 October 2016 between the European Union and Canada (Articles 29.4 and
29.5); the Free Trade Agreement between the European Union and Singapore; the
new Model BIT of the Belgian-Luxembourg Economic Union of 28 March 2019
1
See Reinisch (2013) The scope of investor-state dispute settlement in international investment
agreements. Asia Pacific Law Rev 21:1, 3–26.
2
See Joubin-Bret A (2014) Chapter 10: Investor-State Mediation (ISM): a comparison of recent
treaties and rules. In: Rovine A (ed) Contemporary issues in international arbitration and mediation:
the Fordham papers, p 166; Chaisse J and Bellak C (2015) Navigating the expanding universe of
investment treaties – creation and use of critical index. J Int Econ Law 18(1):79–115
30 Mediation as an Alternative Method to Settle Investor-State Disputes 761
(Article 19.C)3; and the new Netherlands Model BIT of 22 March 2019 (Articles 17 and
18).4 This Handbook also features a proposal for the Asia-Pacific Regional Mediation
Organization (ARMO).5
According to the latest UNCTAD data, a significant percentage of the known
investor-State arbitration proceedings in the period from 1987 until 2019 settled,
namely, 139 out of 674 concluded cases (i.e., 20,62%).6 This chapter first provides
data available on investor-State disputes submitted to mediation (1). It thereupon
describes the work done by UNCITRAL (2), ICSID (3), the Energy Charter Secre-
tariat (4), as well as the IBA (5) in order to promote mediation in investor-State
disputes. It examines the current obstacles to the use of mediation as a method to
settle investor-State disputes (6), explores initiatives taken by some States (7), and
explains how mediation can become successful by including civil society (8).
DATA on Use of Mediation in Investor-State Disputes
As mediation typically is confidential and can occur in different types of situations

and in particular on an ad hoc basis, there are hardly any data available on the use of
mediation and very few literature on mediations in investor-State disputes.7
International Chamber of Commerce
In the commercial field, the International Chamber of Commerce (“ICC”) publishes

annually statistical information on cases it handles including mediations.8 The ICC
3
See: The Documents of the Belgian Parliament: Doc 541,806/007, 29 March 2019; see: https://
www.dekamer.be/flwb/pdf/54/1806/54K1806007.pdf
4
See: https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5832/
download
5
Lo C (2020) Past and future of mediation for investment disputes: the case for the Asia-Pacific
Regional Mediation Organization (ARMO). In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook
of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-
13-5744-2_15-1
6
UNCTAD Investment Policy hub. https://investmentpolicy.unctad.org/investment-dispute-settle
ment; UNCTAD International Investment Agreements Notes, July 2020, Issue 2, available at:
https://unctad.org/en/PublicationsLibrary/diaepcbinf2020d6.pdf
7
Some cases are referred to in: Schneider M (2013) Chapter eight - investment disputes – moving
beyond. In: Boisson de Chazournes L, Kohen M and Vinulas J (eds) Diplomatic and judicial means
of dispute settlement. Martinus Nijhoff Publishers, pp. 119–154; Nitschke F (2019) The ICSID
conciliation rules in practice. In: Titi C and Fach Gomez K (eds) Mediation in international
commercial and investment disputes. Oxford University Press, pp. 121–143.
8
ICC Statistical information is published annually in the ICC Dipsute Resolution Bulletin. See e.g.,:
ICC DR Bull. 2015/1, 17–20; ICC DR Bull. 2016/1, 19; ICC DR Bull. 2017/2, 114–115; ICC DR
Bull. 2018/2, 64–65; ICC DR Bull. 2019/1, 26. Further information can also be found in Verbist H
“Chapter 16 – Mediation as a Method to Settle Trade and Investment Disputes”, in The Investor-
State Disputes Settlement System: Reform, replace or Status Quo? (Eds A. Anderson and
B. Beaumont, to be published by Wolters Kluwer in 2020).
762 H. Verbist
adopted in 2014 Mediation Rules,9 which may apply to investor-State disputes. The
ICC has so far administered only one-treaty based mediation, which ended unsuc-
cessfully, due to the partial participation of a party.10
Permanent Court of Arbitration
The Permanent Court of Arbitration (“PCA”) administers many investor-State

arbitrations.11 In 1962, the PCA elaborated a set of “Rules of Arbitration and
Conciliation for settlement of investment disputes between two parties of which
only one is a State,” which inspired the subsequent adoption of the ICSID Conven-
tion by the World Bank.12 The PCA released in 1996 Optional Conciliation Rules,
based on the UNCITRAL Conciliation Rules.13 The PCA has so far not administered
any investor-State mediation.14
Stockholm Chamber of Commerce
The Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”) admin-

isters many investor-State arbitrations.15 The SCC adopted Mediation Rules in 2014
which may apply to investor-State disputes.16 The SCC has so far not administered
any investor-State mediation.17
International Centre for Settlement of Investment Disputes
The International Centre for Settlement of Investment Disputes (“ICSID”) is the

world’s leading institution devoted to international investment dispute settlement. The
Convention on the Settlement of Investment Disputes between States and Nationals of
Other States (“ICSID Convention”)18 established ICSID and provides procedures for
the settlement by conciliation or arbitration of investment disputes between States and
9
Available at: https://iccwbo.org/dispute-resolution-services/mediation/mediation-rules
10
See Note by UNCITRAL Secretariat for UNCITRAL Working Group III on Possible Reform of
ISDS – Dispute prevention and mitigation – Means of alternative dispute resolution, 15 January
2020, A/CN.9/WG.III/WP.190, para. 37 (WGIII 39th session, 30 Mar.-3 Apr. 2020).
11
Statistical information on the PCA available at: https://pca-cpa.org/en/documents/publications/
12
Dispute Settlement, General Topics, 1.3. Permanent Court of Arbitration. United Nations,
New York and Geneva (2003) 6, para. 1.2, Available at: https://unctad.org/en/Docs/
edmmisc232add26_en.pdf
13
Ibid., 11, para. 5.
14
See: UNCITRAL Secretariat Note A/CN.9/WG.III/WP.190, supra n. 10, at paras 41, 44.
15
Statistical information on the SCC case load available at: https://sccinstitute.com/statistics/
16
Available at: https://sccinstitute.com/media/49819/medlingsregler_eng_web.pdf
17
See UNCITRAL Secretariat Note A/CN.9/WG.III/WP.190, supra n. 10, at paras 41, 44.
18
The Convention was adopted on 16 March 1965 by the World Bank in Washington and has thus
far 154 Contracting States and nine Signatory States. Available at: https://icsid.worldbank.org/en/
Pages/about/Database-of-Member-States.aspx
foreign investors.19 The purpose was to set up a body to which foreign investors might
have access for resolving disputes with their host governments, without having to enlist
the support of their home governments to present claims on their behalf.20 While there
already existed international commercial arbitration institutions in the 1950s and while
the New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards had been opened for signature in 1958, it was judged that a separate arbitral
body not identified with a commercial approach might be more readily acceptable to the
governments of some capital-receiving countries in matters involving the rights and
assets of foreign investors.21 At the outset, conciliation was the preferred method for
investment dispute settlement because (a) the World Bank had had successful experi-
ence with conciliation, and (b) conciliation did not in any way infringe or appear to
infringe upon a country’s sovereignty. Conciliation being more acceptable than arbi-
tration, it was likely to be more effective.22 The drafters of the Convention envisioned
conciliation and arbitration to be on an equal footing.23 In actual practice, resort to
conciliation has been minimal.24
The main procedural provisions on conciliation are contained in Chapters III and
V to VII of the Convention. The conditions for jurisdiction are contained in
Chapter II. All provisions of the Convention are mandatory except when the
Convention allows parties to agree otherwise. Article 33 of the ICSID Convention
provides that conciliations will be conducted in accordance with the Conciliation
Rules in effect on the date on which the parties consented to conciliation, except as
the parties otherwise agree. The Conciliation Rules containing 34 Rules govern the
conciliation proceedings once a request for conciliation has been registered. They
complement the ICSID Convention procedural provisions. The original Conciliation
Rules were adopted on 25 September 1967 and were effective as of 1 January 1968.
These were published with non-binding explanatory notes. The ICSID Conciliation
Rules have subsequently been amended three times. The first amendment was
approved and took immediate effect on 26 September 1984. The second amendment
was approved on 29 September 2002 and was effective on 1 January 2003. The
19
Parra A (2012) The history of ICSID. Oxford University Press, p 1
20
Ibid., 16.
21
Ibid., 17 (referencing “The Promotion of the International Flow of Private Capital: Progress
Report by the Secretary General, United Nations Economic and Social Council”, E/3325 (26 Feb-
ruary 1960), 80–81).
22
See: History of the ICSID Convention, Vol. II-1, 14, para. 9, available at: https://icsid.worldbank.
org/en/Documents/resources/History%20of%20ICSID%20Convention%20-%20VOLUME%20II-
1.pdf; Nitschke F (2019) The ICSID conciliation rules in practice. In: Titi C and Fach Gomez K
(eds) Mediation in international commercial and investment disputes. Oxford University Press,
p 123.
23
See F. Nitschke, supra n. 7, at para. 123.
24
Schreuer C (2001) The ICSID convention: a commentary. Cambridge University Press,
8, para. 22.
764 H. Verbist
current Conciliation Rules were approved by written vote of the Administrative

Council in 2006 and were effective from 10 April 2006.25
The latest ICSID caseload statistics indicate that 65% of all arbitration proceed-
ings under the ICSID Convention and Additional Facility Rules are decided by a
Tribunal. However, 35% of the disputes are settled or the proceedings are otherwise
discontinued, including 5% of cases where a settlement agreement is embodied in an
award at the parties’ request.26
So far, there have been twelve ICSID registered conciliation cases, of which nine
are concluded and three are still pending.27 The first ICSID conciliation case was
registered in 1982 and the last – which is still pending – in May 2019.28 Considering
the dates of registration of the cases and of the outcome of the cases, concluded
conciliations lasted from 5 months to 3 years. Conciliations thus may take several
months to several years. These conciliation cases relate to 6 sectors: oil, gas, and
mining (five cases); electric power and other energy (two cases); textile (two cases
between the same parties); agriculture, fishing, and forestry (one case); construction
(one case) and water, sanitation and flood protection (one case). Main sectors are
thus the oil, gas, and mining sector and the electric power and other energy sector.
Most cases (10 cases out of the 12) involved African parties, mainly as respondents
(Cameroon, Central Africa, Equatorial Guinea, Gabon, Madagascar, Niger, Togo).
Parties were also Albanian, British, French, German, Greek, and from the USA. Of
the 12 conciliation proceedings registered, conciliation commissions were consti-
tuted in eight cases. Most members of the “Conciliation Commission” are French
(six persons). Other nationalities of the members include Belgian, British, German,
or Swiss. Conciliation cases were conducted in French (four cases), English (four
cases), or both languages (two cases). The language of the conciliation proceedings
is not always indicated.
The ICSID Statistics on these 12 conciliations indicate that in 78% of the cases,
the Conciliation Commission issued a report, while in the remaining 22% proceed-
ings were discontinued. In the conciliations where the Conciliation Commission
issued a report, the report recorded in 86% of the cases a failure of the parties to reach
agreement, while in the remaining 14% of the cases, the Conciliation Commission
recorded an agreement of the parties.29 The information on the 12 conciliations
conducted so far under the ICSID Convention and Additional Facility Rules is
available at the ICSID website.
25
Available at: https://icsid.worldbank.org/en/Pages/icsiddocs/ICSID-Convention-Conciliation-
Rules.aspx
26
ICSID Caseload Statistics, Issue 2020–1, para. 7, Chart 9.A; available at: https://icsid.worldbank.
org/en/Documents/resources/The%20ICSID%20Caseload%20Statistics%202020-1%20Edition-
ENG.pdf
27
A/CN.9/1027, available at: https://undocs.org/en/A/CN.9/1027
28
Available at: https://icsid.worldbank.org/en/Pages/ICSIDSearch.aspx?k¼conciliation#k¼conciliation
29
ICSID Caseload Statistics, supra n. 26, at para. 8, Charts 10 and 11.
Initiatives of UNCITRAL to Promote Mediation in Investor-State

Disputes
After 4 years of preparation, UNCITRAL adopted two instruments that provide for
common legislative standards for the enforcement of international commercial
settlement agreements resulting from mediation and make such type of dispute
settlement more efficient: a Convention on International Settlement Agreements
Resulting from Mediation and the UNCITRAL Model Law on International Com-
mercial Mediation and International Settlement Agreements Resulting from Medi-
ation, 2018. UNCITRAL adopted both instruments without creating any expectation
that interested States may adopt either instrument.30 Both instruments provide
common legislative standards for the enforcement of international commercial
settlement agreements resulting from mediation and make such type of dispute
settlement more efficient.
Both instruments were prepared by Working Group II (Dispute Resolution) of
UNCITRAL. In October 2017 in Vienna, there was a consensus that the instruments
should refer to “mediation” instead of “conciliation,” as “mediation” is a more
widely used term.31 The then-proposed amended Model Law added a footnote to
define mediation as “a process where parties request a third person or persons to
assist them in their attempt to reach an amicable settlement of their dispute arising
out of, or relating to, a contractual or other legal relationship.”32 This change in
terminology does not have any substantive or conceptual implications.33
UNCITRAL Model Law on International Commercial Mediation

and International Settlement Agreements Resulting from
Mediation 2018
On 25 June 2018, the Commission of UNCITRAL at it session in New York adopted

the Model Law on International Commercial Mediation and International Settlement
30
Report of Working Group II (Dispute Settlement) on the work of its 68th session (New York,
5–9 February 2018), A/CN.9/934, paras 140–142.
31
Report of Working Group II (Dispute Settlement) on the work of its 67th session (Vienna,
2–6 October 2017), A/CN.9/929, para. 104. It has been proposed that this change of terminology
should also apply to the UNCITRAL Conciliation Rules (1980), A/CN.9/WG.II/WP.205, para.
4 (23 November 2017) (WGII 68th session, 5–9 February 2018).
32
A/CN.9/WG.II/WP.205, para. 5 (23 November 2017) (WGII 68th session, 5–9 February 2018);
note 3 in document A/CN.9/WG.II/WP.205/Add.1 (23 November 2017) (WG II 68th session,
5–9 February 2018); Report of Working Group II (Dispute Settlement) on the work of its 67th
session (Vienna, 2–6 October 2017), A/CN.9/929, para. 104. It has been proposed that this change
of terminology should also apply to the UNCITRAL Conciliation Rules (1980), A/CN.9/WG.II/
WP.205, para. 4 (23 November 2017) (WGII 68th session, 5–9 February 2018).
33
UNCITRAL Commission Report, 51st session, 25 June-13 July 2018, New York, A/73/17,
Annex II, 56, note 2; Knieper J, Montineri C UNCITRAL and a new international legislative
framework on mediation. TMD 2018–4, 23, 24.
766 H. Verbist
Agreements resulting from Mediation 2018,34 amending the UNCITRAL Model

Law on International Commercial Conciliation 2002.35 On 20 December 2019, the
General Assembly recommended that all States give favorable consideration to the
Model Law on International Commercial Mediation and International Settlement
Agreements resulting from Mediation 2018, amending the UNCITRAL Model Law
on International Commercial Conciliation 2002, when the States revise or adopt
legislation relevant to mediation, bearing in mind the desirability of uniformity of the
law of mediation procedures and the specific needs of international commercial
mediation practice.36
UNCITRAL Convention on International Settlement Agreements

Resulting from Mediation 2019
On 20 December 2018, the General Assembly of the United Nations adopted the
Convention on International Settlement Agreements Resulting from Mediation
(Singapore Convention). It called upon the Members States and regional eco-
nomic integration organizations that wish to strengthen the legal framework on
international dispute resolution to consider becoming a party to the
Convention.37
The Singapore Convention provides States with consistent standards on the
cross-border enforcement of international settlement agreements resulting from
mediation.38 It does not require the disputing parties to have had an agreement to
34
See generally: UNCITRAL Commission Report, 51st Session, UN Doc. A/73/17, paras 18–
49 (2018). See also Verbist H (2019) The amended UNCITRAL model law on international
commercial mediation 2018. In: De Meulemeester D, Berlingin M, Kohl B (eds) Liber Amicorum
CEPANI, 50 years of solutions – 50 ans de solutions – 50 jaar oplossingen Cepani 1969–2019.
Wolters Kluwer, Mechelen, pp. 457–482.
35
Legislation based on or influenced by the UNCITRAL Model Law on International Commercial
Conciliation (2002) has been adopted in thirty-three States in a total of forty-five jurisdictions; see:
https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_conciliation/status
36
UN General Assembly Document, 73rd session (2018–2019), A/RES/73/198, adopting document
A/73/496, 10–17, available at: http://research.un.org/en/docs/ga/quick/regular/73
37
Ibid.; Singapore Convention on mediation available at: http://undocs.org/en/A/RES/73/198. See
also: Verbist H UNCITRAL “Instruments on enforcement of international commercial settlement
agreements resulting from mediation”. TMD 2018–4, pp. 6–22; Verbist H UNCITRAL working
group II instruments on enforcement of international commercial settlement agreements resulting
from mediation, January 2019. Available at: https://static1.squarespace.com/static/
5a4599e6bce17688a9e7bde2/t/5c3a6bb5562fa75d70fc4da3/1547332534675/H+Verbist+WG+II+
Paper+and+Appendices+-+JAN2019.pdf. 19 Mar 2019.
38
UN General Assembly Document, 73rd session (2018–2019), A/RES/73/198, supra n. 36. See
also Anderson A, Beaumont B, Verbist H (2020) The United Nations convention on international
settlement agreements resulting from mediation: its genesis, negotiation and future. In: Campbell C
(ed) International mediation, the comparative law yearbook of international business, vol 41a.
Wolters Kluwer, Alphen aan den Rijn, pp. 35–62.
mediate. It applies regardless of whether the parties had a prior agreement or not.
As a consequence, an eventual settlement agreement may address issues outside
of the scope of an agreement to mediate, unlike the New York Convention’s
requirement that an arbitral award may only address issues within the scope of
an agreement to arbitrate.39 The Singapore Convention does not apply to settle-
ment agreements concluded to resolve a dispute arising from transactions engaged
in by one party as a consumer for personal, family, or household purposes and
does not apply to settlement agreements relating to family, inheritance, or employ-
ment law. Also, the Singapore Convention does not apply to settlement agree-
ments that have been approved by a court or concluded in the course of
proceedings before a court. It also does not apply to settlement agreements that
are enforceable as a judgment in the State of that court. Furthermore, it does not
apply to settlement agreements that have been recorded and are enforceable as an
arbitral award. Article 1(3) of the Singapore Convention provides that it will be
for the competent authority where enforcement is sought to determine under its
law whether a settlement agreement reached out-of-court can be laid down in a
judgment or not. Each Party to the Singapore Convention shall enforce a settle-
ment agreement in accordance with its rules of procedure and under the conditions
laid down in it. The rules of procedure may thus differ in the States adhering to the
Singapore Convention. It does not contain in its title the term “enforcement,” but
provides for a “direct” enforcement of settlement agreements resulting from
mediation, in accordance with the rules of procedure of the State for enforcement
and the conditions laid down in it.
Article 8 provides the possibility for States to make two reservations when
signing it. This allows States to declare that the Singapore Convention shall not
apply to settlement agreements to which they are themselves or to which State
agencies are a party (Article 8(1)(a). States may also make the reservation that the
Singapore Convention shall only operate on an opt-in basis, if the parties to a
settlement agreement have agreed to the application of it (Article 8(1)(b)).40 More-
over, even without an explicit provision in the Singapore Convention, parties to a
settlement agreement will be able to exclude its application.41 The Singapore
Convention also provides flexibility for the timing at which States may declare a
reservation (Article 8(3)) or withdraw it (Article 8(5)). Pursuant to Article 8, the
39
Schnabel T (2019) The Singapore convention on mediation: a framework for the cross-border
recognition and enforcement of mediated settlements. Pepperdine Disp Resol Law J 19, 1. Available
at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id¼3239527. Mr. Schnabel negotiated the
Singapore Convention on behalf of the United States in UNCITRAL Working Group II.
40
Report of Working Group II (Dispute Settlement) on the work of its 68th session (New York,
5–9 February 2018), 19 February 2018, A/CN.9/934, paras 38–39.
41
Ibid., para. 38.
768 H. Verbist
Singapore Convention will apply to settlements reached in the context of investment

disputes42, unless the States would formulate a reservation or a declaration excluding
such settlements.43
Forty-six countries signed the Convention on 7 August 2019, the day
it opened for signatures. This is the highest number of first-day signatories
of a UNCITRAL Convention to date. 44 Singapore was the first country to
sign.45 Meanwhile, 53 countries have signed the Convention and six countries
have ratified the Convention. 46 Pursuant to Article 14, the Singapore Conven-
tion shall enter into force 6 months after deposit of the third instrument of
ratification, acceptance, approval, or accession. With the deposit of the instru-
ment of ratification by Qatar on 12 March 2020, the Singapore Convention
entered into force on 12 September 2020. 47
42
Nitschke F (2020) A preview of ICSID’s new investor-state mediation rules. Available at: http://
mediationblog.kluwerarbitration.com/2020/01/10/a-preview-of-icsids-new-investor-state-media
tion-rules/?doing_wp_cron¼1591366099.2868781089782714843750
43
Report of Working Group II (Arbitration and Conciliation) on the work of its 63rd session
(Vienna, 7–11 September 2015), A/CN.9/861, 9–10, paras 44–46; A/CN.9/WG.II/WP.198, para.
24 (30 June 2016) (WGII 65th session, Vienna, 12–23 September 2016); Report of Working Group
II (Dispute Settlement) on the work of its 65th session (Vienna, 12–23 September 2016), A/CN.9/
896, 11–12, paras 61–62; A/CN.9/WG.II/WP.205, 6–7, para. 28 (23 November 2017) (WGII 68th
session, 5–9 February 2018). For the discussion at UNCITRAL Working Group II on Art. 8 of the
Singapore Convention on Mediation, see: Report of UNCITRAL Working Group II (Dispute
Settlement) on the work of its 68th session (New York, 5–9 February 2018), A/CN.9/934, 12–14,
paras 72–93.
44
Herbert Smith Freehills (2019) 46 countries sign the Singapore Convention on mediated settle-
ments today, 7 August 2019; Komindr A (2020) UNCITRAL and legal innovations in international
commercial mediation. Korean Arb Rev. 11:26, at 31.
45
The forty-six signatories of the Singapore Convention as of 7 August 2019 are: Afghanistan,
Belarus, Belize, Brunei, Chile, China, Colombia, Republic of the Congo, Democratic Republic of
the Congo, Kingdom of Eswatini, Fiji, Georgia, Grenada, Haiti, Honduras, India, Iran, Israel,
Jamaica, Jordan, Kazakhstan, Laos, Malaysia, Maldives, Mauritius, Montenegro, Nigeria, North
Macedonia, Palau, Paraguay, Philippines, Qatar, South Korea, Samoa, Saudi Arabia, Serbia, Sierra
Leone, Singapore, Sri Lanka, Timor Leste, Turkey, Uganda, Ukraine, the United States, Uruguay
and Venezuela. Subsequently, 7 other countries signed the Singapore Convention: Armenia
(26 September 2019), Chad (26 September 2020), Ecuador (25 September 2020), Gabon
(25 September 2020), Guinea-Bissau (25 September 2020), Rwanda (28 January 2020) and
Ghana (22 July 2020); see: UNCITRAL website: https://uncitral.un.org/en/texts/mediation/conven
tions/international_settlement_agreements/status
46
The six countries having ratified the Singapore Convention are: Belarus (15 July 2020), Ecuador
(9 September 2020), Fiji (25 February 2020), Qatar (12 March 2020), Saudi Arabia (5 May 2020)
and Singapore (25 February 2020); see: UNCITRAL website: https://uncitral.un.org/en/texts/medi
ation/conventions/international_settlement_agreements/status
47
Available at: http://www.unis.unvienna.org/unis/en/pressrels/2020/unisl293.html
UNCITRAL Mediation Rules
In addition to the two instruments which provide for common legislative standards
for the enforcement of international commercial settlement agreements resulting
from mediation, UNCITRAL has also prepared Rules on Mediation which can be
used ad hoc by the parties in conducting mediations. The draft UNCITRAL Medi-
ation Rules, which update the UNCITRAL Conciliation Rules (1980), are submitted
for adoption to the Commission of UNCITRAL.48
These UNCITRAL Mediation Rules should apply when the parties agree to them
(Article 1.1).
UNCITRAL Notes on Mediation
UNCITRAL also drafted Notes on Mediation (Notes) taking account of the newly
adopted instruments on international commercial mediation, which also are submit-
ted for adoption to the Commission of UNCITRAL.49
The Notes first state the main features of mediation: it is a nonadjudicatory, flexible,
and voluntary process based on party autonomy and the legal framework: the
Singapore Convention, mediation laws, and the Mediation Rules. The Notes further
list and briefly describe matters relevant to mediation pursuant to the different phases
of mediation, which are commencement of the mediation; selection and appointment
of a mediator; preparatory steps; conduct of the mediation; settlement agreement;
termination of the mediation; mediation in the investor-State dispute settlement
context.
Regarding the preparatory steps, the Notes state that it is common for the parties
and the mediator to sign terms of reference which will cover various elements of the
mediation and mediators’ involvement in the process. The terms of reference may
contain an outline of the dispute, relevant rules determining the conduct of the
mediation, such as the ethical standards applicable to the mediator and relevant
disclosure obligations as well as the parties’ agreement regarding confidentiality
(Point 3 (a)). The Notes add that it is advisable for the parties to consider at the outset
of the mediation the extent to which they wish the mediation to remain confidential,
and to check applicable law50 and rules to ensure that the confidentiality obligations
are clearly spelled out and sufficiently safeguarded (Point 3 (d)).
The Notes also refer to mediation in the investor-State dispute settlement context
and address the issue of third parties. Mediation can be efficiently used during the
“cooling-off period,” as well as in parallel track during or even after arbitral, judicial,
48
A/CN.9/1026, 3 January 2020; available at: https://undocs.org/en/A/CN.9/1026
49
A/CN.9/1027, 3 January 2020, available at: https://undocs.org/en/A/CN.9/1027
50
On applicable law in investment dispute resolution, see Cappiello B (2020) Applicable law in
investment arbitration. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international
investment law and policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-5744-2_63-1
770 H. Verbist
or other dispute resolution proceedings have been commenced or concluded. A

number of specific issues are highlighted which may arise in the investor-State
dispute settlement context and which should be envisioned at the start of the
mediation: (a) selection and appointment of a mediator; (b) confidentiality and
transparency; (c) third parties; and (d) authority to settle. A dispute may affect and
concern the civil society and/or other interested stakeholders. These third parties
may be allowed by the parties to participate in the mediation and make submissions,
if they meet certain criteria as agreed by them. If the parties have agreed that third
parties may attend mediation sessions, the mediator and the parties should be
mindful of the interests that are represented and the authority of each representative
(Point 7 (c)).
UNCITRAL Working Group III on Possible ISDS Reform
Over the past decade, the concept of resolving investment disputes through media-
tion has been widely discussed in the ISDS community, among States, practitioners,
and academics.51 Since 2017, UNCITRAL Working Group III (WG III) started
discussing a possible reform of ISDS.52 WG III noted that resort to arbitration is
the predominant means used in resolving investor-State disputes and it observed that
alternative dispute resolution methods are available, but they seem to be rarely used,
despite the existing legal framework.53 The UNCITRAL Commission entrusted WG
III with a broad mandate to work on the possible reform of investor-State dispute
settlement. In line with the UNCITRAL process, WG III would, in discharging that
mandate, ensure that the deliberations, while benefitting from the widest possible
breadth of available expertise from all stakeholders, would be Government-led, with
high-level input from all Governments, consensus-based and fully transparent. The
Working Group would proceed to: (a) first, identify and consider concerns regarding
investor-State dispute settlement; (b) second, consider whether reform was desirable
in the light of any identified concerns; and (c) third, if WG III were to conclude that
reform was desirable, develop any relevant solutions to be recommended to the
Commission.54
51
United Nations Conference on Trade and Development (2010) Investor-state disputes: prevention
and alternatives to arbitration. United Nations, New York and Geneva. Available at: https://unctad.
org/en/Docs/diaeia200911_en.pdf
52
Working papers and submissions of governments for UNCITRAL Working Group III on Investor-
State Dispute Settlement Reform are available at: https://uncitral.un.org/en/working_groups/3/
investor-state
53
A/CN.9/WG.III/WP.190, supra n. 10, at para. 37.
54
UNCITRAL Commission Report, 50th session, 3–21 July 2017, Vienna, A/72/17, para.
264, available at: https://uncitral.un.org/en/commission. See Chaisse J, Donde R (2018) The state
of investor-state arbitration– a reality check of the issues, trends, and directions in asia-pacific. Int
Lawyer 51(1):47–67.
From the start of its discussions, the Working Group considered whether work
should be limited to arbitration or should include other types of existing ISDS
mechanisms. There was a generally shared view that alternative dispute resolution
methods, including mediation, ombudsman, consultation, conciliation, and any other
amicable settlement mechanisms, could operate to prevent the escalation of disputes
to arbitration and could alleviate concerns about the costs and duration of arbitration.
WG III decided to concentrate its work first on identifying concerns regarding
arbitration and to consider other types of ISDS mechanisms subsequently as part
of a holistic approach to addressing those concerns.55 At its 38th session, WG III
agreed on a project schedule on reform options and requested the Secretariat to
undertake preparatory work on dispute prevention and mitigation as well as
on means of alternative dispute resolution. Due to the Covid-19 situation, the
39th session of UNCITRAL WG III had to be postponed until further notice.56
However, in order to allow making progress on the working papers prepared for
consideration at this session, a number of online webinars were organized by the
UNCITRAL Secretariat in cooperation with the Academic Forum.57
One of the topics that was scheduled for discussion at the 39th session of WG III
was the topic of dispute prevention, mitigation and mediation. The UNCITRAL
Secretariat prepared for this discussion a note in which it makes proposals focusing
on the “prevention” of disputes, rather than “postdispute” regulation as cost-
effective approach to the reform of ISDS.58 The Secretariat sets out in its note
that a number of initiatives have been developed already at the national level by
some States, such as: (a) identifying a lead agency, which usually aims at
establishing a unique channel of communication between the investor and the
State; (b) mapping of information and making it available; (c) monitoring com-
munication with investors; (d) raising awareness on investment obligations among
government officials and training; and (e) early settlement discussions and han-
dling disputes. As regards initiatives developed by some States at a bilateral or
multilateral level, the Secretariat refers to: (a) State-to-State cooperation in dispute
prevention and (b) capacity-building.
With respect to alternative dispute resolution methods, the Secretariat’s note
points out that investment treaties foresee a time frame, more commonly known
55
Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its 34th
session (19 Dec. 2017) (Part I - 19 December 2017) (Vienna, 27 November-1 December 2017),
A/CN.9/930/Rev.1, 6, paras 31–33 and 11, para. 74.
56
The 39th session of Working Group III (Investor-State Dispute Settlement Reform) was scheduled
to take place on 30 March-3 April 2020 in New York: for the provisional agenda of the 39th session
(16 January 2020), available at: https://undocs.org/en/A/CN.9/WG.III/WP.189
57
The purpose of the Academic Forum is for academics active in the field of ISDS to exchange
views, explore issues and options, test ideas and solutions, and make a constructive contribution to
the ongoing discussions on possible reform of ISDS, in particular the discussions in the context of
WG III; available at: https://www.jus.uio.no/pluricourts/english/projects/leginvest/academic-
forum/
58
A/CN.9/WG.III/WP.190, supra n. 10, at para. 5.
772 H. Verbist
as the “cooling-off” period, ranging from 3 to 18 months during which the disputing
parties may attempt amicable settlement before arbitration. Often, investment treaties
include a two-tiered dispute settlement clause, providing first for some form of
alternative dispute resolution before culminating, at the second tier, with a resolution
of the investor-State dispute by an arbitral tribunal.59 The note points out that it is
difficult to collect accurate data on the use of alternative dispute resolution methods, as
these methods are usually confidential. It also refers to studies and publications made
on the subject of obstacles to settlement in ISDS that identify many reasons for the
difficulties encountered, such as fear of public criticism, fear of allegations of corrup-
tion, fear of setting a precedent, difficulties regarding access to public funds to
organize the defense, as well as difficulties regarding intergovernmental coordination
in short time frames.60 On 18 June 2020, WG III organized a webinar on the role of
mediation in ISDS.61
Initiative of ICSID to Elaborate Mediation Rules for Investor-State

Disputes
In 2016, ICSID commenced a Rules amendment project and sought public and State
input on potential changes. In the framework of the Rules revision process, the
ICSID Secretariat published meanwhile four working papers: a first working paper
on 2 August 2018,62 a second working paper on 15 March 2019,63 a third working
paper on 26 August 2019,64 and a fourth working paper on 28 February 2020.65
ICSID proposes amendments to the Conciliation Rules, which aim to make the rules
more user-friendly and the conciliation process even more flexible, and in order to
allow the parties to benefit from the enforcement mechanism of the Singapore
59
A/CN.9/WG.III/WP.190, supra n. 10, at paras 11–44.
60
A/CN.9/WG.III/WP.190, supra n. 9, at para. 44; Chew S, Reed L, Thomas JC (2016) Survey on
obstacles to settlement of investor-state disputes, National University of Singapore, Centre for
International Law, Nov. 2016, available at: https://cil.nus.edu.sg/wp-content/uploads/2018/09/
NUS-CIL-Working-Paper-1801-Report-Survey-on-Obstacles-to-Settlement-of-Investor-State-
Disputes.pdf. See also: Titi C, Fach Gomez K (2019) Mediation in international commercial and
investment disputes. Oxford University Press. Available at: https://global.oup.com/academic/prod
uct/mediation-in-international-commercial-and-investment-disputes-9780198827955?cc¼be&
lang¼en&
61
The papers presented at the webinar of 18 June 2020 are available on the website of UNCITRAL:
https://uncitral.un.org/en/mediationwebinar; Kessedjian C, van Aaken A, Lie R, Mistelis
L Mediation in future investor-state dispute settlement, Academic Forum; Bell A From two-party
to multi-party dispute resolution: a negotiation analysis perspective. Harvard University; Masucci
D Mediating collective interests; Legum B Investor-state mediation and state authority; Nitschke
F Expanding the pie in investment dispute settlement: ICSID’s proposed mediation rules.
62
Available at: https://icsid.worldbank.org/en/Documents/X.Amendments_Vol_3_AFMR.pdf
63
Available at: https://icsid.worldbank.org/en/Documents/Vol_1.pdf
64
Available at: https://icsid.worldbank.org/en/Documents/WP_3_VOLUME_1_ENGLISH.pdf
65
Available at: https://icsid.worldbank.org/en/Documents/WP_4_Vol_1_En.pdf
Convention on Mediation.66 With the revision process, ICSID also proposes a set of
stand-alone Mediation Rules. ICSID started working on Mediation Rules in 2018. It
does so, while taking into account that about 40% of ICSID arbitrations are either
settled amicably or otherwise discontinued.67 As part of the revision process, ICSID
also published a draft Code for Adjudicators in Investor-State Dispute Settlement.68
The proposed Mediation Rules complement the existing ICSID Arbitration and
Conciliation Rules. They may be used either independently of or in conjunction with
arbitration or conciliation proceedings.69 The proposed Mediation Rules are stand-
alone rules, in other words separate from the ICSID Convention and Additional
Facility Rules.70 The proposed Mediation Rules respond to the increased demand for
mediation of investment disputes generally, ICSID’s activities in this sphere, and
requests by users and Member States for ICSID mediation. The ICSID Mediation
Rules will be the first set of institutional mediation rules designed specifically for
investment disputes. The introduction of the Mediation Rules will add to the array of
dispute resolution services currently offered by ICSID. The new Mediation Rules
will assist Member States to implement their International Investment Agreement
provisions offering investment mediation. They provide an investment dispute-
specific mediation framework, apt for use either independently of, or in conjunction
with, arbitration or conciliation proceedings.
The Working Papers of ICSID for the revision of the Rules provide an explana-
tion of how the mediation framework fits into the ICSID system, as well as an
overview of the process contemplated under the proposed Mediation Rules, before
explaining the specific proposed provisions. While there are some similarities
between the ICSID conciliation framework and the proposed Mediation Rules,
the Mediation Rules differ in terms of: (i) the institution of the proceeding, (ii) the
appointment of the mediator, (iii) the role of the mediator, (iv) the conduct of the
proceedings, and (v) the fact that mediation under the proposed Mediation Rules is
an entirely voluntary process, allowing a party to withdraw at any time.71
The proposed Mediation Rules contain 22 rules. They will have fewer sections
than the Arbitration Rules and the Conciliation Rules.72 The mediator’s role is to
assist the parties in reaching a mutually acceptable resolution of all or part of the
dispute (Rule 17(1) of the draft ICSID Mediation Rules). The Rules provide that the
66
See: F. Nitschke, supra n. 61, at paras 141, 143.
67
See: Ibid., at para. 143.
68
Available at: https://icsid.worldbank.org/en/Documents/Draft_Code_Conduct_Adjudicators_
ISDS.pdf
69
Nitschke F “ICSID’s Proposed Mediation Rules”, presented at a webinar of UNCITRAL Working
Group III on the Role of mediation in ISDS on 18 June 2020, https://uncitral.un.org/sites/uncitral.
un.org/files/media-documents/uncitral/en/frauke_nitschke_pp_english_6-16-20.pdf
70
Kinnear M Modernizing ICSID’s rules for investment dispute resolution, ICC DR Bull. 2019/1,
55; F. Nitschke, supra n. 42.
71
Available at: https://icsid.worldbank.org/en/Documents/X.Amendments_Vol_3_AFMR.pdf, para.
1328.
72
As set out in the fourth working paper of ICSID of 28 February 2020; available at: https://icsid.
worldbank.org/en/Documents/WP_4_Vol_1_En.pdf.
774 H. Verbist
Secretariat is authorized to administer mediation proceedings in relation to an

investment involving a State or a Regional Economic Integration Organization
(REIO), which the parties agree in writing to submit to the Centre (Rule 2(1)).
There shall be one mediator or two co-mediators (Rule 13(1)). Each mediator shall
be appointed by agreement of the parties. The parties may, at any time, jointly
request the Secretary-General to assist them in the appointment of a mediator (Rule
13(3) and (4)). The Rules do not refer to a list of mediators. All information relating
to the mediation and all documents generated or obtained during the conciliation are
in principle confidential. They will not be confidential if: (a) the parties agree otherwise,
(b) the information or documents are independently available, or (c) disclosure is
required by law (Rule 10(1)). The fact that the parties have or have had recourse to
mediation is not confidential, unless the parties agree otherwise (Rule 10(2)). Any
position taken, admissions or offers of settlement made, or views expressed by a party
during the mediation is without prejudice to the legal positions it may take in any other
proceedings (Rule 11). A party may withdraw from a mediation at any moment (Rule
22(1)). The formal notice of termination (Rule 22(2)) is intended to facilitate the
enforcement of any settlement agreement reached as a result of the mediation, allowing
for such settlement to benefit from the framework of the UNCITRAL Convention on
International Settlement Agreements Resulting from mediation.73 In addition, ICSID
makes its facilities available for the purpose of supporting efforts by parties to resolve
investment disputes through mediation. ICSID has also organized numerous events on
investment mediation, including a series of trainings for investor-State mediators,
aimed at developing the skills necessary to mediate investment disputes. It also pro-
vides an array of information on investment mediation on its website.
Initiative of the Energy Charter Treaty to Promote Mediation

for Investor-State Disputes
States have acknowledged the suitability of mediation for the resolution of invest-
ment disputes and have included mediation provisions in bilateral and multilateral
treaties.74 In some new treaties, mediation has been introduced as a precondition to
the commencement of investor-State arbitration.75 In other treaties, mediation has
73
Proposals for Amendments of the ICSID Rules, Working Paper 1, 2 August 2018, Vol. 3, para.
1398, available at: https://icsid.worldbank.org/en/Documents/X.Amendments_Vol_3_AFMR.pdf.
74
See, e.g.,: Art. 10.15 of the Dominican Republic-Central America FTA (CAFTADR) (2006–7)).
Available at: https://ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-
central-america-fta/final-text.
75
For example, Art. 26 of the Investment Agreement for the COMESA Common Investment Area
(not yet in force) requires a 6-month amicable settlement period, during which the parties “shall
seek the assistance of a mediator”, unless an alternative method of dispute settlement is agreed
upon. (emphasis added). Available at: https://www.iisd.org/toolkits/sustainability-toolkit-for-trade-
negotiators/wp-content/uploads/2016/06/rei120.06tt1.pdf; see also: Ch. 10, and Art. 9.18 of the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Available at:
https://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-
ptpgp/index.aspx?lang¼eng).
been introduced as a stand-alone mechanism for dispute resolution, providing an

alternative to arbitration or conciliation.76
For example, the Energy Charter Treaty (ECT) was signed in December 1994
and entered into force in April 1998.77 Such Treaty provides the possibility to
settle investment disputes through mediation. Its Article 26 allows parties to a
dispute to agree to use good offices, structured negotiation, mediation, or con-
ciliation using existing mechanisms or even agreeing on a tailor-made mecha-
nism.78 Article 7.7 provides a specialized conciliation mechanism for transit
disputes related to the transit and supply of electricity, natural gas, oil, and oil
products through cross-border grids and pipelines. The conciliation rules were
last amended in 2015 and a commentary was endorsed by the Conference in
2016.79
In 2016, the Energy Charter Conference adopted a Guide on Investment Medi-
ation, recognizing mediation as a helpful instrument to facilitate the amicable
resolution of investment disputes and encouraged its Contracting Parties to consider
to use mediation on a voluntary basis as one of the options at any stage of the dispute
to facilitate its amicable solution and to consider the good offices of the Energy
Charter Secretariat. The Guide was prepared with the support of the International
Mediation Institute, ICSID, the Arbitration Institute of the Stockholm Chamber of
Commerce (SCC), the International Court of Arbitration of the International Cham-
ber of Commerce (ICC), UNCITRAL, and the Permanent Court of Arbitration
(PCA).80 The latest ECT caseload statistics indicate that of the 131 arbitration
cases handled thus far under the ECT, nine cases have been settled of which four
were embodied in an award.81
76
For example, Annex 29-C on Mediation in the CETA (not yet in force), https://www.international.
gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/tpp-ptp/text-texte/09.aspx?
lang¼eng. See also: Ch. 8(II)(3)(2), Art. 5 of the EU-Vietnam FTA (not yet in force), http://trade.ec.
europa.eu/doclib/press/index.cfm?id¼1437; Ch. 3, Art. 3.4, and Annex 6 of the EU-Singapore FTA
(not yet in force), https://trade.ec.europa.eu/doclib/press/index.cfm?id¼961 (21 May 2020).
77
There are currently fifty-three signatories and Contracting Parties to the Treaty. This includes both
the European Union and Euratom. Treaty, available at: https://www.energycharter.org/process/
energy-charter-treaty-1994/energy-charter-treaty/.
78
Available at: https://www.energycharter.org/what-we-do/dispute-settlement/amicable-resolution-
of-disputes/.
79
Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2015/
CCDEC201511.pdf.
80
Available at: https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/
CCDEC201612.pdf.
81
Available at: https://www.energychartertreaty.org/fileadmin/DocumentsMedia/Statistics/All_sta
tistics_-_15_June_2020.pdf. See also Carballo Leyda A (2019) Model instrument for management
of investment disputes. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international
776 H. Verbist
Initiative of the International Bar Association to Promote

Mediation in Investor-State Disputes
On 4 October 2012, the International Bar Association (“IBA”) adopted

the IBA Rules for investor-State Mediation,82 which are stand-alone
rules for the settlement of investor-State disputes containing eleven Arti-
cles.83 They were so far used in an ICSID Conciliation (Case No CONC/(AF)/
12/2).84 As regards confidentiality, Article 10(3)(a) of the IBA Rules provides
that the existence of a mediation process itself is not submitted to confidenti-
ality requirements, but that the documents exchanged and given to the mediator
and the mediation process are confidential.85 Pursuant to Article 4(1), there shall
be a sole mediator, unless the parties designate two co-mediators. If the parties
have not jointly designated a mediator within 21 days, the parties shall within
14 days agree on an institution or person that shall assist them in choosing a
mediator (“Designating Authority”) in accordance with the procedure set out in
Appendix C (“Choice of Mediator Through Designating Authority”) (Article
4(6)). If the parties do not agree on a Designating Authority within 14 days,
then the Secretary-General of the Permanent Court of Arbitration at The Hague
shall select a Designating Authority upon the request of either party (Article
4(7)). Article 8(1) provides that the mediation shall be conducted in accordance
with the parties’ wishes and with the assistance of the mediator. Pursuant to
Article 9, as soon as practicable following the mediator’s designation, the
mediator shall convene a mediation management conference with the parties,
whether in person, by telephone or by any other means of telecommunication,
to discuss: (a) the conduct of the mediation, in particular any outstanding
procedural issues such as the languages and location of the mediation sessions;
(b) a provisional timetable for the conduct of the mediation; (c) confidentiality
and privacy arrangements, including any legal disclosure obligation that may
affect such arrangements; (d) the applicability of any relevant prescription or
limitation periods and whether the parties wish to address such periods by
agreement; (e) whether the parties wish to agree in writing not to commence
82
See: https://icsid.worldbank.org/en/Documents/process/IBA%20Rules%20for%20Investor-State
%20Mediation%20(Approved%20by%20IBA%20Council%204%20Oct%202012).pdf; https://
www.ibanet.org/Document/Default.aspx?DocumentUid¼8120ED11-F3C8-4A66-BE81-
77CB3FDB9E9F.
83
On the IBA’s contribution to the better management of conflict of interest in international
arbitration, see Dalmaso Marques R, Marques Dal Mas F (2020) Managing conflict of interest in
international arbitration: the role of the IBA guidelines. In: Chaisse J, Choukroune L, Jusoh S (eds)
Handbook of international investment law and policy. Springer, Singapore. https://doi.org/10.1007/
978-981-13-5744-2_114-1
84
Joubin-Bret A (2014) Chapter 10: Investor-State Mediation (ISM): a comparison of recent treaties
and rules. In: Rovine A (ed) Contemporary issues in international arbitration and mediation: the
Fordham papers, p 166.
85
Ibid., 162.
or not to continue any arbitral or judicial proceedings relating to the differences

or disputes that are the subject of the mediation while the mediation is pending;
(f) whether special arrangements for the approval of a settlement agreement
need to be made; and (g) the financial arrangements, such as the calculation and
payment of the mediator’s fees and expenses.
Obstacles to the Use of Mediation for the Settlement of Investor-

State Disputes
Report of National University of Singapore Centre for International

Law (CIL) – September 2018
The available data show that only very few investor-State disputes are submitted to
conciliation or mediation. This may seem surprising as mediation can lead to a
quicker resolution of a dispute, at a lower procedural cost and to an amicable
settlement acceptable for all parties to the dispute. A research team of the National
University of Singapore Centre for International Law (CIL) led by Christopher
Thomas QC and Professor Lucy Reed, director of CIL, conducted a survey in
November 2016 in order to identify what experienced players consider to be the
key challenges to settlement. The team requested the participants to rank twenty-nine
possible obstacles to settlement of investor-State disputes identified in an online
survey and asked several open-ended questions. The survey received 47 responses,
from private counsel, institution representatives, and academics, whereby more than
half of the participants (64%) had experience advising both investor and State
parties.86
The key findings of the survey were that a majority (70%) of the participants
thought that the State is more reluctant to settle. None of the respondents identified
the investor as the party being more reluctant to settle.
As the study also sets out in its executive summary, the top obstacle to settlement
is the State desire to avoid responsibility for a settlement and defer decision-making
to third party arbitrators.87 Another significant obstacle to settlement is fear of public
criticism (ranked third), fear of allegations of or future prosecution for corruption
(ranked seventh), and fear of setting a precedent (ranked sixteenth). Obstacles to
settlement also arise from the structure of the State, namely the existence of multiple
stakeholders in agencies and ministries across all levels of government: agreement
may prove impossible because of the stakeholders’ conflicting and competing
perspectives and priorities (ranked sixth); it might be more difficult for an official
86
Chew S, Reed L, Thomas JC (2018) Report: survey on obstacles to settlement of investor-state
disputes, September 2018, NUS Centre for International Law Research Paper No. 18/01; NUS Law
Working Paper No. 2018/022. Available at SSRN: https://ssrn.com/abstract¼3247492 or https://
doi.org/10.2139/ssrn.3247492
87
Ibid., at 28–30; see also: Reed L (2019) To explore how to incentivise host governments and
investors to utilise investor state mediation. In: ISDS reform conference 2019 – mapping the way
forward, Asian Academy of International Law, Hong Kong, pp. 29–50.
778 H. Verbist
to obtain budgetary approval for a settlement, as opposed to any sum awarded by an

arbitral tribunal or court (ranked fourth); the time taken to consult all the relevant
stakeholders might mean the State misses opportunities to settle.
Some obstacles were common to all disputes, including commercial arbitration:
participants mentioned unrealistic expectations and an inaccurate evaluation of the
merits of the case most frequently in response to the open-ended question of what
they thought was the third most relevant reason disputing parties did not settle their
disputes.
Some obstacles were unique to State parties: media (international and domestic)
coverage might cause the dispute to become even more politically inflamed, pressuring
the State into taking a firmer stance (ranked second); the dispute might involve a highly
sensitive or politicized issue, such as tobacco packaging, making it politically difficult
for a State to be seen to “capitulate” via settlement (ranked fifth); a new administration
might not settle a dispute, in order to blame the dispute on the outgoing administration.
The participants of the survey held mixed views on the perceived impact of counsel on
settlement prospects: while the role of counsel was ranked in the bottom five relevant
obstacles (25th and 27th), the self-interest of counsel in avoiding settlement was
mentioned frequently in response to open-ended questions. The survey also highlighted
the corresponding lack of incentives for disputing parties to settle: in the face of
numerous obstacles, there were inadequate and even nonexistent incentives for parties
– especially State parties – to settle a dispute.88
Answers to the open ended question why the participants advised disputing
parties to settle were as follows: (i) the cost factor (mentioned by far as most
important factor to settle); (ii) the long duration of arbitration proceedings; (iii) the
weakness of the case; (iv) the certainty of a settlement in contrast of the outcome of
proceedings; and (v) the desire to maintain a long-term relationship.89
Answers to the open ended question what might motivate a party’s reluctance to
settle, the participants answered as follows: (i) the desire to avoid or defer respon-
sibility (mentioned by far as most important motivation for reluctance to settle,
including a number of factors such as: fear of criticism; once arbitration commences,
the parties do not consider settlement; overestimation by the parties of the strength of
their case; lack of incentives for a settlement; (ii) breakdown of the relationship
between the parties; and (iii) unrealistic expectations and an inaccurate evaluation of
the case (including a number of factors: the role of the counsel; third party funding;
socio-cultural factors; confidentiality concerns; structural features of within the
investor-State arbitration system).90
The survey also identified a number of possibilities to explore in order to
encourage resort to settlement, namely: (i) considering nonmonetary settlement
(or not just pure monetary settlement); (ii) identifying pathways and incentives to
settlement; (iii) identifying the dispute before it proceeds to a formal claim;
88
Ibid., Executive Summary, Key findings, at 1–2.
89
Ibid., at 10.
90
Ibid., at 21–25.
(iv) identifying the stage of the proceedings when the parties are more likely to settle,
if possible; and (v) providing an early expert evaluation of the claim to enable the
disputing parties to make better decisions as to how to proceed with the dispute.91
It flows from this survey that there are avenues for developing mediation in
investor-State disputes, but the study also indicates that there will also be some
investor-State disputes that cannot be settled except by binding resolution. The
survey also pinpoints to a potential tension between promoting conciliation of
investment disputes, which generally requires confidentiality, and the positive
trend of increasing transparency in arbitration.92
Report of Academic Forum Task Force on ISDS Reform – June 2020
A task force of the Academic Forum on ISDS made in regard to the ongoing
discussions that are taking place in UNCITRAL Working Group III on possible
ISDS reform a study on the present situation with cooling-off periods in International
Investment Agreements. It found that among the 2.885 treaties with ISDS-related
provisions, there are 2.052 investment treaties foreseeing a cooling-off period. This
represents 71% of the investment treaties. Cooling-off periods are predominantly
6 months. The type of ADR mentioned in cooling-off periods are: not mentioned –
44%; negotiations – 42%; consultations – 10%; conciliation – 3%; mediation – 1%.
An analysis of 2.577 IIAs available in the UNCTAD database has shown that
627 treaties contained a provision for voluntary ADR (conciliation/mediation),
while 1.813 treaties contained no provision on ADR and not one treaty contains a
provision for compulsory ADR. The study indicated that 34% of the investors are
positive towards mediation, while 31% of them are negative and 14% are neutral
towards mediation in investment disputes.
The study of the Academic Forum lists the following concerns about mediation in
investment disputes: potential civil society concerns (human rights compatibility,
confidentiality and opacity); legislative impediments and State governance (media-
tion may be prohibited for State authorities or they need express authority to
mediate; governmental approval may be cumbersome); policy impediments (prob-
lem of confidentiality of mediation; no binding decision on possibly high sums of
money; need to show that State authorities act in best interest of the country; a
possible solution can be a special independent body accountable to the highest
political body and certainly to Parliament).93
91
Ibid., at 26.
92
Ibid., at 21–25.
93
Kessedjian C, van Aaken A, Lie R, Mistelis L Mediation in future investor-state dispute
settlement. Acadamic Forum on ISDS Concept Paper 2020/16, presented at a webinar of
UNCITRAL Working Group III on the Role of mediation in ISDS on 18 June 2020; see: https://
uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/anne_von_aacken_pp_
english_18_june_mediation.pdf.
780 H. Verbist
Initiatives Taken by Some States to Promote Mediation

in Investor-State Disputes
Some States have set up a centralized agency to deal with all investment disputes to
conclude settlements as well.
Since 2006, Peru has set up a State System of Coordination and Defense in
International Investment Disputes (SICRECI) for the State’s representation and
defense in international investment arbitrations.94 The system is based on a set of
laws and regulations that provide for the establishment of a Commission, which
represents the State, and sets a procedure for contracting the specialists required for
Peru’s legal defense.95 Under the SICRECI, a Commission is set which falls within
the Ministry of Economy and Finance and composed of permanent representatives
from different entities related to investment protection, investment treaty and con-
cession agreement negotiations, and the States’ international defense and represen-
tation: the Ministry of Economy and Finance (leading negotiations of Investment
Protection Treaties); Ministry of Foreign Affairs (representing the State internation-
ally); the Ministry of Justice (conducting the State’s legal defense); the Ministry of
Commerce (leading negotiations of Free Trade Agreements); ProInversión
(representing the State in procurement processes for public concessions); and entities
that are associated with the dispute itself.96 The Commission has express legal
powers to negotiate in representation of the State. These powers are key, as State
officials are often over-scrutinized by the State’s governing bodies, forcing them to
defer certain decisions in order to avoid liability for actions or decisions that could
later be reviewed and objected to by the Comptroller-General of the State.97
In Colombia, a National Agency for the Legal Defence of the State was set up by
Law in 2011.98 The Executive Board of the Agency is composed of: the Minister of
Justice and Law, who chairs it; the Minister of Foreign Affairs; the Minister of
Finance and Public Credit; the Minister of Commerce, Industry and Tourism; the
Director of the Administrative Department of the Presidency of the Republic; and the
Legal Secretary of the Presidency of the Republic.
The objectives and structure of the Agency were determined by a Decree of
1 November 2011, which provides that the Agency is part of the executive branch,
with legal personality, administrative and financial authority and its own assets,
attached to the Ministry of Justice.99
94
W.P. 190, supra n. 10, at para. 16, footn. 23.
95
Valderrama C (2018) Peru – best practices for confronting international lawsuits brought by
private investors. ICSID Rev. 33(1):e1–e20. SECRECI’s legal basis stems from Law No. 28933 and
associated regulations, Supreme Decree No. 125–2008-EF and Supreme Decree No. 002–2009-EF.
96
Ibid., e9.
97
Ibid., e9.
98
Agencia Nacional de Defensa Jurídica del Estado, created by Ley 1444 of 4 May 2011, Article
18, see: https://www.funcionpublica.gov.co/eva/gestornormativo/norma.php?i¼42796. The objec-
tives and structure of the Agency were determined by a Decree of 1 November 2011, which was
partially amended on 30 May 2017.
99
Decree No. 4018 of 1 November 2011 of the Minister of Justice.
The objectives of the agency are: to design strategies, plans, and actions to
comply with the defense policies of the State and the State defined by the national
government; to formulate, evaluate and disseminate policies for the prevention of
illegal behavior by public services and entities, illegal damage and the extension of
its effects, and the direction, coordination, and execution of actions ensuring their
proper implementation, for the defense of the litigious interests of the State; to
coordinate the defense of the State; to represent the State, and in particular to assume,
as Claimant, intervener, mandatory, or agent and under any other condition provided
for by the Law, the legal defense of entities and bodies of the Public Administration,
and to act as intervener in judicial proceedings of any type in which the interests of
the State are involved.100 The Decree was partially amended in 2017.101 A Decree of
2013 on Investment Protection allows this Agency to Conduct Extrajudicial Settle-
ment Agreements.102
The Executive Board of the Agency as the High Government Authority defines
the criteria and rules according to which, in specific cases, conciliation or direct
agreement with the investor will be effective and shall have the power to recommend
the appropriate Conciliation Committee to approve or reject the conciliation.103 The
Ministry of Commerce, Industry and Tourism and the State Legal Defence Agency
participate, in accordance with the directives of the High Government Authority and
jointly with the public entity or agency involved, as facilitators of amicable agree-
ments for the extrajudicial settlement of international investment disputes.104 With-
out prejudice to the support of the National Agency for the Legal Defence of the
State, the Ministry of Commerce, Industry and Tourism acts as the sole spokesperson
with regard to the investor.105
In Croatia, the Government created an Interdepartmental Committee to handle
requests from foreign investors related to disputes arising from bilateral investment
treaties. This Interdepartmental Committee is composed of four officials of Minis-
tries (Foreign Affairs, Economy, Finance, and Justice) and the Deputy State attorney.
The Committee meets when the Government of Croatia receives a notice of a dispute
from a foreign investor and it discusses possible steps to resolve the dispute. It can
also invite the investor to its meetings. Once the Interdepartmental Committee agrees
on further steps, it proposes the action/measure to the Government. In case there is a
100
Decree No. 4018 of 1 November 2011 of the Minister of Justice, Article 2.
101
Decree No. 945 of 30 May 2017 of the Ministry of Justice; see: http://es.presidencia.gov.co/
normativa/normativa/DECRETO%20915%20DEL%2030%20DE%20MAYO%20DE%
202017.pdf.
102
Decree No. 1939 of 9 September 2013 of the Minsitry of Commerce, Industry and Tourism,
Article 8; see: http://www.suin-juriscol.gov.co/viewDocument.asp?id¼1373623.
103
Decree No. 1939 of 9 September 2013 of the Ministry of Commerce, Industry and Tourism,
Article 4.
104
Ibid., Article 8.
105
Submission from the Government of Brazil, Possible reform of ISDS, UNCITRAL Document
A/CN.9/WG.III/WP.171, 11 June 2019, https://undocs.org/en/A/CN.9/WG.III/WP.171.
782 H. Verbist
decision on settlement, the Government authorizes either the Chair of the Committee
or one of the Ministers (usually the one competent for the dispute subject matter) to
negotiate and conclude the settlement. The idea behind establishing the
Interdepartmental Committee (besides of course to settle disputes and avoid costly
arbitration) was to include a wide range of Government officials to the process in
order to raise awareness of the BIT obligations and prevent possible future disputes.
In addition to that, in cases where the Government does not settle, this process
facilitates preparation for the defense in the (possible future) arbitration as well as
budget planning.106
South Korea has developed a “foreign investment ombudsman system” which
can help prevent a complaint from being escalated into an investment dispute.
Through this system, complaints can be addressed and discrepancy of related
agencies can be harmonized. It provides a comprehensive “after care” of foreign
investors.107 The Ombudsman is a public office with a high degree of independence
to investigate and handle investment complaints. The office generally settles dis-
putes through mediation between the investor and the public agency in question. It
may also make recommendations, binding or nonbinding, to State institutions
regarding the investment regulatory framework and the investment climate.108
This method has influenced other countries such as Brazil, Georgia, Greece,109
Japan, the Philippines, and the United States.110 Brazil set up a Dispute Preven-
tion mechanism under its Model Cooperation and Facilitation Investment Agree-
ment (CFIA) which is inspired by the Korean Ombudsman.111 In Greece, the
Investor Ombudsman is available for investment projects exceeding the value of
2.000.000 EUR. The Ombudsman mediates during the licensing procedure and
where specific bureaucratic obstacles, delays, disputes, or other difficulties arise
(related to State services and State actors vis-à-vis the investor) that lead to
intractable differences, a deadlock, a standstill, or similar difficulties regarding
the investment project. The Investor Ombudsman provides its services upon
106
Government decision of 3 January 2013. Initially the Committee was chaired by the head of the
State Office for Trade Policy. With a government decision of 27 March 2014, it was decided that the
Committee would be chaired by the Ministry of Foreign Affairs.
107
Submission from the Republic of Korea, Possible reform of ISDS, 31 July 2019, UNCITRAL
Document A/CN.9/WG.III/WP.179, see: https://uncitral.un.org/sites/uncitral.un.org/files/wp179_
new.pdf.
108
Chaisse J (2019) Investor-state mediation: challenges of detection, prevention, and management
systems. In: International dispute resolution conference 2019, Hong Kong, 17 April 2019.
109
https://www.enterprisegreece.gov.gr/en/invest-in-greece.
110
Titi C (2017) Non-adjudicatory state-state mechanisms in investment dispute prevention and
dispute settlement: joint interpretations, filters and focal points. Revista de Direito Internacional,
Brazil J Int Law 14(2), Direito Internacional dos Investimentos, 46.
111
UNCITRAL Document A/CN.9/WG.III/WP.171, 11 June 2019. https://undocs.org/en/A/CN.9/
WG.III/WP.171
request regarding an already existing problem.112 In the United States, Select

USA’s Ombudsman program works towards successful resolutions of problems
across the federal government, addressing investor concerns and issues involving
federal agencies.113
The Energy Charter Secretariat has developed in 2018 a draft Model Instrument
on Management of Investment Disputes, with a draft Explanatory Note.114 The
Energy Charter draft Model Instrument recommends States to create a Responsible
Body for resolution of disputes arising out of International Investment Agreements
or of Investments Contracts. This proposed Instrument also provides negotiation,
mediation, and other amicable settlement mechanisms to settle investments disputes
arising out of International Investment Agreements or out of International Invest-
ment Contracts (Article 22–24 thereof).
A legal framework is important, since only the Law can, for example, give certain
capacities such as defining competence, determining responsibilities, assessing the
urgency of procuring professional services or negotiating while representing the
State.115
Interest of Civil Society in Investor-State Mediation
In the context of investor-State disputes, there is typically a public interest. In order

to take account of the public interest in investor-State arbitrations, UNCITRAL
elaborated in 2013 the UNCITRAL Rules on Transparency in Treaty-based Inves-
tor-State Arbitration, which became effective as of 1 April 2014.116 On 10 December
2014, the United Nations adopted the UNCITRAL Convention on Transparency in
Investor-State Arbitration, with which Parties to investment treaties concluded
before 1 April 2014 can express their consent to apply the UNCITRAL Rules on
Transparency in Treaty-based Investor-State Arbitration to such investment treaties.
Pursuant to the Convention, UNCITRAL created a Transparency register.117
112
See: https://www.enterprisegreece.gov.gr/en/invest-in-greece/investors-ombudsman/service-
description.
113
See: http://selectusa.commerce.gov/documents/2013/april/selectusa_monthly_newsletter_
29jan2013.pdf.
114
Energy Charter Treaty Model Instrument on Management Of Investment Disputes, 23 December
2018, CCDEC2018–26 INV, see: https://www.energycharter.org/fileadmin/DocumentsMedia/
CCDECS/2018/CCDEC201826_-_INV_Adoption_by_correspondence_-_Model_Instrument_on_
Management_of_Investment_Disputes.
115
Valderrama C (2018) Peru – best practices for confronting international lawsuits brought by
private investors. ICSID Rev 33(1):e6.
116
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/rules-on-transpar
ency-e.pdf.
117
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/transparency-con
vention-e.pdf.
784 H. Verbist
The Convention was signed on 17 March 2015 in Mauritius and is therefore known
as the Mauritius Convention.118
Given that mediation is generally considered to be a confidential dispute settle-
ment process, and given that investment disputes have a public interest, a framework
must be sought in order to meet the concerns of civil society also in mediation with
special techniques for reduced confidentiality.119 The IBA Rules for Investor-State
Mediation adopted by the IBA in 2012 provide in Article 10(3) that the confiden-
tiality of the mediation process shall not extend to the fact that the parties have
agreed to mediate or to the terms of the settlement, unless agreed otherwise in
writing and to the disclosure of documents or information under circumstances set
out in these Rules.120 The proposed ICSID Mediation Rules provide in Rule
10(1) that all information regarding the mediation and al documents generated or
obtained during the mediation shall be confidential, unless (a) the parties agree
otherwise, (b) the information or document is independently available, or
(c) disclosure is required by law, and in Rule 10(2) that, unless the parties agree
otherwise, the fact that they are mediating or have mediated shall be confidential.121
Also, the proposed ICSID Mediation Rules provide in Rule 20(3) that, at the first
session with the parties, the mediator shall establish a protocol for the conduct of the
mediation in which the mediator shall mention i.a. the participation of other persons
in the mediation.122
A study by the Negotiation Task Force of Harvard University listed the
following interests and concerns of civil society with respect to investor-State
disputes: the rule of law; the ability of the State to enact laws that improve the
economic wellbeing of the citizens; the ability of the government to enact
regulatory measures that protect citizens even when they are unfavorable for
corporate investors; the ability to hold the State accountable; prevention of
corruption of State officials; transparency in the dispute resolution process;
and a fair compensation of affected citizens (in particular when neither national
governments nor international corporations are motivated to provide such com-
118
The Mauritius Convention was thusfar signed by 23 States and ratified by 6 States. In entered
into force on 18 October 2017. See: https://uncitral.un.org/en/texts/arbitration/conventions/transpar
ency/status.
119
Kessedjian C, van Aaken A, Lie R, Mistelis L.Mediation in future investor-state dispute
settlement, Acadamic Forum on ISDS Concept Paper 2020/16, presented at a webinar of
UNCITRAL Working Group III on the Role of mediation in ISDS on 18 June 2020, 13; see:
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/anne_von_aacken_
pp_english_18_june_mediation.pdf.
120
See: https://www.ibanet.org/Document/Default.aspx?DocumentUid¼8120ED11-F3C8-4A66-
BE81-77CB3FDB9E9F.
121
See: https://icsid.worldbank.org/en/Documents/WP_4_Vol_1_En.pdf.
122
Rule 20(3)(f) of the proposed ICSID Mediation Rules; Ibid.
pensation).123 Some of these concerns are shared with the investors, some others
are shared with the States: for example, both the investor and civil society share
the concern of the protection of the rules of law; and both the State and
public society share the concern of the protection of the public good.124 For
the resolution of an investment dispute to the satisfaction of both the investor,
the State and the civil society, mediation offers an ideal tool in order to find the
shared interests that may lead to an amicable settlement of the dispute. The
involvement of local communities gives more possibility to find a solution that
is widely accepted. The mindset in mediation is completely different from
arbitration. Mediation in investment disputes can allow to find other ways of
compensation than a financial compensation, which may satisfy both the inves-
tor, the State, and the civil society. 125
Conclusion
There is little known about mediation in investment matters. The few statistics
available on mediation and conciliation as methods to settle international trade and
investment disputes, in particular those provided by the ICC for commercial medi-
ation and by ICSID for investor-State disputes, indicate that there are not yet a large
number of disputes submitted to mediation. Investment treaties generally foresee a
time frame, more commonly known as the “cooling-off” period, during which the
disputing parties may attempt amicable settlement before arbitration. Moreover,
investment treaties include a two-tiered dispute settlement clause, providing first
for some form of alternative dispute resolution before culminating, at the second tier,
with a resolution of the investor-State dispute by an arbitral tribunal. With the
revision of its Rules, ICSID proposes a set of Mediation Rules. Once adopted,
these Mediation Rules may be used either independently of or in conjunction with
arbitration or conciliation proceedings.126
However, there still seem to be a number of obstacles to overcome in order to
convince parties, and in particular States, to submit their dispute to mediation. In the
context of investor-State disputes, there is typically a public interest. Investors, the
State, and civil society have different interests, but to some extent also have shared
123
See: Bell A From two-party to multi-party dispute resolution: a negotiation analysis perspective.
Harvard University, presented at a webinar of UNCITRAL Working Group III on the Role of
mediation in ISDS on 18 June 2020: https://uncitral.un.org/sites/uncitral.un.org/files/media-docu
ments/uncitral/en/arvid_bell_pp_english_18_june_2020_mediation.pdf.
124
Ibid.
125
Not all Claimants in an investment dispute want money, as indicated by Starr P (2019)
Commentator – Session I: Investment Mediation. In: ISDS reform conference 2019 – mapping
the way forward. Asian Academy of International Law, Hong Kong, pp. 45, 48
126
See: Coe J (2019) To explore the relationship between investor-state mediation and investor-state
arbitration and how the tow processes can complement with each other. In ISDS reform conference
2019 – mapping the way forward. Asian Academy of International Law, Hong Kong, pp. 22–28
786 H. Verbist
interests. For the resolution of an investment dispute to the satisfaction of both the
investor, the State, and the civil society, mediation offers an ideal tool in order to find
the shared interests that may lead to an amicable settlement of the dispute. A legal
framework is important, since only the Law can, for example, give certain capacities
such as defining competence, determining responsibilities, assessing the urgency of
procuring professional services or negotiating while representing the State. Given
that mediation is generally considered to be a confidential dispute settlement process,
and given that investment disputes have a public interest, a framework must be
sought in order to meet the concerns of civil society also in mediation with special
techniques for reduced confidentiality.
The work undertaken by UNCITRAL Working Group III on possible ISDS
Reform will also focus on these obstacles and this work may give guidance that
may lead parties making greater use of mediation. Meanwhile, UNCITRAL has
already adopted some instruments in order to answer the growing need for mediation
as a method to settle international trade and investment disputes, including the
Singapore Convention on Mediation and a revised Model Law on Mediation. The
Singapore Convention of 2019, which entered into force on 12 September 2020,
facilitates the enforcement of international settlement resulting from mediation both
in commercial mediation and in investor-State mediation. The Singapore Conven-
tion will give legitimacy to international mediation, like the New York Convention
has done for international arbitration. This should promote the use of mediation in
ISDS and other international disputes, including by States, unless the States use the
reservation foreseen.127 The significance of this Convention in the future will,
however, depend on the number of States that will ratify it.
127
Reed L (2019) To explore how to incentivise host governments and investors to utilise investor
state mediation. In: ISDS reform conference 2019 – mapping the way forward. Asian Academy of
International Law, Hong Kong, pp. 29, 35
Past and Future of Mediation for
Investment Disputes: The Case for the 31
Asia-Pacific Regional Mediation
Organization (ARMO)
Chang-fa Lo
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788
Means for Resolving State-to-State and Investor-to-State Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . 788
State-to-State vs. Investor-to-State Dispute Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788
Means for Resolving State-to-State Investment Dispute: Mediation Is Rarely Used . . . . . . 789
Means for Resolving Investor-to-State Disputes: Mediation Is Also Rarely Used . . . . . . . . 792
The Ignored Value of Mediation for the Settlement of Investment Disputes in the Past . . . . . . 796
Possible Reasons for Mediation Not Being Constantly Used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796
Values of Mediation for State-State and Investor-State Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . 797
The Idea and Importance of Having a Permanent Mediation Organization:
The ARMO as an Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798
The Background of Promoting the ARMO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798
The ARMO Can Be Considered as a New Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799
Some Key Features of the ARMO Mediation Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800
Abstract
In most bilateral investment treaties and the investment chapters in free trade
agreements, mediation is listed as one of the dispute settlement mechanisms
together with arbitration and other resolutions. However, in practice, mediation is
not used. This is mainly because the importance and usefulness of mediation is
vastly underappreciated. This chapter explains the value and effectiveness of
mediation to resolve international investment disputes. The chapter also explains
the importance and means of creating a permanent regional mediation organization
to provide mediation services for investment disputes. It uses the Asia-Pacific
Regional Mediation Organization (ARMO) as an example to illustrate the useful-
ness of a permanent mediation organization to help resolve investment disputes.
C.-f. Lo (*)
National Taiwan University College of Law, Constitutional Court Justice, Taipei, Taiwan
e-mail: lohuang@ntu.edu.tw; lochangfa@gmail.com

https://doi.org/10.1007/978-981-13-3615-7_15
788 C.-f. Lo
Keywords
Mediation · State to State · ARMO · Asia-Pacific Regional Mediation
Organization
Introduction
International dispute settlement systems for investment matters are to resolve dif-
ferences arising from the interpretation or application of an investment treaty or from
the performance of a government contract of investment. The fundamental purpose
of the systems is to ensure that the host State fulfills its obligations under the treaty or
the government contract and the investors are fairly treated. An effective dispute
settlement mechanism is essential for the protection of foreign investors and their
investments.
In most bilateral investment treaties and the investment chapters in free trade
agreements (hereinafter collectively “BITs”), mediation is listed as one of the dispute
settlement mechanisms together with arbitration and other resolutions. However, in
practice, mediation is not used. This is mainly because the importance and useful-
ness of mediation is vastly underappreciated.
In this chapter, discussions focus on the value of mediation to resolve interna-
tional investment disputes. It suggests that mediation could be an effective dispute
settlement mechanism for investment matters. The chapter also explains the impor-
tance and means of creating a permanent regional mediation organization to provide
mediation services for investment disputes. It uses the Asia-Pacific Regional Medi-
ation Organization (ARMO) as an example to illustrate the usefulness of a perma-
nent mediation organization to help resolve investment disputes.
Note that although there are still slight differences between conciliation and
mediation (e.g., conciliator being expected to provide nonbinding settlement pro-
posals), they are both friendly dispute settlement mechanisms with neutral third
parties (either individuals or institutions) providing services to assist the disputing
parties to resolve their disputes. Hence for the purpose of this chapter, the discussion
does not differentiate conciliation and mediation. They are collectively called medi-
ation in the whole discussions.
Means for Resolving State-to-State and Investor-to-State

Disputes
State-to-State vs. Investor-to-State Dispute Settlements
An international investment dispute arises from a disagreement between a foreign

investor and its host State concerning its investment. But an investor does not have to
be the claimant or complainant in a dispute settlement procedure. Depending on who
initiates the procedure, a dispute settlement procedure can be between the home
31 Past and Future of Mediation for Investment Disputes: The Case for the. . . 789
State and the host State or between an investor and its host State. If a procedure is
initiated by the investor as a claimant or complainant, it is an investor-to-State
dispute settlement procedure (hereinafter ISDS).1 Whereas if a procedure is initiated
by the home State as a claimant or complainant on behalf of the investor, it is a State-
to-State dispute settlement procedure (hereinafter SSDS). Resorting to SSDS for an
investment dispute is an exercise of diplomatic protection for the home State’s
nationals. For the discussion of this chapter, both ISDS and SSDS are included.
Means for Resolving State-to-State Investment Dispute: Mediation Is

Rarely Used
For State-to-State disputes, there are certain dispute resolution mechanisms for the
home State to settle its disputes with the host State. The United Nations Charter
(hereinafter UN Charter) lists a wide range of dispute settlement in a peaceful
manner in Chapter VI, the title of which is “Pacific Settlement of Dispute.” Para-
graph 1 of Article 33 of the UN Charter provides that “The parties to any dispute, the
continuance of which is likely to endanger the maintenance of international peace
and security, shall, first of all, seek a solution by negotiation, enquiry, mediation,
conciliation, arbitration, judicial settlement, resort to regional agencies or arrange-
ments, or other peaceful means of their own choice.” This provision considers that
negotiation, enquiry, mediation, conciliation, arbitration, and judicial settlement are
peaceful means for the settlement of disputes. Among these means, negotiation,
mediation, and conciliation can be considered as amicable means of settlement.
For investment matters, the home State may be able to resort to an international or
regional adjudicative body to resolve its dispute with the host State. The Interna-
tional Court of Justice (ICJ) is an adjudicative body, which can resolve investment
disputes between States. Article 36, paragraph 1 of the Statute of the International
Court of Justice2 provides in part that “The jurisdiction of the Court comprises all
cases which the parties refer to it and all matters specially provided for . . .in treaties
and conventions in force.” Hence, it is possible for the contracting parties to include
a clause in its BIT to refer its investment disputes to the ICJ. Even when there is no
such clause, it is still possible for the disputing States of an investment matter to
jointly refer their case to the ICJ.
There are a very limited number of “investment-related” treaties including a
clause for their contracting parties to resort their disputes to the ICJ. Article 11 of
1
Chaisse J, Donde R (2018) The state of investor-State arbitration – a reality check of the issues,
trends, and directions in Asia-Pacific. Int Lawyer 51(1):47–67
2
The text of the statute is available at https://www.icj-cij.org/en/statute
790 C.-f. Lo
the treaty for the Promotion and Protection of Investment of 1959 between Pakistan
and the Federal Republic of Germany3 is an example of State-State investment
disputes to be referred to the ICJ. Paragraphs (1) and (2) of Article 11 provide:
1. In the event of disputes as to the interpretation or application of the present treaty,

the Parties shall enter into consultation for the purpose of finding a solution in a
spirit of friendship.
2. If no such solution is forthcoming, the dispute shall be submitted
(a) To the International Court of Justice if both parties so agree or
(b) If they do not so agree to an arbitration tribunal upon the request of either
party
The Convention on the Settlement of Investment Disputes between States and

Nationals of Other States of 1965 (hereinafter “ICSID Convention”)4 also has a
clause to refer disputes to the ICJ. Article 64 of the ICSID Convention provides that
“Any dispute arising between Contracting States concerning the interpretation or
application of this Convention which is not settled by negotiation shall be referred to
the International Court of Justice by the application of any party to such dispute,
unless the States concerned agree to another method of settlement.” However, it
must be noted that this provision sets forth a dispute settlement mechanism for the
operation of the conciliation and arbitration administered by the International Center
for Settlement of Investment Disputes (hereinafter “ICSID”) under the convention.
The provision is not to resolve “investment disputes between States.”
There are some regional courts which are available for their parties/members to
resolve their disputes. For instance, there are the Court of Justice of the Andean
Community (CJAC) established in 1979 to hear disputes under the Andean Com-
munity law brought by the community members or individuals5; the Central Amer-
ican Court of Justice, first created in 1907 and later its statute being reconfigured in
1991, with a general jurisdiction6; and the Caribbean Court of Justice (CCJ)
established in 2001 to settle disputes between Caribbean community members and
to also serve as the highest court of appeals on civil and criminal matters for the
national courts of Barbados, Belize, and Guyana.7 In the field of investment, there
are only very limited situations where investment treaties allow States to resort to
3
The text of the treaty is available at https://treaties.un.org/doc/Publication/UNTS/Volume%20457/
volume-457-I-6575-English.pdf
4
The text of the convention is available at https://www.jus.uio.no/english/services/library/treaties/
11/11-05/icsid-convention.xml
5
Court of Justice of the Andean Community, see http://www.pict-pcti.org/courts/TJAC.html; see
also International Justice Resource Center website at http://www.ijrcenter.org/regional-communi
ties/court-of-justice-of-the-andean-community/
6
Central American Court of Justice, see the International Justice Resource Center website at http://
www.ijrcenter.org/regional-communities/central-american-court-of-justice/
7
The Caribbean Court of Justice, see International Justice Resource Center website at http://www.
ijrcenter.org/regional-communities/caribbean-court-of-justice/
regional court to settle their investment dispute.8 For instance, the investment
agreement for the COMESA Common Investment Area9 was concluded among
the Common Market for Eastern and Southern Africa (COMESA) countries. Article
27 (entitled “Settlement of Disputes between Member States”), paragraph 1 of the
agreement specifically refers State-State investment disputes to the regional court. It
provides:
Any dispute between Member States as to the interpretation or application of this Agreement
not satisfactorily settled through negotiation within 6 months, may be referred for decision to
either:
(i) an arbitral tribunal constituted under the COMESA Court of Justice in accordance with
Article 28(b) of the COMESA Treaty; or
(ii) an independent arbitral tribunal; or
(iii) the COMESA Court of Justice sitting as a court.
In addition to adjudicative mechanism, a more commonly used State-to-State

dispute settlement system for investment matters is international arbitration. State-
to-State investment arbitration is often included in BITs.10 Prior to 1969, there had
been arbitration clauses in many BITs exclusively for State-to-State investment
disputes. In recent years, State-to-State investment arbitration provisions are often
provided in connection with investor-to-State arbitration provisions.11 An example
of State-to-State arbitration is Article 37 (entitled “State-State Dispute Settlement”)
of the Treaty between the United States and Uruguay Concerning the Encourage-
ment and Reciprocal Protection of Investment of 2005. Article 37, paragraph 1 of the
treaty provides the following:
Subject to paragraph 5, any dispute between the Parties concerning the interpretation or
application of this Treaty that is not resolved through consultations or other diplomatic
channels shall be submitted on the request of either Party to arbitration for a binding decision
or award by a tribunal in accordance with applicable rules of international law. In the absence
of an agreement by the Parties to the contrary, the UNCITRAL Arbitration Rules shall
govern, except as modified by the Parties or this Treaty.
8
International Institute for Sustainable Development (2004) State-State dispute settlement in invest-
ment treaties, p 4. The article is available at https://www.iisd.org/sites/default/files/publications/
best-practices-state-state-dispute-settlement-investment-treaties.pdf
9
The text of the agreement is available at https://www.iisd.org/toolkits/sustainability-toolkit-for-
trade-negotiators/wp-content/uploads/2016/06/rei120.06tt1.pdf
10
Potestà M (2012) State-to-State dispute settlement pursuant to bilateral investment treaties: Is
there potential? In: Boschiero N, Scovazzi T (eds) International courts and the development of
international law – essays in honor of Tullio Treves, p 754. This book chapter is also available at
https://lk-k.com/wp-content/uploads/potesta-state-to-state-arbitration-liber-amicorum-tullio-treves.
pdf
11
International Institute for Sustainable Development, “State–State Dispute Settlement in Invest-
ment Treaties – Best Practices Series,” October 2014, at 3. The article is available at https://www.
iisd.org/sites/default/files/publications/best-practices-state-state-dispute-settlement-investment-
treaties.pdf
792 C.-f. Lo
Although it is quite common to find State-to-State arbitration clauses in BITs,

actually State-State arbitration cases are extremely rare. Even the United States,
which used to be the major promoter of including State-State arbitration mechanism
in BITs, has not much experience of State-State arbitration under any BIT to which
the United States is a party.12
In addition to resorting to the adjudicative bodies and State-to-State arbitration,
mediation is also included in many BITs as a means of SSDS. For instance, the
Austria’s model BIT provides in Article 20 (entitled “Scope, Consultation, Media-
tion and Conciliation”) that “Disputes between the Contracting Parties concerning
the interpretation or application of this Agreement shall, as far as possible, be settled
amicably or through consultations, mediation or conciliation.”13 However, media-
tion is even more rarely used to resolve State-to-State investment disputes.
Means for Resolving Investor-to-State Disputes: Mediation Is Also

Rarely Used
Depending on the provisions of the relevant BITs, foreign investors might have
access to judicial mechanism, arbitration, and mediation to resolve their disputes
with the host States. International adjudicative body (such as the ICJ) or regional
courts basically do not adjudicate investor-State disputes. So a foreign investor has
to take legal actions with the domestic court against the host State to address a
government agency’s violation of the domestic law or breach of the government
contract, if it intends to resolve the difference through an adjudicative means. But
foreign investors might have concern about a domestic court being influenced by the
host government and about the possible biased decisions against foreign investors.
They might also have concern about the inadequate quality of the judicial decisions
by the local courts.
The investor-State arbitration provides better security and protection for foreign
investment and is considered a very important innovation of modern investment
treaties. Therefore, investor-State arbitration is included in the majority of contem-
porary BITs since the 1980s. More and more bilateral treaties provide options for
investors to bypass the court system and to rely on investor-State arbitration for the
purpose of receiving effective and fair settlement of their disputes with the host
State.
12
The statement made by Wesley Scholz, the Director of the US State Department’s Office of
Investment Affairs, quoted from Senate Executive Report 111-8 submitted by Kerry from the
Committee on Foreign Relations. S. Exec. Rep. No. 111-8, part VI(B) (2010): “State-to-State
arbitrations are extremely rare. In fact, no State-to-State arbitrations have taken place to date
under US bilateral investment treaties. Nevertheless, there are various tools at our disposal for
implementing a State-to-State award should the situation arise.” The statement is available at http://
www.gpo.gov/fdsys/pkg/CRPT-111erpt8/html/CRPT-111erpt8.htm
13
Reinisch A (2013) Austria. In Brown C (ed) commentaries on selected model investment treaties, p 46
An example of investor-State arbitration is seen in Article 24 (entitled “Submis-

sion of a Claim to Arbitration”) of the aforementioned treaty between the United
States and Uruguay Concerning the Encouragement and Reciprocal Protection of
Investment of 2005. Article 24, paragraph 1 of the treaty provides:
In the event that a disputing party considers that an investment dispute cannot be settled by
consultation and negotiation:
(a) the claimant, on its own behalf, may submit to arbitration under this Section a claim
(i) that the respondent has breached
(A) an obligation under Articles 3 through 10,
(B) an investment authorization, or
(C) an investment agreement; and
(ii) that the claimant has incurred loss or damage by reason of, or arising out of, that
breach; and
(b) the claimant, on behalf of an enterprise of the respondent that is a juridical person that
the claimant owns or controls directly or indirectly, may submit to arbitration under this
Section a claim
(i) that the respondent has breached
(A) an obligation under Articles 3 through 10,
(B) an investment authorization, or
(C) an investment agreement; and
(ii) that the enterprise has incurred loss or damage by reason of, or arising out of, that
breach
provided that a claimant may submit pursuant to subparagraph (a)(i)(C) or (b)(i)(C) a claim for
breach of an investment agreement only if the subject matter of the claim and the claimed
damages directly relate to the covered investment that was established or acquired, or sought
to be established or acquired, in reliance on the relevant investment agreement.
There are both arbitration institutions and ad hoc arbitrations being widely used in
BITs.14 According to the studies of the OECD, tribunals established under the ICSID
Convention, ad hoc tribunals established under the United Nations Commission on
International Trade Law (UNCITRAL) Arbitration Rules, the arbitration provided
under the International Chamber of Commerce (ICC) Arbitration Rules, and the
arbitration provided by the Arbitration Institute of the Chamber of Commerce in
Stockholm are among the most frequently used mechanisms/platforms for investor-
to-State arbitration.15
As an institution being most frequently referred to, the ICSID provides services
only for those disputes directly out of an investment and between a State (which is a
party to the ICSID Convention) and an investor (whose home State is also a party to
14
Chaisse J (2015) The issue of treaty shopping in international law of foreign investment –
Bus Law Rev 11(2):225–306
15
OECD (2012) Dispute settlement provisions in international investment agreements: a large
sample survey, p 18. The survey is available at http://www.oecd.org/investment/international
investmentagreements/50291678.pdf
794 C.-f. Lo
the convention).16 The ICSID also provides additional facility to offer services of
arbitration of investment disputes between a State and a foreign national (one of
which is not an ICSID Member State or a national of an ICSID Member State) and
arbitration or conciliation of disputes that do not arise directly out of an investment
between a State and a foreign national (at least one of which is an ICSID Member
State or a national of an ICSID Member State).17
When investor-to-State arbitration was initially adopted in BITs in earlier stages,
it was not frequently utilized. But when the companies started using the investment
chapter in the North American Free Trade Agreement (NAFTA) to launch arbitra-
tions against Canada (and later on against the United States and Mexico), there have
been more and more arbitration complaints brought under BITs. The number of
investor-State arbitration cases went up to almost 900.
However, after years of practice, some countries became suspicious about the use
of investor-to-State arbitration. In 2011, the Australian Government announced in its
Trade Policy Statement that it would no longer include investor-to-State dispute
settlement procedures in its future trade agreement. One of the reasons behind the
policy was the increased need of tightening domestic regulatory regime for public
health.18 Specifically, Australia’s introduction of the tobacco plain packaging
requirement19 was challenged by a giant tobacco company Philip Morris in an
investor-State arbitration as in breach of the agreement between the Government
of Hong Kong and the Government of Australia for the Promotion and Protection of
Investments. It alleges that the “forced removal of trademarks and other valuable
intellectual property” is a violation of the bilateral investment treaty between
Australia and Hong Kong.”20 The arbitral tribunal avoided the difficult substantive
issues and decided in December 2015 that it had no jurisdiction to hear Phillip
16
Article 25 (1) of the ICSID Convention provides: “The jurisdiction of the Centre shall extend to
any legal dispute arising directly out of an investment, between a Contracting State (or any
constituent subdivision or agency of a Contracting State designated to the Centre by that State)
and a national of another Contracting State, which the parties to the dispute consent in writing to
submit to the Centre. When the parties have given their consent, no party may withdraw its consent
unilaterally.”
17
See ICSID Additional Facility Rules, at https://icsid.worldbank.org/en/Pages/icsiddocs/ICSID-
Additional-Facility-Rules.aspx
18
Kurtz J (2012) Australia’s rejection of investor-State arbitration: causation, omission, and impli-
cation. ICSID Rev 27(1), pp 65, 70
19
Plain packaging requirement for tobacco products is to prohibit tobacco companies to use their
own package designs and to require them to use a particular kind of packaging design so as to
eliminate the promotional effect of tobacco packaging. See Chaisse J (2013) Exploring the confines
of international investment and domestic health protections – general exceptions clause as a forced
perspective. Am J Law Med 39(2/3):332–361
20
Bridges, Philip Morris Launches Legal Battle Over Australian Cigarette Packaging, 29 June
2011; at https://www.ictsd.org/bridges-news/bridges/news/philip-morris-launches-legal-battle-over-
australian-cigarette-packaging
Morris Asia’s claims.21 However, this case gave rise to serious concerns that a
genuine and legitimate public health policy could be challenged by foreign investors
through an investor-to-State arbitration and that the investor-to-State arbitration
could become a barrier for host State to adopt strict public health policies.
Also the United State-Mexico-Canada Agreement (USMCA) of 2018, which was
concluded to replace the NAFTA, changed the scenario of the convenient use of the
investor-State arbitration. For instance, under the USMCA, US investors already
present in Canada are able to use investment arbitration for another 3 years. After
that, they will have to go back to the Canadian courts to resolve their disputes with
Canada.22
Notwithstanding the recent development mentioned above, the proliferated pro-
visions of investor-State arbitration are still in many BITs. Such arbitration clause
has played an important role in comforting foreign investors and in protecting their
interests and ensuring the host States’ performance of their international
obligations.23
In addition to the investor-State arbitration, friendly settlement of investor-State
disputes through consultation, negotiation, conciliation, and mediation is often
included in BITs. The ICSID also offer conciliation services for the settlement of
investor-to-State disputes. “Though the ICSID Convention treats arbitration and
conciliation equally,” unfortunately, “in practice it is nearly always arbitration that
is chosen.”24 Mediation is rarely used for investor-State disputes.
In comparison, in the field of international commercial disputes, the values of
commercial mediation have been recognized, and hence the use of mediation for
international commercial disputes has been promoted through the cross-border
enforcement of international commercial settlement agreements resulting from
mediation.25 However, in the treaty disputes (including investment disputes arising
from BITs), the values of mediation have not been fully appreciated.
21
Id.
22
International Institute for Sustainable Development, USMCA Curbs How Much Investors Can Sue
Countries – Sort of. The article is available at https://www.iisd.org/library/usmca-investors
23
Lo C-f (2013) Relations and possible interactions between State-State dispute settlement and
investor-State arbitration under BITs. Contemp Asia Arbitr J 6(1):9
24
UNCTAD (2003) Dispute settlement – international center for settlement of investment dispute,
p 14. The article is available at https://unctad.org/en/Docs/edmmisc232add1_en.pdf
25
For instance, the idea of cross-border enforcement of mediated commercial settlement agreement
has been proposed by the author of this chapter in 2014. See Lo C-f (2014) Desirability of a new
international legal framework for cross-border enforcement of certain mediated settlement agree-
ment. Contemp Asia Arbitr J 7(2):119 (May 2014); Lo C-f, Jo-Mei Ma W (2014) Draft “Convention
on cross-border enforcement of international mediated settlement agreements.” Contemp Asia
Arbitr J 7(2):387 (May 2014). The importance of mediation for commercial disputes has been
recognized by the international community. In December 2018, the United Nations General
Assembly adopted, by consensus, the United Nations Convention on International Settlement
Agreements Resulting from Mediation (known as the “Singapore Convention on Mediation” (the
“Singapore Convention”). See https://uncitral.un.org/en/texts/mediation/conventions/international_
settlement_agreements
796 C.-f. Lo
The Ignored Value of Mediation for the Settlement of Investment

Disputes in the Past
Possible Reasons for Mediation Not Being Constantly Used
Questions might be raised about the reasons for mediation not to be recognized as an
important SSDS and ISDS in the past.
(1) Relative powers: The first reason could be the relative powers held by the parties.
Generally speaking, economically and politically powerful countries prefer to
rely more on the negotiation mode of dispute settlement mechanism in order to
exert their unbalanced influences over their counterparts so as to control the
outcome. For smaller countries and for investors, they might prefer to have a
rule-based and binding dispute settlement mechanism (such as State-State or
investor-State arbitration) to address their problems with the powerful host
State so as to ensure that the outcome will be fair to them. It is understandable
that both types of disputing parties do not consider relying on mediation to
resolve their investment disputes.
In this regard, it must be noted mediation is in between the two extremes of

power-oriented negotiation and rule-based arbitration. Mediation is voluntary in
nature, and a mediator does not have a right to make decisions for the disputing
parties. Powerful States do not have to worry of being imposed of an unexpected
arbitral award. Smaller States and investors do not have to face their powerful
counterparts by themselves because they are assisted by neutral mediators. Although
mediation is not a perfect dispute settlement system, it is a more balanced
mechanism.
(2) Effectiveness and issues of wasting of time: A reason for mediation not being
considered as the main dispute settlement mechanism could be the concern of its
ineffectiveness and possible wasting of time. Mediation is of voluntary nature. It
must be based on the mutual agreement to enter into the procedure. Any one of
the disputing parties can decide to stop or suspend the procedure at any stage.
Any one of them can decide not to enter into a settlement, even when there has
been a concrete settlement proposal suggested by a mediator or conciliator. If
there is no concrete result, it could be considered as wasting of time in resolving
the dispute.
In contract, arbitration is rule-based binding mechanism. Once an arbitration

has been legally initiated, any one of the parties does not have a right to walk away
and terminate the procedure without a proper reason. An arbitral award will have to
be followed, and the obligations imposed in the award will have to be performed.
Hence, arbitration is more effective in resolving the dispute. Conducting arbitra-
tion is not considered as wasting of time in looking for ultimate solution of the
dispute.
In this regard, it must be noted that although mediation might not be as effective as
arbitration concerning resulting in a final solution, it is still a useful supporting
mechanism to assist the disputing parties to resolve their disputes in a more compre-
hensive manner. First, if a mediation is serious and the procedure is conducted in a
professional manner, it helps the parties to find their mutual interests. Second, a
mediation procedure can help clarify and limit the scope of the issues so that the parties
can mutually decide to avoid litigating on unnecessary issues and focus on the key
issues which they are not able to agree on during the mediation proceeding. Third, since
mediation is voluntary and any party can decide to stop the procedure at any time, it is
flexible, and parties would have lower hesitation of entering into the procedure. In
contrast, since arbitration is binding and any party cannot decide to walk away by itself,
parties would be more hesitant in entering into arbitration to resolve their dispute.26
(3) Government officials’ consideration: One of the reasons that States usually do not
consider mediation to settle their disputes could be that many government officials
are not willing to take responsibility to risk their political future to compromise or to
make a concession for the purpose of settling a dispute in a mediation procedure.
In this regard, it should be noted that although it could be a difficult decision to

make any concession to settle a case in mediation, a successful solution of a difficult
issue through mediation can help establish the positive image of the government
officials who make the decision. The result of an arbitration might not be in favor of
the complainant or respondent, whereas the result of a mediation should almost be
mutually beneficial and be able to maintain friendship with its counterpart.
Values of Mediation for State-State and Investor-State Disputes
In addition to the above explanations to respond to the possible reasons for States not
constantly using mediation, there are the following values for States and investors to
rely on mediations to resolve their investment disputes.
(1) Avoidance of undermining public health policy: As mentioned above, an inves-

tor can rely on investor-to-State arbitration to challenge domestic policies, which
could be critical to protect public health or other extremely important public
interests. The above example of challenging Australia’s tobacco plain packaging
requirement being challenged by Philip Morris in an investor-State arbitration
shows the risk of an important public health policy being undermined. In
contrast, there is no such risk in mediation of undermining public health policy.
26
Lo C-f, Nakagawa J, Lin T-y, Chaisse J, Toohey L, Lee J, Kobayashi T, Sharma R, Rajesh Babu R,
Koesnaidi JW, Anuradha RV (2017) Concept paper on the creation of a permanent “Asia-Pacific
Regional Mediation Organization” for State-to-State (economy-to-economy) disputes. Contemp
Asia Arbitr J 10(2):329
798 C.-f. Lo
(2) Providing support to negotiation and ultimate settlement of disputes: Mediation

can be considered as a supporting/supplementary dispute settlement mechanism.
If the parties are able to settle their case in the mediation, they could directly
resolve their dispute. If they are not able to settle their case in the mediation, they
can still identify, clarify, and limit the issues involved in their dispute. Hence, if
there is a separate arbitration procedure, they can limit their issues and focus
only on these identified issues. This helps improve the efficiency of arbitration.
(3) Less costly: Mediation is less costly than arbitration. It is because arbitration
involves intensive practices of legal skills, strategies, and arguments. These not
only prolong the procedure but also make the procedure more costly. In contrast,
mediation does not require intensive legal arguments. The efforts of the parties
and the mediators are to identify mutually acceptable solutions.
(4) Maintaining friendship: Arbitration procedure is more confrontational. Disput-
ing parties are to fight to win the case. In contrast, in mediation, disputing parties
are to mutually find a solution to resolve their differences. Hence disputing
parties conducting mediation to resolve their disputes are more able to maintain
their friendly relations.
Considering the above factors, mediation can be considered as an effect SSDS

and ISDS for international investment disputes because of its overall advantages.
The Idea and Importance of Having a Permanent Mediation

Organization: The ARMO as an Example
The Background of Promoting the ARMO
In this part of the chapter, the author uses the ARMO as an example to illustrate the
usefulness of a permanent mediation organization to help resolve investment
disputes.27
The ARMO is promoted as a regional “permanent mediation organization” for
Asia-Pacific States/economies to resolve their disputes in a peaceful and friendly
manner. The proposal was initiated at the 2017 annual meeting of the Asia WTO
Research Network (hereinafter “AWRN”).28 In order to study the feasibility and to
promote the idea, the AWRN decided to establish the ARMO Working Group
27
The following paragraphs concerning the background and features of the ARMO are mainly cited
from Lo C-f, Lee J (2018) A new approach for the settlement of regional disputes to maintain
dynamic stability – a selective elaboration of the draft agreement on the establishment of the Asia-
Pacific Regional Mediation Organization. Asian J WTO Int Health Law Policy 13(1):28
28
The Asia WTO Research Network was created in 1995. It has 52 members from 17 jurisdictions
of Asia-Pacific region. Its official website is http://www.awrn.asia/index.php. The 2017 annual
meeting was held on June 5 and 6 2017 in Taiwan, cohosted by AWRN and the Asian Center for
WTO and International Health Law and Policy (ACWH), National Taiwan University College of
Law.
(hereinafter “Working Group”), which decided to launch the ARMO initiative. In

November 2017, the Working Group members jointly published the “Concept Paper
on the Creation of a Permanent ‘Asia-Pacific Regional Mediation Organization’ for
State-to-State (Economy-to-Economy) Disputes” (hereinafter “Concept Paper”).29
In this concept paper, they explained why the current dispute settlement mechanisms
are insufficient to handle State-to-State disputes for Asia-Pacific countries. They also
proposed certain features of the ARMO based on their initial design and provided
reasons for Asia-Pacific countries to trust the ARMO. They addressed some poten-
tial questions which may be raised by stakeholders interested in the proper resolution
of disputes for the region.
The Working Group collected positive and encouraging feedbacks and com-
menced the discussion of the detailed features of the ARMO. In 2018, the members
of the Working Group jointly produced the Draft Agreement on the Establishment of
the Asia-Pacific Regional Mediation Organization (hereinafter “ARMO Agree-
ment”)30 and Draft Rules of Procedure for Mediation Conducted under the Asia-
Pacific Regional Mediation Organization (hereinafter “ARMO Rules of
Procedure”).31
The ARMO Can Be Considered as a New Approach
The ARMO is proposed as a permanent organization serving as a platform/facility

for the disputing parties to use. Currently, there is no such readily available perma-
nent mechanism for countries in the Asia-Pacific region to rely on. Although there
are mediation provisions in some trade agreements and BITs concluded between
Asia-Pacific countries, such mediations can usually only be conducted under ad hoc
mediation, not by institutional mediation, and are often not considered as effective.
For Asian countries, there is no regional court or court-style dispute settlement
mechanism for them to resolve their differences. Many Asia-Pacific countries have
different approaches in resolving their disputes. Some are more willing to engage in
arbitration or adjudicative (or semi-adjudicative) methods of dispute settlement for
State-to-State matters. Some others are hesitant to engage in such rule-based binding
procedures. The ARMO provides services to help the parties to come to their own
29
See generally Lo C-f et al. (2017) Concept paper on the creation of a permanent “Asia-Pacific
Regional Mediation Organization” for State-to-State (economy-to-economy) disputes. Contemp
Asia Arbitr J 10(2):321
30
Lo C-f, Nakagawa J, Sharma R, Lin T-y, Toohey L, Koesnaidi JW, Lee J, Kobayashi T, Anuradha
RV, Chaisse J, Rajesh Babu R (2018) Draft “Agreement on the establishment of the Asia-Pacific
Regional Mediation Organization.” Asian J WTO Int Health Law Policy 13(1), March 2018
31
Lo C-f, Nakagawa J, Sharma R, Lin T-y, Toohey L, Koesnaidi JW, Lee J, Kobayashi T, Anuradha
RV, Chaisse J, Rajesh Babu R (2018) Draft “Rules of procedure for mediation conducted under the
Asia-Pacific Regional Mediation Organization.” Asian J WTO Int Health Law Policy 13(1), March
2018
800 C.-f. Lo
conclusion to resolve their disputes. This feature helps overcome some Asian
countries’ hesitation in submitting their dispute to an international forum.
The ARMO also helps the parties find a win-win solution for their disputes. This
is different from the traditional scenarios where some countries prefer to take their
cases to an international adjudicative body but have received no cooperation from
their counterparts and where some other countries prefer to take the issue in their
own hands to resolve it through exerting their own political and economic strength
but have generated concern and distrust from their counterparts.
There is another aspect which makes the ARMO approach a novel one for Asian
countries. Under the proposed ARMO Agreement and the proposed ARMO Rules of
Procedure, an ARMO mediation does not require mediators to always refrain from
playing an active role to help parties move forward and find their mutually accept-
able solutions. If the parties so wish, the ARMO mediator should/could provide a
proposal for the parties to consider. This is different from the traditional situation in
the Asia-Pacific region where no single mechanism provides the role of actively
helping the disputing parties.
Some Key Features of the ARMO Mediation Mechanism
There are certain principles and features of the ARMO mediation that can be
identified from the ARMO Agreement. These principles/features help readers under-
stand the unique design of the ARMO.
(1) The ARMO mechanism being a close system with semiautomatic accession: The
ARMO is a close system in the sense that it only provides services for its
members. Members are limited to the countries/economies from the Asia-Pacific
region which participate in the organization. But the ARMO Agreement has a
semiautomatic accession provision to allow and encourage Asia-Pacific countries
and economies to participate in the mechanism.32 The purpose of a semiautomatic
accession is to get more countries to become part of the ARMO operation so as to
expand its positive contribution.
(2) A wide scope of disputes (including investment disputes) being covered: Article
2.2 of the ARMO Agreement provides in part that “The jurisdiction of the ARMO
shall extend to all kinds of legal and factual disputes, disagreements or any issues
of concern (hereinafter together referred to as “disputes”) between two or more
members . . ..” Thus, there is no restriction as to the type of dispute which may be
covered under the ARMO Agreement. Investment disputes could be the main
type of ARMO mediation cases. As long as a dispute is between two ARMO
32
Article 28 of the ARMO Agreement provides: “This Agreement is open to accession by any Asia-
Pacific State or Economy that is willing to comply with the provisions in this Agreement, following
the approval in accordance with the applicable constitutional and/or legal procedures of the
acceding State or Economy.”
members, it can be mutually submitted to the ARMO for proper resolution under
its rules. Although the original design for the ARMO is to deal with State-State
disputes, it is still possible for its members to expand its coverage to investor-
State disputes.
It must be noted that the ARMO mechanism is not a rule-based dispute settlement
mechanism. Hence, the mediator is not expected to “find the fact” and to “apply and
interpret the applicable norm” in order to decide the case. The mediator’s task is to
help the parties resolve their dispute in a mutually acceptable manner. Only when the
mediator is expected by the parties to make a suggestion for the parties to consider
then the mediator may include his opinion concerning the fact and the legal issue as
an element in his suggestion.
(3) Voluntary participation by the parties: A very important principle of the ARMO
mechanism is the voluntariness in the whole system, including whether to
participate in the ARMO as a member, whether to engage in a mediation
proceeding for a specific dispute with its counterpart, whether to continue the
proceeding, and when to stop it.
(4) Separate and independent disputes settlement mechanism with supplementary
functions: The ARMO is a separate international organization33 and has a sepa-
rate international legal personality.34 It is not attached to any existing interna-
tional/regional agreement or organization. Hence, the disputing parties can
mutually decide to have a dispute occurring under or in connection with any
international agreement (such as a BIT) submitted to the ARMO. They can also
use the ARMO facility to handle a dispute which occurs independently of any
international agreement.35
Although the ARMO is an independent dispute settlement mechanism, there is a

need to coordinate with another international agreement (such as a trade agreement
or a BIT) when a dispute occurs under or in relation to such agreement. The relations
can be characterized as “complementary/supplementary to” and “fulfilling” the
mechanisms in other international agreements. First, if the contracting parties con-
sider the ARMO being useful, they can include the ARMO in their trade agreement
or BIT so that the ARMO mechanism will become part of its dispute settlement
mechanism. It is similar to the situation where ICSID arbitration or conciliation is
33
Article 1 of the ARMO Agreement provides: “The Asia-Pacific Regional Mediation Organization
(hereinafter referred to as the “ARMO”) is hereby established.”
34
Article 18 of the ARMO Agreement provides: “The ARMO shall have full international legal
personality. . . .”
35
In this regard, Article 3.1 of the ARMO Agreement provides in part that “[t]he Members may
agree to the use of ARMO mediation independently of . . . any mediation or conciliation provisions
in any international agreement or organization of which they are contracting parties or members.”
802 C.-f. Lo
cited in an investment agreement as a mechanism for the settlement of investor-State

dispute arising from the agreement.
Second, it is also possible that an international agreement (such as a BIT) does not
mention the ARMO mechanism, but it generally includes a mediation mechanism as
one of the dispute settlement mechanisms under its text. If a dispute occurs and if the
parties agree to resort to mediation, they can decide to have some kind of ad hoc
mediation conducted under their agreement. However, if the parties so agree, they
can also have their dispute under such agreement submitted to the ARMO for
resolution. The above two situations are covered by Article 3.1 of the ARMO
Agreement which provides in part that “[t]he Members may agree to the use of
ARMO mediation . . . based upon . . . any mediation or conciliation provisions in any
international agreement or organization of which they are contracting parties or
members.” The term “mediation or conciliation provisions” includes the kind of
provisions where the ARMO is specifically mentioned and the kind of provisions
where no specific institutional mediation mechanism is cited.
Third, if two parties decide to resort to ARMO mediation, they are still entitled to
the dispute settlement mechanism provided in their respective international agree-
ments. Hence, Article 3 of the ARMO Agreement provides that “Mediation
conducted under the ARMO is without prejudice to the rights of the parties to
resolve their dispute under any other dispute settlement mechanism that is available
to them.”
(5) Impartiality, efficiency, flexibility, and quality assurance: It is important for the
ARMO to be fully trusted and constantly used by its members. There are a
number of features in the ARMO Agreement to ensure the trust in the mechanism
by its members. First, although a mediator under the ARMO is not supposed to
“decide” the dispute, it is still critical that the mediator conducts the procedure in
an impartial manner. Any appearance of partiality could undermine the funda-
mental premise of the organization and jeopardize its operation.
Article 21.1 of the ARMO Agreement thus provides in part that “The Rules of
Procedure shall ensure the impartiality . . . of the mediation process . . ..” Although
the wording of this provision seems to show that it is to guide the drafting and
adoption of the “Rules of Procedure of Mediation Conducted under the Asia-Pacific
Regional Mediation Organization,”36 it clearly also guides the actual operation of the
ARMO mediation. A very important mechanism to ensure impartiality is to require
avoidance of any conflict of interest and the observation of rules of ethics. In this
36
Article 21.1 of the ARMO Agreement
regard, the Rules of Procedure have more detailed requirements about the ways of
avoiding conflict of interest and observing rules of ethics by a mediator.37
Impartiality is also reflected in Article 7.1 of the ARMO Agreement which
provides in part that “the Administrative Council shall not intervene in any ongoing
mediation proceeding conducted under this Agreement and its rules of procedure.
Nor shall it intervene in the conclusion of any settlement agreement by the parties.”
Efficiency is also a very important element in order to earn and maintain the trust
of the ARMO members. Article 21 of the ARMO Agreement provides in part that
“The Rules of Procedure shall ensure the . . . efficiency of the mediation process . . ..”
The efficiency principle is reflected in a number of provisions in the ARMO Rules of
Procedure. For instance, the following provisions in the ARMO Rules of Procedure
are designed to support the efficiency principle: Article 3.2(1) sets forth a time limit
of 10 days for the disputing parties to agree on the selection of a sole mediator;
Article 9.2 requires a mediator to be available at all times for the dispute for which is
or she is appointed and to conduct the mediation with due diligence and make best
efforts to ensure that the proceeding is conducted efficiently; Article 10 requires the
mediator to prepare a schedule to include the specific dates for each party to submit
relevant documents including a mediation plan and timeline for meetings; Article 13
sets forth a 10-day time limit for the parties to provide written submissions; and
Article 16 sets forth a 6-month period (with possible extensions) for the mediator to
complete mediation.
Flexibility is a key principle to make the ARMO mechanism different from other
rule-based dispute settlement mechanisms. This principle in the ARMO Agreement
could reduce the hesitation of the parties, as it avoids engaging in a clear-cut
adjudication process for issues involving their core interests. This principle also
Draft “Rules of Procedure for Mediation Conducted under the Asia-Pacific Regional Mediation
37
Organization” Article 5 reads:
1. A person who is approached by any party or by the chairperson of the Administrative Council in
connection with his or her proposed appointment as mediator must decline if such appointment
may give rise to any conflict of interest or possible violation of the rules of ethics adopted by the
Administrative Council.
2. If a proposed mediator considers that there is no conflict of interest and intends to accept the
appointment, he or she must still disclose any circumstance likely to give rise to a reasonable
doubt as to his or her independence or impartiality.
3. An appointed mediator must resign if a conflict of interest arises after the appointment. He or she
shall also, from the time of appointment and throughout continuance of the mediation pro-
ceedings, without delay, disclose to the parties any circumstance referred to in the preceding
paragraph.
4. Any proposal to disqualify a mediator for conflict of interest or any other justifiable cause shall
be decided by the chairperson of the Administrative Council in consultation with the parties. If
the decision of disqualification is made, the vacancy shall be filled in accordance with the
provisions of Article 3 of these rules.
804 C.-f. Lo
has the function of tailoring the specific process so as to suit the specific situation of
the case and the needs of the parties.
Hence Article 21.2 provides in part that
They [i.e. the Rules of Procedure] shall also be flexible enough so as to assist the disputing
parties to resolve their disputes in a mutually satisfactory manner. To that end, the Rules of
Procedure shall allow the mediators to merely facilitate the negotiation between the parties,
to assess the dispute for the parties if the mediators consider appropriate, or to draft
settlement proposals of terms and conditions for the parties to consider if they so request.
(Emphasis added)
The flexibility principle is particularly reflected in the following provisions in the

ARMO Rules of Procedure: Article 9.4 requires a mediator to attempt to facilitate
voluntary resolution of the dispute by the parties and endeavor to bring about
settlement agreement between them upon mutually acceptable terms; Article 9.5
allows a mediator to flexibly assess and/or evaluate the dispute for the parties if he or
she considers appropriate or if the parties so request; and Article 9.6 allows a
mediator to help generate options or draft a settlement proposal, including specific
terms and conditions, on the mediator’s own initiative, or on the request of parties, at
any stage of the proceedings and from time to time, for the consideration of the
parties.
Quality assurance is another important principle embedded in the ARMO Agree-
ment. Since the final outcome of the mediation should be ultimately decided by the
disputing parties, it is not for the ARMO Agreement to suggest any kind of
settlement agreement to be of higher quality. Quality assurance is reflected in the
above-mentioned provisions on efficiency and impartiality. More importantly, it is
also reflected in the quality of mediators. The ARMO Agreement requires the
establishment of two kinds of lists of mediators, the chairperson’s list and the
members’ list.38 Mediators are generally appointed from these lists.
Article 13 of the ARMO Agreement provides: “The Lists of Mediators shall be
maintained by the Secretariat. The Lists shall consist of qualified persons, designated
as hereinafter provided, who are willing to serve thereon.” Article 15.1 further
requires persons designated to a list of mediator to “be of high moral character and
recognized competence and experience in the fields of public international law,
international trade or investment law, international dispute settlement and any
other fields that the appointing Member or the Chairperson considers appropriate.”
Article 15.3 requires the secretariat to “hold workshops for persons in the Lists from
time to time to exchange their mediation experiences, to enrich their understanding
of the spirit and essence of the ARMO, to be familiar with the rules of procedure of
the mediation and the related rules of ethics under the ARMO, to enhance collegi-
ality of the group and to improve their skills in conducting mediation.”
38
Article 13 of the ARMO Agreement
(6) Binding obligation under the settlement agreement: As indicated above, the
disputing parties can voluntarily decide whether to enter into a mediation pro-
ceeding for a specific dispute, whether and when to stop the proceeding, and
whether and when to conclude a mediated settlement agreement. However, if they
have concluded a settlement agreement, such agreement will be in the nature of a
bilateral treaty, i.e., it should bind the parties. Article 22 of the ARMO Agreement
provides: “Any settlement agreement duly concluded between disputing parties is
binding upon them and shall be performed by them in good faith.” Hence, the
obligation of the parties to a settlement agreement is to perform the requirement
provided in the agreement in an honest, fair, and sympathetic manner.
The ARMO does not have a mechanism to enforce a settlement agreement arising
from the mediation. It is theoretically true that such settlement agreement (if
concluded between two States) is of the nature of international treaty and should
be subject to the enforcement mechanisms under international treaty law, including
the Vienna Convention on the Law of Treaties. But the enforcement of a treaty
obligation under general international law is not always effective. Hence, it would
largely depend upon the parties’ understanding of the desirability of complying with
the settlement agreement.
For the following reasons, the parties’ performance of the settlement agreement
should be optimistically expected. First, since the settlement agreement is voluntar-
ily decided and agreed upon by the parties, the chances of the parties reneging on
their obligations and not performing according to the agreed terms and conditions
are limited. Second, the contents of the settlement agreement are usually mutually
beneficial. Its performance serves the interest of the both parties. Third, if an ARMO
mediation is conducted also based on a mediation provision in a separate agreement
(such as a free trade agreement or a BIT), it is possible that the settlement agreement
could be brought under the free trade agreement or BIT for purposes of implemen-
tation and enforcement.
(7) Minimizing in the ARMO’s institutional structure and financial arrangement: The
drafters of the ARMO Agreement had “minimalism” in mind when designing the
institutional aspect of the organization. Although the ARMO should be given
international legal personality39 as other international organizations, the ARMO’s
organizational structure is flat, and its scale is relatively small. The institutional
framework of the ARMO is comprised of the Administrative Council, the secre-
tariat (with the Secretary-General and Deputy Secretaries-General), and the lists
of mediators. Financially, the ARMO is also designed to follow the idea of
minimalism.
39
Article 18 of the ARMO Agreement: “The ARMO shall have full international legal personality
and shall be accorded by each of its Members such legal capacity as may be necessary for the
exercise of its functions . . ..”
806 C.-f. Lo
Concluding Remarks
This chapter has explained the value of mediation to resolve international investment
disputes and the mediation being an effective dispute settlement mechanism for
investment matters. The usefulness of creating a permanent regional mediation
organization to provide mediation services for investment disputes is explained by
the example of the ARMO mediation. It is hoped that the ARMO can be a useful
example/model for other region to reassess the use of mediation (especially through
a permanent mediation organization) for the settlement of State-State and investor-
State disputes of investment matters.
International Investment Issues Examined
in Other International Adjudicatory Bodies: 32
Guidance from ICJ’s Observation?
Jaemin Lee
Contents
Introduction – ISDS Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 808
Multiple ISDS Proceedings – Barcelona Traction Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 809
State-to-State Dispute Settlement Proceedings – Diallo Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814
Minimum Standard of Treatment – Iranian Assets Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817
National Security and Foreign Investors – CERD Application Case . . . . . . . . . . . . . . . . . . . . . . . . . . 820
Concluding Thought – A Holistic Approach to ISDS Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 822
Abstract
A survey of the ICJ cases involving foreign investment or foreign investor issues
arguably sheds important light on the current discussion for the reform of the
ISDS proceedings taking place at multiple fora of teh global community. In
particular, the survey indicates that the concerns that are prompting the current
reform discussion have already been raised from time to time in the context of ICJ
proceedings. These examples of the ICJ cases evidence that investment- or
investor-related issues stand to be raised under other treaties than IIAs and also
under customary international law. These examples underscore the importance of
taking a structural and holistic approach to the ISDS reform discussion because
arguably diverse areas of international law are implicated and intertwined in this
regard.
Keywords
International investment agreements · ISDS Reform · Fair and equitable
Treatment · Right of diplomatic protection · Multiple proceedings · State-to-State
dispute settlement · National security
J. Lee (*)
School of Law, Seoul National University, Seoul, South Korea
e-mail: jaemin@snu.ac.kr

https://doi.org/10.1007/978-981-13-3615-7_74
808 J. Lee
Introduction – ISDS Reform
International investment law and investment disputes are attracting a great deal of
attention from interest groups, States and international organizations since around
2015.1 In particular, serious discussions to reform investment arbitration, i.e., Inves-
tor-State Dispute Settlement (“ISDS”) proceedings arising from claims of violation
of International Investment Agreements (“IIAs”), are well underway in the United
Nations Commission on International Trade Law (“UNCITRAL”) and the Interna-
tional Center for the Settlement of Investment Disputes (“ICSID”). Given the
intensity and depth of the discussions, it is expected that specific proposals to
amend the current ISDS proceedings will be tabled sometime soon which may
lead to a major overhaul of the existing system. It is hoped that a new ISDS
mechanism will be able to strike a proper balance between a host State’s legitimate
regulatory authority on the one hand and the protection of foreign investors on the
other hand. More specifically, a new ISDS mechanism is expected to address the
concerns over: (i) inconsistency in arbitral decisions; (ii) limited mechanisms to
ensure the correctness of arbitral decisions; (iii) lack of predictability; (iv) appoint-
ment of arbitrators by parties; (v) the impact of party-appointment on the impartiality
and independence of arbitrators; (vi) lack of transparency; and (vii) increasing
duration and cost of the procedure.2 These concerns are apparently based on the
collective experience of host States’ governments in participating the present ISDS
proceedings based on their respective IIAs.
In the meantime, investment issues are sometimes examined in other international
courts and tribunals in accordance with other relevant treaties or customary interna-
tional law. Most notably, the International Court of Justice (“ICJ”) encounters
disputes between States wherein investment- or investor-related issues are raised
one way or another. Indeed, jurisprudence pronounced by the ICJ for these issues
carries a significant weight for tribunals in charge of ISDS proceedings.3 As such,
these instances of ICJ examination, while sporadic, arguably offer an important
opportunity to elicit observations and insights from the world’s most prestigious
court on the issues of investment and investors, and most importantly, on the issues
of the ISDS reform currently underway. Indeed, these ICJ cases containing invest-
ment-investor portions did not arise from IIAs, nor did they reflect concerns over the
1
See generally European Union, Proposal for the Reform of the ISDS Mechanism for Working
Group III Discussion, (Jan. 20, 2019), available at www.uncitral.org; European Commission,
Commission Proposes New Investment Court System for TTIP and Other EU Trade and Investment
Negotiations, Press Release (Sept. 16, 2015), available at http://trade.ec.europa.eu/doclib/press/
index.cfm?id¼1364; UNCITRAL, Working Group III, 2017 to Present: Investor- State Dispute
Settlement Reform, available at http://www.uncitral.org/uncitral/en/commission/workinggroups/
3Investor_State.html.
2
See UNCITRAL, Possible future work in the field of dispute settlement: Reforms of investor-State
dispute settlement (ISDS), A/CN.9/917, 50th session (July 3–21, 2017), paras 11–12.
3
See https://www.ejiltalk.org/an-analysis-of-the-use-of-icj-jurisprudence-in-investor-state-dispute-
settlement/
32 International Investment Issues Examined in Other International. . . 809
ISDS mechanism in any manner. Never did they envisage the future discussions of
ISDS reform or changing dynamics of international investment law. And yet,
deliberations and decisions of the ICJ shed helpful light on some of the specific
topics being tabled for the ISDS reform at the moment. The ICJ cases may well
provide important guidance for the reformulation of the ISDS mechanism. Four
cases are examined below in this regard.
Multiple ISDS Proceedings – Barcelona Traction Case
One of the key topics being discussed at the moment as a reform measure of the
current ISDS proceedings is how to reduce the cost and duration of the proceedings.
The drastic surge of litigation cost is a major logistical barrier for States’ active
participation in ISDS proceedings.4 The barrier gets even higher for developing and
least-developed States. Likewise, the duration of a case is also a major practical
concern for a State, as an ordinary ISDS proceeding spans over several years
absorbing critical national resources in the government.5 In that respect, how to
avoid a situation where ‘multiple’ ISDS proceedings are initiated or maintained with
respect to the same (or essentially the same) governmental measure has become an
issue of the utmost interest to many States. Increasingly, host State governments are
forced to defend overlapping or consecutive ISDS proceedings arising from the
same (or essentially the same) measure or same event. In these instances, the
logistical burden for the governments of the host States becomes usually enormous.
Multiple proceedings for multiple measures would be inevitable. But multiple pro-
ceedings for the same measure poses a different challenge and should preferably be
addressed if at all possible. Interestingly, the same concern was already mentioned in
an ICJ proceeding almost five decades ago.
In Case Concerning Barcelona Traction, Light and Power Company, Ltd,6 the
ICJ examined whether the State of which the major shareholders of a company are
nationals was entitled to exercise the right of diplomatic protection. The Barcelona
Traction, Light and Power Company was incorporated and registered under Cana-
dian law in 1911 for the business of supplying electric power to Spain. Its head office
4
See Gaukrodger D, Gordon K (2012) Investor-state dispute settlement: a scoping paper for the
investment policy community, OECD Working Papers on International Investment 2012/03 19.
OECD Publishing.
5
See Jeffery Commission (2016) How long is too long to wait for an award. Glob Arbitr Rev, Feb.
18 2016; How much does an ICSID arbitration cost? A snapshot of the last five years. Kluwer
Arbitration Blog, (2016, Feb. 29); and The Duration and Costs of ICSID and UNCITRAL Invest-
ment Treaty Arbitrations, Funding in Focus Report Three, (Vannin Capital, July, 2016), available at
https://www.vannin.com/downloads/funding-in-focus-three.pdf. The study is based on an analysis
of 138 ICSD arbitration between 2011 and 2015.
6
Barcelona Traction, Light and Power Company, Limited, Judgment, I.C.J. Reports 1970, p. 3
(“Barcelona Traction”), available at https://www.icj-cij.org/files/case-related/50/050-19700205-
JUD-01-00-EN.pdf.
810 J. Lee
was located in Toronto, Canada. On the other hand, the majority of shareholders of
the company were Belgian nationals. In 1936, the economic hardship stemming
from the then Spanish civil war caused the company to falter in its Spanish business.
As the business performance deteriorated further, the Spanish authorities declared
the company bankrupt, and ordered the seizure of its assets. At this point, Canada,
the state of the company’s nationality, was not so enthusiastic about pursuing the
right of diplomatic protection on behalf of the company. As consequence, Belgium
sought to exercise the right of diplomatic protection on behalf of the shareholders
who are nationals of Belgium.
In its judgment, the ICJ decided that Belgium lacked standing to bring a claim on
behalf of Belgian shareholders, even if they had been allegedly harmed by indirectly
owning the damaged investments at issue. According to the ICJ, it is the state of
nationality of the company that enjoys the right to bring a claim of diplomatic
protection, which in this case was Canada, not Belgium. The fact that Belgian
shareholders suffered financial loss, in and of itself, did not give rise to the right of
diplomatic protection, reasoned the Court. In its deliberation and decision, the ICJ
focused on the different personalities between a company and its shareholders.7 It
then reasoned that even if shareholders may have been harmed, it is the company that
has the standing to seek a remedy as legal right.8 If the shareholders have a separate
right and if that right is indeed infringed upon, then a separate remedy could be
sought.9 Following this logic, the ICJ ultimately denied the standing for the Belgian
government for its attempt to invoke the right of diplomatic protection because it was
the company that had been harmed.10 In other words, the ICJ purported to adopt a
bifurcated approach between damage inflicted on a company, and attendant damage
inflicted on its shareholders. If it is a company that is harmed, only in exceptional
instances could the national State of the shareholders come forward. Mere references
to the fact that shareholders have also been indirectly harmed, without more, does
not provide a sufficient ground for their national State to bring a claim of diplomatic
protection to replace the company’s national State or otherwise come to the legal fore
independently.
As regards a company’s shareholders whose indirect losses may not be indepen-
dently covered by the right of diplomatic protection of their national States, the ICJ
tended to regard the situation as the reflection of the inevitable uncertainties of
investment. Stated differently, indirect losses, without more, tend to be a natural
outcome of ordinary investment. In its analysis, therefore, the ICJ noted the inherent
risks associated with foreign investment for which a host State’s government does
not necessarily provide a guarantee. It thus held:
7
See ibid., at para 42, 43.
8
Ibid., at para 44.
9
Ibid., at para 47.
10
Ibid., at para 64.
87. [. . .] However, [the host State] does not thereby become an insurer of that part of another
State’s wealth which these investments represent. Every investment of this kind carries
certain risks.
While the uncertain nature of investment also applies to companies, it would do to

shareholders with more force: shareholders’ investment is not made in the host State,
but in the company (by acquiring a share) that makes the investment in the host State,
a situation one level further removed from the investment dispute between the host
State and the foreign investor (the company). In this regard, shareholders’ indirect
losses are arguably subject to the inherent uncertainties of investment more prom-
inently. In other words, to the extent that shareholders’ loss can be considered to be
consequences of inherent risks associated with any investment in foreign countries,
that loss cannot be protected by their national States’ right of diplomatic protection.
As the definition of “investment” in IIAs also includes the risk element in the
criteria,11 the same caution would also hold true for a comparable discussion at the
moment in the context of the IIA improvement and the ISDS reform. Most notably,
the ICJ in the case even discussed the complexity and confusion arising from the
possibility of multiple, competing proceedings if shareholders were to be permitted
to pursue their respective remedy through the right of diplomatic protection of their
national governments. The ICJ went on to State in the case:
96. The Court considers that the adoption of the theory of diplomatic protection of share-
holders as such, by opening the door to competing diplomatic claims, could create an
atmosphere of confusion and insecurity in international economic relations. The danger
would be all the greater inasmuch as the shares of companies whose activity is international
are widely scattered and frequently change hands. (emphasis added).
While this statement of the ICJ was made in the context of diplomatic protection,
the same logic would equally apply to ISDS proceedings where essentially the same
issue – a company vs. diverse groups of shareholders of the company – is presented.
As a matter of fact, shareholders of companies carry the unique trait of conducting
“[international activities that] are widely scattered and frequently change hands”.12
This part of the judgment still looms large in 2020 in the context of the ISDS
reform wherein the prevention of multiple proceedings (ISDS and others) constitutes
one of the important topics. One of the representative instances exemplifying prob-
lems caused by multiple proceedings is none other than simultaneous or consecutive
ISDS proceedings brought by a company and its group(s) of shareholders for the
same measure of the host State or the same underlying event in the host State.
11
See Salini Costruttori SpA and Italstrade SpA v. Morocco (ICSID Case No ARB/00/4, Decision
on Jurisdiction of July 23, 2001); Joy Mining Machinery Limited v. Egypt (ICSID Case No. ARB/
03/11, Decision on Jurisdiction of July 23, 2001); Jan de Nul N.V. v. Egypt (ICSID Case No. ARB/
04/13, Decision on Jurisdiction of June 16, 2006).
12
Barcelona Traction, para 96.
812 J. Lee
Notably, conventional IIAs have defined the term “investors” rather broadly,13 so
have arbitral tribunals interpreting the term in ISDS proceedings.14 As such, unlike
the theoretical underpinnings pronounced by the ICJ in Barcelona Traction, where
the possibility of multiple proceedings involving foreign investors was warned
against, the majority of IIAs generally permit (or at least do not restrict) shareholders
wide access to ISDS proceedings as long as they satisfy the broadly defined
“investors”.15 What follows is the situation where shareholders become eligible to
initiate ISDS proceedings as regards non-direct losses. Frequent examples are
situation where shareholders are faced with the reduced value of their shares of
companies that are in turn harmed by measures of the host States’ governments.16 If
anything, this type of non-direct loss of shareholders is the very situation the ICJ, in
Barcelona Traction, warned against in the absence of exceptional circumstances.
This inclusion of shareholders’ non-direct loss in the ISDS universe has created
or would create a route through which multiple proceedings could be initiated
against the same measure or event. In ISDS proceedings, States are already seeing
the rise of this phenomenon.17 While some States are making specific efforts to
address the problem in their respective IIAs of recent days,18 their schemes do not
seem to offer an effective solution yet, because presumably the core problem lies at
the structural difference between the corporation-shareholder dichotomy principle
Barcelona Traction espouses and the broadly defined investment and investor in
IIAs that basically negate such a dichotomy. Having realized the structural discrep-
ancy between the two, some States are now trying to narrow the gap. As a matter of
fact, mindful of the ICJ’s observation in Barcelona Traction, States may well find it
13
See supra note 11. Investors are natural or juridical persons that have made covered investments.
Thus, the broad scope of investment directly means a comparably broad scope of investors.
14
See ibid.
15
See Arato J (2019) The private law critique of international investment law. Am J Int Law 113
(1):4, 32–34.
16
See Gaukrodger D (2014) Investment treaties and shareholder claims for reflective loss: insights
from advanced systems of corporate law, OECD working papers on international investment, vol
15, 2014/02; Chaisse J, Li L (2016) Shareholder protection reloaded – redesigning the matrix of
shareholder claims for reflective loss. Stanford J Int Law 52(1):51–94; Korzun V (2018) How
international investment law changes corporate law and governance. Univ Pa J Int Law 40:189.
17
Some recent IIAs realize the problem and introduce provisions to mitigate it. For instance, The
North American Free Trade Agreement (NAFTA) permits a shareholder to bring a claim “on its own
behalf” (Article 1116) as well as a claim “on behalf of an enterprise” that it owns or controls (Article
1117). The three contracting parties of NAFTA stated that these provisions permit a shareholder-
investor to bring a claim for direct loss or a certain derivative claim for injury to the company if he
or she controls the company, but not for a claim that it has suffered loss as a result of damage done to
the company. See, e.g., Bilcon v. Canada, PCA Case No. 2009–04, Canadian Counter-Memorial on
Damages, para 26 (June 9, 2017); GAMI v. Mexico, Submission of the United States, para 17 (June
20, 2003); GAMI v. Mexico, Escrito de Contestación of Mexico, para 167 (Nov. 24, 2003).
18
See, e.g., Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Art. 9.19(1);
the Free Trade Agreement between the Republic of Korea and the United States of America, Art.
11.16(1) (originally entered into effect in March 2012, and later amended in September 2018).
useful to revive or re-instate the corporation-shareholder dichotomy principle as a

way to establish theoretical underpinnings to avoid unnecessary multiple proceed-
ings, a crucial element of the current ISDS reform discussions. In a sense, this is
the repetition of the cardinal rule that a company and its shareholders are to be
treated separately when it comes to their respective rights and obligations under
domestic law as well as international law. It is interesting to note that States are
now revisiting the basic principle as clarified by Barcelona Traction nearly four
decades ago.
Furthermore, Barcelona Traction is arguably all the more meaningful at the
moment since the ICJ in the case also referred to the then emerging IIAs and ISDS
through the prism of the early 1970s. It thus opined:
90. Thus, in the present State of the law, the protection of shareholders requires that recourse
be had to treaty stipulations or special agreements directly concluded between the private
investor and the State in which the investment is placed. States ever more frequently provide
for such protection, in both bilateral and multilateral relations, either by means of special
instruments or within the framework of wider economic arrangements. Indeed, whether in
the form of multilateral or bilateral treaties between States, or in that of agreements between
States and companies, there has since the Second World War been considerable development
in the protection of foreign investments. The instruments in question contain provisions as to
jurisdiction and procedure in case of disputes concerning the treatment of investing compa-
nies by the States in which they invest capital. Sometimes companies are themselves vested
with a direct right to defend their interests against States through prescribed procedures. No
such instrument is in force between the Parties to the present case. (emphasis added).
The above paragraph in the judgment is the ICJ’s recognition and evaluation of
the advent of the IIAs and ISDS at that time. The ICJ basically agrees that IIAs can
alter otherwise existing rules (i.e., customary international law at the time) in this
regard such as the right of diplomatic protection.19 In other words, according to the
ICJ, if IIAs are concluded and if they allow shareholders to seek a remedy for their
own loss, both direct and indirect, such agreement codified in IIAs should stand
viable.20 This would mean that the only realistic way to mitigate or avoid multiple
proceedings involving shareholders in ISDS proceedings is to include in IIAs
specific provisions regulating the issue, as opposed to making references to a general
policy or principle discrediting such instances of multiple proceedings. The current
discussion of ISDS reform, therefore, is rendered all the more important in finding a
solution to address this problem.
That said, the ICJ also held in Barcelona Traction that even in the absence of an
IIA, a host State government still assumes the obligation to provide adequate
protection under domestic law as well as international law. It stated:
19
See Barcelona Traction, para 90 (“protection of shareholders requires. . .treaty stipulations or
special agreements. . .[that include] provisions as to jurisdiction and procedure in case of disputes
concerning [investment disputes]”)
20
See ibid. (“No such instrument is in force between the Parties to the present case”).
814 J. Lee
33. When a State admits into its territory foreign investments or foreign nationals, whether
natural or juristic persons, it is bound to extend to them the protection of the law and assumes
obligations concerning the treatment to be afforded them.
The above statement basically explains the obligation to protect foreign invest-
ment and foreign investors in accordance with the minimum standard of interna-
tional law. This principle is in fact incorporated into future IIAs as the provision of
Fair and Equitable Treatment (“FET”). In any event, this statement explains that the
ICJ reached its conclusion in the case while keeping in mind the obligation of the
host State to protect, albeit from a different legal basis, foreign investment and
investors. The need to accord effctive protection does not necessarily conflict with
the need to explore schemes to avoid overlapping, multiple proceedings for invest-
ment disputes arising from IIAs.
With the above rationale, the ICJ denied the Belgian government the right of
diplomatic protection for the shareholders who are Belgian nationals. The ICJ’s
discussions and observations in Barcelona Traction seem to offer important guid-
ance for the current discussion of the ISDS reform, in particular why and how to
avoid multiple ISDS proceedings, a core objective of the reform.
State-to-State Dispute Settlement Proceedings – Diallo Case
In 2007, the ICJ dealt with yet another dispute involving a foreign investor and his
national State’s right of diplomatic protection. In Ahmadou Sadio Diallo Preliminary
Objections (Republic of Guinea v. Democratic Republic of the Congo) (Judgment of
24 May 2007),21 the ICJ examined whether the Democratic Republic of Congo
(“DRC”) violated the rights of Ahmadou Sadio Diallo, a citizen of the Republic of
Guinea (“Guinea”), in the context Guinea’s exercise of the right of diplomatic
protection. Mr. Diallo, who had resided in DRC for 32 years, was arrested and
detained in DRC for various reasons and ultimately expelled. During his residence in
DRC, he founded his own companies in the country, and had made various other
investments and purchased properties there. The DRC and its companies also owed
him and his company debts as a result of a series of transactions. Guinea claimed that
by arresting and expelling Diallo and refusing him re-entry, the DRC deprived him
of the right to exercise his rights of ownership and management of his company,
which in turm prevented him recovery of his debts.22 Guinea then exercised the right
of diplomatic protection on Diallo’s behalf as regards the DRC’s violation of his
rights both as an individual and as an associé in the companies, and the rights of the
companies themselves by “substitution”.23
21
Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of Congo), Preliminary
Objections, Judgment, I.C.J. Reports 2007, p. 582, available at https://www.icj-cij.org/files/case-
related/103/103-20070524-JUD-01-00-EN.pdf.
22
See ibid., para 11.
23
See ibid., para 31.
In its deliberation, the ICJ underscored the importance of the IIAs and ISDS, by
stating that:
88. The Court is bound to note that, in contemporary international law, the protection of the
rights of companies and the rights of their shareholders, and the settlement of the associated
disputes, are essentially governed by bilateral or multilateral agreements for the protection of
foreign investments, such as the treaties for the promotion and protection of foreign
investments, and the Washington Convention of 18 March 1965 on the Settlement of
Investment Disputes between States and Nationals of Other States, which created an [sic]
International Centre for Settlement of Investment Disputes (ICSID), and also by contracts
between States and foreign investors.[. . .] (emphasis added).
The ICJ thus noted in Diallo that investment disputes as the one raised in this case
are increasingly supposed to be dealt with by IIAs and ISDS. By mentioning this
development as “contemporary international law”, the ICJ effectively indicates that
IIAs and ISDS constitute, in general, improvement of the previous system of the
protection of foreigners (including foreign investors) under customary international
law. One might note the positive tone of the Court’s statement toward the IIAs and
ISDS at the time of the decision. In light of this, the ICJ further noted the fading of
the right of diplomatic protection as a result of the advent of the IIAs and ISDS, and
stated:
88. [. . .] In that context, the role of diplomatic protection somewhat faded, as in practice
recourse is only made to it in rare cases where treaty régimes do not exist or have proved
inoperative. It is in this particular and relatively limited context that the question of
protection by substitution might be raised. The theory of protection by substitution seeks
indeed to offer protection to the foreign shareholders of a company who could not rely on the
benefit of an international treaty and to whom no other remedy is available, the allegedly
unlawful acts having been committed against the company by the State of its nationality.
Protection by “substitution” would therefore appear to constitute the very last resort for the
protection of foreign investments. (emphasis added).
The ICJ was thus of the view that under the then new system of IIAs and ISDS,
the right of diplomatic protection had faded by instead according individual inves-
tors the right to seek their own remedy on an individual basis according to a special
international arbitration process (i.e., ISDS). This part of the judgment arguably
stands for the proposition that IIAs and ISDS are based on the notion that States
refrain from inserting themselves into investment disputes but for exceptional cir-
cumstances. This explanation of the ICJ does not necessarily dovetail with the
current proposals being tabled in the ISDS reform discussions, which tend to
underscore the strengthening of State-to-State dispute settlement proceedings in
parallel with or instead of ISDS.24 Discussions in Diallo indicate that the ISDS
24
See, e.g., Reisman M (1996) The supervisory jurisdiction of the International Court of Justice:
international arbitration and international adjudication. 258 Hague Recueil 9; Brown C (2017)
Supervision, control, and appellate jurisdiction: the experience of the International Court. ICSID
Rev 32:595.
816 J. Lee
reform debates need to be put into perspective of structural implications spanning

over customary international law and treaties relating to the protection of foreign
investors. What is at stake is not simply amending IIAs and ISDS; it is rather about
re-adjusting the international law regime that regulates investment in the global
community.
Based on this rationale, the ICJ in Diallo found that Guinea had standing in this
case so far as it concerned the rights of its own citizen, Mr. Diallo, as an individual,
but denied the right of diplomatic protection on his behalf where his claim was based
on the notion of “substitution” for the companies where he holds shareholdings. It
went on to state:
65. Having considered all of the arguments advanced by the Parties, the Court finds that
Guinea does indeed have standing in this case in so far as its action involves a person of its
nationality, Mr. Diallo, and is directed against the allegedly unlawful acts of the DRC which
are said to have infringed his rights, particularly his direct rights as associé of the two
companies Africom-Zaire and Africontainers-Zaire. (emphasis added).
89. The Court, having carefully examined State practice and decisions of international courts
and tribunals in respect of diplomatic protection of associés and shareholders, is of the
opinion that these do not reveal — at least at the present time — an exception in customary
international law allowing for protection by substitution, such as is relied on by Guinea.
(emphasis added).
Denial of the concept of “substitution” in this case is mainly in line with the
jurisprudence established in Barcelona Traction. If the harm has been done to a
company, then mere resulting negative consequences to shareholders of the company
do not necessarily elevate those shareholders to the level of the company so that they
can now pursue the originally company’s claim themselves or on behalf of the
company. In the case at hand, Diallo could not ‘substitute’ the companies so as to
make the companies’ own claims himself, according to the Court. In any event, the
above statements of the Court imply that the scope of the nationals to be protected by
the right of diplomatic protection has its own bounds even under customary inter-
national law (for instance, a natural person’s substitution for a juridical person is only
permitted in exceptional circumstances). If a State-to-State proceeding is pursued
under an IIA, it is, in fact, not the resurrection of the traditional right of diplomatic
protection as seen in Diallo; rather, it is the invocation by a contracting party of its
right under an IIA due to an alleged breach of an obligation by the other contractiong
party. Therefore, the scope of the State-to-State proceedings in this IIA-based
instance may differ (possibly more expansive than) from the similar State-to-State
proceedings under customary international law of diplomatic protection. The former
is presumably more expansive in scope because IIAs are not necessarily confined by
customary international law and because they purport to protect a wider group of
foreign investors, be it natural persons or juridical persons. This discrepancy in
scopes should also merit careful deliberation in the course of discussing robust
utilization of State-to-State dispute settlement proceedings as a reform alternative
to ISDS.
Careful contemplation of the discrepancy would be important because the respec-

tive scopes of customary international law and IIAs are sometimes confounded by
the general reference to the need for the protection of foreign investors. For instance,
in Diallo, Judges Al-Khasawneh and Yusuf, in their joint dissenting opinion to the
Judgment on the Merits of 30 November 2010, remarked on the weak protection of
shareholders in the absence of IIAs. They stated:
[T]he low standard of protection of shareholders under customary law is now confined to the
wretched of the earth like Mr. Diallo . . . we believe that this case sets a dangerous precedent
for foreign investors unprotected by bilateral investment treaties.25
Thus, the dissenting opinion in the case observes that IIAs play an important role
in protecting foreign investors, by providing, in particular, stronger protection for
shareholders who are not covered by customary international law. The dissenting
opinion underscores that when it comes to protection of foreign investors IIAs offer a
stronger legal tool. It also sets forth a policy argument that to ensure comparable
protection for shareholders in the absence of IIAs, customary international law of
diplomatic protection should be expansively applied to cases such as those raised in
Diallo. One could argue that the blind focus on the protection of foreign investors
might blur the existing legal dividing line between the scope of protection under
customary international law to be pursued under a State-to-State dispute settlement
proceeding such as in Diallo, and the scope of protection under an IIA where a State-
to-State dispute settlement proceeding is also encouraged as a reform alternative to
ISDS.
Minimum Standard of Treatment – Iranian Assets Case
Notably, FET provisions and related claims have become one of the key issues in
recent IIA negotiations and ISDS proceedings. The arguably broad scope of the
concept and, as a result, how contracting parties of IIAs could manage and control
the unbridled breath are one of the critical topics of the IIA reform discussions. To
the extent that new proposals are made to restrict the referral of FET claims to
dispute settlement proceedings, this issue has also become part of the ISDS reform
debates. The ICJ arguably offers helpful guidance in this regard as well.
In Certain Iranian Assets Preliminary Objections (Islamic Republic of Iran v.
United States of America) (Judgment of 13 Feb. 2019),26 Iran claimed that US
sanction measures against Iranian assets violated the Treaty of Amity between the
25
Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of Congo), Merits, Judgment,
I.C.J. Reports 2020, p. 639, pp. 706–711, available at https://www.icj-cij.org/files/case-related/103/
103-20101130-JUD-01-02-EN.pdf.
26
Certain Iranian Assets (Islamic Republic of Iran v. United States of America), Preliminary
Objections, Judgment, I.C.J. Reports 2019 (“Iranian Assets”), p. 7, available at https://www.icj-
cij.org/files/case-related/164/164-20190213-JUD-01-00-EN.pdf.
818 J. Lee
two States.27 The United States, since its designation of Iran as a “State sponsor of
terrorism” in 1984, enacted several legislative measures against Iran and Iranian
assets within the jurisdiction of the United States: in particular, the amended Foreign
Sovereign Immunities Act of 1996 and Terrorism Risk Insurance Act of 2002
included the properties of agencies of the terrorism sponsoring countries together
with properties of their State-owned entities as new targets for U.S. sanctions. In
2012, then U.S. President Barack Obama issued Executive Order 13599, which
basically froze all Iranian assets within US jurisdiction.28 In response, Iran claimed,
in particular, that the United States unfairly and inequitably treated Iranian compa-
nies, and thus violated its obligation to accord such companies and their proper-
ties the protection and security under Article IV, paragraph 2, of the Treaty of
Amity.29
As a matter of fact, FET provisions sometimes carry different titles such as
minimum standard of protection, minimum standard of treatment, or denial of
justice. Article IV, paragraph 2 of the bilateral treaty stipulates “minimum standard
of treatment” and it is regarded as a classic FET provision if it were to be included in
IIAs. In Iranian Assets, the question raised was whether the FET provision contained
in the Treaty of Amity should also be expanded to cover the issue of sovereign
immunity, and thus whether the United States violated the provision by not
according such protection to the Iranian government and government-related enti-
ties in the United States (by not extending sovereign immunity in accordance with
customary international law). The United States thus argued:
55. The United States disputes this interpretation. In its view, the “require[ments of ]
international law” referred to in Article IV, paragraph 2, concern the minimum standard of
treatment for the property of aliens in the host State — a well-known concept in the field of
investment protection — and not immunity protections of any kind. Furthermore, the fact
that these guarantees apply indiscriminately to private companies (which may not benefit
from immunity) and State entities confirms, in the Respondent’s view, that the provision at
issue cannot be understood as including sovereign immunity protections.
The above argument of the United States was basically accepted by the ICJ. It
thus ruled in favor of the United States on this point, and held that the said provision
does not cover areas regarding “sovereign immunities,” but that it rather simply
stipulates the protection for property belonging to nationals and companies of the
other contracting party. In other words, the ICJ noted that the FET provision protects
investors assuming that they are ordinary, private investors in the territory of a host
State. As such, sovereign immunity, special protection accorded to foreign govern-
mental agencies, does not fall under the ambit of an FET provision. The decision of
27
See United Nations, Treaty of Amity, Economic Relations, and Consular Rights between the
United States of American and Iran (1955), available at https://treaties.un.org/doc/Publication/
UNTS/Volume%20284/v284.pdf
28
See Iranian Assets, para 21–27.
29
See ibid., para 33.
the ICJ in this case would then mean that except for such clear-cut cases where, as
here, undisputably non-private entities’ treatment is raised because sovereign immu-
nity only applies to non-private entities (i.e., governmental agencies), a broad range
of treatment of the government of a host State affecting ‘private entities’ may well be
covered by an FET provision. In other words, the carve-out of the instances of
sovereign immunity in fact further underscored the broad scope of an FET provision.
This understanding is indeed in line with the current jurisprudence of the FET
provision,30 which provides the background of the concern of the States over the
provision as expressed during the discussion of the ISDS reform.
While the interpretation of an FET clause, in essence, is a substantive issue, i.e.,
touching upon provisions of protection of foreign investors in IIAs as opposed to
procedural issues of ISDS, it is also directly related to the ISDS proceedings. In an
effort to avoid a situation where an ISDS tribunal engages in broad or unexpected
interpretation of the provision going beyond the original understanding of the
contracting parties, some recent IIAs purport to adopt a mechanism to oversee and
restrict the discretion of the tribunal.31 Adoption of a list of enumerated FET
violations32 and contracting parties’ control over interpretation33 are those examples.
Rendering FET claims ineligible for ISDS proceedings even if an FET provision is
included in an IIA is yet another experiment of recent days. In that respect, the FET
issue in fact has a direct bearing on ISDS proceedings and reform discussions.
30
See UNCTAD, Fair and Equitable Treatment, UNCTAD Series on Issues in International
Investment Agreements II (2012), p. 67. For instance, the FET provision was one of the core issues
in the recent amendment of the Korea-U.S.-FTA Investment Chapter. See Protocol between the
Government of the Republic of Korea and the Government of the United States of America
Amending the Free Trade Agreement between the Republic of Korea and the United States of
America, para 4, sub-para (d).
31
For example, the Comprehensive and Economic Trade Agreement between the EU and Canada
provides in Article 8.10, paragraph 2, as follows:
2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if
a measure or series of measures constitutes:
(a) denial of justice in criminal, civil or administrative proceedings;
(b) fundamental breach of due process, including a fundamental breach of transparency, in
judicial and administrative proceedings;
(c) manifest arbitrariness;
(d) targeted discrimination on manifestly wrongful grounds, such as gender, race or reli-
gious belief;
(e) abusive treatment of investors, such as coercion, duress and harassment; or
(f) a breach of any further elements of the fair and equitable treatment obligation adopted by
the Parties in accordance with paragraph 3 of this Article.
32
See ibid.
33
See Korea-U.S. FTA, Article 11.22.3, which provides:
3. A decision of the Joint Committee declaring its interpretation of a provision of this

Agreement under Article 22.2.3(d) (Joint Committee) shall be binding on a tribunal, and
any decision or award issued by a tribunal must be consistent with that decision.
820 J. Lee
Notably, the ICJ in Iranian Assets also referred to the preamble of the Treaty of
Amity to elicit the correct meaning of the provision of the treaty as follows:
57. The Court observes in this regard that Iran’s proposed interpretation of the phrase
referring to the “require[ments of] international law” in the provision quoted above is not
consistent with the object and purpose of the Treaty of Amity. As stated in the Treaty’s
preamble, the Parties intended to “encourag[e] mutually beneficial trade and investments and
closer economic intercourse generally between their peoples, and [to] regulat[e] consular
relations”. [. . .] (emphasis added).
The above statement was made in the context of the ICJ’s effort to interpret the FET
provision of the Treaty of Amity. To dispel ambiguities, empahsis has been placed on
the preamble and object and purpose of the treaty as explained in it. The Court’s
approach arguably supports the proposition that interpretation of an ambiguous
provision such as FET may require references to the preamble of the treaty, in order
to clarify and elicit the intent of the parties. As a general matter, contracting parties are
supposed and even encouraged to play an active role in interpreting key terms of
investment-related treaties including IIAs. It would then in turn support the proposition
that contracting parties’ direct participation in the interpretation of a key terms of an
IIA raised in an ISDS proceeding through various schemes, including non-disputing
party submissions and joint committee’s issuance of binding interpretation, should
play a more prominent role in future ISDS proceedings. As a matter of fact, these
schemes have also found their way into the agenda of the current ISDS reform.
National Security and Foreign Investors – CERD Application Case
In recent years, the international community has seen the rise of “national security” in
a variety of areas of international law. States have begun to invoke security exceptions
contained in treaties either to explain or justify their policies or actions. Under these
circumstances, States are realizing the hidden importance of security excep-
tions clauses in their respective IIAs. Generally speaking, these clauses began to be
included in IIAs starting from the late 1990s. Security exceptions clauses basically
mean that otherwise existing obligations under the IIAs could be exempted upon the
satisfaction of the stipulated conditions. Increasing attention to national security as
regards treatment of foreign investment and foreign investors amid faltering multilat-
eralism implicates IIAs, which in turn affects ISDS proceedings because the issue is
understood to trigger controversy over the jurisdiction of the tribunal.
In Application of the International Convention on the Elimination of All Forms of
Racial Discrimination (Qatar v. United Arab Emirates),34 Qatar claimed that the
34
Application of the International Convention on the Elimination of All Forms of Racial Discrim-
ination (Qatar v. United Arab Emirates), Provisional Measures, Order of 23 July 2018, I.C.J.
Reports 2018, p. 406, available at https://www.icj-cij.org/files/case-related/172/172-20180723-
ORD-01-00-EN.pdf
UAE’s ban on Qatari nationals from entering the UAE or crossing its points of entry,
and the imposition of a departure request on Qatari residents and visitors in the UAE
within 14 days, citing national security reasons, constituted racial discrimination and
thus violated the International Convention on the Elimination of All Forms of Racial
Discrimination (“CERD”). In finding that it had prima facie jurisdiction under Article
22 of the CERD and in granting provisional measures, the ICJ did not specifically
address the issue of foreign investors or investment. By prohibiting entry or forcing
departure of foreign nationals comprising businessmen, however, the measure would
arguably implicate an IIA as well as other treaties at issue if there were one – at the
time of the dispute the two countries did not have an IIA between them.
The dispute’s possible implication on the investment element is suggested by
Qatar’s claims as follows:
5. At the end of its Request for the indication of provisional measures, Qatar asked the Court
to indicate the following provisional measures:
(. . .)
viii. ceasing and desisting from measures that, directly or indirectly, prevent Qataris from
accessing, enjoying, utilizing, or managing their property in the UAE, and taking all
necessary steps to ensure that Qataris may authorize valid powers of attorney in the UAE,
renew necessary business and worker licenses, and renew their leases;
The above provisional measure was also requested by Qatar at the second round
of oral observations,35 to which the UAE contended that “no Qatari citizens have
been prevented from seeking legal remedies for any matter and that there has been no
interference in the business affairs of Qatari nationals.”36 While recognizing that
Qatar emphasized various rights including “the rights to movement and residence,
family reunification, education, work, freedom of opinion and expression, health,
freedom of religious practice, private property and the right to access courts in the
UAE to protect Qatari property and assets or to challenge any discriminatory
measures”37 (emphasis added), the ICJ did not explicitly address the issue of
investment or investor in granting its provisional measure, but instead focused on
rights regarding family reunification and education. It thus found:
74. [. . .] the Court finds that the measures to be indicated need not be identical to those
requested.
75. Reminding the UAE of its duty to comply with its obligations under CERD, the Court
considers that, with regard to the situation described above, the UAE must, pending the final
decision in the case and in accordance with its obligations under CERD, ensure that families
that include a Qatari, separated by the measures adopted by the UAE on 5 June 2017, are
reunited, that Qatari students affected by those measures are given the opportunity to
complete their education [. . .]
35
See ibid., para 11.
36
Ibid., para 23.
37
See ibid., para 63.
822 J. Lee
The dispute is still pending before the ICJ as of this writing, so the final
disposition of the dispute is still unpredictable. While the provisional measure
does not specifically refer to investment issues, the claims raised in the case do
suggest that those issues might be deliberated in pending proceedings.
That said, one noteworthy element of the dispute is that the UAE, as a respondent
State, refers to “national security” as the basis of its restrictive measures. Without
any prejudice to the defense or the ICJ’s ultimate evaluation of the defense, the
reference to national security does indicate an increasing likelihood of States’ relying
on national security in the context of investment, and by extension, possibly in the
context of IIAs. In fact, a security exceptions provision has become a fixture in
recent IIAs, enabling contracting parties to derogate from the obligations under the
IIAs. Among many issues involved here is the question of whether a security
exceptions clause is a “self-judging” one, and thus whether an invoking State can
simply invoke it and an ISDS tribunal should accept it as such. It appears that the
nature of a self-judging clause does not necessarily deprive an ISDS tribunal of its
jurisdiction but that the tribunal should nonetheless accord a high level of defer-
ence to the invoking State’s decision. But the meaning and scope of the provision are
still unclear in many respects. This would be potentially problematic since some
States seem to be ready to turn to security exceptions these days for various pol-
icy reasons. Depending on how future IIAs adopt specific texts and how ISDS
tribunals elaborate jurisprudence on this issue, a significant portion of investment
disputes could be potentially affected. ISDS reform discussions should preferably
pay adequate attention to this matter because it could directly affect the jurisdiction
of any ISDS tribunal.
On balance, the CERD Application case provides a glimpse of future investment
disputes stemming from diplomatic confrontation or geopolitical developments
wherein still vague security exceptions clauses in IIAs could play an important
role. More attention should be directed to this issue to fine-tune the concept in future
discussion of the ISDS reform.
Concluding Thought – A Holistic Approach to ISDS Reform
A brief survey of ICJ cases involving investment issues arguably shed important
light on the current discussion for the reform of the ISDS proceedings. In particular,
the survey indicates that similar concerns that are prompting the current reform
discussion have already been raised in the context of ICJ proceedings examining
various treaties. This would mean that deliberations and decisions of the ICJ may
still offer helpful guidance for the reform debates at present. The brief survey also
reminds us that investment-related issues are not confined to IIAs: they have been
raised in other treaties and customary international law, as investment touches upon
wide areas of personal and business activities and likewise stands to be affected by a
broad range of governmental measures. This would in turn mean that these issues
will continue to surface in other treaties than IIAs, though in different forms and
disparate contexts. Such being the case, it is suggested that IIA and ISDS reform
dialogues stay mindful of long-term structural consequences on diverse areas of

international law and dispute settlement mechanisms of the global community.
agenda. A holistic approach going beyond IIAs and contemplating other treaties
having a bearing on investment may be able to put the reform agenda in proper
perspective, enabling States not to lose sight of the systemic implication of any
reform proposal.
In this respect, in contemplating a new future scheme of ISDS proceedings
reflecting five decades of experience of a unique format of investment arbitration,
the international community should look into deliberations and decisions of other
international courts, including the ICJ, dealing with investment- or investor-related
issues. Focusing on IIAs and ISDS only, while crucial to pinpoint specific problems
to cure, may not be able to provide a bird’s eye view of merits and demerits of
the current system and those of a proposed alternative. A reform that takes a
microscopic view of IIAs and ISDS may encounter inherent limitations in providing
a sustainable solution if it is not compatible with other principles and frameworks of
international law.
“One-Stop” Commercial Dispute Resolution
Services: Implications for International 33
Investment Law
Mark Feldman
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826
The Emergence of Legal Hubs and Integrated Commercial Dispute Resolution Services . . . . 827
Institutionalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829
Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 831
Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 834
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838
Abstract
This chapter examines the likely impact of integrated international dispute reso-
lution services on the investment arbitration regime in three respects: institution-
alization, transparency, and enforcement. This chapter reaches the following three
major conclusions. First, regarding institutionalization, integrated dispute resolu-
tion services likely will contribute to the building momentum for greater institu-
tionalization within the investment arbitration regime. Second, regarding
transparency, integrated dispute resolution services likely will give rise to addi-
tional transparency gains within the regime by placing even greater attention on
the need for coherent development of law, which requires public access to
decision-making. Third, regarding enforcement, integrated dispute resolution
services likely will narrow the existing enforceability gap between arbitral
awards, on the one hand, and court judgments and mediated settlement agree-
ments, on the other. A narrower enforceability gap would reduce the significance
of one of the key advantages of international arbitration: an unmatched global
enforcement regime. The diminished significance of that advantage likely would
place additional pressure on the investment arbitration regime to address key
M. Feldman (*)
School of Transnational Law, Peking University, Shenzhen, China
e-mail: mfeldman@stl.pku.edu.cn

https://doi.org/10.1007/978-981-13-3615-7_11
826 M. Feldman
vulnerabilities, notably recurrent perceptions of incoherent jurisprudence and

arbitrator conflicts of interest.
Keywords
China International Commercial Court · China’s Supreme People’s Court ·
UNCITRAL Working Group III · Belt and Road Initiative · the Singapore
Convention on Mediation
Introduction
The China International Commercial Court (“CICC”), which was established in

2018 by China’s Supreme People’s Court (“SPC”), seeks “to build a diversified
dispute resolution mechanism that efficiently links mediation, arbitration, and liti-
gation”1; such integration, according to the SPC, will create “a ‘one-stop’ interna-
tional commercial dispute resolution mechanism.”2
Other newly created international commercial courts similarly aim to support
some form of integrated commercial dispute resolution services.3 The blurring of
lines between litigation, arbitration, and mediation services will affect international
arbitration generally and investment arbitration specifically.
This chapter examines the likely impact of integrated international dispute reso-
lution services on the investment arbitration regime in three respects: institutional-
ization, transparency, and enforcement. This chapter reaches the following three
major conclusions. First, regarding institutionalization, integrated dispute resolution
services likely will contribute to the building momentum for greater institutionali-
zation within the investment arbitration regime. Second, regarding transparency,
integrated dispute resolution services likely will give rise to additional transparency
gains within the regime by placing even greater attention on the need for coherent
development of law, which requires public access to decision-making. Third, regard-
ing enforcement, integrated dispute resolution services likely will narrow the
existing enforceability gap between arbitral awards, on the one hand, and court
judgments and mediated settlement agreements, on the other. A narrower enforce-
ability gap would reduce the significance of one of the key advantages of
1
Working Rules of the CICC’s International Commercial Expert Committee, Article 1.
2
Provisions of the Supreme People’s Court Regarding the Establishment of the International
Commercial Court (27 June 2018), Article 11.
3
See e.g., Huo Z, Yip M (2019) Comparing the international commercial courts of China with the
Singapore international commercial court. Int Comp Law Q 68:903 (discussing the development of
the CICC and the Singapore International Commercial Court (SICC)); Wong DH (2014) The rise of
the international commercial court: what is it and will it work? Civil Justice Q 33:205 (discussing
the development of the SICC and the Dubai International Financial Center (DIFC) Courts); Horigan
DP (2015) From Abu Dhabi to Singapore: the rise of international commercial courts. Int J Humanit
Manag Sci 3:78 (discussing the development of Abu Dhabi Global Market (ADGM) Courts, the
SICC, the DIFC Courts, and the Qatar Financial Centre (QFC)).
33 “One-Stop” Commercial Dispute Resolution Services:. . . 827
international arbitration: an unmatched global enforcement regime. The diminished

significance of that advantage likely would place additional pressure on the invest-
ment arbitration regime to address key vulnerabilities, notably recurrent perceptions
of incoherent jurisprudence and arbitrator conflicts of interest.
To begin analysis of the impact of integrated dispute resolution services on the
international investment law regime, this chapter provides an overview of the
emergence of such integrated services and, more generally, legal hubs.
The Emergence of Legal Hubs and Integrated Commercial Dispute

Resolution Services
Litigation, arbitration, and mediation services are becoming more integrated, due in
significant part to the emergence of “legal hubs” in many jurisdictions in Asia, the
Middle East, and Europe. Professor Matthew Erie has defined legal hubs as follows:
[L]egal hubs are sub-national jurisdictions (at various scales) that are a ‘one-stop shop’ for
dispute resolution for cross-border transactions, featuring, in addition to international com-
mercial courts, international arbitration, business mediation, and sophisticated legal services
in the form of international law firms.4
The development of international commercial courts has played a key role in the
development, more generally, of legal hubs. As stated in the Report of the Singapore
International Commercial Court (“SICC”) Committee:
Singapore has sought, in the last decade, to position itself as a neutral third party venue for
resolving disputes between parties from different jurisdictions . . . Thus far, Singapore has
concentrated her efforts on the arbitration sector as part of a broader effort to grow the legal
industry, and these efforts have borne fruit. Singapore is now widely recognized as the
leading arbitration hub in Asia . . . A window of opportunity currently exists for an Asian
dispute resolution hub catering to international disputes with an Asian connection.5
The report finds that Singapore is “well placed to become the Asian dispute
resolution hub to cater to the expected growth in cross-border, multi-jurisdictional
disputes in Asia.”6 Further, as part of that dispute resolution hub, the SICC can
“position herself as the premium forum for court-based commercial dispute resolu-
tion both within and beyond Asia.”7
4
Erie M (2020 (forthcoming)) Legal hubs: the emergent landscape of international commercial
dispute resolution. Va J Int Law 60.
5
SICC Committee Report at 7, 10.
6
SICC Committee Report at 11.
7
SICC Committee Report at 11 (internal footnote omitted).
828 M. Feldman
The litigation and arbitration services offered by legal hubs often are character-
ized as complementary,8 which reinforces their integrated nature. Integration of
litigation and arbitration services is particularly strong in Qatar, where “the judges
of the Qatar International Court may also be appointed as arbitrators, and the court
administers arbitrations.”9 Legal hubs in Qatar and Frankfurt further illustrate
integrated dispute resolution services: the Qatar International Court offers both
litigation and arbitration services,10 while a newly created specialized chamber of
the Frankfurt High Court dedicated to international commercial cases begins pro-
ceedings with a “conciliation hearing.”11 The Dubai International Financial Centre
Court (“DIFC Court”) also has blurred lines between litigation and arbitration
services by introducing a mechanism authorizing judgment creditors to refer judg-
ments to arbitration, which in effect can allow a court judgment to be “converted”
into an arbitral award.12
But as observed by Professor Erie, the CICC may reflect the “fullest expression”
of the “multidoor courthouse” model originally developed by Professor Frank
Sander; under that model, courts can offer a “menu of dispute resolution mecha-
nisms” to disputing parties for their consideration.13 The CICC provides the foun-
dation for a “‘one-stop’ international commercial dispute resolution mechanism,”14
which offers such a range of dispute resolution options by linking mediation,
arbitration, and litigation services.15
8
See, e.g., Walker J (2019) Specialized international courts: keeping arbitration on top of its game.
Arbitration 85:7 (the SICC “serves as a companion rather than a competitor to the SIAC”); Hwang
M (2015) Commercial courts and international arbitration: competitors or partners? Arbitr Int
31:197 (observing that international commercial courts and international arbitration exist “side by
side” in “complete harmony”).
9
Walker, p 7.
10
Bookman P (2020 (forthcoming)) The adjudication business. Yale J Int Law, Temple University
Legal Studies Research Paper No. 2019–08, p 24.
11
Bookman, p 33.
12
See Blanke G (2015) DIFC court amends practice direction no. 2 of 2015 on referral of payment
judgment disputes to arbitration: getting it right . . . Finally! Kluwer Arbitration Blog, July 16
(discussing DIFC Court Practice Direction allowing “judgment creditors of DIFC money judgments
that remain unsatisfied by a recalcitrant judgment debtor to refer to arbitration for enforcement of
the unsatisfied debt . . . [which] will be achieved through ‘converting’ the DIFC payment judgment
into a DIFC-LCIA arbitration award”).
13
Erie M (2018) The China international commercial court: prospects for dispute resolution for the
‘belt and road initiative’. ASIL Insights, August 31. See also Chaisse J, Matsushita M (2018)
China’s “belt and road” initiative – mapping the world trade normative and strategic implications.
J World Trade 52(1):163–186.
14
Provisions of the Supreme People’s Court on Several Issues Regarding the Establishment of the
International Commercial Court, Article 11.
15
See Provisions of the Supreme People’s Court on Several Issues Regarding the Establishment of
the International Commercial Court, Article 11 (“The International Commercial Court supports
parties to settle their international commercial disputes by choosing the approach they consider
appropriate through the dispute resolution platform on which mediation, arbitration and litigation
are efficiently linked”).
As discussed below, the development of integrated commercial dispute resolution

services generally, and of international commercial courts in particular, has
been driven in significant part by a strong interest in providing more institutionalized
forms of international commercial dispute resolution. The likely impact of such
institutionalization on the international investment law regime is discussed below.
Institutionalization
Supporters of international commercial courts have emphasized the need for the
coherent development of law and the role of institutionalization in supporting that
development. Regarding the SICC, Chief Justice Menon of the Supreme Court of
Singapore observed that unlike “arbitral jurisprudence,” where the “quest for coher-
ence . . . remains constrained by the confidential nature of arbitral proceedings as
well as the absence of appeal and error-correction mechanisms . . . [a] network of
international commercial courts helmed by a community of renowned international
commercial judges can emerge as a very significant platform for the development of
a body of consistent jurisprudence.”16
Justice Steven Chong of the Supreme Court of Singapore similarly distinguished the
SICC from international commercial arbitration by observing that the SICC is a court,
“and, as a court, its objective is somewhat broader [than arbitral tribunals] in that it seeks
not only to retrospectively resolve the particular dispute at hand, but also to signal in a
more general and prospective manner how it will decide similar cases in the future.”17
Similar arguments have been made in support of greater levels of institutionali-
zation within the investment arbitration regime. As stated by the European Union:
Predictability and consistency can only be effectively developed through the establishment
of a standing mechanism with permanent, full-time adjudicators. This is the key problem of
the existing system. Under the current system, stakeholders cannot have reasonable expec-
tations that a ruling in one dispute will be followed in another due to the ad hoc nature of the
tribunals. In a standing mechanism a sense of “continuous collegiality” will build up.18
16
Chief Justice Menon S (2015) International commercial courts: towards a transnational system of
dispute resolution, opening lecture for the DIFC courts lecture series, pp 31–32. See also Bookman,
p 48 (“several of these [international commercial] courts promote themselves not just as adjudica-
tors but as lawmakers”); Walker, p 18 (“there continue to be expressions of interest in the public
benefits of having commercial disputes contribute to the continuum of precedential decisions. This
is a further reason for commercial parties to support the use of the new specialised courts”); Hwang,
p 196 (identifying as a “main aim” of the SICC the harmonization of “existing differences between
legal systems in Asia, which have led to uncertainty and inconsistency, by developing a free-
standing body of international commercial law”).
17
Justice Chong S (2015) The Singapore international commercial court: a new opening in a forked
path. British Maritime Law Association Lecture, pp 16, 26.
18
Submission of the European Union and its Member States to UNCITRAL Working Group III,
Establishing a Standing Mechanism for International Investment Disputes (January 18, 2019), para
41 (quoting Diel-Gligor K (2017) Towards consistency in international investment jurisprudence: a
preliminary ruling for ICSID arbitration (Brill), 164).
830 M. Feldman
The European Union’s comments were made in the context of ongoing UNCITRAL
Working Group III (Investor-State Dispute Settlement Reform) discussions. Work-
ing Group III will be developing “multiple potential reform solutions simulta-
neously,”19 including consideration of “a multilateral investment court with a
built-in appeal mechanism.”20
China’s recent UNCITRAL Working Group III submission also highlighted the
need for institutionalization within the investment arbitration regime:
The numerous inconsistencies in the awards arrived at through the investment arbitration
mechanism and the uncertainty of arbitration results have seriously affected the expectations
of the parties involved. The mechanism clearly cannot meet the requirements for realizing
the rule of law in international investment.21
Thus, a “quest for coherence” – as identified by Chief Justice Menon – is driving

interest in institutionalization on two parallel tracks: the development of interna-
tional commercial courts and the reform of international investment arbitration.
In the investment arbitration context, the potential introduction of some form
of institutionalization is being closely considered in ongoing UNCITRAL
Working Group III discussions,22 but the actual introduction of more institu-
tionalized forms of investment dispute settlement has occurred only in isolated
instances.23
19
UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the
Work of its Thirty-Seventh Session, A/CN.9/970 (April 9, 2019), para 81.
20
Work of its Thirty-Seventh Session, A/CN.9/970 (April 9, 2019), para 71. See Chaisse J, Vaccaro-
Incisa M (2018) The EU investment court: challenges on the path ahead. Columbia FDI Perspect
218:1–3.
21
Submission from the Government of China, Note by the Secretariat, A/CN.9/WG.III/WP.177
(July 19, 2019), p 3.
22
See e.g., UNCITRAL Working Group III, Possible Reform of Investor-State Dispute Settlement
(ISDS): Consistency and Related Matters, A/CN.9/WG.III/WP.150 (28 August 2018) paras 32, 41,
47 (“At its thirty-fourth and thirty-fifth sessions, the Working Group heard some preliminary views
regarding how inconsistency and incoherence could be addressed so as to enhance predictability of
the ISDS framework. Suggestions included . . . the creation of a standalone appellate mechanism.
The main functions of an appellate body is to ensure procedural and substantive correctness of
decisions . . . [in addition] Certain recent investment treaties have foreseen the creation of a court,
set up as a permanent international institution”).
23
See e.g., Comprehensive Economic and Trade Agreement (“CETA”) arts 8.27 and 8.28
(establishing Investment Court System composed of a first instance Tribunal and an Appellate
Tribunal); EU-Vietnam Investment Protection Agreement arts 3.38 and 3.39 (establishing Invest-
ment Tribunal System composed of a first instance Tribunal and an Appeal Tribunal); CAFTA-DR
Annex 10-F (requiring Parties to establish a “Negotiating Group to develop an appellate body or
similar mechanism to review awards rendered by tribunals under this Chapter”).
Arguments in support of international commercial courts continue to highlight a

lack of coherent jurisprudence as a key weakness of international arbitration,24 while
at the same time emphasizing that international commercial courts are responding
effectively to the “quest for coherence” by developing institutionalized forms of
international commercial dispute settlement.25
Although litigation and arbitration services offered by legal hubs often are seen as
complementary,26 an element of competition between international commercial
courts and international arbitration is unavoidable.27 Supporters of international
commercial courts can be expected to continue emphasizing the importance of
institutionalization for the development of coherent jurisprudence; such emphasis
likely will provide further encouragement for the investment arbitration regime to
continue discussing, and indeed implementing, different forms of institutionalization
for international investment dispute resolution.
Transparency
Unlike institutionalization within the international investment law regime – which, as

noted above, has been implemented in practice only in isolated instances28 –significant
advances in transparency have occurred over the past 20 years. In 2001, the NAFTA
Free Trade Commission (“FTC”) clarified that the NAFTA does not impose “a general
duty of confidentiality on the disputing parties to a Chapter Eleven arbitration” and
does not preclude the Parties to the NAFTA “from providing public access to
documents submitted to, or issued by, a Chapter Eleven tribunal.”29 In 2003, the
NAFTA FTC also clarified that the NAFTA does not limit “a Tribunal’s discretion
24
See e.g., Justice Ramesh K (2018) International commercial courts: unicorns on a journey of a
thousand miles. In: Conference on the rise of international commercial courts, p 4 (“Confidentiality
of the arbitral process, the award and its reasons, a key hallmark of arbitration, presents an inherent
shackle to arbitration’s ability to fully develop and contribute to global commercial jurisprudence”);
Justice Chong Lecture, pp. 15–16 (“there is a real risk that, without transparency, many arbitrators
might feel relatively free to do what they want rather than give effect to the law”); Walker, p. 15
(“Appellate review is not a widely sought feature of international commercial dispute resolution, but
where it is important to the parties, it would appear that the specialised courts currently have a clear
advantage”).
25
See e.g., Chief Justice Menon Lecture, pp. 31–32 (a “network of international commercial courts
helmed by a community of renowned international commercial judges can emerge as a very
significant platform for the development of a body of consistent jurisprudence”).
26
See note 8.
27
See e.g., Coyle J (2012) Business courts and interstate competition. William Mary Law Rev
53:1915, 1928 (“A thriving system of private arbitration may be said to compete with the courts on
the supply side”); Drahozal C (2009) Business courts and the future of arbitration. Cardozo J
Conflict Resol 10:491, 492 (“Supporters of business courts commonly cite the need for courts to
compete more effectively with arbitration as a justification for the creation of business courts”).
28
See note 23.
29
NAFTA FTC Interpretation (July 31, 2001), www.state.gov/documents/organization/38790.pdf
832 M. Feldman
to accept written submissions from a person or entity that is not a disputing party.”30 In
2006, ICSID amended its arbitration rules to allow for open hearings and nondisputing
party submissions.31 In 2010, UNCITRAL Working Group II commenced work on
preparing a “legal standard” on the topic of transparency in treaty-based investor-State
arbitration,32 which ultimately led to the development of the UNCITRAL Rules on
Transparency in Treaty-based Investor-State Arbitration33 and the related United
Nations Convention on Transparency in Treaty-based Investor-State Arbitration
(“Mauritius Convention”).34 In 2016, the G20 adopted a set of Guiding Principles
for Global Investment Policymaking, which provide that “[d]ispute settlement pro-
cedures should be fair, open and transparent.”35
The preamble to the Mauritius Convention recognizes the need for transparency
in treaty-based investor-State disputes “to take account of the public interest
involved in such arbitration.”36 Such public interest can be understood to include a
number of different elements, including the use of public funds to pay awards,37
frequent challenges to government measures,38 and, more generally, allegations of
“wrongful behavior by a state.”39
Notably, the public interest elements outlined above arise from the participation
of a State in investor-State proceedings. By contrast, international commercial courts
normally will resolve disputes between private parties.40 Thus, arguments in favor of
30
Statement of the Free Trade Commission on Non-Disputing Party Participation, www.state.gov/
documents/organization/38791.pdf
31
See ICSID Arbitration Rules 32 and 37.
32
See Report of Working Group II (Arbitration and Conciliation) on the Work of its Fifty-Third
Session, A/CN.9/712 (October 20, 2010), p 3.
33
UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (effective April 1,
2014).
34
United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (adopted
December 10, 2014; opened for signature March 17, 2015).
35
G20 Guiding Principles for Global Investment Policymaking, Principle III.
36
Mauritius Convention, preamble.
37
See e.g., Fry J, Repousis OG (2015) Towards a new world for investor-state arbitration through
transparency. New York Univ J Int Law Polit 48:805 (“the payment of compensation in connection
with the arbitration award may have a severe impact on the respondent state’s economy”).
38
See e.g., Knahr C, Reinisch A (2007) Transparency versus confidentiality in international
investment arbitration – the Biwater Gauff compromise. Law Prac Int Courts Tribunals 6:97, 113
(“the subject matter of investment disputes regularly concerns governmental measures. This often
transforms investment arbitration into a functional equivalent of judicial review of governmental
measures which would otherwise be reserved to the national courts”). See also Calamita NJ (2014)
Dispute settlement transparency in Europe’s evolving investment treaty policy. J World Inv Trade
15:648–49 (referring to challenges to the “state’s exercise of public power”).
39
Magraw Jr. DB, Amerasinghe NM (2008–2009) Transparency and public participation in inves-
tor-state arbitration. ILSA J Int Comp Law 15:337, 339.
40
See e.g., Walker, 10 (“Although the specialised international courts each serve slightly different
roles from one another, they offer a similar range of benefits for commercial parties in respect of the
effectiveness with which they promise to resolve international disputes”).
transparency in the context of international commercial courts have not focused on

public interest concerns associated with claims against governments; rather, argu-
ments have focused on the need for coherent development of law, which requires
some form of public access to decision-making.41
The need for coherent development of law, and thus some form of public access to
decision-making, also has received attention in the context of international commer-
cial arbitration. As previously argued by Alexis Mourre, who currently serves as
President of the ICC International Court of Arbitration:
The fundamental importance of the publication of arbitral awards derives from the fact that,
absent a doctrine of stare decisis in arbitration, arbitral precedent will only operate in
presence of a repetition of identical solutions in a number of different cases . . . In order
for arbitral awards to have precedential effect, it is therefore necessary that awards be known
and available.42
Consistent with the need for arbitral awards to be “known and available,” the ICC
Court recently introduced a default rule that an ICC award “may be published in its
entirety no less than two years after” the disputing parties and arbitrators are notified
of the award.43
The relationship between coherent jurisprudence and transparency also has
received heightened attention in the context of domestic courts. Specifically with
respect to domestic English courts, The Lord Chief Justice of England and Wales,
Lord Thomas, has stated that “the resolution of disputes firmly behind closed doors
. . . retard[s] public understanding of the law . . . and public debate over its applica-
tion.”44 Lord Thomas’ remarks have been widely discussed within the international
arbitration community.45
41
See e.g., Chief Justice Menon Lecture, p 11 (international commercial courts “represent an avenue
for the advancement of the rule of law as a normative ideal in global commerce. This is because
there will be greater external scrutiny of their decisions and processes, with increased pressure to
justify decisions against international norms”).
42
Mourre A (2009) Arbitral jurisprudence in international commercial arbitration: the case for a
systematic publication of arbitral awards in 10 questions. Kluwer Arbitration Blog, May 28.
43
International Chamber of Commerce International Court of Arbitration, Note to Parties and
Arbitral Tribunals on the Conduct of the Arbitration (January 1, 2019).
44
Lord Thomas, Lord Chief Justice of England and Wales, 2016. The BAILII Lecture 2016,
Developing Commercial Law through the Courts: Rebalancing the Relationship Between the
Courts and Arbitration, para 23.
45
See e.g., Abu-Mannah R, et al (2016) Is arbitration damaging the common law? Int Arb Law
Rev:65 (examining “the challenges facing the English courts and arbitral institutions in the coming
years through the prism of Lord Thomas’ criticisms of the current position”); Bor H (2016)
Comments on Lord Chief Justice Thomas’ 2016 Bailii Lecture. Kluwer Arbitration Blog, April
11 (“Even those companies with a social conscience are most unlikely to allow a case to enter a
court room and go public in order to assist the development of the law, especially if a judicial
determination is unlikely to go their way”).
834 M. Feldman
The role of transparency in supporting the development of law has received some
attention in an investment arbitration context.46 That aspect of transparency can be
expected to receive greater attention within the investment arbitration regime as
other forms of international commercial dispute resolution – international commer-
cial courts, international commercial arbitration, domestic courts – place particular
emphasis on the need for coherent development of law and the role of transparency
in supporting that goal. Indeed, significant discussions concerning the need for
coherent development of law within the investment arbitration regime already
have begun as part of larger discussions addressing the potential institutionalization
of the regime.47
In addition, notwithstanding the significant advances in transparency that
have occurred within the investment arbitration regime over the past 20 years, oppor-
tunities for further transparency gains remain available, as illustrated by the relatively
modest response to the Mauritius Convention, which opened for signature in 2015.
As of March 2019, five States are Parties to the Mauritius Convention,48 which
applies transparency obligations contained in the 2014 UNCITRAL Rules on Trans-
parency to existing investment treaties.
The transparency gains within the investment arbitration regime that have
occurred over the past 20 years have been driven primarily by public interest concerns
associated with claims against governments. As discussed above, two recent devel-
opments could create additional momentum for further transparency gains within that
regime. First, the heightened importance of transparency as a necessary element for
the coherent development of law recently has been recognized across several cate-
gories of international commercial dispute resolution: international commercial
courts, international commercial arbitration, domestic courts, and investment arbitra-
tion. Second, the need for coherent development of law has been receiving particu-
larly close consideration within the investment arbitration regime as part of ongoing
discussions concerning the potential institutionalization of the regime.
Enforcement
One key advantage of international arbitration – including investment arbitration –

as a form of international dispute resolution is the enforceability of arbitral awards.
As of October 2019, according to UNCITRAL, the New York Convention has 161
46
See e.g., Knahr and Reinisch, p 111 (“The publication of judicial and arbitral decisions is a
precondition for the evolution of a consistent case law which creates legal certainty in the form of
assuring that all cases are treated equally”) (footnote omitted).
47
See e.g., China UNCITRAL Submission p 3 (the existing investor-State dispute settlement
mechanism, which has produced “numerous inconsistencies” in investment arbitration awards,
“clearly cannot meet the requirements for realizing the rule of law in international investment”).
48
See UNCITRAL, Status, United Nations Convention on Transparency in Treaty-Based Investor-
State Arbitration, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2014Transparency_
Convention_status.html
Parties49; the ICSID Convention, as of April 2019, has 154 Parties.50 By contrast,
with respect to international instruments governing the enforceability of court
judgments, the Hague Choice of Court Convention, as of August 2018, has 32
Parties51 and the Hague Judgments Convention, as of July 2019, has one signatory.52
Regarding enforceability of mediated settlement agreements, the Singapore Media-
tion Convention opened for signature in August 2019; as of October 2019, the
agreement has 51 signatories but no ratifications.53
Supporters of international commercial courts have acknowledged the current
enforceability advantage of international arbitration. As stated by Justice Chong:
At the time of its conception, the most pressing concern for the SICC no doubt centred on the
international recognition and enforceability of its judgments. In this respect, arbitration was
streets ahead because of the New York Convention. Court judgments, on the other hand, could
not call on such a multilateral convention of comparable scale to facilitate their enforceability.54
Recognizing the current enforceability gap between arbitral awards and court judg-
ments, supporters of international commercial courts have placed great importance
on advancing the enforceability of court judgments. As stated by Justice Ramesh:
[T]he enforcement of foreign judgments is an area where international commercial courts

can and should work together for the benefit of international commerce. One of the best ways
to do so is by acceding to the Hague Convention, which has been described as the “litigation
counterpart” to the New York Convention. Chief Justice James Allsop of the Federal Court
of Australia observed recently that “[o]ver the coming years, as the adherence to the Hague
Convention on Choice of Court increases, national commercial courts will begin to have the
same regime of enforcement as does arbitration for its awards.” In that spirit, I urge those
who have not joined the Hague Convention to do so.55
49
See UNCITRAL, Status: Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards/status2
50
See ICSID, List of Contracting States and other Signatories of the Convention (as of April 12,
2019), https://icsid.worldbank.org/en/Documents/icsiddocs/List%20of%20Contracting%20States
%20and%20Other%20Signatories%20of%20the%20Convention%20-%20Latest.pdf
51
See HCCH, Status Table, Convention of 30 June 2005 on Choice of Court Agreements, https://
www.hcch.net/en/instruments/conventions/status-table/?cid=98
52
See HCCH, Status Table, Convention of 2 July 2019 on the Recognition and Enforcement of
Foreign Judgments in Civil or Commercial Matters, https://www.hcch.net/en/instruments/conven
tions/status-table/?cid=137
53
See UNCITRAL, Status: United Nations Convention on International Settlement Agreements
Resulting from Mediation, https://uncitral.un.org/en/texts/mediation/conventions/international_set
tlement_agreements/status
54
Justice Chong Lecture para 46. See also Justice Ramesh Lecture para 27 (“some have commented
that judgments from [international commercial] courts do not enjoy the scope of enforceability
allowed under the New York Convention”).
55
Justice Ramesh Lecture, p 20 (internal footnotes omitted).
836 M. Feldman
Supporters of international commercial courts can highlight the strengths of

such courts for resolving international commercial disputes – notably the develop-
ment of coherent jurisprudence,56 the availability of joinder and consolidation,57 and
effective interim relief58 – while at the same time emphasizing the need to address
core perceived weaknesses of such courts, in particular the lack of a mature inter-
national enforcement regime for court judgments.
Concerning potential weaknesses to be addressed, it is important to note that the
set of recently developed international commercial courts are in fact domestic
courts,59 and one key weakness associated with domestic courts is the perception
that such courts are not “sufficiently impartial” with respect to foreign investors.60
Supporters of international commercial courts have responded to this perceived
weakness by emphasizing the ability of such courts to provide impartial and efficient
dispute resolution services.61As stated by Chief Justice Menon, “a trustworthy and
competent commercial court, even if situated within the national judicial structure of
one country, could remain highly attractive to foreign nationals.”62
56
See e.g., Chief Justice Menon Lecture, pp. 31–32 (“[a] network of international commercial
courts helmed by a community of renowned international commercial judges can emerge as a very
significant platform for the development of a body of consistent jurisprudence”).
57
See e.g., Walker, pp. 10–11 (“The requirement of an agreement in writing between the parties
fundamentally constrains the scope of arbitral tribunals to join additional parties without the consent
of both the party to be added and the parties to the agreement. It also constrains the potential for
consolidating related arbitrations absent the consent of all parties”).
58
See e.g., Walker, p 13 (“Just as there are benefits to the specialized courts’ capacity to add parties
and consolidate proceedings without the agreement of all the parties, so too are there benefits to be
derived from the ease of local enforcement of interim and interlocutory relief applications made in
specialised court proceedings”).
59
For example, the SICC is a “branch of the Singapore High Court,” and the CICC is a “permanent
adjudication organ” of the SPC. See Chief Justice Menon Lecture, p 17; Provisions of the Supreme
People’s Court on Several Issues Regarding the Establishment of the International Commercial
Court (June 25, 2018), Article 1.
60
Schreuer C (2010) The future of investment arbitration, looking to the future: essays on interna-
tional law in Honor of W. Michael Reisman (Brill), pp 787–788 (“In the absence of other
arrangements, a dispute between a host State and a foreign investor will normally be settled by
the host State’s domestic courts. From the investor’s perspective, this is not an attractive option.
Rightly or wrongly, the courts of the host State are not seen as sufficiently impartial in this type of
situation”).
61
See e.g., SICC Committee Report para 15 (“Singapore is reputed for its efficient, competent and
honest judiciary. A new international court would allow Singapore to further emphasize its value as
a neutral third party venue with respected judges and sophisticated commercial jurisprudence”);
Judge Gao Interview, p 7 (identifying shared characteristics of international commercial courts in
London, Dubai, Qatar, Abu Dhabi, Singapore, Amsterdam, Frankfurt, Belgium and Astana, which
include “high quality” adjudication and “fair and predictable” applicable laws).
62
Chief Justice Menon Lecture, p 23.
Just as supporters of international commercial courts are responding to key

potential vulnerabilities, States, in an investment arbitration context, are responding
to key perceived weaknesses associated with the investment arbitration regime. In
particular, States have been responding to recurrent perceptions of incoherent juris-
prudence63 and arbitrator conflicts of interest.64
A narrowing of the enforceability gap between arbitral awards, on the one hand,
and court judgments and mediated settlement agreements, on the other, would be
particularly significant for the investment arbitration regime because the unmatched
enforceability of arbitral awards is a core advantage of international arbitration
generally65 and investment arbitration specifically.66 The diminished significance
of that advantage – resulting from a narrowing of the enforceability gap – likely
would place additional pressure on the investment arbitration regime to address key
perceived weaknesses such as incoherent jurisprudence and arbitrator conflicts of
interest.67
A narrowing of the enforceability gap would diminish the enforceability advan-
tage of arbitral awards with respect not only to court judgments but also to mediated
settlement agreements. Prior to the development of the Singapore Convention on
Mediation, the “lack of a cross-border mechanism for giving legal effect to mediated
settlement agreements” had been considered a “significant barrier to the willingness
of some companies to use mediation.”68 If the Singapore Convention on Mediation
ultimately can provide an extensive international enforcement network for mediated
63
(ISDS): Consistency and Related Matters, A/CN.9/WG.III/WP.150 (August 28, 2018) para 5 (“At
the thirty-fourth session of the Working Group, it was indicated that criticism of a lack of
consistency and coherence was one of the reasons behind the Commission’s decision to embark
on work on possible ISDS reform, thereby acknowledging the importance of ensuring a coherent
and consistent ISDS regime”).
64
(ISDS), Background Information on a Code of Conduct (July 31, 2019), para 5 (“At the thirty-fifth
and thirty-sixth sessions of the Working Group, broad agreement was expressed on the importance
of codes of conduct for ISDS tribunal members . . . At those sessions, it was suggested that measures
enhancing confidence in the independence and impartiality of ISDS tribunal members would be in
the interest of both States and investors”).
65
See e.g., Chief Justice Menon Lecture, p 8 (“international commercial arbitration . . . became the
pre-eminent mode of cross-border civil dispute resolution due to institutional structures such as the
New York Convention and the Model Law”).
66
See e.g., Mortenson JD (2010) The meaning of “investment”: ICSID’s Travaux and the domain of
international investment law. Harvard Int Law J 51:257, 265(“The ICSID Convention has uniquely
binding enforcement provisions”).
67
Notably, efforts to support the development of more coherent jurisprudence through institution-
alization can raise challenging questions concerning the enforceability of awards issued by tribunals
operating within a more institutionalized regime. See e.g., Calamita NJ (2017) The challenge of
establishing a multilateral investment tribunal at ICSID. ICSID Rev 32:611, 612(“the new EU
model of ISDS does not appear to be compatible with the ICSID Convention”).
68
Schnabel T (2019) The Singapore convention on mediation: a framework for the cross-border
recognition and enforcement for mediated settlements. Pepperdine Dispute Resol Law J 19:1, 2.
838 M. Feldman
settlement agreements, mediation would be able to offer the advantages of a con-

sensual process that preserves business relationships69 and avoids the potential bias
of domestic courts70 while effectively responding to concerns over a lack of enforce-
ability. The enhanced attractiveness of mediation as an international dispute resolu-
tion option – resulting from a narrowing of the enforceability gap – likely would
place additional pressure on the investment arbitration regime to effectively respond
to key vulnerabilities.
Conclusion
Integrated, “one-stop” international commercial dispute resolution services can be

expected to influence the investment arbitration regime in three key respects:
institutionalization, transparency, and enforcement.
Regarding institutionalization, integrated dispute resolution services likely will
contribute to the building momentum for greater institutionalization within the
investment arbitration regime. A “quest for coherence” – as identified by Chief
Justice Menon – is driving interest in institutionalization on two parallel tracks: the
development of international commercial courts and the reform of international
investment arbitration. Supporters of international commercial courts likely will
continue to emphasize the importance of institutionalization for the development
of coherent jurisprudence; such emphasis likely will provide further encouragement
for the investment arbitration regime to continue discussing, and indeed
implementing, different forms of institutionalization for international investment
dispute resolution.
Regarding transparency, integrated dispute resolution services likely will rein-
force advances in transparency that have been occurring within the investment
arbitration regime over the past 20 years. Specifically, two recent developments
could create additional momentum for further transparency gains within the regime.
First, the heightened importance of transparency as a necessary element for the
coherent development of law recently has been recognized across several forms of
international commercial dispute resolution: international commercial courts, inter-
national commercial arbitration, domestic courts, and investment arbitration. Sec-
ond, the particular need for coherent development of law within the investment
arbitration regime recently has been highlighted as part of ongoing discussions
concerning the potential institutionalization of the regime.
Regarding enforcement, integrated dispute resolution services likely will narrow
the existing enforceability gap between arbitral awards, on the one hand, and court
69
Schnabel, p. 2 (“mediation is seen as not only a faster, less expensive form of dispute resolution
but also as more likely to preserve commercial relationships”).
70
See e.g., Love B (2019) New UN Singapore convention drives shift to mediation of trade disputes.
Financial Times, August 5 (“A priority is to keep commercial disputes out of local courts, where . . .
there may be bias in favour of local operators”).
judgments and mediated settlement agreements, on the other. A narrower enforce-

ability gap would reduce the significance of a core advantage of international
arbitration: an unmatched global enforcement regime. The diminished significance
of that advantage likely would place additional pressure on the investment arbitra-
tion regime to address key vulnerabilities, notably recurrent perceptions of incoher-
ent jurisprudence and arbitrator conflicts of interest.
Cross-References

Settlement
The ICS and MIC Projects: A Critical
Review of the Issues of Arbitrator 34
Selection, Control Mechanisms, and
Recognition and Enforcement
Nikos Lavranos
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 842
Historic Background: The Process Toward Creating the ICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 842
The UNCITRAL Working Group III Discussions on the MIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844
The Main Features of the ICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846
Tribunal of First Instance (TFI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846
The Appellate Tribunal (AT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847
Novel Procedural Aspects of the ICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849
Doubts Regarding the Recognition and Enforcement of ICS/MIC Decisions . . . . . . . . . . . . . . . . . 855
The UNCITRAL Negotiations Toward a MIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858
Advisory Centre for Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
Code of Conduct for Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
Third-Party Funding (TPF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 860
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 862
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 863
Abstract
This contribution provides a critical review of the so-called investment court
system (ICS) and the proposed multilateral investment court (MIC). It analyzes
some of the problematic issues such as the selection of the arbitrators, the control
mechanisms, and the recognition and enforcement of ICS/MIC decisions. The
author concludes that unless changed there is a clear risk of States selecting
predominantly pro-State biased ICS/MIC members. The risk of significant State
influence is further amplified by the novel control mechanisms, which allow
States to directly intervene in (pending) disputes. Also, due to the sui generis
N. Lavranos (*)
Free University Brussels, Brussels, Belgium
e-mail: n.lavranos@efila.org

https://doi.org/10.1007/978-981-13-3615-7_81
842 N. Lavranos
characteristics of the ICS/MIC, the author seriously doubts whether the existing
New York and ICSID Conventions can be applied to ICS/MIC decisions. Con-
sequently, the author argues that a new convention must be negotiated that will
specifically cater for the recognition and enforcement of ICS/MIC decisions.
Finally, the author concludes that at the time of writing it remains to be seen
whether there will be sufficient traction for the MIC or whether instead less
radical intermediate options such as an appeal mechanism will at the end gain
more support.
Keywords
MIC · ICS · ICSID · Enforcement · Recognition · Appeal mechanism
Introduction
The aim of this contribution is to analyze the proposed investment court system
(ICS) as contained in the new EU free trade and investment agreements such as with
Canada (CETA) and the so-called multilateral investment court (MIC), which is
currently discussed in UNCITRAL Working Group III on ISDS reforms. More
specifically, the analysis will critically review the following three fundamental
issues: (1) arbitrator selection, (2) control mechanisms, and (3) recognition and
enforcement.
However, before doing so and for a better understanding of these issues, a short
historical overview will describe the process that has led to the creation of the ICS
and the current discussions for the possible creation of the MIC.
Historic Background: The Process Toward Creating the ICS
The idea of creating an ICS as a replacement of the currently existing investor-State

dispute settlement (ISDS) arbitration mechanism originates from the European
Commission (EC). In 2014, when the EU was negotiating a comprehensive trade
and investment agreement with the USA, public criticism against the ISDS mecha-
nisms was becoming increasingly ferocious. In response to that, the EC organized a
public consultation in 2014 in which the idea of replacing the ISDS mechanism with
a permanent appeals mechanism in TTIP was presented.1
1
See European Commission Staff Working Document – Report on the Online public consultation on
investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and
Investment Partnership Agreement (TTIP), SWD(2015) 3 final, 13.1.2015, http://trade.ec.europa.
eu/doclib/docs/2015/january/tradoc_153044.pdf
34 The ICS and MIC Projects: A Critical Review of the Issues of. . . 843
The results of the public consultation were released in January 2015. Despite the
inconclusive results on whether or not a permanent appeal mechanism should be
created within TTIP, in May 2015 the EC sent a concept paper to the European
Parliament and to the Council.2
In that concept paper, the EC indicated the reform path with respect to ISDS and its
transformation “from ad hoc arbitration towards an Investment Court.” According to the
EC, a reform of the current ISDS system is critical to ensure its fairness and indepen-
dency. It asserted that lack of these features is “[a] major part” of the current challenge
that investment arbitration poses to the Member States’ ability to pursue public policies.
The concept paper identified four main avenues of reform, including the estab-
lishment of a permanent appellate mechanism. Moreover, the EC emphasized one
particular advantage of an appellate review, namely, it would provide a corrective
mechanism to review and thus correct “wrong” decisions and thereby contribute to
legal certainty. The EC went as far as stating that “the right of appeal must be part of
any functioning judicial or quasi-judicial system.”
Meanwhile, in December 2015 the EC announced that the negotiations for the
EU-Vietnam FTA were concluded, which for the first time included the ICS pro-
posal.3 Also, despite the fact that the CETA negotiations had already been concluded
in September 2014, the CETA text was revised and a new text was released only in
February 2016 in order to include the ICS proposal.4 Similarly, also the revised EU-
Mexico FTA contains the ICS proposal.5 In other words, the EU has been able to
convince Vietnam, Canada, Singapore, and Mexico to accept the ICS as a replace-
ment to the standard ISDS provisions.
More recently, in Opinion 1/17 the Court of Justice of the EU (CJEU) gave its
blessing to the ICS when it concluded that it is compatible with EU law.6 The request
for this opinion originated from Belgium in return for Wallonia’s agreement to CETA.7
2
EC Concept Paper on reforming ISDS, https://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_
153408.PDF. See also Chaisse and Vaccaro-Incisa (2018)
3
Press Statement by the President of the European Commission Jean-Claude Juncker, the President
of the European Council Donald Tusk and the Prime Minister of Viet Nam Nguyen Tan Dung, 2
December 2015, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_15_6217.
The provisional text of the EU-Vietnam FTA was released on 1 February 2016, http://trade.ec.
europa.eu/doclib/press/index.cfm?id=1449
4
European Parliament, E. Bierbrauer, In-depth analysis on the Negotiations on the EU-Canada
Comprehensive Economic and Trade Agreement (CETA) concluded, October 2014, http://www.
europarl.europa.eu/RegData/etudes/IDAN/2014/536410/EXPO_IDA(2014)536410_EN.pdf; Euro-
pean Commission, Press release, CETA: EU and Canada agree on new approach on investment in
trade agreement, 29 February 2016, https://ec.europa.eu/commission/presscorner/detail/en/IP_16_399
5
European Commission, New EU-Mexico agreement in principle, 23 April 2018, https://trade.ec.
europa.eu/doclib/docs/2018/april/tradoc_156791.pdf
6
See, for a detailed analysis, Lavranos (2019).
7
Belgium Ministry of Foreign Affairs, Minister Reynders submits request for opinion on CETA, 6
September 2017, https://diplomatie.belgium.be/en/newsroom/news/2017/minister_reynders_sub
mits_request_opinion_ceta
844 N. Lavranos
In short, within a short time span of a few years, the EU and its Member States
responded to the criticism against ISDS by replacing it with the ICS in the new EU
trade and investment agreements. However, it should be noted that at the time of
writing (December 2019), none of the ICS chapters have entered into force yet due to
persisting concerns even against the ICS in some of the Member States.8 For
example, in the Netherlands the Social Democratic Party, whose Minister at the
time agreed that the ICS in CETA as the appropriate reform of the ISDS system,
recently withdrew its support to ratify the CETA ICS chapter.9
The UNCITRAL Working Group III Discussions on the MIC
In parallel, while the EC continued to push for the ICS in its FTAs with third
countries, it also decided that ultimately it would make more sense to have one
multilateral investment court (MIC) rather several ICS established bilaterally.
Accordingly, the EC convinced the UN Commission on International Trade
(UNCITRAL) to establish a Working Group III on ISDS reforms. Thus, in late
2017 the UNCITRAL members agreed on the following mandate10 for the Working
Group (WG) III:
(i) identify and consider concerns regarding ISDS;

(ii) consider whether reform was desirable in light of any identified concerns;
(iii) if the Working Group were to conclude that reform was desirable, develop any
relevant solutions to be recommended to the Commission.
In the course of 2018 and 2019, the WG III met regularly several times.11
Although the mandate of the WG III was not necessarily to develop a draft treaty
for a MIC, for the EU and its Member States this was the ultimate goal. However,
some members, for example, Japan, the USA, and Russia, have been against the
MIC proposal from the very beginning and instead were insisting on first focusing on
8
At the time of writing only 14 Member States had ratified CETA,
https://www.consilium.europa.eu/en/documents-publications/treaties-agreements/agreement/?
id=2016017#
9
See the following news reports in Dutch media, https://www.trouw.nl/economie/handelsverdrag-
ceta-dreigt-te-stranden-in-het-nederlandse-parlement~b15f15ae5/?referer=https%3A%2F%2Fwww.
google.com%2F;
https://www.rtlnieuws.nl/economie/artikel/4935141/ceta-ondernemers-canada-handelsverdrag-
evofenedex-politiek
10
work of its 34th session (Vienna, 27 November–1 December 2017), A/CN.9/930/Rev.1, 19
December 2017, https://undocs.org/en/A/CN.9/930/Rev.1
11
All documents of the Working Group III are available here: https://uncitral.un.org/en/working_
incremental reforms of the ISDS system.12 There is also a third group of States which
does not necessarily support the creation of a full-blown MIC but instead favor the
establishment of an appeals mechanism as an intermediate solution.13
By the end of 2019, the WG III had indeed identified the following concerns that
should be addressed:
(i) developing a binding Code of Conduct for Arbitrators;

(ii) regulating third party funding (TPF) more strictly;
(iii) creating an Advisory Centre that would assist developing countries, which are
involved in ISDS disputes.14
In 2020, the WG III will focus on the more systemic reform options, i.e., the MIC
or some kind of other permanent appeals mechanism.
Regarding the MIC, the EU has made detailed proposals using the CETA ICS as a
blueprint, which will be discussed in more detail below.15
Regarding, the appeals mechanism, China and some other States propose to
maintain the arbitral tribunals as a first-tier adjudicator while creating a permanent
appeals body that would review as a second-tier tribunal the awards of the first-tier
arbitral tribunals.16 Other States, such as Bahrain, warn that the creation of perma-
nent structures might create even new problems rather than solving the existing
shortcomings of ISDS.17 It remains to be seen which solution will be adopted at the
end of the day.
In any event, it can be expected that in the course of 2020 the WG III will propose
some kind of systemic reforms to the ISDS system, which potentially may have a
12
See, for example, Submission from the Governments of Chile, Israel, Japan, Mexico and Peru, A/
CN.9/WG.III/WP.182, 2 October 2019, https://undocs.org/en/A/CN.9/WG.III/WP.182; Submission
from the Governments of Chile, Israel and Japan, A/CN.9/WG.III/WP.163, 15 March 2019, https://
undocs.org/en/A/CN.9/WG.III/WP.163
13
Possible reform of investor-state dispute settlement (ISDS) submission from the Government of
China, A/CN.9/WG.III/WP.177, 19 July 2019, https://undocs.org/en/A/CN.9/WG.III/WP.177
14
Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its 38th
session (Vienna, 14–18 October 2019), A/CN.9/1004, 23 October 2019, https://undocs.org/en/A/
CN.9/1004. See also, M. Langford, UNCITRAL and Investment Arbitration Reform: A Little More
Action, 21 October 2019, http://arbitrationblog.kluwerarbitration.com/2019/10/21/uncitral-and-
investment-arbitration-reform-a-little-more-action/; N. Lavranos, UNCITRAL members harvest
low hanging fruit in ISDS reform, Borderlex, 18 October 2019, https://www.borderlex.eu/2019/
10/18/uncitral-members-harvest-low-hanging-fruit-in-isds-reform/
15
Possible reform of investor-state dispute settlement (ISDS), submission from the European Union
and its Member States, A/CN.9/WG.III/WP.159/Add.1, 24 January 2019, https://undocs.org/en/A/
CN.9/WG.III/WP.159/Add.1
16
Possible reform of investor-state dispute settlement (ISDS), submission from the Government of
China, A/CN.9/WG.III/WP.177, 19 July 2019, https://undocs.org/en/A/CN.9/WG.III/WP.177
17
Possible reform of investor-state dispute settlement (ISDS) submission from the Government of
Bahrain, A/CN.9/WG.III/WP.180, 29 August 2019, https://uncitral.un.org/sites/uncitral.un.org/
files/wp_180_bcdr_clean.pdf
846 N. Lavranos
significant impact on the way investment treaty arbitrations are conducted in the
future – at least as far as the participating States are concerned.
The Main Features of the ICS
Tribunal of First Instance (TFI)
This section will provide an overview of the main features of the ICS as it is
contained in CETA,18 which has also been included in the other EU FTAs – albeit
with some variations.19 In essence, the ICS consists of a two-tier court-like system,
with an appeals mechanism that is largely inspired by the WTO Appellate Body
(AB). Hence, the ICS clearly marks a rupture with the classic ISDS system which
commonly relies on treaty-based arbitrations and abandons altogether the use of
arbitral tribunals in favor of semipermanent quasi-judicial bodies. If amicable
resolution proves impossible, and without prejudice to the possibility that the parties
have recourse to mediation (Article 8.20 CETA), an investor seeking to bring a claim
under CETA may request consultations (Article 8.19 CETA). After 6 months from
such a request, the unsatisfied investor can submit a claim to the Tribunal of First
Instance (TFI), which is to be assisted by the ICSID Secretariat (Article 8.22 CETA).
The Tribunal can order the claimant to post security for the costs of proceedings.
The Tribunal of First Instance shall be composed of 15 members, five of each
party and five third-party nationals, among whom presidents and vice-presidents are
appointed (Article 8. 27(2) CETA). Their qualifications must be sufficient for
appointment to judicial office in their respective countries (which is different from
saying that they must be judges) or be “jurists of recognised competence” (Article
8.27(4) CETA). They must also have demonstrated expertise in public international
law; however, experience in international investment law is only “desirable” (Article
8.27(4) CETA). Appointed TFI members serve for 5 years, and their appointments
can be renewed once (Article 8.27(5) CETA). To ensure a staggered renewal of the
Tribunal, seven of the initial 15 TFI members shall exceptionally serve for 6 years
instead (Article 8.27(5) CETA).
While at the time of writing the CETA parties have not yet agreed on the payment
arrangements for TFI members, the ICS proposal for TTIP of the EC of November
2015 contains some indications, which will most likely be used for the TFI members
for the CETA ICS.
According to that, TFI members, just like WTO AB members, shall be “available
at all times and on short notice, and shall stay abreast of dispute settlement
18
The final CETA text is available here: https://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-
by-chapter/
19
See N. Lavranos, Analysis: Even the EU cannot be fully consistent on investment protection in
FTAs, Borderlex, 8 January 2019, https://www.borderlex.eu/2019/01/08/analysis-even-the-eu-can
not-be-fully-consistent-on-investment-protection-in-ftas/
activities.”20 In consideration for their availability, they shall receive a retainer fee
which the EC suggests being of “around €2,000 per month,”21 unless the Committee
(of EU and Canadian representatives) decides to employ these members on a full-
time basis and pay them a salary. In that event, TFI members may not engage in any
other occupation only pursuant to an exceptional permission granted by the Tri-
bunal’s President.22
This means that until the Committee so decides, the appointed members can
continue to engage in other occupation as far as it does not create any conflicts with
their TFI appointment. Accordingly, the TFI is – at least initially – not a permanent
body employing full-time members but is rather of semipermanent nature. Indeed,
members may sit as arbitrators in other investor-State disputes outside the ICS
system but cannot act as counsel.
Much like the WTO AB, the TFI shall hear cases in three-member divisions,
chaired by the third country member, unless the parties to the case agree to let the
case be heard by a sole member (Article 8.27(6) and (9) CETA). The president of the
TFI appoints the division and its members “on a rotation basis, ensuring that the
composition of the divisions is random and unpredictable, while giving equal
opportunities to all members to serve” (Article 8.27(7) CETA).
The TFI shall issue its “provisional award” within 18 months of the submission of
the claim or issue a decision motivating the delay.23 There is no reference to the
maximum possible length of proceedings, in contrast to the appeal procedure (see
below). This means that, if the TFI issues a reasoned decision to that effect, it can
decide to prolong the proceedings without restrictions. Non-appealed awards
become final after 90 days (Article 8.29(9) CETA).
The Appellate Tribunal (AT)
The EC has recently proposed that the Appellate Tribunal (AT) for CETA shall be
composed of six members (two Canadian, two EU, and two third country members)
and shall hear appeals against the Tribunal’s provisional awards.24 AT members shall
be appointed for a 9-year non-renewable term. However, the terms of three of the
20
EC proposal for a court system in TTIP, November 2015, Article 9 (11), http://trade.ec.europa.eu/
doclib/docs/2015/november/tradoc_153955.pdf
21
Ibid., Article 9 (12)
22
23
24
Annex to the Proposal for a Council Decision on the position to be taken on behalf of the
European Union in the CETA Joint Committee established under the Comprehensive Economic and
Trade Agreement (CETA) between Canada, of the one part, and the European Union and its
Member States, of the other part as regards the adoption of a decision setting out the administrative
and organizational matters regarding the functioning of the Appellate Tribunal, COM(2019) 457
final, Brussels, 11 October 2019, Article 2, https://eur-lex.europa.eu/legal-content/EN/TXT/
HTML/?uri=CELEX:52019PC0457&from=EN
848 N. Lavranos
first six persons appointed pursuant to Article 8.28.3 of the Agreement shall be
limited to 6 years.25 The AT is intended to work in three-member divisions, which
are randomly appointed (Article 8.28(5) CETA). Interestingly, there is no perceptible
difference regarding the qualifications of the AT members as compared to the TFI
members. The only difference is contained in Article 8.28 (4) CETA which explicitly
states that AT members shall comply with Article 8.30 CETA, which covers the
ethical requirements. According to the TTIP ICS proposal, the EC suggests a retainer
fee of €7000 per month for AT members, which probably will also be applied for AT
members of the ICS of CETA.26 The AT can reject the appeal (rendering the award
final) or uphold it, thus modifying or reversing any finding of the TFI (Article 8.28
(2) CETA).
According to the EC’s proposal, as a general rule, the appeal proceedings shall not
exceed 180 days from the date a disputing party formally notifies its decision to
appeal to the date the Appellate Tribunal issues its decision or award. If the Appellate
Tribunal considers that it cannot issue its decision or award within 180 days, it shall
inform the disputing parties in writing of the reasons for the delay together with an
estimate of the period within which it will issue its decision or award. Every effort
should be made to ensure that the appeal proceedings should not exceed 270 days.27
The Tribunals may only award (separately or in combination) monetary damages
and any applicable interest or restitution of property, in which case the award shall
provide that the respondent may pay monetary damages representing the fair market
value of the property at the time immediately before the expropriation, or impending
expropriation became known, whichever is earlier, and any applicable interest in lieu
of restitution, determined in a manner consistent with Article 8.12 (Article 8.39 (1)
CETA). According to Article 8.39(4) CETA, punitive damages are expressly
excluded.
Besides, the Tribunals shall order that the costs of the proceedings be borne by the
unsuccessful disputing party. In exceptional circumstances, the Tribunals may
apportion costs between the disputing parties if they determine that apportionment
is appropriate in the circumstances of the claim. Other reasonable costs, including
costs of legal representation and assistance, shall be borne by the unsuccessful
disputing party, unless the Tribunals determine that such apportionment is unrea-
sonable in the circumstances of the claim. If only parts of the claims have been
25
Ibid
26
EC proposal for a court system in TTIP, November 2015, Article 10 (12), http://trade.ec.europa.
eu/doclib/docs/2015/november/tradoc_153955.pdf
27
Annex to the Proposal for a Council Decision on the position to be taken on behalf of the
European Union in the CETA Joint Committee established under the Comprehensive Economic and
Member States, of the other part as regards the adoption of a decision setting out the administrative
and organizational matters regarding the functioning of the Appellate Tribunal, COM(2019) 457
final, Brussels, 11 October 2019, Article 3(5), https://eur-lex.europa.eu/legal-content/EN/TXT/
HTML/?uri=CELEX:52019PC0457&from=EN
successful, the costs shall be adjusted, proportionately, to the number or extent of the
successful parts of the claims (Article 8.39 (5) CETA).
Finally, according to Article 8.26 CETA, a disputing party is required to disclose
to the other disputing party and to the Tribunal the name and address of a third-party
funder (TPF).
Novel Procedural Aspects of the ICS
The ICS contains several noteworthy procedural aspects, which will be highlighted
in the following section.
Selection of ICS Members

One of the major innovations of the ICS compared to the existing ISDS system is the
pre-selection of the members of the ICS by the Contracting Parties alone. This is in
stark contrast to one of the hallmarks of the current ISDS system, which is the party
autonomy giving each disputing party the freedom to select an arbitrator of their
choice.
Accordingly, investors/claimants will have no involvement in the selection of the
TFI and AT members, while all the appointments will be made by the CETA
Contracting Parties, (in the case of CETA by the EU, the Member States, and
Canada). Clearly, while the TFI and AT members are required to possess certain
qualifications and be independent and impartial (as discussed in more detail in the
next section), these appointments will very likely be political decisions. It is
expected that the CETA Contracting Parties will have regard to the fact that they
will potentially be Respondents at some point in the future when appointing the TFI
and AT members. Consequently, they will appoint those who, while independent,
may be considered more likely to be sympathetic to the Respondent’s positions. It is
therefore arguable that the ICS could be perceived to be in favor of the Respon-
dent.28 In order to avoid such “pro-State” biased perceptions, Contracting Parties
may consider it important that “their” investors actually get a fair trial at the ICS and
therefore may be inclined to avoid appointing persons who are perceived to be too
much “pro-State” biased.
Indeed, in order to increase the authority of the ICS and to avoid a “pro-State”
biased perception of it, it is absolutely necessary to select all ICS members in a
28
See, e.g., G. Kaufmann-Kohler and M. Potestà, The Composition of a Multilateral Investment
Court and of an Appeal Mechanism for Investment Awards, CIDS Supplemental Report, 15
November 2017, http://www.uncitral.org/pdf/english/workinggroups/wg_3/CIDS_Supplemental_
Report.pdf; American Bar Association, The Investment Treaty Working Group Task Force on the
Investment Court System Proposal, 14 October, 2016, https://gallery.mailchimp.com/
aee5b715166a845543ec9bcfb/files/ABA_ITWG_Investment_Court_Discussion_Paper_2016_10_
14.pdf; EFILA Task force paper regarding the proposed International Court System (ICS), 1
February 2016, https://efila.org/wp-content/uploads/2016/02/EFILA_TASK_FORCE_on_ICS_pro
posal_1-2-2016.pdf
850 N. Lavranos
transparent manner, for example, by involving users in the selection process.29 This
could increase the authority of the ICS and help minimize the risk of a perception of,
or actual, “pro-State” bias. So far, however, the CETA parties have not yet adopted
any procedures to mitigate this risk.
Qualification of ICS Members and Code of Conduct

Another set of aspects concerns the qualification of the ICS members, ethics, gender,
and age.
According to Article 8.27 (4) CETA, TFI members:
[. . .] shall possess the qualifications required in their respective countries for appointment to
judicial office or be jurists of recognised competence. They shall have demonstrated
expertise in public international law. It is desirable that they have expertise in particular, in
international investment law, in international trade law and the resolution of disputes arising
under international investment or international trade agreements.
Regarding AT members, Article 8.28 (4) CETA simply states that:
The Members of the Appellate Tribunal shall meet the requirements of Article 8.27(4) and
comply with Article 8.30 [which deals with ethics].
Prima facie, there seems to be no formal difference regarding their qualifications

between TFI and AT members. The question thus arises whether there is a qualitative
difference between the members selected for the TFI and the members of the AT. In
other words, will AT members be “better” or will they be able to deliver “better”
decisions as compared to the TFI members?
This is in contrast to other judicial systems with an appellate court. For example,
within the context of the CJEU, regarding the qualifications for the General Court,
which operates as the first-tier court, judges must meet the requirements for a high
judicial office in their respective legal system,30 while judges for the CJEU, which
operates as the appellate court, must meet the requirements for being eligible for the
highest judicial offices in their respective legal system.31
Also, it should be noted that there are huge differences within the EU Member
States regarding the qualifications for judicial offices. In some Member States,
freshly graduated lawyers can qualify for judicial offices, whereas in others addi-
tional training and qualifications are required. Even more differences arise when the
qualifications of Canadian judges and third State judges are taken into account.
29
R. Gulati and N. Lavranos, Guaranteeing the independence of the judges of a Multilateral
Investment Court: A must for building the Court’s credibility, Columbia FDI Perspectives on
topical foreign direct investment issues No. 262, 7 October 2019, http://ccsi.columbia.edu/files/
2018/10/No-262-Gulati-and-Lavranos-FINAL.pdf
30
See Article 254 TFEU.
31
Regarding their requirements, judges and advocates-general of the CJEU must possess the
qualifications required for appointment to the highest judicial offices in their respective countries
or be jurisconsults of recognized competence (Article 253 TFEU and Article 19 TEU).
Thus, the question arises whether it should not be preferable that higher qualifi-
cations are required for AT members. Also, the fact that expertise in investment law
is not mandatory but merely “desirable” certainly does not help to increase the level
of quality of ICS members. More generally, it seems that these criteria are very much
focused on domestic judges who rarely are confronted with public international law
and international investment law issues and thus lack the expertise and experience,
which seasoned arbitrators have obtained over the years.
As far as ethics are concerned, Article 8.30 (1) CETA reads as follows:
1. The Members of the Tribunal shall be independent. They shall not be affiliated with any
government. They shall not take instructions from any organisation, or government with
regard to matters related to the dispute. They shall not participate in the consideration of any
disputes that would create a direct or indirect conflict of interest. They shall comply with the
International Bar Association Guidelines on Conflicts of Interest in International Arbitration
or any supplemental rules adopted pursuant to Article 8.44.2. In addition, upon appointment,
they shall refrain from acting as counsel or as party-appointed expert or witness in any
pending or new investment dispute under this or any other international agreement.
Footnote 12, which is attached to this provision further, states that:
For greater certainty, the fact that a person receives remuneration from a government does
not in itself make that person ineligible.
This “clarification” apparently aims at ensuring that civil servants, such as

university professors or diplomats, can be appointed as ICS members. However,
the premise of this footnote may be practically unworkable. To allow paid govern-
ment officials, employees or consultants to become TFI or AT members could
undermine the requirements of non-affiliation with any government and indepen-
dence as stated in Article 8.30 (1) CETA, in particular because their existing loyalty
toward the government which pays them cannot be ignored. In fact, this footnote
opens up the door for appointments of pro-State biased members or at least persons
who may not be in an unfettered position to render decisions against their employer.
Notably, this provision is in contrast with the unambiguous requirement for WTO
AB members who shall be “unaffiliated with any government” (Art. 17(3) DSU).
As far as conflicts of interest of ICS members are concerned, Article 8.30 CETA
provides for the possibility for a disputing party to challenge ICS members by
inviting the President of the International Court of Justice (ICJ) to issue a decision
on the challenge of the appointment of an ICS member.
If, within 15 days from the date of the notice of challenge, the challenged ICS
member has elected not to resign from the division, the President of the ICJ may,
after receiving submissions from the disputing parties and after providing the ICS
member an opportunity to submit any observations, issue a decision on the chal-
lenge. The President of the ICJ shall endeavor to issue the decision and to notify the
disputing parties and the other members of the division within 45 days of receipt of
the notice of challenge. A vacancy resulting from the disqualification or resignation
of a member of the Tribunal shall be filled promptly.
852 N. Lavranos
Most recently, the EU has agreed to propose to Canada a Code of Conduct for ICS
members, which encompasses additional and more specific obligations.32 For exam-
ple, the disclosure obligations require ICS candidates to disclose to the CETA
Contracting Parties:
[. . .] any past and present interest, relationship or matter that is likely to affect, or that could
reasonably be seen as likely to affect, their independence or impartiality, that creates or could
reasonably be seen as creating a direct or indirect conflict of interest, or that creates or might
reasonably be seen as creating an appearance of impropriety or bias. To this end, candidates
shall make all reasonable efforts to become aware of any such interests, relationships or
matters. The disclosure of past interests, relationships or matters shall cover at least the last
five years prior to a candidate submitting an application or otherwise becoming aware that he
or she is under consideration for selection as a Member.
In addition to these disclosure obligations, the Code of Conduct also states that:
[. . .] 1. Members shall be and shall appear to be independent and impartial and shall avoid
direct and indirect conflicts of interest.
2. Members shall not be influenced by self-interest, outside pressure, political consider-
ations, public clamour, loyalty to a Party, disputing party or any other person involved or
participating in the proceeding, fear of criticism or financial, business, professional, family
or social relationships or responsibilities.
3. Members shall not, directly or indirectly, incur any obligation, accept any benefit, enter
into any relationship, or acquire any financial interest that is likely to affect or appear to
affect their independence or impartiality.
4. Members shall not engage in ex parte contacts concerning the proceeding.
5. Members shall perform their duties thoroughly and expeditiously throughout the
course of the proceeding and shall do so with fairness and diligence.
6. Members shall consider only those issues raised in the proceeding and which are
necessary for a decision or award and shall not delegate this duty to any other person.
7. Members shall take all appropriate steps to ensure that their assistants are aware of, and
comply with, Articles 2 (Responsibilities to the Process), 3(2) and (3) (Disclosure Obliga-
tions), 4(1)-(5) (Independence and Impartiality and Other Obligations of Members), 5(1) and
(3) (Former Members) and 6 (Confidentiality) of this Decision mutatis mutandis.
8. Members shall take appropriate account of other dispute settlement activities
under the Agreement and, in particular, of decisions or awards rendered by the Appellate
Tribunal.
Moreover, the proposed Code of Conduct also imposes certain additional obli-
gations on the ICS members even after their tenure. More specifically, ICS members
may not act as representatives of any of the disputing parties in investment disputes
32
EC Proposal for a Council Decision on the position to be taken on behalf of the European Union
in the Committee on Services and Investment established under the Comprehensive Economic and
Member States, of the other part of the other part as regards the adoption of a code of conduct for
Members of the Tribunal, the Appellate Tribunal and mediators, COM(2019) 459 final, Brussels, 11
October 2019,
https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1571043572892&uri=COM:2019:459:FIN
before the Tribunal or the Appellate Tribunal for a period of 3 years after the end of
their term.
In addition, former ICS members shall not become involved after the end of their
term:
(a) in any manner whatsoever in investment disputes which were pending before the
Tribunal or the Appellate Tribunal before the end of their term;
(b) in any manner whatsoever in investment disputes directly and clearly connected
with disputes, including concluded disputes, which they have dealt with as
Members of the Tribunal or the Appellate Tribunal.
Finally, strict confidentiality obligations are imposed on (former) ICS members

and former members as regards the cases, which they have dealt with.
It is noteworthy that so far the CETA ICS rules lack any provisions for equal
distribution of gender of ICS members. There is an ongoing focus on diversity (of all
types) in international bodies and tribunals (see, e.g., the GQUAL and the Equal
Representation in Arbitration campaigns), and one of the critiques of the current
system has been that in many cases only white males from the Western hemisphere
are selected as arbitrators. A provision which would direct the Contracting Parties to
ensure that a proper gender balance is achieved when making the selection of ICS
members would be helpful to change the current situation.
There is also no mention of any age limit for the ICS members when they are
appointed. While there is no retirement age limit, for example, for WTO AB
members or ICJ judges, there is one for the European Court of Human Rights
(70 years) as well as in many domestic jurisdictions. In order to achieve also
diversity in terms of age and experience, it may be helpful to take this element
into account when making the selection of the TFI and AT members.
Applicable Law and Scope of Review

First of all, regarding the applicable law, Article 8.31 CETA states that the TFI and
AT shall interpret CETA in accordance with the Vienna Convention on the Law of
Treaties and other rules and principles of international law applicable between the
CETA Contracting Parties.
Secondly, the same provision makes clear that the TFI and AT shall not have
jurisdiction to determine the legality of a measure, alleged to constitute a breach of
CETA, under the domestic law of a Party.
Thirdly, the same provision continues by stating that:
[. . .] for greater certainty, in determining the consistency of a measure with CETA, the
Tribunals may consider, as appropriate, the domestic law of a Party as a matter of fact. In
doing so, the Tribunals shall follow the prevailing interpretation given to the domestic law
by the courts or authorities of that Party and any meaning given to domestic law by the
Tribunals shall not be binding upon the courts or the authorities of that Party.
The first question that arises is, what does “domestic law” mean for the EU and its
Member States? Does it also include EU law provisions – and if so, both primary and
854 N. Lavranos
secondary EU law? This is important because the TFI is apparently allowed to

interpret “domestic law” as a “matter of fact.” If “domestic law” includes EU law,
this would mean that the TFI would be in a position to interpret and apply EU law
(including the jurisprudence of the CJEU) as a “matter of fact.”
However, in its Opinion 1/17 on the CETA ICS, the CJEU made crystal clear that
the TFI and AT do not have jurisdiction to interpret and apply EU law in a binding
manner.33
Nonetheless, it seems that the broad grounds of appeal, which include also a
review of any “manifest errors” of the TFI regarding the “appreciation of the facts,
including the appreciation of relevant domestic law,” arguably, encompasses also EU
law as far as the EU and its Member States are concerned. Accordingly, and in
contrast to the conclusion of the CJEU, it is submitted that the AT would be able to
review to what extent the TFI misunderstood EU law – in the context of the
appreciation of facts, including relevant domestic law.
Since Article 8.31(2) CETA states that “any meaning given to domestic law by
the Tribunal shall not be binding upon the courts or the authorities of that Party,” the
question arises: what would be the legal and political value of any decisions of the
TFI and AT? And what does this mean in terms of recognition and enforcement in
the EU and its Member States of any such decisions based on a determination of EU
law within the context of the appreciation of the facts? Could the domestic courts of
EU Member States refuse the recognition and enforcement of any such decisions by
claiming they are not binding on them or that they are in violation of EU law and thus
against the ordre public?
Joint Binding Interpretation

Another interesting new procedural tool that is worth mentioning is the possibility
which Article 8.31(3) CETA gives to the CETA Contracting Parties of adopting joint
binding interpretations regarding the investment protection and ICS provisions of
CETA.
This procedural tool in itself is not new as the NAFTA FTC Notes of Interpre-
tation of 2001 shows.34 But the interesting aspect in CETA is that the Contracting
Parties can also determine the “specific date” for the binding effect of such joint
binding interpretations. Since there is no bar to fixing that date in the past, it is
possible that the CETA Contracting Parties may apply such decisions with retroac-
tive effect. Indeed, this has been confirmed in discussions with the EC. As a result,
the CETA Contracting Parties – which at the same time are also potential Respon-
dents – can effectively intervene in ongoing disputes by adopting binding interpre-
tations with retroactive effect that can alter the outcome of those disputes.
33
CJEU, Opinion 1/17 CETA ICS, para. 136: “It follows from the foregoing that Section F of
Chapter Eight of the CETA does not confer on the envisaged tribunals any jurisdiction to interpret or
apply EU law other than that relating to the provisions of that agreement.” See also, N. Lavranos,
Opinion 1/17, op cit.
34
NAFTA Notes of Interpretation of Certain Investment Provisions, NAFTA Free Trade Commission
(FTC) 31 July 2001, http://www.sice.oas.org/tpd/nafta/Commission/CH11understanding_e.asp
Wisely, the CJEU concluded that such retroactive intervention is not reconcilable
with the most fundamental Rule of Law principles. Indeed, in its Opinion 1/17 the
CJEU emphasized that, while Article 8.31(3) CETA does not expressly prohibit the
retroactive effect of such binding interpretations, EU law prohibits the EU from giving
its consent to binding interpretations with retroactive effect. Consequently, the EU can-
not agree to binding interpretations regarding disputes that have been resolved or
brought to the CETA tribunals prior to the adoption of such interpretations.35
Despite this the clear prohibition on the retroactive effect of binding interpreta-
tions imposed by the CJEU, the recent proposal of the EU regarding the Rules of
Procedure for the adoption of joint binding interpretations, which dates from after
Opinion 1/17 of the CJEU, still continues to ignore the CJEU’s prohibition on the
retroactive effect when it states that:
the CETA Joint Committee may decide that an interpretation shall have binding effect from a
specific date.36
In short, the ICS as included in CETA and the other recent EU FTAs contain
several novel features which significantly depart from the classic ISDS system.
Clearly, these novel features all aim to institutionalize the dispute settlement system
and give Contracting Parties, which are at the same time also potential Respondents,
more control over the whole procedure while taking away procedural rights from the
investor/claimants.37
This clearly carries the risk that the ICS could be perceived as “pro-State” biased
and thus will not gain any acceptance by the users.
Doubts Regarding the Recognition and Enforcement of ICS/MIC

Decisions
For any judicial system, effective recognition and enforcement of (foreign) awards
or judgments is of paramount importance. This certainly holds true for investment
treaty arbitration awards.
The New York Convention of 1958, which has been ratified by more than 150
States in the world, ensures that non-ICSID awards can be recognized and enforced
35
CJEU Opinion 1/17 CETA ICS, paras. 236–237
36
Proposal for a Council Decision on the position to be taken on behalf of the European Union in the
CETA Joint Committee established under the Comprehensive Economic and Trade Agreement
(CETA) between Canada, of the one part, and the European Union and its Member States, of the
other part as regards the adoption of a decision on the procedure for the adoption of interpretations
in accordance with Articles 8.31.3 and 8.44.3(a) of CETA as Annex to its Rules of Procedure, COM
(2019) 458 final, Brussels, 11 October 2019,
https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1571043334446&uri=COM:2019:458:FIN
37
See further, Lavranos (2016).
856 N. Lavranos
worldwide through domestic courts of the parties to the New York Convention.38
Similarly, the ICSID Convention, which has also been ratified by more than 150
States, guarantees that final ICSID awards can be automatically recognized and
enforced throughout the world.39
The question arises whether ICS/MIC decisions would fall within the scope of the
New York or ICSID Conventions in order to ensure their effective recognition and
enforcement worldwide. Article 8.44 CETA deals with this issue as follows:
1. An award issued pursuant to this Section shall be binding between the disputing parties
and in respect of that particular case.
[. . .]
4. Execution of the award shall be governed by the laws concerning the execution of
judgments or awards in force where the execution is sought.
5. A final award issued pursuant to this Section is an arbitral award that is deemed to
relate to claims arising out of a commercial relationship or transaction for the purposes of
Article I of the New York Convention.
6. For greater certainty, if a claim has been submitted pursuant to Article 8.23.2(a), a final
award issued pursuant to this Section shall qualify as an award under Chapter IV, Section 6
of the ICSID Convention.40
Accordingly, the CETA Contracting Parties simply declare that an ICS award is
“deemed” to fall within the scope of the New York Convention or “shall qualify” as
an ICSID award under the ICSID Convention.
However, for the following reasons, one can seriously question whether that is
actually the case. As regards the New York Convention, it is already questionable
whether the ICS procedure can still be qualified as an arbitration procedure. This is
particularly so since one of the disputing parties, namely, the claimant, cannot select
anymore one of the three arbitrators. In fact, the ICS is more akin to an international
court such as the CJEU or ECtHR rather than an arbitral tribunal. Moreover, it is
questionable whether the decisions rendered by the ICS can be qualified as “arbitral
awards” or rather must be considered as “court judgments.” In addition, the fact that
the ICS contains an appeal mechanism is against the very idea of a one-shot
arbitration procedure.
As regards the ICSID Convention, the doubts are even more serious due to the
fact that the ICSID Convention is a self-contained regime.41 As in the case of the
New York Convention, it is very questionable whether an ICS award can be qualified
as an “ICSID award,” in particular if it has not been rendered on the basis of the
38
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958,
http://www.newyorkconvention.org/new+york+convention+texts
39
ICSID Convention 1966, https://icsid.worldbank.org/en/Pages/icsiddocs/ICSID-Convention.aspx
40
Emphasis added
41
See, Parra (2017).
ICSID Convention but rather on the rules of procedure contained in CETA, which
significantly deviate from the ICSID Convention.
However, the most problematic issue concerns the tension between the broad
appeal procedure under the ICS and the very limited annulment procedure under the
ICSID Convention. According to Article 53 (1) ICSID Convention:
The award shall be binding on the parties and shall not be subject to any appeal or to any
other remedy except those provided for in this Convention. Each party shall abide by and
comply with the terms of the award except to the extent that enforcement shall have been
stayed pursuant to the relevant provisions of this Convention.42
Clearly, the appeal procedure under the ICS is incompatible with this provision. This
is even more so considering the fact that – as mentioned above – the grounds of
appeal in Article 52(1) ICSID are very limited compared to the broad grounds of
appeal under the ICS procedure.
In addition, one may question the characterization of the ICS members as
“arbitrators” within the meaning of the ICSID Convention, in particular if they
would be full-time employed by the ICS and paid by the Contracting Parties,
which are also potentially Respondents in ICS proceedings. Indeed, ICS members
share most of the characteristics of judges/members of other international courts or
tribunals, such as the WTO Appellate Body or the CJEU.
For all these reasons, the simple declaration by the CETA Contracting Parties that
the ICS decisions are “deemed” to fall within the scope of the New York or that they
“qualify” as awards under the ICSID Convention is clearly insufficient in order to
guarantee their effective recognition and enforcement. The ICS is a new kind of
hybrid sui generis semipermanent court-like dispute settlement mechanism, which
simply does not fit into the existing conventions, thereby creating legal uncertainty
and doubts as to the recognition and enforcement of ICS decisions.
Moreover, as far as the New York Convention is concerned, the views of the
domestic courts of the more than 150 Contracting Parties to the New York Conven-
tion as to whether or not ICS decisions can be “deemed” to fall within scope of the
New York Convention will most likely be divergent. For example, a domestic court
in Switzerland may indeed consider an ICS decision to fall within the scope of the
New York Convention, whereas a court in Singapore comes to the opposite
conclusion.
Consequently, in order to remove any doubts and to create legal certainty to
claimants, it is necessary that a new convention is agreed upon that would cater for
the specific characteristics of the ICS decisions. In any event, until a sufficiently
large number of States have ratified such a new convention, the attractiveness of the
ICS for investor/claimants will remain very limited.
42
Emphasis added
858 N. Lavranos
The UNCITRAL Negotiations Toward a MIC
As mentioned above, the UNCITRAL Working Group (WG) III received a mandate
to work on the reform of the ISDS system in three phases, namely:
(i) identify and consider concerns regarding investor-State dispute settlement;

(ii) consider whether reforms are desirable in light of the identified concerns;
(iii) if the working group were to conclude that reform is desirable, develop and
recommend any relevant solutions.
In line with the EU’s push to replace the ISDS system with the ICS in its new
bilateral trade and investment agreements such as in CETA, it also started in parallel
to campaign for a multilateral investment court (MIC).43
EU’s initiative was also strongly supported by Canada and Mauritius. However,
the WG had a difficult start since there was a fight between the majority of States,
which favored fast and substantial reforms, and a minority of States – primarily
Japan and the USA – that oppose these plans. These opposing views had temporarily
blocked the election of the chair of the WG.
However, in the end, the EU, Canada, Mauritius, and their allies managed to get
Canadian investment treaty negotiator Shane Spelliscy voted as chairman of the WG.
Spelliscy, having negotiated for Canada the CETA deal and in particular the ICS as a
replacement of the ordinary ISDS system, is someone who naturally supports EU’s
reform efforts. This obviously already tilted the balance for the future work of the WG
in favor of the EU, Canada, and Mauritius and thus also in favor of creating a MIC.
In the subsequent meetings throughout 2018 and 2019, the large majority of the
WG members identified a whole range of concerns regarding the ISDS system and
concluded that there is indeed a need to reform it. Obviously, with more than 100
delegations and dozens of NGOs as observers in the room, there was a wide variety
of views ranging from minor, incremental changes to the current ISDS system to a
complete overhaul of it and replacement with a complete new permanent structure
such as the MIC.
In order to overcome the resistance of the few countries that refused to embrace
EU’s MIC proposal, the WG had agreed to continue its work on the basis of two
workstreams. The first workstream would deal with incremental reforms, while the
second workstream would discuss “structural reforms,” i.e., the creation of a MIC.44
During the October 2019 meeting, the WG completed the first workstream by
broadly agreeing on the following incremental reform items.
43
Submission from the European Union and its Member States, A/CN.9/WG.III/WP.159/Add.1, 24
January 2019, https://undocs.org/en/A/CN.9/WG.III/WP.159/Add.1
44
See Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its
37th session (New York, 1–5 April 2019), A/CN.9/970, 9 April 2019, https://undocs.org/en/A/CN.
9/970. See also, the Annotated provisional agenda for the 38th session (resumed) Vienna, 20–24
January 2020, A/CN.9/WG.III/WP.184, 25 October 2019, https://undocs.org/en/A/CN.9/WG.III/
WP.184
Advisory Centre for Investment Disputes
The Working Group members agreed to establish a body that mirrors the
Advisory Centre at the World Trade Organization (WTO), which provides legal
assistance to developing countries involved in WTO disputes.45 The Advisory
Centre for Investment Disputes would have to be largely financed by contribu-
tions of developed countries – as is the case for the WTO Advisory Centre.
However, the details still need to be worked out. There was no general agreement
yet as to whether small- and medium-sized enterprises (SMEs) would also be
able to use this Centre, as was suggested by some WG members. This would
address one of the concerns regarding the current ISDS system, namely, the
limited accessibility of the ISDS system due to the high legal costs associated
with investment disputes.
Code of Conduct for Arbitrators
The Working Group also broadly agreed that a binding Code of Conduct for
arbitrators is required, which is backed up by a robust, enforceable sanctioning
regime. There already exist many such codes – for example, the one of the Interna-
tional Bar Association (IBA)46 – to which recent investment treaties such as CETA
refer to.47 But there was a widespread perception among State delegates that the
existing codes of conduct lack bite.
Proposals were made for imposing significant sanctions against arbitrators
such as removing them from the bar and requiring them to pay back any money
they have earned in the course of the arbitration in question. The need was
emphasized to make such a code of conduct legally binding by way of an
international treaty, which would be applicable to all investment treaty arbitra-
tions. At the same time, it was agreed that maximum consistency with existing
codes of conduct should be sought in order to avoid fragmentation and divergent
obligations for arbitrators.
45
See for details of the WTO Advisory Centre, https://www.acwl.ch/
46
IBA ‘Guidelines on Conflicts of Interest in International Arbitration’ 2014 (updated 2015), https://
www.ibanet.org/ENews_Archive/IBA_July_2008_ENews_ArbitrationMultipleLang.aspx
47
See, e.g., Article 8.30 (Ethics) CETA
1. The Members of the Tribunal shall be independent. They shall not be affiliated with any
government. 10 They shall not take instructions from any organisation, or government with regard
to matters related to the dispute. They shall not participate in the consideration of any disputes that
would create a direct or indirect conflict of interest. They shall comply with the International Bar
Association Guidelines on Conflicts of Interest in International Arbitration or any supplemental
rules adopted pursuant to Article 8.44.2. In addition, upon appointment, they shall refrain from
acting as counsel or as party-appointed expert or witness in any pending or new investment dispute
under this or any other international agreement. [emphasis added].
860 N. Lavranos
Third-Party Funding (TPF)
The Working Group largely agreed that third-party funding (TPF) must be regulated
in much more detail than so far. However, views among delegations were quite
diverse. Some delegations called for a complete ban of all types of third-party
funding. Others stressed the need to keep the current system because it enables
investors, who otherwise would be unable to bring a claim against a State, to do so
with the help of the TFP. This is seen by many delegations as an important tool to
guarantee access to justice, in particular for SMEs, which without TPF would be
unable to bring a claim against a State.
Nonetheless, there was broad agreement that, as a minimum, claimants must
disclose the fact that they are using a TPF and must disclose the name of the funder.
Other delegations called for more far-reaching obligations such as full disclosure of
the whole funding agreement. The middle-ground position taken by most delega-
tions was that the funding agreement should only be disclosed if ordered by the
tribunal. This item was linked with the Code of Conduct of arbitrators in the sense
that any links between arbitrators and third-party funders regarding a specific dispute
should be disclosed as well.48
Interestingly, States were far less inclined to apply the same disclosure obliga-
tions when they use TPF themselves. This was, for instance, the case of Uruguay,
which accepted a huge sum from Mike Bloomberg and Bill Gates in order to pay its
defense against Philip Morris in the dispute regarding the plain packaging of
cigarettes.49 The reason given for this different approach was that the gift by
Bloomberg and Gates was of “philanthropic nature,” while third-party funders
usually fund a case with the aim of making a profit.
Be that as it may, there was broad consensus that TPF should be further regulated.
This is also in line with, for example, CETA and other recent agreements, which
already require the disclosure of the name of the TPF.50
48
See, L. Bohmer, Analysis: In newly-obtained ruling, tribunal considers that arbitrator’s relation-
ship to litigation funder must be disclosed, but non-disclosure does not, by itself, warrant disqual-
ification; Spain responds by bringing a second challenge this week, IAReporter, 11 Dec 2019,
https://www.iareporter.com/articles/analysis-in-newly-obtained-ruling-tribunal-considers-that-arbi
trators-relationship-to-litigation-funder-must-be-disclosed-but-non-disclosure-does-not-by-itself-
warrant-disqualification/
49
See, K. Savchuk, Michael Bloomberg And Bill Gates Launch $4 Million Legal Fund To Fight
Tobacco Industry, Forbes, 18 March 2015, https://www.forbes.com/sites/katiasavchuk/2015/03/18/
michael-bloomberg-and-bill-gates-launch-4-million-legal-fund-to-fight-tobacco-industry/#6f93b14
a2dfd
50
See, e.g., Article 8.26 (Third party funding) CETA
1. Where there is third party funding, the disputing party benefiting from it shall disclose to the
other disputing party and to the Tribunal the name and address of the third-party funder.
2. The disclosure shall be made at the time of the submission of a claim, or, if the financing
agreement is concluded or the donation or grant is made after the submission of a claim, without
delay as soon as the agreement is concluded or the donation or grant is made.
In sum, despite a high-level agreement by a vast majority of the WG members on

these incremental reforms, a lot more detailed work will be required in order to
actually implement them. However, the most difficult discussion on ISDS reform
still lies ahead, which will start at the next meeting in January 2020, when the WG
must decide whether, and if so, in which shape and form, a MIC or some sort of
permanent appeal mechanism should be established.
There is still significant resistance by Japan, Chile, Israel, and the USA against the
MIC as proposed by the EU.51 Interestingly, China has proposed a middle way by
suggesting the creation of a permanent appeal mechanism while leaving the arbitra-
tion tribunals as first instance tribunals intact as they currently exist.52
Although, the outcome of these negotiations is still very much open, it has been
suggested that any MIC would be established by way of an opt-in treaty, similar to
the 2014 UNCITRAL Transparency Rules Convention (known as the Mauritius
Convention).53 Such an opt-in treaty would give maximum flexibility to the States
by allowing them to decide whether or not to accept the jurisdiction of the MIC and,
if they do, for which investment treaties it should apply, i.e., for all or only for those
concluded after the MIC has been created. At the same time, the opt-in treaty
approach allows the EU and the other States that support the MIC to move forward
without being slowed down by those States that are not yet convinced about the
necessity of the MIC.
Thus, it seems likely that only a handful of States would opt into the MIC – at
least initially. The most obvious candidates are the EU and its Member States,
Canada, Mauritius, and some other States. Thus, a large number of States will
presumably continue to operate under the current (albeit slightly reformed) ISDS
system for some time. Consequently, two parallel dispute settlement systems for
investment treaty arbitration disputes will coexist for some years. This will likely
create more rather than less inconsistency, which is one of the concerns that is
perceived to be particularly in need to be addressed.
In sum, after some preliminary results have been achieved on a general high level,
the next couple years will be particularly decisive as to whether and, if so, in what
shape and form a MIC or some sort of permanent appeal mechanism will actually be
agreed upon and created.
51
See, for example, Submission from the Governments of Chile, Israel, Japan, Mexico and Peru,
A/CN.9/WG.III/WP.182, 2 October 2019, https://undocs.org/en/A/CN.9/WG.III/WP.182; Submis-
sion from the Governments of Chile, Israel and Japan, A/CN.9/WG.III/WP.163, 15 March 2019,
https://undocs.org/en/A/CN.9/WG.III/WP.163
52
Submission from the Government of China, A/CN.9/WG.III/WP.177, 19 July 2019, https://
undocs.org/en/A/CN.9/WG.III/WP.177
53
United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, New
York, 10 December 2014, https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_
no=XXII-3&chapter=22&clang=_en. At the time of writing only five States have ratified this
Convention and only 23 States have signed it.
862 N. Lavranos
Conclusion
Within a timespan of only a few years, the EU has been able to develop the ICS as an
alternative to the current ISDS system and convince several States to accept it in their
FTAs with the EU – at least on paper. While the ICS under CETA has yet to be
established (at the time of writing), the EU has in parallel also been able to introduce
the idea of an ICS as a MIC within the UNCITRAL Working Group III on ISDS
reforms.
It remains to be seen whether the MIC will actually gain sufficient traction among
the important economies in the world. Besides, also other less ambitious proposals
such as a permanent appeal mechanism have been floated, which could serve as an
intermediate step that could be implemented in the short-term while the MIC is
obviously a long-term project.
In any event, as has been indicated in the previous sections, there are several
problematic and as yet unresolved issues, such as the non-transparent selection
process of the ICS members with a potential of being pro-State biased, and doubts
as to the recognition and enforcement of ICS/MIC decisions, which hardly can be
compared with normal investment treaty awards. However, these unresolved issues
create legal uncertainty, which undermines the authority and acceptance of the ICS/
MIC in the perception of potential users. Therefore, it is of utmost importance that
these unresolved issues are clarified otherwise a dispute resolution body is created
that nobody will actually use.
Finally, on a more fundamental level, the question is whether the ICS/MIC is
indeed the panacea that will appease the critics of the current ISDS system or
whether it actually will create new problems?54 From the UNCITRAL Working
Group III discussions so far, it can be deduced that many States, NGOs, and
academics are not only demanding radical reforms at the procedural level but rather
call for a complete overhaul of the substantive protection standards by significantly
reducing the level of investment and investor protection. Some critics even call for a
complete destruction of the whole regime of investment treaties and arbitration.
However, despite the critique against the ISDS system, States continue to nego-
tiate and sign BITs and FTAs with – albeit slightly modified – classic ISDS pro-
visions.55 This proves that many States continue to see merit in BITs and FTAs and
expect a positive impact for the attraction of foreign direct investments.
54
See, e.g., Submission from the Government of Bahrain, A/CN.9/WG.III/WP.180, 29 August
2019, https://uncitral.un.org/sites/uncitral.un.org/files/wp_180_bcdr_clean.pdf
55
UNCTAD Issue note 3, Taking stock of IAA reform: Recent developments, June 2019, https://
unctad.org/en/PublicationsLibrary/diaepcbinf2019d5_en.pdf. The Issue note states that:
“In 2018, countries concluded 40 international investment agreements (IIAs): 30 bilateral
investment treaties (BITs) and 10 treaties with investment provisions (TIPs). This brought the
size of the IIA universe to 3317 agreements (2932 BITs and 385 TIPs). By the end of the year, at
least 2658 IIAs were in force.”
Cross-References
▶ From Arbitration to the Investment Court System (ICS): Comparing CETA,

EVIPA, and TTIP
▶ From Arbitral Tribunals to a Multilateral Investment Court: The European Union
Approach
▶ Mediation as an Alternative Method to Settle Investor-State Disputes
References
Chaisse J, Vaccaro-Incisa M (2018) The EU investment court: challenges on the path ahead.
Columbia FDI Perspect 218:1–3
Lavranos N (2016) How the European Commission and the EU member states are reasserting their
control over their investment treaties and ISDS rules. In: Kulick A (ed) States’ reassertion of
control over international investment agreements and international investment treaty dispute
settlement. Cambridge: Cambridge University Press, pp 309–332
Lavranos N (2019) CJEU Opinion 1/17: keeping international investment law and EU law strictly
apart. Eur Invest Law Arbitr Rev 4:240–259
Parra A (2017) The history of ICSID, 2nd edn. Oxford: Oxford University Press
Corruption in Investor-State Arbitration:
Balancing the Scale of Culpability 35
Ayodeji Akindeire
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 866
Corruption as a “Shield” and a “Sword” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869
Standards and Burden of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871
Balancing the Scale of Culpability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 873
Legal Consequences of Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 873
State Responsibility for Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 875
Arbitrator’s Practical Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 877
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879
Abstract
This chapter will give a general background and overview of the subject matter of
“corruption” in investor-State arbitration, including a critical examination of the
standard and burden of proof in allegations of corruption and fraud in the
underlying investment. Essentially, the main emphasis and arguments of this
chapter will focus on a very important and widely occurring but rarely discussed
aspect of corruption in investor-State claim – which is the need for the tribunals to
adopt a balanced approach in addressing the issue of corruption as it relates to
both the investor and the host State. This is because a vast majority of Investor-
State Dispute Settlement (ISDS) cases reveal that many tribunals tend to adopt a
lope-sided approach whereby an investor bears the brunt by losing the protection
afforded under a bilateral investment treaty (BIT) whenever a host State relies on
corruption as a “defense” to a claim, thereby undermining the involvement of the
A. Akindeire (*)
American University Washington College of Law, Washington, DC, USA
e-mail: akindeireayodejik@gmail.com

https://doi.org/10.1007/978-981-13-3615-7_111
866 A. Akindeire
host State which is equally complicit in the alleged corrupt act(s). Many tribunals
appear to ignore this glaring reality and even very little commentaries have been
written on it in academic literatures. This chapter further argues that both the
investor and the host State should be made to face the investment arbitration-
specific consequences and neither party should be exculpated. Finally, this
chapter will also argue that there are a number of practicable ways through
which a tribunal can castigate a host State on allegations of corruption on its
part or that of its official(s).
Keywords
Corruption · Investor-State arbitration · Standard and burden of proof ·
Consequences of corruption · Balancing the scale of culpability
Introduction
“Corruption” is a phenomenon with multifaceted moral underpinnings. As far

reaching as its effect is in every human society, its meaning cannot be conceptualized
in absoluteness because it manifests in various dimensions. Etymologically, the
word “corruption” is traceable to the Latin word corrumpere (com- + rumpere),
which means to break.1 Corruption is the act of doing something with an intent to
give some advantage inconsistent with official duty and the rights of others, a
fiduciary’s or official’s use of a station or office to procure some benefit either
personally or for someone else, contrary to the rights of others.2 From the above
terse demystification of the concept of corruption, it is crystal clear that the principal
factor to be considered in the act of corruption is an inducement flowing from one
party to the other in order to show favor. Basically, corruption is not a show of favor
per se but an inducement by one party to obtain a favor from another.3 Corruption
simply entails the abuse of a duty owed to the public or a third person.
Further to the above, corruption remains largely a very topical issue in the realm
of international foreign investment.4 Particularly, in ISDS cases various international
investment tribunals have been faced with allegations of corruption in the underlying
investment in which the general trend has been the dismissal of an investor’s claim
1
Nicholls C et al. (2006) Corruption and the misuse of public office, 1st edn. Oxford University
Press, para. 1.01
2
Garner BA Black’s law dictionary, 8th edn. p 371
3
See Kraft D (2009) English private law and corruption: summary and suggestions on the devel-
opment of European Private Law. In: Meyer O (ed) The civil consequence of corruption. Nomos,
p 207.
4
See in this Handbook, the chapter by Krista Nadakavukaren Schefer on ▶ Chap. 36, “Crime in
International Investment Arbitration.”
35 Corruption in Investor-State Arbitration: Balancing the Scale of. . . 867
without imposing any form of penalty on the host State, which is in pari delicto5 in
the corruption allegation. Perhaps, it is instructive now to consider the notorious case
of World Duty Free Co. Ltd V. Republic of Kenya6 where corruption came to the
fore of the investor’s claims before the Tribunal. The brief facts of the case and the
holding of the Tribunal are succinctly stated below.
In June 2000, World Duty Free Company Limited, a company incorporated in the
United Kingdom (“World Duty Free” or “the Claimant”), initiated ICSID proceed-
ings against the Republic of Kenya (“Kenya” or “the Respondent”). It alleged that
Kenya had breached contractual obligations it owed the Claimant and had illegally
taken the Claimant’s property when, in relevant part, Kenyan officials ordered in
1989 that a court-appointed official take over management and control of World
Duty Free. As a remedy, the Claimant sought restitution and damages, including lost
profits and exemplary damages. At issue was a 1989 contract (the “1989 Agree-
ment”) between the Claimant and Kenya, pursuant to which the Claimant would
construct, maintain and operate duty-free complexes at two airports in Kenya. The
1989 Agreement also contained an arbitration clause providing that, if there were a
dispute between the parties, the parties would submit it to ICSID for resolution by an
arbitral tribunal pursuant to the Convention on the Settlement of Investment Dis-
putes Between States and Nationals of Other States (the ICSID Convention).
In December 2002, the Claimant filed a document in the arbitral proceedings that
revealed the Claimant previously had made a covert payment to the former President
of Kenya, Daniel Arap Moi, in order to conclude the 1989 Agreement. Upon
discovery of that information, Kenya sought to dismiss the Claimant’s case on the
grounds that, because the relevant contract had been procured through payment of a
bribe, the contract was void and unenforceable as a matter of public policy. Based on
those developments, in December 2004 the Tribunal declared that the parties had to
address, and it had to decide, certain fundamental issues – namely, (1) whether a
bribe was paid by the Claimant to the former president, (2) if so, whether the 1989
Agreement was procured as a result of the bribe, and (3) if the Agreement had been
obtained by the bribe, whether it was valid and enforceable under applicable
domestic laws and public international law (para. 129).
Based on its assessment of the facts and relevant principles of domestic and
international law, the Tribunal held the Claimant had in fact procured the 1989
Agreement through a bribe to the former Kenyan President and that, consequently,
the Claimant had no right to pursue or recover under any of its pleaded claims, all of
which arose from that 1989 Agreement (para. 179).
5
Latin word meaning “equally in the wrong in the” or “in equal fault” https://en.wikipedia.org/wiki/
In_pari_delicto
6
ICSID Case No. ARB/00/7, Award (4 October 2006). Award available at https://www.italaw.com/
cases/3280
868 A. Akindeire
The above award, among similar others,7 has generated a lot of discourse both in
the academia and among practitioners alike. Surprisingly, a lot of emphasis has been
placed on the allegation of corruption, the burden and standard of proof,8 the duties
of the tribunal faced with the allegation9 and the consequential bar on the investor’s
claims,10 while the consequences of the same allegation for the Respondent-State
remains shrouded in obscurity. Perhaps, this is a subtle adoption of the Common
Law principle of the loss lies where it falls.11 It is the author’s concern that very little
has been said by commentators and tribunals about the Respondent-State whose
officials most times (if not all of the time) are the ones who induced the investor to
committing the corrupt act(s) in order to secure the investment. The focus has been
on the demand side of the equation, i.e., the public officials who flagrantly abuse
their office for personal gain rather than on those who pay the bribes, i.e., the
innocent parties forced by the ruthless officials to provide kickbacks.12
Interestingly, with the Tribunal’s award in Spentex V. Uzbekistan13 where it
found that the Claimant (investor) engaged in corrupt practices in the making of
the investment and consequently dismissed its claims, and – for the first time in the
history of investment arbitration – severely reprimanded the Respondent-State by
urging it to make a substantial payment to an international anti-corruption institution,
under threat of an adverse costs order if it fails to do so, there seems to be a pleasant
shift in the anti-corruption framework as both the investor and the Respondent-State
are now arguably subject to reprehension and sanctions. However, as a result of lack
of jurisprudence constante, investment arbitration tribunals still lag and dillydally on
how to deal with host-sates found wanting in allegations of corruption.
7
Siemens A. G. V. The Argentine Republic, ICSID Case No. ARB/02/8, Award (6 February 2007);
Azpetrol International Holdings B.V., Azpetrol Group B.V. and Azpetrol Oil Services Group B.V. V.
The Republic of Azerbaijan, ICSID Case No. ARB/06/15, Award (8 September 2009); Metal-Tech
Ltd V. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013)
8
See Haugeneder F (2009) Corruption in investor-state arbitration. J World Invest Trade 10(3):323–
339; Lamin CB, Moloo R, Pham HT (2010) Fraud and corruption in international arbitration. In:
Fernandez-Ballesteros MA, Arias D (eds) Liber Amicorum Bernardo Cremades. La Ley, Madrid,
pp 699–731.
9
Jones D (2012) The remedial Armoury of an arbitral tribunal: the extent to which tribunals can look
beyond the parties’ submissions, arbitration. Int J Arbitr Mediation Dispute Manag 78(2):102–122
10
Raouf MA (2009) How should international arbitrators tackle corruption issues? ICSID Rev –
Foreign Invest Law J 24(I):116–136. https://www.arbitration-icca.org/media/4/96147450128024/
media113534227575450abdel_raouf_how_should_international_arbitration_tackle_corruption_
issues.pdf
11
See Fibrosa Spolka Akcyjna V. Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4, where the
principle was enunciated to the effect that where a contract had been frustrated by a supervening
event, sums paid or rights accrued under the contract before the frustrating event occurs cannot be
reclaimed but that all obligations falling due after it are discharged.
12
Vogl F (1998) The supply side of global bribery. Financ Dev 35(2). https://www.imf.org/external/
pubs/ft/fandd/1998/06/vogl.htm
13
ICSID Case No. ARB/13/26 https://www.italaw.com/cases/2252
This chapter is structured into four parts. The first part addresses corruption as a
“shield” when raised by the host State as a defense to an investor’s claims and as a
“sword” when wielded by an investor as the basis of its claim against the host State.
The second part gives a critical analysis of the standard and burden of proof on
allegations of corruption and fraud in investment arbitration. The third part focuses
on balancing the scale of culpability first, with an argument on the legal conse-
quences of corruption; secondly, State responsibility for corruption; and thirdly,
recommendations on practical guide for arbitrators when dealing with the issues of
corruption in order to indeed balance the scale of culpability. Finally, the fourth part
gives a summary of the salient issues discussed in this chapter.
Corruption as a “Shield” and a “Sword”
It is not uncommon to see host States using allegations of corruption as a very

powerful weapon to defeat investors’ claims in investment arbitration in circum-
stances where foreign investors have obtained government contracts through cor-
ruption.14 As corruption has become a very dominant issue in international
investment arbitration, most arbitral tribunals have cultivated the culture of
accepting corruption as a defense strategy of host States even when both an investor
and the host State have perpetrated the corrupt acts.15 The host States do find
anchorage on the doctrine of unclean hands of which corruption is arguably part
even though it remains unsettled whether this doctrine is a general principle of
international law.16 A host State raises this defense at various junction, to wit:
jurisdiction,17 admissibility,18 or merits of the case. However, the outcome (which
is usually a dismissal of the claim) will always be the same regardless of whether the
allegation of corruption is treated as a matter of jurisdiction, admissibility or merits.
The above notwithstanding, it is noteworthy that corruption (as opposed to fraud
or illegality of investment) like a double-edged sword can be raised by either side to
the dispute. While it is usually being raised by the host State as a defense, it can
equally be raised by an investor as the basis of its claim so long as it is an
unconsummated act of corruption. However, while there are several cases where
host States have relied on corruption as a defense mechanism, there are only five
14
Hepburn J (2014) In accordance with which host state laws? Restoring the ‘Defence’ of investor
illegality in investment arbitration. J Int Dispute Settlement 5:531
15
Meshel T The use and misuse of the corruption defence in international investment arbitration.
J Int Arbitr 30, note 16 at 267, 274. See also Chaisse J (2020) Plea of illegality in international
arbitration. In: Fabri HR (ed) Max Planck encyclopedia of international procedural law. Oxford
University Press, London.
16
See Yukos Universal Limited (Isle of Man) V. The Russian Federation, UNCITRAL, PCA Case
No. AA 227, Final Award (18 July 2014), 1358–1363.
17
See Metal-Tech V. Uzbekistan ICSID Case No. ARB/10/3 (Award dated 4 October 2013).
18
See World Duty Free V. Kenya (supra).
870 A. Akindeire
reported cases till date where investors have used corruption as a sword,19 either as a
self-contained offense or as a contributory element of an offense. What investors
typically allege is attempted extortion by a host State’s public officials in violation of
the Fair and Equitable Treatment (FET) and Full Protection and Security (FPS)
guarantees of investment treaties.20 For instance, in EDF (Services) Limited V.
Romania,21 there was an alleged solicitation by the then Prime Minister of Romania
for a US$2.5 million bribe. When EDF Services refused to pay the bribe, it was
alleged that Romania through various governmental departments and regulatory
agencies took retaliatory action by engaging in a concerted effort to destroy EDF’s
business, resulting in a total loss of EDF’s operations. EDF claimed this was a breach
of the FET principles, among other things. While EDF’s claim ultimately failed for
other reasons, the EDF Tribunal affirmed as uncontroversial that in the context of an
investor claim, acts of corruption is a violation of international public policy,
whereby exercising a State’s discretion on the basis of corruption is a fundamental
breach of transparency and legitimate expectation.22
As shown above in EDF’s case and the four other cases earlier cited, investors
have relied on corruption as a sword but without success. Unfortunately, the entire
legal framework on corruption in ISDS cases is structured in a way that the host
States tend to benefit from an act of corruption in which they are equally culpable –
all to the detriment of the investors. For example, raising corruption as a sword by an
investor either by arguing that a State official took a bribe from a third party, as a
result of which the investor’s rights were affected, or that due to the investor’s
unwillingness to give a bribe its rights were affected may well incentivize the
Respondent-State or even the Tribunal (sua sponte) to make an inquisition into
potential misconduct on the part of the investor, thereby transforming corruption
from being an investor’s sword to becoming a shield used to defeat its claims. This
further reinforces the need to hold the host States liable on issues of corruption and
not just allow them take benefit of the corrupt acts when jointly orchestrated with the
investors. Transnational corruption is unlawful and immoral, and all parties involved
in the act should be sanctioned. It is important to mention that there have been no
reported cases where corruption has been used both as a shield and as a sword.
19
See Rumeli V. Kazakhstan ICSID Case No. ARB/05/16 (Award dated 29 July 2008); RSM V.
Grenada ICSID Case No. ARB/05/14 (Decision dated 7 December 2009); Methanex Corp. V.
United States of America, Final Award of the Tribunal on Jurisdiction and Merits (Award dated 3
August 2005); F-W Oil Interests V. Trinidad and Tobago ICSID Case No. ARB/01/14 (Award dated
3 March 2006); EDF (Services) Limited V. Romania ICSID Case No. ARB/05/13 (Award dated
8 October 2009) [221].
20
See Rumeli V. Kazakhstan ICSID Case No. ARB/05/16 (Award dated 29 July 2008); RSM V.
Grenada ICSID Case No. ARB/05/14 (Decision dated 7 December 2009). On the substantive
standards, see Chaisse J, Bellak C (2015) Navigating the expanding universe of investment treaties
– creation and use of critical index. J Int Econ Law 18(1):79–115 and Chaisse J (2015) The issue of
treaty shopping in international law of foreign investment – structuring (and restructuring) of
investments to gain access to investment agreements. Hastings Bus Law Rev 11(2):225–306.
21
ICSID Case No. ARB/05/13 (Award dated 8 October 2009)
22
EDF (Services) Limited V. Romania (supra)
Standards and Burden of Proof
Essentially, while burden of proof identifies the party on whom the onus lies to prove
the allegation of corruption, standard of proof defines the threshold of evidence that
need to be adduced to substantiate such allegation. As rightly noted by Gary Born,
the question of which party faces the burden of proving corruption has been
relatively straightforward, despite some theoretical uncertainty as to the conflict of
law rules that might apply.23 Following the maxim actori incumbit onus probandi,24
the prevailing principle is that each party has the burden of proving the facts on
which it relies.25 This principle finds consistent prominence in international invest-
ment claims,26 and there has not been any reported case where a tribunal shifts the
burden of proof to the other party. Even though international investment tribunals
seem to posit that the burden of proof remains with whoever alleges corruption, it is
arguable that there are legitimate circumstances where the burden of proof might
shift to the other party once prima facie evidence is presented.
For instance, in Metal Tech V. Uzbekistan (supra), the Tribunal questioned
whether the burden of proof should not be shifted from the respondent to the
claimant, so that the latter has to establish that there was no corruption.27 The
Tribunal found that the facts submitted by Uzbekistan and those mentioned during
the hearings created “the suspicion of corruption”; particularly, the payment of over
US$4 million to consultants raised suspicion and thus, in a procedural order, the
Tribunal exercised its ex officio power to ask the claimant to produce additional
evidence that it was not engaged in corruption.28 Though the Tribunal did not
expressly admit this as the attendant effect of its action, the effect of this is that the
Tribunal invariably reversed the burden of proof on the claimant. Therefore, it is
submitted that the tribunal should not hesitate to shift the burden whenever necessary
especially in cases where it discovers that the other party should rightly be in
possession of evidence or material facts that can debunk the allegations of corrup-
tion. However, where such party deliberately suppresses those facts or fails to
produce those evidence, it can (and should) be presumed that those evidence and
facts are against it.
23
See: Born G (2009) II international commercial arbitration. Kluwer, 1858.
24
Meaning: “The burden of proof rests upon the plaintiff,” See: Garner BA Black’s Law dictionary,
8th edn. p 1616
25
Sandifer DV (1975) Evidence before international tribunals. University Press of Virginia, 127 (the
burden of proof rests upon him who asserts the affirmative of a proposition that if not substantiated
will result in a decision adverse to his contention.). See also Chaisse J (2015) The issue of treaty
shopping in international law of foreign investment – structuring (and restructuring) of investments
to gain access to investment agreements. Hastings Bus Law Rev 11(2):225–306.
26
See Metal Tech V. Uzbekistan (supra), para. 237 where the tribunal held that the principle that each
party has the burden of proving the facts on which it relies is widely recognized and applied by
international courts and tribunals.
27
Metal Tech V. Uzbekistan (supra), para. 238
28
Ibid. para. 241
872 A. Akindeire
Moreover, most (if not all) arbitration rules are typically silent on the standard of
proof. For instance, the ICSID Convention and the ICSID Arbitration Rules do not
contain any particular provision on the standard of proof. Articles 43 to 45 of the
ICSID Convention and Rule 34 of the Arbitration Rules merely grant the tribunals
the discretion to call upon parties to produce evidence. While it appears that ICSID
tribunals usually apply a high standard of proof on allegations of corruption, the
tribunals have exhibited a pattern of inconsistencies in their decisions regarding
whether a higher standard of proof should be applied in cases involving allegations
of corruption, fraud or illegality, or a “balance of probabilities” standard.
Further to the above, in reported ISDS cases where issues of corruption were
brought to the fore, there have been array of standards that were applied ranging
from an evidentiary standard,29 clear and convincing evidence standard,30 balance of
probabilities standard,31 just establishing a genuine higher standard,32 or a no
reference to any standard at all.33 Considering the severe consequences of corruption
on the investor’s claims, tribunals have largely applied a ‘clear and convincing’
(apparently, a high) standard when assessing corruption allegations. For example, in
Fraport V. Republic of the Philippines (supra), the Tribunal held that:
Considering the difficulty to prove corruption by direct evidence, the same may be circum-
stantial. However, in view of the consequences of corruption on the investor’s ability to
claim the treaty protection, evidence must be clear and convincing so as to reasonably make-
believe that the facts, as alleged, have occurred. Having reviewed the parties’ positions and
the available evidence related to the period prior to Fraport’s Initial Investment, the tribunal
has come to the conclusion that respondent has failed to provide clear and convincing
evidence regarding corruption and fraud by Fraport.
Similarly, in EDF V. Romania (supra), the Tribunal held that:
. . .corruption must be proven and is notoriously difficult to prove since, typically, there is
little or no physical evidence. The seriousness of the accusation of corruption in the present
case, considering that it involves officials at the highest level of the Romanian Government
at the time, demands clear and convincing evidence. There is general consensus among
international tribunals and commentators regarding the need for a higher standard of proof of
corruption.34
29
Oil Fields of Texas, Inc. V. Iran et al., Award No. 258-43-1, 25, Yearbook Commercial Arbitra-
tion, Vol. XII (1987), P. 288
30
Fraport AG Frankfurt Airport Services Worldwide V. Republic of the Philippines, ICSID Case No.
ARB/11/12 (Award dated 10 December 2014) https://www.italaw.com/cases/2852
31
Europe Cement Investment & Trade S.A. V. Republic of Turkey, ICSID Case No. ARB(AF)/07/2
(Award dated 13 August 2009) https://www.italaw.com/cases/documents/422
32
Libananco Holdings Co. Ltd V. Republic of Turkey, ICSID Case No. ARB/06/8 (Award dated 2
September 2011). https://www.italaw.com/cases/626
33
World Duty Free Company V. Republic of Kenya (supra); Wena Hotels Ltd. V. Arab Republic of
Egypt, ICSID Case No. ARB/98/4 (Award dated 8 December 2000). https://www.italaw.com/cases/
1162
34
EDF V. Romania (supra) [221]
However, in Metal Tech V. Uzbekistan (supra), the Tribunal adopted a different

approach which is a reasonable certainty standard arrived at using circumstantial
evidence. The Tribunal held that corruption is by essence difficult to establish and
that it is thus generally admitted that it can be shown through circumstantial
evidence,35 frequently referred to as “red flags” of corruption. Generally, standard
of proof can be met not only by direct evidence but also by any type of evidence,
depending on individual facts pattern. For instance, in Libananco V. Turkey (supra),
the Tribunal held that fraud is a serious allegation, but it does not consider that this
(without more) requires it to apply a heightened standard of proof. While agreeing
with the proposition that the graver the charge, the more confidence there must be in
the evidence relied on, the Tribunal stated that this does not necessarily entail a
higher standard of proof.36 Similarly, in Rompetrol V. Romania,37 the Tribunal held
that while applying the normal rule of the balance of probabilities as the standard
appropriate to the generality of the factual issues before it, where necessary the
tribunal would adopt a more nuanced approach.
From the foregoing cases and analysis, it is submitted that even though it is
arguable that a higher standard of proof should apply to allegation of fraud,38 a single
standard of proof should not be applied to all matters of corruption, fraud, and
illegality because of the varying degree of readiness of evidence.
Balancing the Scale of Culpability
Legal Consequences of Corruption
Most investment tribunals have grappled with the approach to be adopted in

determining the appropriate legal consequences of corruption on a party’s claims.
Traditionally, the “all-or-nothing” approach have curried the favor of the tribunals
over the years, while there has been increasing commentaries from the academics39
and tribunals alike that a more “proportional approach” would be a cold water for the
old thirst. This part of this chapter clearly leans toward the “proportionality
approach.”
The all-or-nothing approach is anchored on the principle that an investment
procured by corruption is voidable at the election of either party to the contract. It
35
Metal Tech V. Uzbekistan (supra), para. 243
36
Libananco V. Turkey (supra), para 125
37
ICSID Case No. ARB/06/3 (Award dated 6 May 2014), para 183
38
Since “fraud” by definition involves only one party (e.g., the Claimant-investor) who makes a
material misrepresentation toward the Respondent-State in order to secure the contract, which the
latter then discovered; unlike “corruption” where both parties may have reasons to suppress facts
and evidence thereby making it more difficult to prove.
39
See: Jose Maria de la Jara & Eduardo Iniguez, The Case Against the Corruption Defence, EFILA
BLOG (16 May 2017) https://efilablog.org/2017/05/16/the-case-against-the-corruption-defense/
874 A. Akindeire
is axiomatic that this approach favors the host State at the detriment of the investor.
To say the least, the consequences of this approach are severe – which is an absolute
bar on the investor’s claim40 with no investment-arbitration-specific consequences
on the Respondent-State. The traditional approach makes an investor pay a heavy
price for the actions of the State’s agents or representatives, while the State poten-
tially typically bears no consequences for misconduct of its agents.41 This is quite
unfair. This approach has been justified in some quarters by emphasizing the severity
of corruption and its heinous effect in countries where State officials have profited
from it at the very expense of the citizens.42 They further argue that the law should be
applied strictly to prevent bribery and every other form of corruption in international
investment. For instance, in Metal-Tech V. Uzbekistan (supra), the Tribunal
acknowledged that the outcome in corruption cases might appear unsatisfactory
because it seems to grant unfair advantage to the Respondent-State.43 It, however,
found that this approach was justified because its essence is not to punish one party at
the cost of the other, but rather to ensure the promotion of the rule of law, which
entails that a court or tribunal cannot grant assistance to a party that has engaged in a
corrupt act.44
Without mincing words, adopting the all-or-nothing approach is an open invita-
tion to unjust result and a perverse incentive for corruption by host States and their
officials. It is also argued that the jurisdictional bar posed by this approach is unfair
and inequitable as it allows for unjust enrichment and a great threat to the entire
arbitration system.45 Some scholars have observed that this approach fails to account
for any consideration of proportionality, effectively introducing the risk that the
punishment may outweigh the crime and lead to an unjust result.46 Most strikingly,
an investor and officials of the host State usually perpetrate the underlying crime.
That is more than enough justification to also impose stiff sanctions on the host State
if the investor’s claims must be dismissed on that basis. No party should be allowed
to take benefit of its own wrong. A timely reaction to the above concern takes us to
the next subject of State responsibility for corruption where, among others, the
seminal but yet unpublished case of Spentex Netherlands, B.V. V. Republic of
Uzbekistan47 will be considered.
40
Metal-Tech V. Uzbekistan (supra)
41
Crook JR (2015) Remedies for corruption. World Arbitr Mediation Rev 9(3):303, 311
42
See Menaker AJ (2010) The determinative impact of fraud and corruption on investment
arbitrations. ICSID Rev 25(1):67–75.
43
Metal-Tech V. Uzbekistan (supra) [para. 389]
44
Id.
45
Crook JR (2015) Remedies for corruption. World Arbitr Mediation Rev. 9(3):303, 311
46
See Jose Maria de la Jara & Eduardo Iniguez, The Case Against the Corruption Defence, EFILA
BLOG (16 May 2017) https://efilablog.org/2017/05/16/the-case-against-the-corruption-defense/
47
ICSID Case No. ARB/13/26 (Award dated 27 December 2016).
State Responsibility for Corruption
About a century ago, the Permanent Court of International Justice (PCIJ) in its
German Settlers in Poland Advisory Opinion opined that States can act only by and
through their agents and representatives.48 This principle was later codified into the
International Law Commission (ILC) Articles on State Responsibility.49 That a State
be held responsible for the corrupt acts of its officials even if those acts were
undertaken for private gain has been trailed with divided uncertainties. However,
to help demystify this seeming conundrum within the context of this chapter, it is
hereby proposed that two factors need be put into consideration, to wit, extortion of a
bribe by a public official, and failure of the State to investigate and/or prosecute
corruption allegation, in order to determine the extent of State responsibility for acts
committed by an official of that State.
Under the first factor, that a mere extortion of bribe by a State official can be
easily attributed to the State is far more complex than it seems. Under Articles 4, 5, 7
of the ILC Articles on Responsibility of States for Internationally Wrongful Acts,
the basic principle is that a State is responsible for acts committed by its officials in
their official capacity, even when they exceed the spheres of their authority or
contravene instructions. As rightly opined by Bernado Cremades:
if a public official accepts a bribe to exercise his public duties in a certain manner, for
example by smoothing the regulatory path for a foreign investment, then the acts of that
official are attributed to the State itself in public international law.50
An eagle-eye analysis of the above statement by Bernado Cremades might make one
to argue that inducement and acceptance of bribe is never enshrouded with govern-
mental authority, which is a condition clearly evinced under Article 7 of the ILC
Articles on State Responsibility. For example, in Yeager V. Iran,51 the Tribunal was
confronted with two successive instances of corruption – one by an Iran Air agent
who demanded from the complainant extra money to issue an air ticket and the other
by uniformed officers of the Revolutionary Guard who, exercising customs func-
tions, seized the cash that the complainant had on him during a preflight inspection.
The Tribunal held that Revolutionary Guards who invoked their purported customs
powers to undertake preflight inspection do so acting on behalf of the State but that is
48
German Settlers in Poland, Advisory Opinion, 1923, P.C.I.J., Ser. B. No. 6, p. 22 https://www.icj-cij.
org/files/permanent-court-of-international-justice/serie_B/B_06/Colons_allemands_en_Pologne_Avis_
consultatif.pdf
49
See Articles 4, 5 and 7 of the Draft Articles on Responsibility of States for Internationally Wrongful
Acts (November 2001), Year Book of the International Law Commission, Vol. II (2001), Part Two:
Report of the Commission to the General Assembly on the work of its fifty-third session, p. 40, 42, 45.
50
Cremades & D.J.A. Cairns, Trans-national Public Policy in International Arbitral Decision-
Making: The Cases of Bribery, p. 215.
51
Partial Award No. 324-10,199-1 (2 November 1987), Iran-United States Claims Tribunal Reports,
Vol. 17, Cambridge: Grotius Pub. Ltd., 1988, pp. 92–112
876 A. Akindeire
not the case with the Iran Air agent who solicited the bribe in his personal capacity.52
Similarly, in World Duty Free V. Kenya, where the jurisdictional basis of the
dispute was contractual rather than treaty-based, the Tribunal, limiting its findings to
English and Kenyan law, was of the view that unlike under a BIT which invokes an
international obligation, “there is no warrant at English or Kenyan law for attributing
knowledge to the state (as the otherwise innocent principal) of a state officer engaged
as its agent in bribery”.53
The second factor of whether the State is responsible for failure to investigate and/
or prosecute its official allegedly involved in an act of corruption is riddled in
jurisprudential uncertainties. The question that readily comes to mind is what are
those acts/steps that constitute failure to investigate and/or prosecute? Is it any
perfunctory attempt to investigate; or a facile investigation; or a complete dereliction
to prosecute after investigation; etc.? At the time of this chapter, there is no reported
ISDS case where a State took any step to investigate and/or prosecute any of its
official for alleged act of corruption in respect of foreign investment in its territory.
On the contrary, some tribunals have merely censured the failure of States to exert
prosecutorial powers on the erring State official(s). This reprimand has produced no
investment-specific corruption consequences for the host State.
In the face of the above uncertainties and glaring inequalities, the Tribunal in
Spentex Netherlands, B.V. V. Republic of Uzbekistan (supra)54 brought a new light
of jurisprudence to the concept of State responsibility for a consummated act of
corruption by a State through any of its officials or agencies. In this case, a Dutch
subsidiary – Spentex Netherlands B.V. – of an Indian textile company claimed that the
legal standards of protection offered by the 1996 Netherlands-Uzbekistan BIT (and the
national investment legislation) have not been respected, resulting – finally – in the
bankruptcy of the company. More precisely, the alleged arbitrary removal of secured
subsidies put the investor in the position to suffer losses and be unable to further
operate the three acquired cotton-processing plants. In the end, the local companies
were placed in liquidation proceedings under the supervision of the National Bank of
Uzbekistan.55 Serious issues of corruption invoked by the Respondent-State, Uzbek-
istan, were argued during the arbitration. More precisely, its defense strategy –
successful in the end – was to argue that the investors obtained the industrial platforms
due to their corruption-by-proxy practices, distorting the public bid through local
consultants who were awarded large amounts of money for providing no actual
expertise. They were rather involved by the investors due to alleged connections and
influence upon political factors of decision.56
52
Ibid., pp. 110–111
53
World Duty Free Company V. Republic of Kenya (supra) para. 185
54
As of the time of this chapter, the award has not been published and its content still remains
confidential. However, as a result of the milestone set in the case, few facts and commentaries have
emerged. https://davastrat.org/2017/09/26/a-legally-turbulent-affair-the-textile-industry-in-uzbekistan/
55
Ibid.
56
Ibid.
Even though Uzbekistan emerged victorious in this legal conflict (as an invest-
ment established through corruption does not benefit from the protection of interna-
tional law), itself was “challenged” by the tribunal. The arbitrators prompted to the
fact that Uzbekistan was uncooperative in revealing the identity of the actual officials
that took the bribes, defending itself by unveiling the wrongful behavior of some of
its own organs. Consequently, the majority of the Tribunal sanctioned Uzbekistan’s
own role in the corruption at issue and “urged” the Respondent-State to make a
substantial $8 million donation to the United Nations’ anti-corruption fund. The
Tribunal warned that Uzbekistan’s failure to make such a payment would lead to an
adverse cost order against the Respondent-State.57
The Spentex Award is a landmark decision on how investment arbitration tri-
bunals should handle the issue of corruption whenever it is raised and proven before
them. The Tribunals should ensure that both the investor and the host State that
engaged in the corrupt acts are penalized and severely sanctioned. While the penalty
imposed on an investor has always been the dismissal of its claims, not until the
Spentex award, tribunals are unclear on the nature of sanction(s) that can be imposed
on the host States; some of which are highlighted in (C) below. Prior to the Spentex
award, the predominant disinclination of investment arbitration tribunals to address
the issue of State responsibility for a consummated act of corruption led some
scholars to remark that the lope-sided “sanctioning regime carries the implicit
conclusion that host States are not internationally responsible for corruption in
which its public officials are complicit”.58
Arbitrator’s Practical Guide
Considering the debilitating effect of corruption on foreign investment and its atten-
dant consequence on an investor’s claim before an investment tribunal, the following
practical tools are recommended to the tribunals as a guide on how to equally hold host
States liable in cases where State responsibility on the alleged corruption has been
clearly established – all in the bid to balancing the scale of culpability.
1. The Tribunal may condemn in the strongest terms possible the act of a State or more
particularly, the concerned public official who has been complicit in the alleged
corruption. The approach may seem to be an invitation to the tribunal to extend its
jurisdiction to a person (the public official) who is not (and usually will not be) a
party to the proceedings. For example, in World Duty Free V. Kenya, the Tribunal
57
The payment seems to have been made (according to IAReporter) by the respondent State to the
United Nations Development Program, in order not to risk an adverse ruling on the costs of arbitration,
although successful in its main defense against the investor. https://www.iareporter.com/articles/in-an-
innovative-award-arbitrators-pressure-uzbekistan-under-threat-of-adverse-cost-order-to-donate-to-un-
anti-corruption-initiative-also-propose-future-treaty-drafting-changes-that-woul/
58
See Llamzon AP (2014) Corruption in international investment arbitration. Oxford University
Press, Oxford, para. 10.06
878 A. Akindeire
noted that the proven corruption of the Respondent-State’s former President was a
highly disturbing feature.59 Similarly, in Spentex’s case, the Tribunal berated the
Respondent-State for the corrupt act committed by its officials and also vehemently
reprimanded it for failing to disclose the identity of the officials involved. It is
admitted that this approach is unlikely to have any meaningful impact on the
investor’s claims or any tangible effect on the Respondent-State.
2. In addition, tribunals may decide to prevent Respondent-States from using
corruption as a shield especially when the State in question has failed to take
any reasonable step to investigate and prosecute the corrupt official involved in
the allegation. In Wena Hotels V. Egypt (supra), the Tribunal merely noted that
Egypt was obviously aware of the corrupt act but deliberately failed to prosecute
the concerned State official.60 The essence of this approach is to prevent a State
from using corruption as an ambush to defeat an investor’s claim. However, at the
time of this chapter, there is no single reported ISDS case where a Tribunal
refused to entertain the defense of corruption as raised by the Respondent-State
on the ground that the State fails to investigate and prosecute the State official
involved. In fact, in Fraport’s case (supra), the Tribunal refused to consider the
Claimant’s argument that the Respondent-State should be estopped from relying
on corruption as a defense because the State did not make any effort to prosecute
this matter internally.61
3. Furthermore, in order to apportion liability proportionately, tribunals can use their
unfettered discretion in awarding cost62 against the parties. In proven instances of
corruption, at least two ICSID Tribunals have adopted this approach in deciding
that the Respondent-State should bear its own legal cost and half of the arbitration
costs.63 This approach is (and will continue to be) a noble digression from the
principle of cost follows event and will indeed go a long way in balancing the
scale of culpability.
4. A more novel recommendation is that enunciated in the Spentex’s award as
earlier discussed. This is a very laudable approach because in addition to applying
the approach on cost award contained in (3) above, the Tribunal also discreetly
“urged” the Respondent-State to undertake compensatory measures by donating
US$8 million to a United Nations Development Program on anti-corruption, with
a threat to make a further adverse cost order in case of non-compliance – an
amount which was reportedly paid.64
59
World Duty Free V. Kenya (supra), para. 180
60
Wena Hotels V. Egypt (supra) para. 116
61
Fraport AG Frankfurt Airport Services Worldwide V. Republic of the Philippines (supra), para.
377, 385–386
62
This power is inherent in the ICSID Convention, Art. 61(2)
63
See Metal-Tech V. Uzbekistan (supra), para. 422; Spentex V. Uzbekistan (supra).
64
See https://www.iareporter.com/articles/in-an-innovative-award-arbitrators-pressure-uzbekistan-
under-threat-of-adverse-cost-order-to-donate-to-un-anti-corruption-initiative-also-propose-future-treaty-
drafting-changes-that-woul/
5. Finally, in the case of a positive finding of corruption with the attendant conse-
quence of dismissing the investor’s claims, where the Respondent-State has a
counter-claim against the Claimant, such should also be dismissed on the same
ground of a positive finding of corruption. This approach is as perfectly straight-
forward as the State raising a defense against its own counterclaim the moment it
raises such defense against the investor’s principal claim.
Conclusion
While it is indisputable that the discourse on the determination of State responsibility

in allegations of corruption in which State officials are also complicit is still devoid
of any uniform jurisprudence, it is also indubitable that majority of case laws (some
of which have been critically addressed in this chapter) have clearly posited a
common trend of tribunals-standpoint on the issue. It is not gainsaying that corrup-
tion has become a ready-made defense used by host States to defeat investors’ claims
before investment tribunals. That being the case, it is submitted that tribunals too
should not slack in deploying some of those practical guides already highlighted in
balancing the aggression and, ultimately, the scale of culpability – in the overall
interest of justice and fairness.
In summary, even as the global society drifts toward fighting corruption espe-
cially at the trans-national level, it is submitted that this can be better achieved
through the concerted efforts of foreign investors, host States, and investment
tribunals. Corruption is a war against all and a battle that can only be conquered
by all through unity of purpose and firmness.
Crime in International Investment
Arbitration 36
Krista Nadakavukaren Schefer
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 882
The Crimes in Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 883
Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884
Bribery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 886
Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889
Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890
Current Investment Practice Related to Investment Crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 891
ISDS and Illegality as a Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 892
Types of Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 892
Illegality Defense on the Merits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 901
ISDS and the Illegality Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902
Investor as Target of Demand for Bribe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 903
Investor’s Competition as Accomplice to a Crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 904
Investor as Victim of Crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907
ISDS and Tribunal Detection of Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 908
Conclusion: Efforts to Move Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 910
Nonbinding Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911
Treaty Law Revisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912
Abstract
While profit and power are great motivators, sometimes those that pursue them
exceed the bounds of legality to do so. That means that there is a good possibility
that some investment activities are against the law. This chapter recounts the
developments occurring in the thinking about crime in international investment
arbitration and suggests that a further attention needs to be given to investor
claims of corruption and corruption-related crimes to ensure that treaty-based
K. Nadakavukaren Schefer (*)
Swiss Institute of Comparative Law, Lausanne, Switzerland
e-mail: Krista.Nadakavukaren@isdc-dfjp.unil.ch; k.nadakavukaren@unibas.ch

https://doi.org/10.1007/978-981-13-3615-7_47
882 K. Nadakavukaren Schefer
investment arbitration remains substantively and procedurally fair for all stake-
holders. The chapter further sets out the types of crimes arbitrators are facing in
the cases they are hearing and the general international law instruments
addressing them. The chapter also reviews the current arbitral practice in relation
to crime and points out where there are efforts to take on this problematic in a
more systematic way.
Keywords
Corruption · Crime · Bribery · Fraud · Money laundering · Illegality · Illegality
defense · Isds · Arbitration · Jurisdiction · Admissibility · Merits · Equity
I see in the near future a crisis approaching that unnerves me [. . .]. [. . .] [C]orporations have
been enthroned and an era of corruption in high places will follow, and the money power of
the country will endeavor to prolong its reign [. . .] until all wealth is aggregated in a few
hands and the Republic is destroyed. Abraham Lincoln1
Introduction
The Preamble to the UN Convention Against Corruption (UNCAC) begins with a

concise statement on the dangers of corruption to the project of modern international
law:
Concerned about the seriousness of problems and threats posed by corruption to the stability
and security of societies, undermining the institutions and values of democracy, ethical
values and justice and jeopardizing sustainable development and the rule of law [. . .].2
Since the coming into effect of the UNCAC, significant attention has been paid to
corruption and the fight to eliminate it at every level of government and business.
Yet, corruption – and more generally, crime – has not disappeared. While attention to
it has increased our understanding of how it can harm individuals and societies,
combatting crime remains a problem without a clear solution.
In international economic law (IEL), academic studies on crime remain in the
shadows of other questions relating to trade and investment. Yet, given IEL’s reliance
on good governance to achieve any of its goals, this sidelining is hard to explain.
Perhaps we are simply hesitant to move beyond our areas of scholarly comfort,
which are generally limited to public – and perhaps private – international law.
Maybe we would rather look at where law works than where it does not. Perhaps we
1
Letter from Abraham Lincoln to Col. William F. Elkins, 21 November 1864.
2
UN General Assembly (2003) United Nations Convention Against Corruption, A/58/422. Avail-
able at: https://www.unodc.org/unodc/en/corruption/tools_and_publications/UN-convention-against-
corruption.html. Accessed 26 May 2019.
36 Crime in International Investment Arbitration 883
are just unaware of the level of illegality in the system as a practical matter (and thus
not sufficiently motivated to investigate it further).
Against this background, it is interesting to note the vibrant discussion among
investment law and private commercial arbitration practitioners on the role of
corruption and related crimes in international investment dispute resolution. It is
this practice-led investigation that has led to the recent emergence of a small but
growing number of scholars who are discussing how to address corruption in the law
of international investment law.3 Within this discussion, the questions of how
investment arbitration proceedings should treat claims of corruption and related
crimes form a particularly noteworthy subset.
The following sections will recount the developments occurring in the thinking
about this topic and suggest that further attention needs to be given to investor claims
of corruption and corruption-related crimes to ensure that treaty-based investment
arbitration remains substantively and procedurally fair for all stakeholders. The
section “The Crimes in Investment Arbitration” sets out the types of crimes arbitra-
tors are facing in the cases they are hearing and the general international law
instruments addressing them. In the section on “Current Investment Practice Related
to Investment Crime,” I paint a picture of the current arbitral practice in relation to
crime. The final section, “Conclusion: Efforts to Move Forward”, points out where
there are efforts to take on this problematic in a more systematic way.
The Crimes in Investment Arbitration
Investment can include any activities that place capital in a foreign jurisdiction or
that allow a foreign person to gain control over capital in a foreign jurisdiction. As a
result, the scope of possible “investment” activities is extremely broad. Almost any
action aimed at creating profits and/or managing resources can fall within the term
“investment.”
3
Aloysius Llamzon is one of the first scholars to broadly examine corruption in international
investment dispute resolution. Llamzon AP (2014) Corruption in international investment arbitra-
tion. Oxford University Press. Kathrin Betz took a criminal law perspective on the same topic. Betz
K, Bribery P (2017) Fraud and money laundering in international arbitration: on applicable criminal
law and evidence. Cambridge University Press. See also Yackee J (2012) Investment treaties and
investor corruption: An emerging defense for host states. Va J Int Law 52:723. Other scholars have
looked more generally at unlawfulness and illegality in investment arbitration, although much of
this work regards the treatment of the investor’s non-corruption related violations of domestic law.
See, e.g., Douglas Z (2014) The plea of illegality in investment treaty arbitration. ICSID Rev
29:155; Kreindler R (2013) Competence-competence in the face of illegality in contracts and
arbitration agreements. In: Recueil des Cours, Collected courses of the Hague Academy of
International Law, vol 361. p 131; Newcombe A (2011) Investor misconduct: jurisdiction, admis-
sibility or merits? In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration, vol
187. Cambridge University Press; Schill SW (2012) Illegal investments in international arbitration.
Available at https://doi.org/10.2139/ssrn.1979734.
While profit and power are great motivators, sometimes those that pursue them
exceed the bounds of legality to do so. That means that there is a good possibility that
some investment activities are against the law. Whereas foreign investors as persons
could engage in any type of crime, the “investment crimes” that are the subject of
present attention are economic crimes particularly associated with the movement of
capital across borders and the foreigner’s desire to positively influence the host.
These can generally be referred to as “corruption” and are generally considered to
include bribery, the closely related trading in influence, and fraud.
While the crimes of corruption are clearly in the scope of “investment crimes,”
other types of crime can also infect investment activities. Money laundering, or the
cycling of profits from crime into the legitimate stream of finance, is the main non-
corruption concern among investment lawyers at this time.4
Corruption
Corruption: Definition and Effects

Corruption is an insidious plague that has a wide range of corrosive effects on societies. It
undermines democracy and the rule of law, leads to violations of human rights, distorts
markets, erodes the quality of life and allows organized crime, terrorism and other threats to
human security to flourish. This evil phenomenon is found in all countries—big and small,
rich and poor—but it is in the developing world that its effects are most destructive.
Corruption hurts the poor disproportionately by diverting funds intended for development,
undermining a Government’s ability to provide basic services, feeding inequality and
injustice and discouraging foreign aid and investment. Corruption is a key element in
economic underperformance and a major obstacle to poverty alleviation and development.5
Corruption is an umbrella term covering a number of activities that can be either

between a private actor and a public actor or between private actors. With no
universally accepted definition of corruption, scholars and practitioners tend to
rely on that given by nongovernmental organizations such as Transparency Interna-
tional (TI), which emphasizes the illegitimate wielding of power in exchange for a
personal benefit: “The abuse of entrusted power for private gain.”6
Corruption has existed since societies were formed – and has been condemned,
interestingly enough, for as long. For all the relativism aspects of discussions
surrounding corruption (gifts and exchanges, for example, are solid and accepted
features of the ancient governance structures), the unifying strand in approaching
corruption is that it is morally reproachable. Of course, this does not mean that
4
Tax violations are another area of crime of which investment tribunals need to be aware, as are
questions of smuggling and sanction-breaking. Because corruption and money laundering are the
crimes that have attracted the most tribunal attention, these will be the focus of the rest of this
chapter.
5
Kofi Annan, Forward, UN Convention against Corruption.
6
Transparency International, Anti-corruption Glossary (available at https://www.transparency.org/
glossary/term/corruption; visited 26 May 2019).
everyone considers the same actions “corruption” and not every society has dealt
with corruption in the same way; but those acts that are considered corruption are
almost always looked upon negatively.
While there was a famous view expressed in the 1960s and 1970s of corruption as
a solution to bureaucratic barriers to efficient economic activity,7 the “greasing the
wheel” opinion could not be justified on its own – it was simply a short-term fix to
pursue the interests of the investor in the face of poor governance.
The reasons for the wide refusal to accept corruption in government are numer-
ous.8 While the economic impacts are not insignificant (adding costs to doing
business), it is the effects on societies and on individuals that are overriding
concerns. On the societal level, corruption undermines the general welfare by
changing the incentives away from promoting the common good to promoting the
(usually financial) well-being of a few. This phenomenon is easily observable in the
lost value-for-money that accompanies corruption-ridden procurement decisions.
Low-quality infrastructure and services or overly expensive purchases are the result
of governmental purchasing decisions based on illicit payments to the decision-
maker or on the skimming (or outright stealing) of materials purchased with public
moneys. Further effects on government, however, can be just as damaging to the
social fabric: citizens’ loss of belief in their leaders’ readiness to address their
problems; a breakdown of trust among groups within a community which can lead
to tensions and conflict; and a reduction in the willingness of those without official
power to abide by the law are examples of how any society can be affected by
corruption of government officials.
In democracies, these effects are compounded by corruption’s destruction of the
idea of the equality and voice of citizens. Because corruption privileges the “haves”
– whether what they have is money or power – at the cost of the have nots, it alters
representatives’ interests and dilutes the voice of the majority to be represented in
favor of the voice of those that are not just willing but able to pay for ensuring their
interests are promoted. Even more importantly, perhaps, corruption keeps knowl-
edge “private,” damaging democratic societies’ need for ensuring that all citizens
7
Huntington S (1968) Political order in changing societies. Yale University Press. For a more recent
article supporting the idea that in systems of poor governance, corruption can benefit the economy,
see Houston DA (2007) Can corruption ever improve an economy? Cato J 27(3):325. Available at:
https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2007/11/cj27n3-2.pdf, viewed
15 July 2019. Houston’s proposal is not to glorify corruption but rather to indicate that governance
reform would be a more effective policy for growth than an anti-corruption agenda in many
contexts. Because “many corrupt activities substitute for missing or misguided law,” “in many
nations with poor property rights protection, the positive aspects of corruption on GDP outweigh the
negative effects”. Id. at 326, 337.
8
For a compact overview of reasons, corruption is viewed as a threat to sustainable development,
see Lopez-Claros A (2014) Nine reasons why corruption is a destroyer of human prosperity. http://
blogs.worldbank.org/futuredevelopment/nine-reasons-why-corruption-destroyer-human-prosperity
have equal access to the information required to ensure that decision-making aligns
with the real individual interests at stake.9
Finally, the effect of corruption on individuals follows the damage to societies.
Unjustifiable discrimination is just the first human rights violation caused by corrupt
governance structures. Other human rights violations follow, especially for the
impoverished, as corrupt payments cause further economic hardship, which itself
is tied to the enjoyment of a plethora of rights. With a transfer of money into
officials’ private ownership rather than public funds, governments are less able to
provide the social services needed to ensure that they are upholding their human
rights obligations of providing for the welfare, health, and education of their citizens.
Moreover, when individuals cannot afford to pay bribes, the corruption-factor may
lead to active violations of civil, political, economic, social, and cultural rights when
public officials refuse services on that basis.
What is surprising is not that there is legal attention to corruption of foreign
officials; it is that this attention is so recent. Not only is the international law
condemning it significantly younger than most of the rest of the post-War interna-
tional law system, the national laws criminalizing foreign bribery are also younger:
that means that bribing government officials in a country that is not one’s own has
been a crime for less than a half-century.
Bribery
The most familiar type of action falling within the definition of corruption is bribery.
Definition
Bribery is the offering of something of value in exchange for an illegitimate action or
inaction by another. Specifically condemned internationally is the bribery of public
officials. In the case of foreign investment, that is when the investor offers or gives
something of value to a public official in exchange for his or her agreement to do
something s/he should not do or to refrain from exercising his or her authority when
s/he should.
International Criminal Law Status of Bribery

Although the international movement to criminalize bribery is relatively young,
many commentators, including arbitrators, have characterized the fight against the
bribery of public officials a one of “transnational public policy.” That refers to the
fact that actions to bribe officials are considered crimes in nearly every jurisdiction in
every major legal system in the world.
9
http://www.oxfordscholarship.com/view/10.1093/oso/9780198809975.001.0001/oso-978019880997
5-chapter-2
Heavily influenced by the United States’ push to broaden the application of

standards set forth in their own Foreign Corrupt Practices Act (FCPA),10 a number
of international treaties call on States to ensure that bribery of public officials is
criminalized in domestic statutes. Regional agreements11 and the OECD’s Conven-
tion on Combating Bribery of Foreign Public Officials in International Business
Transactions (Anti-Bribery Convention),12 in turn, formed the basis for the anti-
bribery provisions of the United Nations Convention Against Corruption
(UNCAC),13 which entered into effect in 2005. As set out in UNCAC Article 15,
State Parties must criminalize the intentional
“promise, offering or giving, to a public official, directly or indirectly, of an undue advan-

tage, for the official himself or herself or another person or entity, in order that the official act
or refrain from acting in the exercise of his or her official duties”; or “solicitation or
acceptance by a public official, directly or indirectly, of an undue advantage, for the official
himself or herself or another person or entity, in order that the official act or refrain from
acting in the exercise of his or her official duties”.14
10
Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”). See
Salbu SR (2017) Redeeming extraterritorial bribery and corruption laws. Am Bus Law J 54:641,
646. But see id. at 647–649 (recalling numerous conceptual and practical problems with the FCPA
approach); Klaw BW (2012) A new strategy for preventing bribery and extortion in international
business transactions. Harv J Legis 49:303, 370 (arguing that the implementation “strategy” of
FCPA has been “ineffective, inefficient, incomplete, and, in some cases, unfair”).
11
Regional anti-bribery instruments include: African Union Convention on Preventing and Combating
Corruption (in effect 5 August 2006) (https://au.int/en/treaties/african-union-convention-preventing-
and-combating-corruption); Civil Law Convention on Corruption, Nov. 4, 1999, Eur. T.S. No. 174 (in
effect 1 November 2003; https://www.coe.int/en/web/conventions/search-on-treaties/-/conventions/
treaty/results/subject?_coeconventions_WAR_coeconventionsportlet_formDate=156320864365
2&_coeconventions_WAR_coeconventionsportlet_mode=subject&_coeconventions_WAR_coecon
ventionsportlet_codesMatieres=43&p_auth=rUyBiNyF); Criminal Law Convention on Corruption,
January 27, 1999, Eur. T.S. No. 173 (in effect 1 July 2002; https://www.coe.int/en/web/conventions/
search-on-treaties/-/conventions/treaty/results/subject?_coeconventions_WAR_coeconventionsportl
et_formDate=1563208643652&_coeconventions_WAR_coeconventionsportlet_mode=subject&_
coeconventions_WAR_coeconventionsportlet_codesMatieres=43&p_auth=rUyBiNyF); Inter-Ameri-
can Convention Against Corruption, March 29, 1996, 35 I.L.M 724 (http://www.oas.org/en/sla/dil/
inter_american_treaties_B-58_against_Corruption.asp).
12
OECD Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions, (in effect on 15 February 1999). The OECD Anti-Bribery Convention applies to all 36
of the OECD Member States as well as eight non-OECD countries. See http://www.oecd.org/
corruption/oecdantibriberyconvention.htm (viewed 15 July 2019).
13
United Nations Convention Against Corruption (in effect 14 December 2005; https://www.unodc.
org/unodc/en/corruption/tools_and_publications/UN-convention-against-corruption.html).
14
UNCAC, Art. 15(a), (b). The Convention’s Article 16 requires State Parties to criminalize the
bribery of officials of international organizations.
The treaty text contains discrete elements of the crime of bribery as being (1) the
offer of value; (2) to a public official15; (3) with an intent to influence the public
official; (4) the act or inaction is related to the official’s public function; and (5) the
value offered is for the official personally or to a person close to the official. These
elements follow closely on the requirements of national criminal law statutes.16
Beyond this core, the scope of what constitutes illegal bribery-like action
becomes contested. Facilitation payments, for example, and trading in influence
are two of the activities on which there is no international consensus as to their
legitimacy. While the UNCAC mandates State Parties to criminalize facilitation
payments,17 the OECD Convention does not characterize the offer or receipt of
“grease money” as bribery because it is not intended to make an official do
something she was not supposed to do (instead, it just incentivizes her to act more
promptly).18 Paying third parties, known as “intermediaries,” to use their influence
with government officials to move transactions along is not necessarily “bribery”
either. While the OECD Anti-Bribery Convention and UNCAC rules cover inter-
mediaries’ actions when it comes to bribery,19 the “agency” and “lobbying” con-
tracts frequent in a number of jurisdictions are not themselves illegal.20
15
While both active and passive bribery are condemned by the UNCAC, State Parties do not have to
criminalize acts of bribery between private actors. For this reason, arbitral tribunals in commercial
arbitration have more room for discretion in addressing bribery claims than do tribunals in treaty-
based arbitration contexts.
16
Compare, e.g., United States Department of Justice, Criminal Resource Manual 2001–2099 at
2042 (available at https://www.justice.gov/jm/criminal-resource-manual-2042-elements-common-
both-bribery-and-gratuity-offenses; viewed 26 May 2019).
17
UNCAC, Arts. 15-16 (defining the acts considered bribery as any inducement to an official to act
or refrain from acting in his/her official capacity). See also, United Nations Office on Drugs and
Crime, Anti-Corruption Policies and Measures of the Global Fortune 500, p. 2 (available on www.
unodc.org).
18
See OECD Negotiating Conference, Commentaries on the Convention on Combating Bribery of
Foreign Public Officials in International Business Transactions, Article 1, Re-paragraph 1, at para. 3
(adopted 21 November 1997) (noting that “a statute which defined the offence in terms of payments
‘to induce a breach of the official’s duty’ could meet the standard” of the Convention’s rules on
prohibiting bribery). The US Foreign Corrupt Practices Act, for example, categorizes facilitation
payments as exceptions to bribery. 15 U.S.C. §78dd-1(b) (Exception for routine governmental
action). Australia’s federal criminal statute, too, separates facilitation payments from bribes.
Australia Criminal Code Act 1995, ss. 70.2(b) and 70.2(c)(ii) (provision on bribery describing
the elements as including the intent to obtain an advantage that is “not legitimately due”).
19
OECD Convention, Art. 1 (criminalizing bribery “whether directly or through intermediaries”);
UNCAC, Art. 16 (calling for criminalizing bribery “whether directly or indirectly” conducted).
20
For an illustrative analysis of the possible problems that can occur in agency relationships, see
OECD Working Group on Bribery in International Business Transactions, Typologies on the Role
of Intermediaries in International Business Transactions: Final Report (9 October 2009).
Fraud
Fraud is another act that can corrupt. It is, however, a one-sided crime rather than
bribery’s two-dimensional action.
Definition
Fraud is difficult to define in a general manner, as there is a wide range of acts that
can be considered fraudulent21 and a variety of legal sanctions that can be invoked
against it. At its core, fraud is an expression of an untrue or misleading statement,
made in the expectation of causing the recipient of the expression to act to her
detriment and to the benefit of the fraudulent actor. Under the Common Law claim of
(civil) fraud, the basic elements are:
‘(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief
by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable
reliance thereon by the other person; and (5) resulting damages.’ Banco Popular N.[Am.] v.
Gandi[,] 184 [N.J.] 161, 172, 876 A.2d 253 (2005)[(]quoting Gennari v. Weichert Co.
Realtors, 148 [N.J.] 582, 610, 691 A.2d 350 (1997)[)]. Fraud may also be committed by
intentional concealment of a material fact that the concealing party has a duty to disclose.22
The European Union’s 2017 Directive against Fraud in EU Financial Matters is

similar, defining “fraud affecting the Union’s financial interest” as follows:
21
Different industries are susceptible to different types of fraud. Gambling, for example, considers
cheating “gaming fraud,” a common law cause of action. See Smith JT (2017) Cheater’s justice:
judicial recourse for victims of gaming fraud. UNLV Gaming Law J 7:61, 70–74. Stock market, or
“securities fraud,” involves either untrue statements or omissions of a “material fact” of the
investment relevant information regarding stock issues. Securities Act of 1933, 15 U.S.C. §77q
(a) (2018). Corporate fraud often relates to company directors breaching their duties of care to
shareholders by misappropriating funds or knowingly entering into financial transactions that they
know are unsustainable. See Paolini A (2015) Auditors’ liability and corporate fraud in the UK:
does corporate size and structure matter? J Bus Technol Law 10:245. Fisheries fraud includes any of
four types of misleading acts: mislabeling the species; mislabeling the weight; wrongly adding color
or water to the fish; or using a shipping route to avoid customs regulations. Lampert T (2017) Note:
stopping illegal fishing and seafood fraudsters: the Presidential Task Force’s Plan on tackling IUU
fishing and seafood fraud. Boston Coll Law Rev. 58:1629, 1632–1633. Computer fraud and health
care fraud are also areas of growing legal attention in the United States thanks to specific legislation
targeting them.
22
Chicago Title Insurance Company v. Union Avenue Holding, et al., 2019 N.J. Super. Unpub.
LEXIS 46, at 11 (decided January 8, 2019) (quoting from Chicago Title Ins. Co. v. Union Ave.
Holding, LLC, 2016 N.J. Super. Unpub. LEXIS 1689 (Law Div., July 14, 2016)).
(a) [. . .], any act or omission relating to:

(i) the use or presentation of false, incorrect or incomplete statements or documents,
which has as its effect the misappropriation or wrongful retention of funds or assets
from the Union budget or budgets managed by the Union, or on its behalf;
(ii) non-disclosure of information in violation of a specific obligation, with the same
effect; or
(iii) the misapplication of such funds or assets for purposes other than those for which
they were originally granted [. . .].23
Similar causes of action (such as fraudulent misrepresentation or fraudulent

inducement) as well as specific statutory protections against fraud (such as consumer
fraud protection laws) may omit elements of actual damages, alter the standard of
reliance, or lower the burden of proof.24
Responsibility for fraud can arise from administrative regulations or criminal
statute, but there may also be civil liability through contract or tort law. Sanctions
may include administrative or criminal fines, civil damages, or imprisonment.
International Criminal Law Status

Despite – or perhaps because of – the wide scope of legal tools in domestic systems
aimed at punishing fraudulent acts, international law (beyond the EU regime25)
contains little in the way of binding rules specific to anti-fraud. There are regional
and international anti-fraud initiatives, but these are mainly related either to aware-
ness raising and prevention efforts or to the prevention of fraud in specific
institutions.26
Money Laundering
A particularly virulent crime in the investment context is money laundering, the

crime of making the gains of crime usable by disguising from where they come.
23
L 198/29, Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017,
on the fight against fraud to the Union’s financial interests by means of criminal law, Art. 3.2(a).
24
Chicago Title Insurance, supra, at 12. See also Avon Hardware Company, et al. v. Ace Hardware
Corporation, 2013 IL App (1st) 130,750; 998 N.E.2d 1281; 2013 Ill. App. LEXIS 743; 376 Ill. Dec.
348 at P23 (filed October 28, 2013) (“Although the Illinois Consumer Fraud and Deceptive
[19] Business Practices Act (ICFA) does not require reliance, it does require materiality”; citing
White v. Daimler Chrysler Corp., 368 Ill. App. 3d 278, 283, 856 N.E.2d 542, 305 Ill. Dec. 737
(2006)).
25
The European Commission’s European Anti-Fraud Office (OLAF) is tasked with “detect[ing],
investigat[ing] and stop[ping] fraud with EU funds.” See OLAF, “What we do” https://ec.europa.eu/
anti-fraud/about-us/mission_en (viewed 1 June 2019). The Office has the power to investigate
allegations, conduct its own investigations, assist Member State authorities with evidence collec-
tion, and coordinate information exchange among Member States in relation to fraud charges that
affect EU funds. Id.
26
JIU/REP/2016/4 (UN).
Definition
Money laundering is the crime of placing the proceeds of illegal activity into the
legitimate money stream so as to be able to benefit from their value without attracting
attention to their illegal origins.
While corruption is sometimes presented as culturally desirable (or at least
acceptable), money laundering has no obvious positive aspects. Defined by its
required element of a predicate criminal act,27 the offense of money laundering
cannot but be seen as anything other than a motivation and reward for activities that
are condemned by society as belonging in the category of illegal activity.
International Criminal Law Status

While attention to money laundering had been ongoing for over a decade prior to the
September 2001 attacks on the World Trade Center, the new millennium solidified
international commitment to moving more forcefully against the financing of terror-
ist activities. Governments recognized that terrorism and weapons proliferation are
tied closely to the use of illegally gained profits and that the cross-border nature of
financial flows required coordinated efforts to ensure that national anti-money
laundering programs could be effective.
The Financial Action Task Force (FATF) had issued its initial guidelines for
governments’ attempts to control money laundering of the proceeds of illegal trade
in drugs in 1990 and has updated them periodically since then. In 2012, FATF issued
its latest set of 40 Recommendations. Updated in 2018, these Recommendations use
a risk-based approach to encourage States to learn to identify where money laun-
dering is likely to occur and how to tackle it.28
Current Investment Practice Related to Investment Crime
Investment law’s connection to criminal law is not generally regarded as having the
natural affinity to which I ascribe it. While the practice of investment law looks at the
host State regulatory framework regarding the establishment of investments or their
departure from a territory, much of the scholarly interest is heavily slanted toward the
interpretation of the substantive standards of protection found in investment protection
treaties and/or the procedures of dispute resolution between investors and host States.
These two pillars of investment law are to a large extent shielded from one another due
to the former’s national law focus and the latter’s nature as an area of international law.
27
But see US v. Michael Piervinanzi, Daniel Tichio, and John M. Bookhart, Jr., 23 F.3d 670, 679-
680 (2d Cir., 1994) (noting that for international financial transactions to qualify as money
laundering under the US statute, the criminal transfer itself can function as both the predicate
crime and the transfer of illegal proceeds).
28
See, FATF (2012) International standards on combating money laundering and the financing of
terrorism and proliferation: The FATF recommendations (Updated 2018). Available at http://www.
fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html. Viewed 1
June 2019.
Crime, however, may form a bridge between the two areas because what happens in
the phase of entering a host and establishing an investment becomes an issue of
determining which – if any – protections will adhere to the investor in case of dispute.
The idiosyncratic nature of investor disputes that permits a person to bring a claim of
international legal breach against a foreign State means that questions of criminal liability
take on an importance that is separate from that in other international law settings where
State-to-State dispute resolution is the norm. This, in turn, has led to the development of
different approaches to the crime-investment relationship in arbitration. I have identified a
number of categories of usages of criminal allegations, which I set out here.
ISDS and Illegality as a Defense
The largest body of work relating to the crime-investment relationship focuses on

what is best referred to as the “illegality defense” in investor-State dispute settlement
(ISDS). The basic idea of this defense is that a host State responds to an investor’s
claim of a breach of the State’s protection obligation by invoking the illegality of the
investor’s actions as a reason to avoid liability for its own wrongful acts.
The value of the defense is both practical and ideological: for the host, the defense
can effectively end a complaint against it in the early stages of the dispute pro-
ceedings; for the international community, the refusal to permit a claim for compen-
sation to be brought by an investor who engaged in criminal conduct while
establishing her investment sends a strong dissuasive signal to other investors
considering acting illegally. Those who support tribunals’ recognition of the defense
argue, moreover, that it would be inequitable to allow a plaintiff guilty of a crime to
profit in any way from acts relating to the crime.
At the same time, the illegality defense holds risks – particularly when it is invoked
to challenge a bribe payment. One risk is that of the illegality defense being a moral
hazard – the host may have an incentive to demand bribes in order to limit its future
liability toward the investor. Another is that there is a sense of unfairness where the two-
dimensional bribe results in only the investor bearing the costs of the consequences.
This is particularly challenging where the host would have had sufficient evidence of
the purported crime to have prosecuted the investor prior to the ISDS claim. Perhaps the
most worthy concern, however, is that tribunals, not being criminal courts, are not in a
position to adequately control the use of and/or verify host States’ use of the defense.
Frivolous claims are always problematic, but allegations of criminal activity, even in a
civil arbitration setting, could have serious consequences even if ultimately unproven.
The differential weighing of the advantages and disadvantages drives most of the
debate surrounding the crime and arbitration discussions. Normative considerations
are therefore inherent to the questions posed by such determination.
Types of Challenges
There are a number of variations on the illegality defense that have been addressed
by tribunals. The two most paradigmatic versions are those in which the host
challenges either the tribunal’s jurisdiction or the admissibility of the claim on the
basis of the illegality of the investment’s establishment. Where the alleged illegality
took place after the investment was established, however, the fact that the claimant
acted illegally becomes a defense on the merits.
Jurisdiction
The jurisdictional bar to an investor’s claims is the strongest form of the illegality
defense, leaving the tribunal no choice as to whether to balance its decision with the
equities of the case. The respondent’s argument is that if an investor participated in
illegal activities, the tribunal has no competence to hear the claim because the
dispute did not arise from a “covered” investment.
This may stem from a number of provisions of the investment protection
instrument:
1. the definition of investment, which may include language as to the legality of the
assets or project29;
2. the treaty’s scope provision,30 which may say that it extends to investments
“made in accordance with” the host laws31;
3. the ISDS provision, limiting the consent to arbitrate to disputes arising out of
legal investment arrangements; or
4. implicitly, by virtue of an assumption about the nature of the host-investor
relationship32.
29
For example, the Netherlands-Argentina bilateral investment treaty (BIT), at issue in the TSA
Spectrum v. Argentina dispute, ICSID Case No. ARB/05/5, Award (19 December 2008), defines an
“investment” as “every kind of asset invested by an investor of one Contracting Party in the territory
of the other Contracting Party, in accordance with the laws and regulations of the latter Contracting
Party [. . .].” Agreement on encouragement and reciprocal protection of investments between the
Kingdom of the Netherlands and the Argentine Republic, Art. 1(a) (1992).
30
Interestingly, the Kim v. Uzbekistan tribunal noted that its “conclusion in the present case is all the
stronger where the relevant language is found in a specific clause delineating the scope of
application of the BIT.” Kim v. Uzbekistan, para. 366.
31
The El Salvador-Spain BIT, at issue in Inceysa Vallisoletana v. El Salvador, ICSID Case No.
ARB/03/26, Award (2 August 2006) states that the protections extend to investments “efectuadas,
conforme a su legislacion.” Acuerdo para la Promocion y Proteccion Reciproca de Inversiones entre
el Reino de España y la Republica de El Salvador, Art. 3(1) (20 February 1996).
32
The Álvarez y Marín Corp. et al. v. Panama tribunal found an implicit legality requirement in the
bilateral investment treaty, noting that one can assume that the host would only limit its sovereignty by
consenting to arbitration with an investor if the investor has complied with its national laws. Álvarez y
Marín Corporación S.A., Bartus van Noordenne, Cornelis Willem van Noordenne, Estudios Tributarios
AP S.A., Stichting Administratiekantoor Anbadi v. República de Panamá, ICSID Case No. ARB/15/14,
Award, para. 135 (12 October 2018). As a result, a serious illegality at the time of establishing the
investment will result in a finding of no jurisdiction. Id. at paras. 296, 401. The Cortec Mining v. Kenya
tribunal also noted that there is no need for an explicit legality requirement in the BIT, adding that the
ICSID Convention only offers protection to “lawful investments.” Cortec Mining Kenya Limited,
Cortec (Pty) Limited and Stirling Capital Limited v. Republic of Kenya, ICSID Case No. ARB/15/29,
Award, para. 333 (22 October 2018).
The Salini v. Morocco33 and Tokios Tokeles v. Ukraine34 tribunals, further elab-
orated on by the Inceysa v. El Salvador35 tribunal, establish the jurisdictional
approach to the illegality defense. The jurisdictional approach ties the legality of
the investment to the consent of the host to offer the protections of the investment
treaty.36 The Salini tribunal noted that legality provisions in IIAs are meant to limit
the protections contained in the agreements to exclude investments that “should not
be protected.”37
This approach was followed by the tribunal in the second Fraport v. Philippines
case38 and, more recently, in Karkey v. Pakistan.39 The Karkey tribunal mentioned
that its investigation into the charges of corruption “have an impact [. . .] on its
jurisdiction,” although it subsequently determined that Pakistan had not carried its
burden of proving the illegality.40
Under the consent-based approach to illegality, tribunals have generously con-
ceived of the “legality” requirement, finding that minor violations of domestic law
will not cause jurisdiction to fail. The LESI 41 and Desert Line v. Yemen42 tribunals
express the legality requirement as one focused on “fundamental principles” of host
State law. The same idea was expressed in Tokios Tokeles v. Ukraine as “per se
illegality.” In Tokios, the publishing house investor raised a complaint against
Ukraine for having subjected its subsidiary to allegedly unfair treatment as retalia-
tion against its political views. The host challenged the tribunal’s jurisdiction, inter
alia, on the fact that the company was registered as a “subsidiary private enterprise”
when local law only recognizes the form “subsidiary enterprise” and that there had
been a number of missing signatures in its document filings. The tribunal suggested
33
Salini Costruttori S.p.A and Italstrade S.p.A v. Kingdom of Morocco, Decision on Jurisdiction,
ICSID Case No. ARB/00/4, para. 46 (July 23, 2001).
34
Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/I8, Decision on Jurisdiction (April 29,
2004).
35
Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award
(August 2, 2006).
36
The Inceysa tribunal explicitly envisages lawfulness requirements as “limitations on consent,”
and therefore clearly jurisdictional. Inceysa, paras. 184–189.
37
Salini v. Morocco, supra, at para. 46.
38
Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines (II) ICSID Case
No. ARB/11/12 para. 328 (10 December 2014).
39
Karkey Karadeniz Elektrik Uretim v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1
(August 22, 2017).
40
Karkey, para. 489.
41
L.E.S.I. S.p.A. and ASTALDI S.p.A. v. République Algérienne Démocratique et Populaire,
ICSID Case No. ARB/05/3, Decision, para. 83(iii) (12 July 2006) (“des principes fondamentaux
en vigueur”).
42
Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, para.
104 (6 February 2008) (giving fraudulent misrepresentation as an example).
that the object and purpose of the BIT dictates against taking too strict a view on
unlawfulness.43 While a “per se illegality” – whereby the basic activity foreseen by
the investment is against the domestic law of the host – would deny it jurisdiction to
hear the investor’s claim, the Tokios tribunal stressed that violations of “minute
details of administrative procedures” do not rise to the requisite level of unlawful-
ness for jurisdictional challenges.44
The Kim v. Uzbekistan45 tribunal continued developing the jurisdictional illegal-
ity concept by setting forth a proportionality test whereby the degree of the investor’s
unlawful conduct would be considered. In Kim, the host accused the investor of
engaging in fraud as well as corruption. Separating the two, the tribunal examined
the question of whether the fraud allegations would deny it jurisdiction by placing
the investment outside the scope of the treaty protections. To answer, the tribunal
specified that only “noncompliance with a law that results in a compromise of a
correspondingly significant interest of the Host State” will result in a refusal to
accept a complaint.46 Explaining this approach, the arbitrators continued,
[. . .] focusing on the seriousness of non-compliance, both in terms of the seriousness of the

law and the action taken by the investor, makes the good faith of the investor something that
is considered as a factor in the overall assessment of the proportionality between the
violation and the sanction. An action in good faith possibly may render an act of non-
compliance less serious, but – depending on the seriousness of the law violated – not
necessarily. It may be that the law alleged to be violated has as an element of a violation
that bad faith or a specific intent is required. Likewise, it may be that the law alleged to be
violated provides an exception if the act is undertaken in good faith when, for example, due
diligence is exercised.
In the case at hand, the tribunal determined, the host
either [. . .] failed to establish that Claimants acted in noncompliance with various laws or
that such acts of noncompliance do not result in a compromise of an interest that justifies, as
a proportionate response, the harshness of denying application of the BIT.47
The use of a proportionality test poses interesting conceptual questions, including

that of how the tribunal should determine the significance of the laws purported
violated. How much deference should be given to the host’s statements of the
importance it places on the laws allegedly violated? Would some corruption and
its related crimes – such as bribery – be per se significant? or could “petty” bribery,
for example, be weighed more lightly than the harm to the investor that is the basis of
the complaint? Equally open would be the questions of the level of diligence due
from the investor in regarding the host’s legal framework and, on the other side,
43
Tokios Tokeles, para. 8
44
Tokios Tokeles, para. 86.
45
Kim v. Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction (8 March 2017).
46
Kim at para. 396 (emphasis removed).
47
Kim at para. 541.
whether or how to consider the host’s non-prosecution of the investor prior to the
arbitration in which the illegality defense is raised. These questions have been
touched upon in various awards,48 but thorough analysis of them remains outstand-
ing. It seems clear that the answers to the above questions will be driven by how
deeply one sees the societal harms of individual incidences of corruption as well as
by how one sees international investment law.
Other jurisdictional objections arise solely on the basis of international public
policy.49 Used mainly in relation to corruption, such objections avoid the need to
determine whether the host would have agreed to protect investments that are
unlawful, but may lead to harsher results, as they would not be subject to the
proportionality test once the illegality is proven. As noted above, the Kim tribunal
separated the fraud defense from the corruption defense. The assessment of the
host’s jurisdictional challenge on the basis of corruption began with the tribunal
speaking clearly of corruption’s opposition to the rule of law and to the international
community’s policy to stop such behavior.50 It, however, continued by declaring the
need to establish whether the allegations of corruption could be proven and men-
tioned that if they were, the claim would be inadmissible.51 As admissibility is better
considered as separate from jurisdiction, we now turn to that concept.
Admissibility
The illegality defense can also be used to argue that the tribunal should refuse to hear
the case because the illegality makes it inadmissible. Admissibility questions are
different from jurisdiction in that they are ones of tribunal discretion.52 A tribunal
that finds that an element of the claim required for jurisdiction is missing may not
hear the rest of the claim. A tribunal that declares a case inadmissible has the
competence to hear the claim, but uses its prerogative to deny the claimant the
opportunity to have its complaints addressed.
It was as an issue of admissibility that the host State challenged the investor’s
complaint in the much-discussed arbitration and crime case, World Duty Free v.
48
Besides Kim v. Uzbekistan, see, e.g., Cortec v. Kenya; Metalpar S.A. and Buen Aire S.A. v.
Argentine Republic, ICSID Case No. ARB/03/5, Decision on Jurisdiction (27 April 2006); Ander-
son v. Costa Rica.
49
See Kim, para. 172 (Respondent’s challenge to jurisdiction “and/or the admissibility” on the basis
of corruption as a violation of international public policy); id. at para. 553 (discussing the corruption
allegations as questions of jurisdiction insofar as they allege corruption at the time of establishing
the investment).
50
Kim, para. 543.
51
Kim, para. 543.
52
See August Reinisch, Jurisdiction and Admissibility in International Investment Law, in: Andrea
Gattini, Attila Tanzi, and Filippo Fontanelli, eds., General Principles of Law and International
Investment Arbitration 130- (Brill-Martinus Nijhoff, 2018). Reinisch explains further that admis-
sibility questions go to the “quality of a claim.” Id. at 132. See also Douglas Z (2014) The plea of
illegality in investment treaty arbitration. ICSID Rev., 29(1):155 (arguing that the illegality defense
is one that goes to the claim’s admissibility and not to the tribunal’s jurisdiction).
Kenya.53 World Duty Free Company Limited (WDF) was a company incorporated in
the Isle of Man and engaged in managing duty-free stores in airports around the
world. In 1989, WDF54 received a contract from the Kenyan government, led by
President Moi, with a concession to build, maintain, and operate duty-free stores for
the Nairobi and Mombassa airports. The contracts gave WDF55 a 10-year lease, with
the possibility of a 10-year extension on the lease. Article 9 of the contract was an
arbitration provision providing the parties’ consent to ICSID arbitration in the case
of a dispute under the contract.56
Investing over $25 million, WDF built the airport complexes and began their
operations by 1990.57 In 1992, however, the Kenyan government began involving
the WDF name in a fraudulent financing scheme to secure funding for the President’s
campaign.58 When WDF refused to cover up the government’s actions and testified
to the prosecutors, the company and its management became the target of a series of
governmental measures that included a takeover of its assets and the imprisonment
of its representative.59 In 2000, WDF lodged arbitration proceedings at ICSID on the
basis of the contractual arbitration clause, which specified that UK law would apply.
In the first set of claims and responses, submitted by both parties between 2001
and 2003, the Respondent’s focus was on the status of WDF’s receiver and the
specifics of what Kenya’s government had done.60 Then, in 2003, the Kenyan
government made its illegality defense. The change in approach is striking – as
was its effectiveness. Kenya stated that prior to receiving the 1989 contract, WDF’s
representative had bribed the Kenyan President a total of $2 million to ensure it
53
World Duty Free Company Limited v. Republic of Kenya, ICSID Case No. ARB/00/7, Award (4
October 2006). A domestic arbitration following the ICSID proceedings led to a finding in favor of
the investor in December 2012, but that award was set aside on grounds of public policy by the
Kenyan High Court. Damien Charlotin, Analysis: Kenyan High Court finds that an arbitral award
secured by World Duty Free against Kenyan Airport Authority must be set aside as “in conflict with
public policy” due to earlier findings of ICSID tribunal that bribery underlay the investment, IA
Reporter, 9 October 2018; Kenya Airport Authority v. World Duty Free Ltd. t/a Kenya Duty Free
Complex, [2018] eKLR, para. 15(2)8b)(ii) (available at http://kenyalaw.org/caselaw/cases/view/
159886/). Kenya High Court Judge Tuiyott found that the ICSID award’s determination that a bribe
had secured the contract underlying the investment was “a final pronouncement in respect to [its]
illegal nature [. . .] and [. . .] that the Kenya Government was entitled to avoid it.” [2018] eKLR,
para. 31.
54
WDF concluded the contract as a national of the United Arab Emirates. See ICSID Case No.
ARB/00/7 para. 6 (with Article 9 of the contract).
55
Originally, the contract was between WDF’s company, House of Perfume.
56
Id.
57
Id. at para. 67.
58
The scheme involved the name of WDF as a receiver of precious stones and gold that it never
received. Id. at para. 68.
59
Id. para. 70.
60
Interestingly, part of Kenya’s “Preliminary Preliminary Response” was that WDF’s fraud allega-
tions were invalid because the statute of limitations on fraud had passed by then. Id. para.
would be granted the concession. As bribery of a public official is illegal in both the
UK and Kenya, the contract was therefore unenforceable.
WDF countered by alleging that its payment to President Moi (which it did not
deny) was not a bribe, but merely the following of the local custom (with no mens
rea of the crime) and that even if the payment was a bribe (and therefore illegal), the
arrangement for payment of the bribe was a collateral contract and separable from
the investment contract. Given that Kenya had already acted on the investment
contract, it should be estopped from now claiming it is void. Finally, the investor
argued on the basis of fairness – it would be unfair to deny the investor’s claims
because its actions – even if wrongful – were less wrongful than those of the host.
The tribunal’s approach to the case was to rely on the English law of contracts and
find the contract unenforceable on grounds of illegality. Having acknowledged a
growing international movement to counter bribery, the tribunal then noted numer-
ous arbitration tribunal decisions that found the enforcement of corrupt contracts to
be against public policy. Before moving to examine the national laws under which
the 1989 contract was to be judged, the tribunal made its general determination on
the admissibility of claims based on illegal contracts:
157. In light of domestic laws and international conventions relating to corruption, and in
light of the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is
convinced that bribery is contrary to the international public policy of most, if not all, States
or, to use another formula, to transnational public policy. Thus, claims based on contracts of
corruption or on contracts obtained by corruption cannot be upheld by this Arbitral
Tribunal.61
In its discussion of English law, the WDF tribunal continued its examination of
the issue at stake. On the general principle, it quoted a passage from Chitty on
Contracts, that noted, “The ‘effect of illegality is not substantive but procedural’, it
prevents the plaintiff from enforcing the illegal transaction.”62 This means that the
contract remains in effect, but no recovery can be made by either party, should the
other violate an obligation contained within it.
On the facts of the case, the tribunal applied the general principle, seeing no
grounds for moderating its effects.63 The agent for WDF had been subject to no
unlawful force or threats to pay the bribe.64 As no money had yet been invested,
there was not even implicit coercion in the request for payment.65 Thus, there were
no facts to warrant moving away from the strict rule on nonrecognition of claims
based on a contract secured illegally. The tribunal therefore denied admissibility of
the claim.
61
WDF, para. 157.
62
WDF, para. 161 (quoting from H.G. Beale, ed., 1 Chitty on Contracts, 28th edition, para. 17-007
(Sweet and Maxwell 1999)).
63
WDF, paras. 166–181.
64
WDF, para. 178.
65
WDF, para. 178.
The admissibility argument would also be a way to address a case in which there
is insufficient evidence to establish that the claimant’s act was a violation of either
the host’s law or of transnational public policy. Where fraud or private corruption,
for example, was alleged, the host might fail to convince a tribunal that the
investment did not exist due to illegality, but it might be able to encourage the
tribunal to use its discretionary power to declare the claim based on the tainted
investment inadmissible. In Plama v. Bulgaria,66 for example, the host alleged that
the investor had fraudulently misrepresented its owner, that the misrepresentation
made any consent given to the investor to enter Bulgaria void, and that this nullified
the existence of any “investment” on which to base a claim: a challenge to the
jurisdiction of the tribunal.67 Bulgaria also alleged that the misrepresentation was a
reason to have denied Plama some of the benefits it had expected – a question for the
merits.68 The tribunal determined that the misrepresentation questions influenced
each other but asserted that there was an investment – no matter who the ultimate
owner was69 – and therefore determined to wait until the merits phase to make
conclusive findings about them.70 Its jurisdiction, it found, existed, and it used its
discretion to admit the claim to determine that it would address the misrepresentation
at a later stage.71 The tribunal in Kim v. Uzbekistan responded to claims of fraud and
corruption in the same way.
Mixing Jurisdiction and Admissibility

While some tribunals seem to find the distinction between jurisdiction and admissi-
bility irrelevant in the context of illegality defenses,72 others address illegality
defenses by speaking the language of jurisdiction but treating their decision to
dismiss the claim as something that could have been different if other contextual
factors had been different. The Plama tribunal, for example, complained of the host’s
jurisdictional objections coming too late: “The Tribunal [. . .] decides that this
66
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on
Jurisdiction (February 8, 2005).
67
Plama, paras. 88, 126.
68
See Plama, para. 127.
69
Plama, para. 128.
70
Plama, para. 127–128.
71
Plama, para. 178.
72
Explicit on this point was the Pezold v. Zimbabwe Award, in which the tribunal faced a defense of
inadmissibility on account of illegality and a reply by the investor that its invocation of the MFN
clause would maintain the admissibility of its claim, even if, it suggested, jurisdiction would not be
covered by MFN. The tribunal responded by saying that the difference “is immaterial” outside of
the MFN context. Bernhard Pezold et al. v. Republic of Zimbabwe, ICSID Case No. ARB/10/15,
Award, para. 346 (28 July 2015). The Annulment Committee maintained the blurred lines by
asserting that the Respondent’s original admissibility defense meant that the Host could not invoke
jurisdictional failures on this account in annulment proceedings. Berhard Pezold et al. v. Republic of
Zimbabwe, ICSID Case No. ARB/10/15, Annulment Proceeding, paras. 285–287 (21 November
2018) (in dicta finding that Zimbabwe did not prove that a different finding would have changed the
outcome of the case, therefore there was no “manifest” failure).
submission cannot be admitted so belatedly as a jurisdictional challenge.”73 The

Fraport II tribunal, upholding the illegality defense, said that had the balance of
fairness of the situation been different, the host would not have succeeded in
blocking jurisdiction.74
There are also various cases in which tribunals use the doctrine of estoppel to
prevent the host from challenging jurisdiction on the basis that they tolerated the
investment’s operation.75 Estoppel is the equitable tool with which a court (or
tribunal) may determine that one party’s prior behavior prevents it from making a
particular claim that would ignore its earlier acts. The doctrine holds particular
attraction to tribunals facing illegality defenses alleging bribery. The two-way nature
of bribery’s wrongs raise the concern that hosts that successfully block an investor’s
claim by invoking the investor’s bribing of a public official to establish the invest-
ment are escaping punishment of their own wrongful acts twice: the wrongful acts
toward the investor and the original wrongful behavior of corruption. As a result,
some commentators have supported using estoppel to prevent a host from invoking
the bribery defense to jurisdiction unless it has acted to prosecute the investor under
national law first.76 A number of tribunals have followed this approach. In the words
of the Kardassopoulos v. Georgia tribunal:
The assurances given to Claimant regarding the validity of the [contract . . .] were endorsed
by the Government itself [. . .]. The Tribunal further observes that in the years following the
execution of the [contract . . .], Georgia never protested nor claimed that these agreements
were illegal [. . .]. In light of all of the above circumstances, the Tribunal is of the view that
Respondent created a legitimate expectation for Claimant that his investment was, indeed,
made in accordance with Georgian law [. . .].77
In this author’s view, these tribunals are failing to distinguish between jurisdiction
and admissibility, and are actually treating the finding (or lack of finding) of illegality
as a factor in considering the quality of the claim rather than their competence to hear
the dispute. This is not to claim that illegality should be a question for admissibility,
but rather that if the illegality is going to be categorized as a jurisdictional issue,
tribunals cannot avoid denying jurisdiction if illegality is found. The World Duty
Free tribunal, despite determining its own indications of inadmissibility, noted the
strict rule of denying jurisdiction dictated by English law, “[t]here is [. . .] no legal
73
Plama, para. 129.
74
Fraport II, paras. 346–347.
75
See Lim K (2013) Upholding corrupt investors’ claims against complicit or compliant host states
– where angels should not fear to tread. In: Yearbook on international investment law and policy
2011–2012. Oxford University Press, 601–680, paras. 75–79 (citing Fraport II, Kardassopoulos,
Tokios Tokeles, Tecmed v. Mexico and Desert Line v. Yemen).
76
See Matt Reeder, State Corruption in ICSID BIT Arbitration: Can it be Estopped? Kluwer
Arbitration Blog (9 March 2017) (http://arbitrationblog.kluwerarbitration.com/2017/03/09/state-
corruption-in-icsid-bit-arbitration/ viewed 7 July 2019).
77
Ionnis Kardassopoulos v. Georgia, paras. 191–192. See also Southern Pacific Properties (Middle
East) Limited v. Egypt, ICSID Case No. ARB18413, Award, paras. 82–85 (20 May 1992).
basis [. . .] for the Tribunal to operate a discretionary balancing exercise” even in the
face of one party being solely liable for wrongs that both parties enacted. If a tribunal
would want to modify the all-or-nothing effects of the illegality defense, it must hold
the issue to be one of admissibility.
Illegality Defense on the Merits
Finally, the illegality defense can be invoked as an issue for the merits of the claim.
Illegality will be an issue on the merits generally in one of two constellations.78 First,
when the tribunal is hesitant to dismiss an investor’s claim of breach but the State has
alleged that the investor acted corruptly or fraudulently. Second, when the illegality
raised is not constitutive of the investment. I will explain these two situations briefly.
First, tribunals may be (and often are) hesitant to refuse the investor’s request for
arbitration despite indications of illegality. This is not surprising given the all-or-
nothing results of either the jurisdictional or the admissibility angles of the illegality
defense. This hesitation might stem from the context of a case that makes the tribunal
feel that justice would not be served if the investor were denied relief (for example, if
the host State demanded a bribe rather than was offered it or where the host State’s
actions toward an investor were egregious). Alternatively, a decision to examine
illegality on the merits can arise if the host appears to have condoned the corruption
until the arbitration claim was filed, and only then brings it up. The Wena Hotels v.
Egypt award79 is a classic example of the latter, with the tribunal writing that
given the fact that the Egyptian government was made aware of this agreement by [an
official] but decided (for whatever reasons) not to prosecute [the alleged perpetrator], the
Tribunal is reluctant to immunize Egypt from liability in this arbitration because it now
alleges that the agreement [. . .] was illegal under Egyptian law.80
Other tribunals may scrutinize the host’s illegality defense, requiring higher levels
of proof of illegality than for other claims, which are generally based on a mere
preponderance of the evidence standard.
78
Reporting on the unavailable tribunal award in the case of TRACO v. Poland suggests that the
tribunal approached Poland’s jurisdictional objection based on fraudulent misrepresentation in an
unusual manner. Luke Eric Peterson, “In Heretofore-confidential Traco v. Poland BIT Award,
Veeder-Chaired Tribunal Canvases Prescription, Illegality, Estoppel Objections, and Concurrent
Causation,” IA Reporter, 19 February 2019 (https://www.iareporter.com/articles/in-heretofore-
confidential-traco-v-poland-bit-award-veeder-chaired-tribunal-canvases-prescription-illegality-
estoppel-objections-and-concurrent-causation/). The TRACO tribunal responded to Poland’s ille-
gality claims by saying that they cannot “found an objection to the Tribunal’s jurisdiction, as distinct
from the exercise of its jurisdiction or the admissibility of the Claimant’s claims, forming part of the
merits of the Parties’ dispute.” Id.
79
Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award (8 December
2000).
80
Wena Hotels, para. 116.
Where the illegality defense is raised against an investor’s post-establishment

noncompliance with the law, tribunals are nearly unanimous in rejecting the juris-
dictional objections.81 Even the admissibility arguments are rarely, if ever, upheld.
Rather, tribunals tend to find the questions of illegality during the life of the
investment ones for the merits. The initial Fraport tribunal,82 faced with the
Respondent’s argument that the treaty’s definitional language requiring an invest-
ment to be “in accordance with” the law, explained:
[. . .] the effective operation of the BIT regime would appear to require that jurisdictional
compliance be limited to the initiation of the investment. If, at the time of the initiation of the
investment, there has been compliance with the law of the host state, allegations by the host
state of violations of its law in the course of the investment, as a justification for state action
with respect to the investment, might be a defense to claimed substantive violations of the
BIT, but could not deprive a tribunal acting under the authority of the BIT of its
jurisdiction.83
Within the merits discussion, the illegality can then be regarded as a matter to
explain or against which to balance host State actions. It can then reduce the
compensation awarded to the investor. So it was in Thunderbird v. Mexico.84 The
Thunderbird tribunal determined that the government had not unfairly closed the
investor’s gambling business because the business itself was illegal and the investor
knew that to be the case when it established it. The investor’s crime therefore had the
same end result as a jurisdictional or admissibility claim, but by making it an issue
for the merits, the tribunal gave the investor a hearing. This avoids any of the
criticisms that arise from the illegality defenses but leaves open the possibility of
letting an investor’s unlawful behavior be balanced against a host’s wrongful acts.
ISDS and the Illegality Claim
While the illegality defense has received the most attention from ISDS observers,
investors may – and have – also raised arguments of illegality to challenge host
81
The Kim tribunal referred to the illegality arguments’ “temporal dimension.” Kim, para. 374. If
the legality requirement found in the BIT’s scope provision is limited to investments that are “made”
in accordance with the laws, the temporal scope of the requirement ends with the establishment. Id.
(“The word “made,” both in terms of its ordinary meaning and its use in the past tense, indicates that
the test applies at the time the investment is established. It is not a requirement subsequent to the
making of the investment”). See also id. at para. 375 (citing other awards that find similarly,
including Quiborax v. Bolivia; Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID
Case No. ARB/07/24, Award (18 June 2010); and Metal-Tech v. Uzbekistan).
82
ARB/03/25, Award (16 August 2007) (“Fraport I”; this award was annulled on other grounds, see
ARB/03/25, Annulment Proceeding, Art. 218 (23 December 2010)).
83
Fraport I, Award, para. 345 (initial emphasis supplied).
84
Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral Award
(26 January 2006).
behavior as contrary to their rights. The cases in which investors have alleged that
illegality violated their rights to legal expropriation, fair and equitable treatment,
and/or nondiscrimination are significant because they show a more uniformly
deferential attitude to host States than do the illegality defense cases.85
Investor as Target of Demand for Bribe
There are three basic constellations in which illegality claims arise. The first is, as in
the EDF v. Romania86 case, where the investor alleges that the host demanded that
the investor engage in a crime. Eastern Duty Free (EDF) was an investor in Romania
which had secured two contracts for participating in a joint venture with Romania to
build and run duty-free stores in the airports and to make sales in the air. Having
worked successfully under the contracts for 10- and 7 years, EDF’s CEO was
surprised when a Romanian Chief-of-Cabinet to the Prime Minister requested a
$2.5 million payment for the Prime Minister. After refusing, EDF was given a
second chance a few months later by a State Secretary. Having refused again, the
government cancelled the contracts. EDF brought a claim to ICSID, alleging inter
alia that the demand for a bribe and cancellation of the contracts based on that
demand were a violation of the BIT’s fair and equitable treatment provision.
The host based its main defense on a denial that its officers had made any
demands. In the hearing, Romania’s witnesses (the persons the investor accused of
having made the demands) contradicted the investor’s witness (the employee to
whom the alleged demands were made). Beyond that, it agreed that a demand for a
bribe payment would be a violation of international public policy, and that any such
action would be “fundamental breach” of FET and transparency.87 The tribunal
deemed both Parties’ witnesses untrustworthy.88 Thus, it concluded that EDF had
not satisfied the burden of proving its claims.89 This burden, said the tribunal, was
particularly high in a case of grand corruption, such as EDF’s allegations:
[. . .]The seriousness of the accusation of corruption in the present case, considering that it
involves officials at the highest level of the Romanian Government at the time, demands
clear and convincing evidence.90
Two things are interesting about this statement. The first is that the tribunal
preceded its determination of this higher burden of proof with a recognition of the
practical difficulties of securing any evidence of corruption. Corruption, it said, “is
85
See Llamzon at 217 (table indicating that in the five cases reviewed in which the investor makes a
claim of corruption, in four of them all the claims were dismissed and only in one was the claim
“substantially” upheld).
86
EDF (Services) Ltd. v. Romania, ICSID Case No. ARB/05/13, Award (8 October 2009).
87
EDF, para. 221.
88
See EDF, paras. 223–224, 227.
89
EDF, paras. 221, 237.
90
EDF, para. 221.
notoriously difficult to prove since, typically, there is little or no physical evi-

dence.”91 Nevertheless, proven it must be, and without clear and convincing evi-
dence, the investor will not be able to succeed on its claim if future tribunals take the
same approach.
The second noteworthy point is that the tribunal’s words about the bribery claim
suggest that it did not distinguish the illegality claim from the illegality defense. The
EDF tribunal supports its use of the clear and convincing evidence standard by
pointing to a “general consensus among international tribunals and commentators
regarding the need for a high standard of proof of corruption.”92 While the source of
this determination is not revealed (the footnote is to the Romanians’ submission),
given the paucity of attention given to corruption claims in arbitration, it is likely that
the “general consensus” is one that relates to the evidence required by hosts’ use of
corruption accusations as a defense from jurisdiction and/or admissibility. From a
systemic perspective, it is not clear that the burdens of proof here should be the same:
indeed, precisely on the point of the access to evidence (to which the tribunal was
acutely attuned), the difference between a State’s use of an allegation of the payment
of a bribe as a defense and the investor’s use of a demand for a payment as a claim
could indicate that the tribunal’s setting of the burden of proof should be
differentiated.
Investor’s Competition as Accomplice to a Crime
Another framework of illegality claims appears where the investor claims that it
suffered a violation due to the host’s offer of benefits to a competitor in return for
benefits offered by the other investor. Methanex v. United States93 and RSM v.
Grenada94 are good examples of this.
Under NAFTA Article 1102, 1105, and 1110, hosts are required to treat investors
no less favorably than national investors, to offer them fair and equitable treatment
(FET), and to compensate them for any expropriation, respectively. The Canadian
investor Methanex produced methanol, a substance used in a gasoline additive that
increased the octane levels of unleaded gas. When California banned the additive on
grounds of its harmful effects on human and environmental health, the company
filed an arbitration under NAFTA on each of the grounds listed above. Pertinent to
the present chapter was that pointed to in the investor’s additional claim: the
inappropriate conduct of the California governor in office at the time the ban was
91
EDF, para. 221.
92
EDF, para. 221.
93
Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on
Jurisdiction and Merits (3 August 2005).
94
RSM Production Corporation and others v. Grenada, ICSID Case No. ARB/10/6, Award (10
December 2010).
passed. Governor Davis, according to Methanex, had received campaign financing

from a Methanex competitor, Archer Daniels Midland (ADM). These political
contributions, argued the claimant, led to the regulation. Given ADM’s “lack of
business ethics and an atmosphere of general lawlessness,” the fact that the regula-
tion banning the additives passed after Davis’ visit to the company’s headquarters
raised the suspicion of corrupt behavior.95
The tribunal noted that it faced an allegation of “‘corruption’ [. . .] short of
criminal or unlawful conduct.”96 Recognizing that corruption could lead to the
dismissal of a complaint and that tribunals may rely on circumstantial evidence,
the tribunal nevertheless found for the USA. Here, the tribunal points to the
lawfulness of the host’s actions to refute the allegation of illegal expropriation97
and to the unsupported, “conspiratorial” nature of Methanex’s FET claims.98 The
“dots” used to make allegations of corruption must be both connected and complete
to succeed.99 Here, the tribunal found that the dots were neither reliably presented
nor sufficient.100
In RSM v. Grenada, the claimant was equally unlucky in gaining tribunal support,
despite a double chain of arbitration and litigation.101 RSM is a US energy company
engaged in an off-shore drilling operations. In 1996, it concluded an exploration
contract with Grenada officials, the terms of which foresaw its application for a
license within 3 months. Having failed to apply for the license within that time, it
invoked the concession contract’s force majeure clause, which Grenada accepted, to
continue its drilling. In 2004, RSM revoked the force majeure and applied for a
license. Grenada refused the license, causing RSM to launch an investment dispute,
alleging expropriation. Grenada responded by canceling the contract altogether in
95
Methanex, Part I, Preface, p. 3. See also Howard Mann, The Final Decision in Methanex v. United
States: Some New Wine in Some New Bottles (IISD, August 2005) (https://www.iisd.org/pdf/2005/
commentary_methanex.pdf; viewed 17 July 2019).
96
Methanex, Part I, Preface, p. 5, para. 7.
97
Methanex, Part IV, Chapter D, page 5, para. 11. (“political contributions to candidates for office in
the United States are not prohibited and there is no indication in the record, still less any allegation
from Methanex, that ADM’s contributions were in violation of the law or that Mr. Davis behaved in
violation of the law”).
98
Methanex, Part III, Chapter B, page 26, para. 56.
99
Methanex, Part III, Chapter B, pages 25–28, paras. 53–60.
100
Id.
101
RSM Production Company v. Grenada, ICSID Case No. ARB/05/14, Final Award (13 March
2009); RSM Production Company v. Grenada, ICSID Case No. ARB/05/14, Decision on RSM
Production Corporation’s Application for a Preliminary Ruling of 29 October 2009 (Annulment
Proceedings) (7 December 2009); RSM Production Company v. Grenada, ICSID Case No. ARB/
05/14, Order of the Committee Discontinuing the Proceeding and Decision on Costs (Annulment
Proceedings) (28 April 2011); Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and
RSM Production Corporation, ICSID Case No. ARB/10/6, Award (10 December 2010).
2005. A competitor of RSM (Global Petroleum, a Grenada company directed by

Russian citizens) received the concession to continue drilling in the relevant area in
2008.
Although RSM suspected that Global Petroleum competitor had received the
concession on the basis of bribing the government, when challenging the expropri-
ation of its property, RSM itself did not directly allege a violation of the BIT on the
basis of the bribes in its 2004 claim. Rather, it said the government’s testimony must
be discounted because the witness was corrupt.102 The tribunal used its discretion in
weighing evidence to choose to believe the official.103
RSM filed for annulment. The annulment committee refused to remedy the
tribunal’s failure to consider corruption, finding that Art. 52 ICSID provided no
mandate to examine such an issue when the facts had been set out and the claimant
had not asked for the award to be revised.104 The corruption claim, it indicated, had
not been pursued strongly enough by the claimant and was too intertwined in the
original claims to make a repeated complaint on the basis of corruption a matter for
an annulment tribunal.105
In the meantime, RSM shareholders filed a separate case against Grenada on the
basis of the same facts, but adding a claim of denial of full protection and security
and FET on grounds of corruption of Grenada officials by Global Petroleum.106 The
second ICSID tribunal found that the matter had already been litigated, and that the
102
Interestingly, in the first arbitration brought by RSM, Grenada counter-claimed on the basis of an
illegality claim against RSM. The tribunal denied the counterclaim. See Damon Vis-Dunbar, ICSID
tribunal dismisses RSM Production Corporation’s Claim against Grenada, Investment Treaty News,
26 March 2009 (https://www.iisd.org/itn/2009/03/26/icsid-tribunal-dismisses-rsm-production-cor
porations-claim-against-grenada/; viewed 5 July 2019).
103
The tribunal was helped along in this by a contemporary New York court case in which RSM
tried to use the Foreign Corrupt Practices Act (FCPA) against Grenada. In that case, the court
refused to allow such a claim, finding that a private party could not invoke the FCPA. RSM Prod.
Corp. v. Fridman, 643 F.Supp.2d 382 (S.D.N.Y. 2009). In dicta, however, it had stated that there was
nothing to back up the claims of corruption anyway. The RSM tribunal was aware of the facts on
which the NY court’s was based and the fact that the NY court had not found sufficient evidence to
support a claim of corruption to back up its determination that Grenada had not acted illegally.
Grynberg et al. v. Grenada at 7.1.24. See also Betz at 97-98. A final attempt to sue the lawfirm
representing Grenada also failed. RSM Production v. Freshfields Bruckhaus Deringer, 800 F. Supp.
2d 182 (D.C. 2011).
104
Decision on RSM Production Corporation’s Application for a Preliminary Ruling of 29 October
2009, para. 30. The annulment committee ultimately dismissed the claim on unrelated grounds.
Order of the Committee Discontinuing the Proceeding and Decision on Costs at para. 41.
105
Decision on RSM Production Corporation’s Application for a Preliminary Ruling of 29 October
2009, para. 29 (“the Committee’s function is to consider and determine the Applicant’s Request for
Annulment. The Committee considers that the issues raised in the Application are not directly
relevant to that Request”).
106
RSM v. Grenada, ICSID Case No. ARB/10/6, Award (10 December 2010).
shareholders’ claims were no different than those of RSM itself.107 The tribunal did
take up the corruption charges, though, noting that any corruption between Grenada
and Global Petroleum was subsequent to the alleged expropriation, and therefore,
there was no causation.
7.2.21 [. . .] Claimants lost their investment as a result of RSM’s own actions (or inactions).
[. . .] Put another way, assuming it to be true that a senior official or senior officials were
bribe takers from Global Petroleum, this/these corrupt acts were not causative of the loss of
Claimants’ investment.
7.2.22 The taking of any such bribe was unlawful, but Grenada’s decision to rely on its
contractual rights cannot be said to contravene the unfair and inequitable standard as it has so
far been understood by multiple ICSID Tribunals.
The tribunal reemphasized the necessary link between the host’s criminal actions
and the claimant’s own damages:
7.2.24 [. . .] Breach of the [FET] standard is “unrelated to whether the Respondent has had
any deliberate intention or bad faith in adopting the measures in question. [footnote to CMS
v. Argentina108]
7.2.25 In these circumstances, even if Grenada was motivated, by bribes, to offer its off-
shore exploration rights to Global Petroleum, its reliance on its contractual rights to
terminate the Agreement [with RSM] cannot be said to infringe the fair and equitable
standard when Grenada had done nothing to induce RSM’s [own] failure to [act in accor-
dance with the contract].109
That is, the fact that the host violates transnational public policy does not, in and
of itself, make the host liable to an investor that is not the direct target of the illegal
actions. Neither the RSM tribunals nor the annulment committee saw themselves as
the protector of good governance in general – they wanted to ensure the protection of
the investor only insofar as the host had inflicted damage on it.
Investor as Victim of Crime
Finally, investors may claim that the host failed to protect them from illegal actions
of third persons, thereby violating its obligations to fully protect the investor. Such
cases are particularly interesting studies in the scope of international investment law
to promote the enforcement of domestic laws and may offer opportunities to those
wishing for governments to take their labor laws, environmental laws, and commu-
nity protections more seriously. Here again, however, tribunals have proven reluctant
107
The DC Circuit case brought against the lawfirm failed on grounds of res judicata, as the
individuals named in the NY case were in privity with the lawfirm. RSM, 800 F.Supp.2d at III.B.2.
108
CMS Gas Transportation Company v Argentine Republic, ICSID Case No. ARB/01/8, Award,
para. 208 12 May 2005).
109
RSM, ARB/10/6, paras. 7.2.24–7.2.25. See also 7.2.5–7.2.7.
to hold the State responsible for anything other than clear, direct, and conclusively
proven violations.
One such case was that of Anderson et al. v. Costa Rica.110 The facts of this
dispute revolved around a case of financial fraud. Two Costa Rican brothers set up a
currency exchange business, subject to the oversight of the Costa Rican financial
supervisor. Eventually, the brothers expanded their exchange business to include
deposit-taking, with a curiously high rate of return (over 30%) on the cash-only
deposits. Requested by the Canadian authorities to investigate, the Costa Rican
authority closed the office but did nothing more to prevent the brothers from
reopening in a nearby location. Subsequent investigations, however, revealed a
Ponzi scheme.
Having lost their money, a group of “depositors” brought an arbitration claim based
on the host’s omission to protect their investments. The tribunal noted the relevant
treaty’s legality in establishment requirement, and said that the fact that this wording is
not ubiquitous in bilateral investment agreements means the words must be “strictly
followed.”111 The tribunal then set out the illegal actions of the brothers, noting their
“aggravated fraud and illegal financial intermediation” in gaining the claimants’
assets.112 This illegality, it said, tainted the entire investment113 and made the claim-
ants unable to own a legal investment. They thus denied their own jurisdiction.114 In
addition, the arbitrators noted that investors have a duty of due diligence to ensure their
investments are legal, and that the host is not liable for negligent investors’ losses due
to criminal activities in which they unknowingly engaged.115
ISDS and Tribunal Detection of Illegality
A final variation on illegality in ISDS is the tribunal’s sua sponte investigation of

suspected criminal activity. This may occur where neither party to the dispute raises
an illegality defense or claim, but where the facts of the case give cause to the
tribunal to suspect crimes in the parties’ relations.
The famous ICC Case No. 1110,116 in which Judge Lagergren said the illegality of
the investment precludes jurisdiction, was in fact based the Judge’s own detection of
an illegal arrangement between host and investor. The case was a 1963 commercial
110
Alasdair Ross Anderson et al. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award
(19 May 2010).
111
Anderson v. Costa Rica, para. 53.
112
113
114
115
116
ICC Case No. 1110 of 1963 by Gunnar Lagergren, YCA 1996, at 47 et seq. (text available at
https://www.trans-lex.org/201110/_/icc-award-no-1110-of-1963-by-gunnar-lagergren-yca-1996-at-
47-et-seq-/; viewed 19 July 2019).
arbitration based on a contract between a foreign company and its Argentine agent.
As sole arbitrator, Judge Lagergren was not faced with any party allegations of
corruption. Rather, each party presumed the validity of their agreement, differing
only on whether the payments under the contract had to be made.
Upon hearing the facts of the case and examining the Parties’ submissions,
Arbitrator Lagergren noted that the payment claims on which the dispute rested
were suspiciously high and determined that they “contemplated the bribing of
Argentine officials for the purpose of obtaining the hoped-for business.”117 Thus,
he declared his obligation to question his own jurisdiction. As bribery is contrary to
the public policy not just of individual States but also of the international system,
Arbitrator Lagergren claimed a transnational public policy against the protection of
illegal contracts and denied the claim.118
117
ICC Case No. 1110, para. 17.
118
Judge Lagergren’s statement on the effects of bribery on international arbitration have become much-
cited by tribunals who choose to apply the corruption defense:
16. Finally, it cannot be contested that there exists a general principle of law recognised by
civilised nations that contracts which seriously violate bonos mores or international public policy
are invalid or at least unenforceable and that they cannot be sanctioned by courts or arbitrators [. . .].
17. Now, reverting to the facts in this case. – As might be expected the documents drawn up seem on
their face to be legal and bear the semblance of ordinary commercial documents. However, it is, in my
judgment, plainly established from the evidence taken by me that the agreement between the parties
contemplated the bribing of Argentine officials for the purpose of obtaining the hoped-for business.
18. In saying this I do not mean to imply that Mr. [X] had no more to do than to hand over a
commission to his respective collaborators; on the contrary, I am convinced that Mr. [X] had to
perform other, important, and quite irreproachable, functions. This has to be taken into consider-
ation, but does not obscure the general image that the major part of the commissions to be paid to
him were to be used for bribes.
19. Even so, however, there are other circumstances which should be taken into account before it
could be established that the action brought before me seriously affects bonos mores. I have to
accept [Witness 3’s] statement that during the Peron regime everyone wishing to do business in the
Argentine was faced with the question of bribes, and that the practice of giving commissions to
persons in a position to influence or decide upon public awards of contracts seems to have been
more or less accepted or at least tolerated in the Argentine at that time. On the other hand it must be
remembered that we have to do here not with a mere favour which could be overlooked, or even
with the “little bit of money” [. . .]. Huge amounts are involved [. . .].
20. Although these commissions were not to be used exclusively for bribes, a very substantial part
of them must have been intended for such use. Whether one is taking the point of view of good
government or that of commercial ethics it is impossible to close one’s eyes to the probable destination
of amounts of this magnitude, and to the destructive effect thereof on the business pattern with
consequent impairment of industrial progress. Such corruption is an international evil; it is contrary to
good morals and to an international public policy common to the community of nations. [. . .]
23. After weighing all the evidence I am convinced that a case such as this, involving such gross
violations of good morals and international public policy, can have no countenance in any court
either in the Argentine or in France, or, for that matter, in any other civilised country, nor in any
arbitral tribunal. Thus, jurisdiction must be declined in this case. [. . .] Parties who ally themselves in
an enterprise of the present nature must realise that they have forfeited any right to ask for assistance
of the machinery of justice (national courts or arbitral tribunals) in settling their disputes.
See (https://www.trans-lex.org/201110/_/icc-award-no-1110-of-1963-by-gunnar-lagergren-yca-
1996-at-47-et-seq-/; viewed 6 July 2019).
The Metal-Tech v. Uzbekistan tribunal followed Lagergren’s attitude of active

investigation into suspicions of criminality.119 The facts of the dispute in that case
involved actions by and toward the investor’s agents. The tribunal looked to the so-
called “red flags” of corruption present in the specific case,120 including: the vaguely
described services afforded by the contracted suppliers; the extraordinarily large
payments (particularly in comparison to the local average salaries) to these suppliers;
the fact that the suppliers were individuals with little or no qualifications for the work
to be performed; the use of off-shore financial vehicles to make payments; and the
relationships of the contractors with the responsible government officials.121
Heeding these indications, the tribunal requested explanations from the investors
as to their reasons for these circumstances. When the investor was unable to provide
such explanations to the satisfaction of the tribunal, the tribunal moved to declare the
investment void for illegality.122 As a consequence, the requirement of consent to
arbitrate was absent, and the claim denied.123
While the counterclaims were equally denied, the tribunal made a further deter-
mination regarding the illegality: that the costs of the proceedings would be split
rather than granted to either party.124 Based partly on the Parties’ behavior during the
proceedings, the decision was grounded in the two-way nature of the corruption:
422. More important [than the Parties’ behavior in the proceedings], the Tribunal’s deter-
mination is linked to the ground for denial of jurisdiction. The Tribunal found that the rights
of the investor against the host State, including the right of access to arbitration, could not be
protected because the investment was tainted by illegal activities, specifically corruption.
The law is clear – and rightly so – that in such a situation the investor is deprived of
protection and, consequently, the host State avoids any potential liability. That does not
mean, however, that the State has not participated in creating the situation that leads to the
dismissal of the claims. Because of this participation, which is implicit in the very nature of
corruption, it appears fair that the Parties share in the costs.125
Conclusion: Efforts to Move Forward
The approaches to criminal activities in the realm of international investment law

seem to be solidifying around a small core, with the remaining areas still in flux. The
substantially agreed-upon core is that an investor’s bribery of a host official to
procure the admission/establishment of an investment will render any disputes
arising out of the investment non-arbitrable for lack of a lawful investment. Whether
119
Metal-tech v. Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013).
120
Metal-tech, para. 293.
121
Metal-tech, paras. 194ff.
122
123
124
125
this comes from treaty language referring to an investment being defined as assets/
projects/rights that entered “in accordance with the laws” of the host, from a
narrowing of the treaties’ arbitration permission to investor claims arising from
lawful investments, or from a contract that is deemed void because illegal, the result
is that the tribunal’s decision that the bribery has occurred will result in a lack of its
jurisdiction to hear the claim. The core also would extend to situations in which the
establishment of the investment was part of a money laundering scheme, given that
money laundering is widely condemned.
Where the results of a defensive use of crime in an arbitration become more
questionable is when the complained about actions are ones of fraud. Not having a
clear transnational public policy against fraud, tribunals facing a pure treaty claim
may be unable or unwilling to strike it on this basis.
The even harder cases seem to be those in which corruption on the part of the host
is at the heart of the investor’s claim. While most of the cases examined deny the
investor the right to compensation for a host’s criminal actions, the awards in these
cases have indicated a high evidentiary threshold for the investor to overcome.
Without clear evidence of both the (attempted) illegality and the causal link between
that activity and the damages sustained by the investor, tribunals are reluctant to
grant the claim. It is unclear what the policy reason is behind this reluctance to accept
the corruption offense, particularly in light of the dramatic consequences of a
successful corruption defense. Sovereignty, it seems, remains the guiding principle
in these matters.
As attention to the topic grows, the contours of the illegality questions in
investment arbitration are being discovered and experts are still debating the
answers. Technical questions as to the burden of proof, the competence of arbitra-
tors to look beyond party submissions, the acceptability of certain types of
evidence, and the legal value of red flags are arising even while the basic question
of the characterization of the illegality claim as one of jurisdiction or admissibility
still divides the arbitration community. Most of the debate centers on allegations of
investor bribery, making the questions dividing the experts particularly difficult.
The equity of denying an investor any chance of recovery even in the face of
egregious violations of a treaty by the host is not clear, even if the law would
permit this.
Still, while there continue to be voices expressing doubts about the equitable and
even practical results of the illegality defense, practitioners in the field who have
been following the interrelation of arbitration and illegality for some time have been
pushing strongly to solidify the rules on this defense in the name of anti-corruption.
This is having results in both binding investment protection instruments and non-
binding rules of arbitration.
Nonbinding Rules
Currently, there are number of more or less formal groups of experts studying the
issue and/or working on drafting documents to assist tribunals in addressing illegal-
ity claims in ISDS contexts. The Swiss Arbitration Association focused its 2019
annual meeting on corruption issues.126 The International Bar Association’s June

2019 Anti-Corruption Conference featured the launch of the Basel Competence
Centre on Arbitration and Crime’s “Toolkit for Arbitrators.”127 The toolkit empha-
sizes anti-corruption interests, calling for arbitrators to familiarize themselves with
relevant international law instruments prohibiting corruption, explaining the use of
red flags, and warning of a potential accomplice liability of arbitrators who refuse to
deny claims that may involve money laundering.
These efforts give prominence to the topic and encourage further thinking on the
technicalities of how to manage dispute settlement proceedings when crime comes
up as a jurisdictional or material issue. Significantly, however, these efforts to guide
thinking may become in need of updates before they even mature. This is because
treaty negotiations are proceeding in parallel, and are resulting in the preemption of
much of the arbitrators’ discretion in addressing illegality in investment relations.
Treaty Law Revisions
Much has been written on the new generation of international investment agreements
(IIA). Where the last generation of IIA maintained the primacy of investor protec-
tion, the newest such agreements are strikingly host-State friendly. Standards of
protection are defined in detail, limiting the promised protections to a minimum. The
right of hosts to regulate their economies – and therefore to take action against
investors in the name of public welfare goals – is explicitly incorporated in the text of
preambles and ensured with the insertion of both general exceptions and exceptions
to certain standards of protection. Dispute settlement between investors and hosts is
conditioned and channeled, and in some cases, omitted entirely.128
Among the newer provisions appearing in these agreements are those aiming to
prevent criminal activities in the investment context. These references can be found
in various provisions. The Argentine-UAE bilateral treaty, for example, calls atten-
tion to the legality question in the Preamble, “stressing” that “it is essential for all
investments to be made and carried out in accordance with international law and the
laws and regulations of the Party in whose territory the investment is made.”129
Some build on the current type of provisions that require investments to be made
“in accordance with” the laws of the host, by making the legality of investor
behavior an explicit precondition to protection. These might be found in the
126
ASA, Arbitration and Corruption (Geneva, 1 February 2019).
127
Competence Centre Arbitration and Crime and Basel Institute on Governance, Corruption and
Money Laundering in International Arbitration: A Toolkit for Arbitrators (2019).
128
See UNCTAD, Taking Stock of IIA Reform: Recent Developments, IIA Issues Note (June 2019)
(describing the content of the new IIA and listing which new treaties have which new features). See
particularly id. at 9 (table 1 explains the “Salient features of new IIAs,” including “parity,” which
refers to the no corruption requirement).
129
Agreement for the Reciprocal Promotion and Protection of Investments Between the Argentine
Republic and the United Arab Emirates (signed 16 April 2018; not yet in force).
definition or scope provisions. They may, however, appear as a part of the ISDS
mechanisms, where the jurisdiction of an arbitral tribunal is made dependent on the
investor’s continuing adherence to national laws. The EU-Vietnam agreement, for
example, has a “For greater certainty” paragraph in its ISDS provisions which says:
For greater certainty, a claimant shall not submit a claim under this Section if its investment
has been made through fraudulent misrepresentation, concealment, corruption or conduct
amounting to an abuse of process.130
Other treaties expand the lawfulness concept by looking at not only the lawful-
ness of the establishment of the investment but also the continued adherence to the
law in the operation of the investment. India’s bilateral treaty with Belarus131 is
explicit about the non-protection of investments tainted with illegality, stating clearly
that not only does the term “investment” require the lawfulness of establishment and
operation132 and that investments that enter unlawfully are not covered by the treaty
protections,133 but also that investors who engage in an open-ended list of illegal
activities when establishing the project will be denied the right to ISDS.134 The
relevant paragraph states:
An investor may not submit a claim to arbitration under this Chapter if the investment has
been made through fraudulent misrepresentation, concealment, corruption, money launder-
ing or conduct amounting to an abuse of process or similar illegal mechanisms.135
Argentina’s BIT with the UAE is similar. While the definition of investment is not
tied to legality, there is a full article called “Compliance with the Laws of the Host
Party.” This Article 14 is worth reproducing in full:
The Parties acknowledge that:
(a) the investors and investments of each Party shall comply with the laws, regulations, and
policies of the host Party with respect to the management, operation, and disposition of
investments;
(b) investors shall not offer, promise or give any pecuniary advantage or benefit - either
direct or indirect - to public officers of the host Party as an encouragement or reward for
the performance of wrongful official acts or to obtain undue advantages;
130
Annex to the Proposal for a Council Decision on the conclusion of the Investment Protection
Agreement between the European Union and its Member States, of the one part, and the Socialist
Republic of Viet Nam of the other part, Brussels, 17.10.2018 COM(2018) 693, ANNEX 1, Section
B, Subsection 1, Article 3.27(2).
131
Treaty between the Republic of Belarus and the Republic of India on Investments (signed 24
September 2018) (“India-Belarus BIT”).
132
India-Belarus BIT, Art. 1.4.
133
134
135
Id.
(c) upon request of the host Party, investors shall endeavour to provide information about
the background and practices of the legal person concerned for decision-making pur-
poses or for statistical purposes.136
The provisions of the signed (but not yet in force) Japan-UAE BIT is similarly
concerned with legality.137 It includes an interesting statement that is essentially a
legality condition for the protection of (specifically) national treatment benefits:
Once investment is admitted in accordance with its applicable laws and regulations, each
Contracting Party shall in its Area accord to investors of the other Contracting Party and to
their investments treatment no less favourable than the treatment it accords in like circum-
stances to its own investors and to their investments.138
The treaty also has a special provision specifically addressing corruption. Article
10 places the treaty parties under an obligation of effort to act positively against
corruption in investment: the parties “[. . .] shall endeavour to take appropriate
measures and make efforts to prevent and combat corruption.”139
As mentioned above, many tribunals have already been finding implicit legality
requirements even in the old generation treaties. The new ones, however, make
discussions about admissibility irrelevant. Corruption, money laundering, and crim-
inal fraud would all be grounds on which a tribunal would have no choice but to deny
the investor the ability to launch an arbitration under the treaty.
In this environment, it is likely that the normative as well as the empirical
questions surrounding the effectiveness of anti-corruption provisions in investment
treaties and the illegality defense in particular will reemerge with particular vigor.
Will tribunals now be striking more claims at the jurisdictional stage or will they be
trying to maintain investors’ rights by simply determining that the host has not
fulfilled its burden of proof on the question of unlawfulness? Will levels of corrup-
tion drop because investors, trying to ensure their right to demand compensation in
the future, are less likely to succumb to host State demands for bribes or will
corruption increase, given the perverse incentives on host State officials, whose
demands for illegal payments could protect their State from facing arbitration if
the investor concedes? Will illegality defenses become abusive? And what is the
relationship between a host’s corruption defense in arbitration and a possible future
prosecution in national court?
Moreover, the new treaties do little to clarify the situation of illegality claims. So
far, tribunals have not differentiated their burden of proof discussions from those set
forth in illegality defense awards. Yet, the reasons for requiring elevated evidentiary
burdens on hosts are precisely because governments have sovereign powers and the
136
Argentina-UAE BIT, Art. 14.
137
Agreement Between Japan and the United Arab Emirates for the Promotion and Protection of
Investment), (signed 30 April 2018) (“Japan-UAE BIT”).
138
Japan-UAE BIT, Art. 3(1).
139
Japan-UAE BIT, Art. 10.
consequent ability to more effectively gather evidence of crimes. Investors do not

have this. Given the difficulties facing investors in the examples of such claims so
far, it is possible that the even more deferential attitude of the new IIAs to hosts will
make claims that much harder to win. This is particularly true for illegal actions that
do not reach the level of egregiousness that would categorize them as “manifest”
violations of the investor’s rights.
The persistence of crime and corruption throughout history gives us no reason to
expect that new treaty rules prohibiting such conduct will end illegality by investors.
Nor will international rules making it wrongful for States to engage in illegal acts end
illegality toward investors. Neither of this is to deny the need to continue to try to
reduce crime in investment relations. Instead, it is a call to continue to study – with
increasing scrutiny – the proposals and declarations aimed at ending it. There is
much work to be done, and only by accepting that can we prepare ourselves for the
continuing struggle to ensure the rule of law in international investment.
Cross-References

Ratione Temporis)
Part VI
Procedural and Substantial Issues
Arbitral Procedure: Case Management
and Selecting the Place of Arbitration 37
Chiann Bao
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 920
Commencing an Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 920
Analyzing the Merits of the Case, Determining Case Strategy, and Appointing
External Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 921
Exploring the Possibility of Alternative Dispute Resolution Mechanisms . . . . . . . . . . . . . . . . . 921
Budgeting and Funding the Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923
Establishing the Procedural Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923
Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923
Role of Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924
Procedural Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 925
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 941
Abstract
Managing an investment arbitration requires a specific understanding of the rules
applicable to the arbitration and the unique features of an investment arbitration,
including the selection of the place of arbitration, issues in relation to document
production, and the use of a tribunal secretary. These procedural issues should be
considered at the outset of an arbitration during the procedural meeting in order to
ensure an efficient running of an arbitration proceeding. This chapter examines in
detail the various considerations parties as well as the arbitral tribunal will need to
take into account when establishing a roadmap and procedural timetable for the
investment arbitral proceeding.
By Chiann Bao, Independent Arbitrator, Arbitration Chambers, Honorary Senior Fellow, British
Institute of International and Comparative Law. The author would like to thank Carla Martini for her
invaluable assistance with the preparation of this article.
C. Bao (*)
Arbitration Chambers, Hong Kong, China
e-mail: chiann.bao@arbchambers.com

https://doi.org/10.1007/978-981-13-3615-7_65
920 C. Bao
Keywords
Investor-State arbitration · Arbitral procedure · Commencing arbitration · Case
management · Procedural order · Tribunal discretion
Introduction
Managing any arbitration matter calls for planning and diligence. This is all the more
so given the public and sovereign nature of investment arbitration. The effect of
suing a State could have wide-reaching implications on non-parties, even whole
populations. As such, the process, while largely similar to international commercial
arbitration, necessarily features unique aspects as a result of State involvement and
the resolution of disputes through investor-State dispute settlement mechanisms
found in treaties.
This chapter focuses on the procedural aspects of international arbitration with an
emphasis on the particularities in investment arbitration and is divided into two main
sections: (1) commencing an arbitration and (2) establishing a procedural frame-
work. The second section is subdivided by the topic of provisions typically found in
a first procedural order issued by the tribunal.
Commencing an Arbitration
Whether the arbitration is commercial or investment in character, great forethought

is required when commencing an arbitration. Indeed, one of the most important
phases of the proceedings is from the moment the dispute arises to the first proce-
dural meeting with the arbitral tribunal.1 When the dispute emerges, parties will
invariably negotiate in an effort to preserve the relationship. Parties may even
attempt to mediate. However, more often than not, there comes a time when the
investor sees no amicable way forward and, hence, commences the arbitration.
Parties will each want to take pre-action steps, including but not limited to the
following: (1) analyzing the merits of the case, determining case strategy, and
appointing external counsel; (2) exploring the possibility of dispute resolution
mechanisms as an alternative to arbitration; and (3) and budgeting and financing
the arbitration.
1
Legum B (2010) An overview of investment arbitration procedure. In: Yannaca-Small K
(ed) Arbitration under international investment agreements: a guide to the key issues, 2nd edn.
Oxford University Press, pp 91–103, p 92
37 Arbitral Procedure: Case Management and Selecting the Place of Arbitration 921
Analyzing the Merits of the Case, Determining Case Strategy,

and Appointing External Counsel
Even before the dispute crystallizes, the individual investor or a commercial entity
seeking recourse in relation to a foreign investment made in the host State will likely
be evaluating the case. During this phase (and indeed from the very outset of the
relationship), it is imperative to ensure that communications and documents are
recorded. Poor record keeping could preclude the party from providing sufficient
evidence to prove its case, no matter how strong the case.
It is also at this stage that the party may bring legal counsel on board, either from
within the company or externally.2 Retaining counsel helps to ensure that post-dispute
communications are drafted with particular care and also protects any advice that is
considered legal advice from being subject to disclosure during the document produc-
tion phase. Further, external counsel experienced in handling investor-State arbitra-
tions will bring, among other things, an appreciation of the nuances of the process and
case strategy experience, the appropriate arbitrators for the given dispute, and an
“arms-length” evaluation of the merits of the dispute. Identifying appropriate counsel
will depend on many factors, including but not limited to experience in investor-State
arbitration, familiarity with the client and any cultural considerations, and budget.
In addition to evaluating the merits of the case, the party will need to consider
treaties that may be applicable to the specific investment. Investors may in fact seek
advice on this even before investing into a certain country to understand the pro-
tections available under bilateral investment treaties and other such treaties. Details
related to selecting the treaty under which an investor might seek protection are set
out in other chapters but this step is essential for the purposes of understanding
whether a dispute settlement mechanism outside of the domestic courts is available
to the party in the first instance and what rights it may have under the relevant treaty.
The dispute resolution provision under the treaty will serve as the source from which
the procedural framework is established.
Exploring the Possibility of Alternative Dispute Resolution

Mechanisms
At the same time the arbitration strategy is being developed, negotiations through
diplomatic channels or other forms of noncontentious means of resolving the dispute
are often also taking place.3 This will usually occur during a cooling-off period,
often provided for investment arbitration agreements, whereby the investor and the
host State negotiate to find an amicable solution. Mediation or conciliation may also
be taking place during this period. That said, and despite the fact that International
2
World Bank. Practice note for respondents in ICSID arbitrations, p 9. https://icsid.worldbank.org/
en/Documents/resources/Practice%20Notes%20for%20Respondents%20-%20Final.pdf
3
Id.
922 C. Bao
Centre for Settlement of Investment Disputes (ICSID’s) Conciliation Rules were

established in 1967, mediation and conciliation rarely feature as a successful means
for resolving investor-State disputes. In fact, ICSID has only logged 12 conciliations
or 1.7% of its total caseload between 1966 and 2019.4 In recent years, institutions
administering investor-State arbitrations and other bodies have begun to look more
closely at the idea of mediating an investor-State dispute, in part, as a result of the
dissatisfaction from some circles regarding the efficacy of investor-State arbitration.
For example, in 2016, the Energy Charter Treaty endorsed a Guide to Investment
Mediation explaining mediation in the context of investor-State disputes and, in
particular, how the Energy Charter Secretariat and other institutions can facilitate
mediation.5
However, there remains great reluctance in entertaining the use of mediation. The
Center for International Law at the National University of Singapore recently
published a study that explored why investors and State actors seem reluctant to
resolve disputes by mediation.6 The findings of this study indicate that parties do not
tend to settle disputes in investment arbitration because of the following: (1) defer-
ring responsibility for any potential settlement or negative outcome; (2) difficulty in
establishing agreement or otherwise building consensus with the many stakeholders
involved in an arbitration (the contrast being the comparative ease in obtaining a
budget for an arbitration knowing that the resulting product will be a binding award);
(3) fear of acknowledging any possible wrongdoing that violates the agreement or
treaties; (4) unrealistic expectations and an inaccurate evaluation of the dispute as a
result of change in government or media perspective; and (5) disagreement among
officials as to the government’s position and understanding of the dispute.7 In recent
years, there appears to be increased attention in educating the players in investor-
State arbitration on the possible advantage of mediation over arbitration. In partic-
ular, whether the United Nations Convention on International Settlement Agree-
ments Resulting from Mediation (“Singapore Convention”) applied to investor-State
arbitrations remains a key topic of discussion, and it should be noted that the ICSID
(Additional Facility) Mediation Rules confirmed that the Singapore Convention does
in fact apply to settlements reached in investment disputes.That said, until mediation
becomes commonplace in investor-State discussions, arbitration will remain the
popular mode of resolving investor-State disputes.
4
World Bank (2019) The ICSID caseload statistics, Issue 2019-2. Available at https://icsid.
worldbank.org/en/Documents/ICSID_Web_Stats_2019-2_(English).pdf
5
Energy Charter Secretariat, Decision of the Energy Charter Conference, 19 July 2016, CCDEC
2016 12 INV. Available at https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/
2016/CCDEC201612.pdf
6
Chew S, Reed L, Thomas CJ QC (2018) Report: survey on obstacles to settlement of investor-state
disputes. NUS Centre for international law working paper 18/01. https://cil.nus.edu.sg/publication/
survey-on-obstacles-to-settlement-of-investor-state-disputes/
7
Id., 1.
Budgeting and Funding the Arbitration
Parties will want to consider the financing aspects of commencing an arbitration as

well. Other chapters will detail the costs of an arbitration but the exercise of preparing
a budget is essential to understanding the investment in time and cost of bringing a
claim. Investment arbitrations generally do not settle once commenced and the
investor will have to factor in the costs of arbitration when considering whether or
not to commence an arbitration in the first instance. A budget should be prepared
which considers the various stages of the arbitration and possible scenarios (such as
bifurcation as will be discussed below). In addition to costs of counsel, understanding
the costs framework of each institution (and, if none involved, the applicable powers
of the Tribunal so as to determine and manage costs), by making reference to their
Schedule of Fees and general Cost of Proceedings. For example, ICSID regularly
requests parties to make advance payments to cover the estimated costs of the pro-
ceedings, the first of which can be of the order of US$ 100,000–U$ 150,000 per party.8
During this process, the party may also contemplate the option of third-party
funding. The use of third-party funding has surged in investment treaty disputes in
recent years. When deliberating the possible engagement of third party funding,
parties should educate themselves on the possible terms of such an arrangement.
Issues that have arisen include the possible loss of control over the claim and the
management of the proceedings and the creation of economic interests for a third
party. Such issues could lead to disputes over personal jurisdiction, admissibility of
claims, and/or recoverability of damages for some or all parts of an investment
claim.9 In its Working Paper #4 addressing the amendment of its rules, ICSID
proposes to include a provision which requires the party to file a “written notice
disclosing the name and address of any non-party from which the party, directly or
indirectly, has received funds for the pursuit or defence of the proceeding through a
donation or grant, or in return for remuneration dependent on the outcome of the
proceeding (‘third-party funding’).”10
Establishing the Procedural Framework
Arbitration Rules
The investor-State dispute settlement (ISDS) provision of the relevant treaty will
normally stipulate the applicable arbitration rules or a choice of rules. A recent OECD
survey of 1,660 bilateral investment treaties (BITs) and other bilateral agreements
8
See https://icsid.worldbank.org/en/Pages/Services/Cost-of-Proceedings.aspx and https://icsid.
worldbank.org/en/Pages/arbitrators/Managing-Case-Finances.aspx
9
Goldsmith A, Melchionda L (2012) Third-party funding in international arbitration: everything
you wanted to know but were afraid to ask: Part 2. Int Bus Law J 2:221–243
10
ICSID Working Paper #4, proposed Rule 14. Available at https://icsid.worldbank.org/en/Docu
ments/WP_4_Vol_1_En.pdf
924 C. Bao
with investment chapters found that 93% of bilateral investment treaties contain
dispute resolution provisions.11 Fifty-six percent of the treaties surveyed offer a
choice of institutions, with the most popular being ICSID and ad hoc arbitral tribunals
established under United Nations Commission on International Trade Law
(UNCITRAL) Rules but also an increasing number of options referenced in these
ISDS provisions.12 Other popular choices include the International Chamber of
Commerce (ICC) Rules or the Stockholm Chamber of Commerce (SCC) Rules. In
recent years, institutions such as the Singapore International Arbitration Centre
(SIAC) and the China International Economic and Trade Arbitration Commission
(CIETAC) have established investment arbitration rules with the aim of making their
administrative services available for investor-State arbitrations. While the Hong Kong
International Arbitration Centre (HKIAC) has not produced a separate set of invest-
ment arbitration rules, it has also administered investment arbitrations pursuant to the
UNCITRAL Rules. All of the rules provide a procedural skeleton which includes
provisions on method of communication, the procedure by which to appoint arbitra-
tors, parameters for confidentiality, and other provisions relating to the arbitration
process. While institutional rules possess similar features, there are differences as
well. With the exception of the UNCITRAL Rules, all of the rules also include
administrative services by an institution. The UNCITRAL Rules are intended for
ad hoc arbitration. In recent years, the Permanent Court of Arbitration (PCA) has
enhanced its administration services such that parties or tribunals involved with
investor-State arbitrations governed under UNCITRAL Rules will opt for the addi-
tional administrative services provided by the PCA. ICSID Rules are also distinctive
from the other institutional rules in that they adopt unique case management require-
ments from the other arbitration rules. The below sections will highlight some of
those distinguishing case administration characteristics.
Role of Arbitrators
The arbitral rules provide a helpful framework for proceedings but give the arbitral
tribunal significant discretion in shaping the scope of the arbitral process. So long as
the arbitral tribunal manages the proceedings “fairly and impartially to ensure that
each party has a reasonably opportunity to present its case,”13 the arbitral tribunal
may manage the case as it sees appropriate. The relevant provisions set out in the law
of the seat of arbitration establish similar parameters for the arbitral tribunal’s
discretion in managing the arbitral procedure. As arbitration under the ICSID
Rules does not rely upon a seat of arbitration and instead provides its own appellate
infrastructure by way of the annulment procedure, specific grounds, including a
11
OECD (2012) Dispute settlement provisions in international investment agreements: a large
sample survey. http://www.oecd.org/investment/internationalinvestmentagreements/50291678.pdf
12
Id.
13
ICC Rules, Art 22 sec 4; UNCITRAL Rules, Art 17; ICSID Working Paper 3, Draft Rule 2.
“serious departure from a fundamental rule of procedure,” are set out to ensure that
the arbitral tribunal’s mandate is exercised properly.14
The wide discretion granted to arbitral tribunals to conduct the arbitral process as
they deem appropriate means that arbitrator selection will be a key factor in the tenure of
the arbitral proceedings. While this topic is covered in other chapters of this Handbook,
it is worth reiterating the importance of arbitrator selection. Arbitrators from different
legal and professional backgrounds have different reference points from which to make
procedural decisions and management decisions in a dispute resolution proceeding.
This may influence the decisions on procedural issues made in an arbitration.
Procedural Management
Organizing the initial procedural meeting in an arbitration is one of the most

important tasks in the management of an arbitration.15 The Procedural Order
No. 1 that memorializes the decisions made during this meeting will serve as a
procedural roadmap for the various stages of the arbitration.16 Of course, amend-
ments can be made but ideally parties and the arbitral tribunal will invest time to
develop an agreeable procedure that will efficiently resolve the dispute.
During the procedural meeting, which can be done by telephone, video-
conference, or in person, the arbitral tribunal will, in consultation with the parties,
flesh out the procedural details as well as establish a timetable for the arbitration. To
the extent not already agreed or where further details are necessary, the agenda17 for
the procedural hearing will normally include the following core topics:
(a) Selecting the Place of Arbitration

(b) Language of the arbitration
(c) Communications
(d) Written Submissions
(e) Document Production
(f) Witnesses
(g) Experts
(h) Amicus Curiae
(i) Hearings
(j) Tribunal Secretary
(k) Procedural Timetable
14
ICSID Rules, Art. 52(1)(d).
15
ICSID Rules, Article 13; Article 21 of the ICSID Arbitration (Additional Facility) Rules; 2016
UNCITRAL Notes on Organizing Arbitral Proceedings, paras. 11–13. Available at https://www.
uncitral.org/pdf/english/texts/arbitration/arb-notes/arb-notes-2016-e-pre-release.pdf
16
See for example, the ICSID template Procedural Order No. 1. Available at https://icsid.worldbank.
org/en/Documents/process/Draft%20Procedural%20Order%20No%201.pdf
17
The ICSID Secretariat will circulate a draft agenda listing items to be discussed by the parties.
926 C. Bao
Certain topics such as confidentiality, transparency, and costs of arbitration are

also usually covered in a procedural meeting but are not covered in this chapter as
they are dealt with in other chapters in this Handbook. The remainder of this chapter
details the various considerations that should be made in relation to the these
highlighted procedural elements.
Selecting the Place of Arbitration

In investment arbitrations, the legal place of arbitration may be determined (i) by
terms of the applicable treaty, although this has yet to be the case in practice; (ii) by
agreement of the parties; (iii) by decision of the tribunal; or (iv) by the decision-
making body of the administering institution.18 The applicable treaty may stipulate
the place of the arbitration or the applicable rules, usually either ICSID Rules or
UNCITRAL Rules (or, as mentioned above, other rules, such as the ICC Rules, SCC
Rules, or SIAC Rules) may provide guidance as to how the place of arbitration shall
be selected or the criteria for selecting the place of arbitration. When the treaty refers
to ad hoc arbitration under the UNCITRAL Rules or that the seat of arbitration shall
be determined under the ICSID Additional Facility Rules, language will also be
included to limit the arbitral tribunal’s decision as to place of arbitration to be one of
the countries that is a signatory to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards.19
If the applicable treaty does not set out the place of arbitration but provides
applicable rules or a choice of rules, the parties may agree to the place of arbitration,
failing which the tribunal will decide. Arbitrations that are not ICSID arbitrations
will follow the ordinary practice of giving parties the freedom to agree to a place of
an arbitration. When choosing a seat for arbitration, parties may consider certain
factors. In V.G. Gallo v. Canada, the arbitral tribunal explained that “the perfect
place of arbitration in an international investment arbitration is a jurisdiction which
is neither that of the investor nor that of the host State, which has a high quality,
independent judiciary, with experience in providing support to, and reviewing and
setting aside decisions from international arbitral tribunals.”20 The popularity of the
seat may also be weighed when deciding on the seat for an arbitration.21 In essence,
18
Commission J, Moloo R (eds) (2018) Procedural issues in international investment arbitration.
Oxford International Arbitration Series, Oxford, p 147
19
Oxford International Arbitration Series, Oxford, p 147. For example, Mexico’s investment treaties
with Slovakia, Belarus, and China provide that “the arbitral tribunal shall determine the seat of
arbitration.” The Dominican Republic Central America Free Trade Agreement (5 August 2004),
Article 10.20, requires that the legal seat must be in the territory of “a State that is party to the
New York Convention.”
20
Vito G. Gallo v. Government of Canada, Decision on the Place of Arbitration (UNCITRAL),
4 June 2008, para. 15.
21
Lion Mexico Consolidated L.P. v. United Mexican States, ICSID Case No. ARB(AF)/15/2, Proce-
dural Order No. 2, 24 November 2016, paras. 32–33 (tribunal selected Washington, D.C., as it was
“widely regarded as a neutral forum, appropriate to serve as a seat of arbitration on the basis that it had
been selected in number NAFTA arbitrations brought by U.S. nationals against Mexico in the past”).
neutrality and reliability is of great importance, and this is reflected by certain

indicators including a reputable court to supervise and support the arbitration as
well as arbitration legislation that is familiar to international arbitration practitioners
(e.g., legislation that is modeled after the UNCITRAL Model Law is often found in
arbitration-friendly seats). The potential place(s) for enforcement should also be
considered as the seat establishes “nationality” of the award which reflects the status
of the award as a New York Convention award to an enforcing court.22
As with commercial arbitrations, the place of arbitration is not necessarily where
the hearings will be physically held. This is recognized in the 2016 update of the
UNCITRAL Notes on Organizing Arbitral Proceedings which revised its guidance
on place of arbitration to clarify the distinction between the legal seat of an
arbitration and the physical location of hearings. Pursuant to Article 18(2) of the
2012 PCA Rules, the arbitral tribunal may meet at any location it considers appro-
priate for deliberations, or for any other purposes (including hearings) unless
otherwise agreed by the parties.23 The hearing venue, which is usually selected in
the beginning stages of the proceedings, is usually determined on the basis of cost,
availability of hearing venues and support services, and convenience for arbitrators
and their counsel. Arbitrations administered by the PCA may have access to its
facilities (at its headquarters in the Peace Palace in The Hague or in its international
offices in Buenos Aires, Mauritius, and Singapore) free of charge.
For arbitrations under the auspices of ICSID, the place of the arbitration in the
proceedings will not have legal consequences, as it does not trigger the application of
the local arbitration law nor does it establish jurisdiction of the local courts to support
the arbitration. This is because the ICSID Convention provides a self-contained
regime for annulling ICSID arbitral awards and the grounds for doing so. Upon
application for an annulment of an award by a party, the chairman of the ICSID
Administrative Counsel will appoint an ad hoc committee comprised of three
individuals to preside over the annulment proceedings.24 This ad hoc committee
will render a decision on the application and uphold, reject, or partially annul the
award. The default venue for hearings in ICSID arbitrations is Washington, D.C.,
where ICSID is headquartered. Arrangements by the ISCID secretariat will be made
for hearings held in Washington, D.C. If the parties request that the hearing shall be
heard elsewhere, the ICSID Secretariat can make such arrangements at other World
Bank offices around the world as appropriate pursuant to Article 63 of the ICSID
Convention.
Language of the Arbitration

While most investment arbitrations are monolingual, mostly English and sometimes
Spanish, more often than not, at least two relevant languages will apply in a given
22
Mesa Power Group, LLC v. Canada, UNCITRAL, PCA Case No. 2012-17, Procedural Order
No. 3, 28 March 2013, para. 39.
23
PCA Rules, Article 18(2).
24
2016 ICSID Report, 59–60.
928 C. Bao
investment arbitration proceeding.25 In this case, agreeing to a language protocol

will be imperative to the efficient management of an arbitration proceeding.26 First,
parties should refer to the applicable rules which may stipulate a default language.
Article 22 of the ICSID Rules provides for three official languages (English,
Spanish, and French) and allows for yet another language by the parties if approved
by the tribunal. In 2019, 57% of the cases administered by ICSID were conducted in
English, while 7% were conducted solely in Spanish, and 4% in French. Thirty-two
percent of proceedings (i.e., 96 in total) were conducted simultaneously in two
languages.27 In contrast, the UNCITRAL Rules do not provide a default language
and instead the arbitral tribunal has the discretion to choose the arbitral tribunal if the
parties do not agree. Similarly, SCC, SIAC, ECT, PCA, and ICC Rules also do not
provide for a default language.28 HKIAC Rules provide that where the parties have
not agreed on language, they shall communicate in English or Chinese prior to any
determination by the tribunal.29
Where the applicable rules do provide for an official language or a default
language, parties can swiftly commence an arbitration in one of the official lan-
guages or default language provided. Where there is no official language or parties
cannot agree as to the language of the arbitration, the tribunal will have to decide the
language(s) of the arbitration. Predominant language of counsel, the language of the
documents, the language of the witnesses, and whether the award shall be rendered
in one or multiple languages are some of the factors that should be considered. Of
course, a tribunal is only constituted after the commencement of an arbitration. As
such, arbitrations must commence in one language or another and institutions may
give guidance as to how to commence an arbitration when the language has not been
agreed upon prior to the commencement of an arbitration.
The primary consequences of language determination are time and cost. Where
the tribunal determines that the arbitration shall be in one language but there are
documents that are in a different language or the witnesses cannot testify in that
language, procedures should be agreed upon as to how to handle such circumstances.
Where there are voluminous documents in an arbitration, parties may agree to
translating only relevant pages. Other issues that parties may consider at the proce-
dural hearing (or before) include how translation and interpretation costs will be
allocated, how to handle disagreements in translation or interpretation, whether the
25
See ICC Dispute Resolution Statistics (2018). Available at http://files-eu.clickdimensions.com/
iccwboorg-avxnt/files/web_icc_disputeresolution2018statistics.pdf?m¼11.6.2019%2011%3A46%
3A22&_cldee¼YWdvaW5zQHZlbGF3LmNvbQ%3D%3D&recipientid¼contact-780a89b59404e
911a99f000d3ab38ab1-e7a8451ec8964a3399514c904bfdf1e2&esid¼5a1d9a87-22a1-43b0-8004-
4bc0ca257142
26
See UNCITRAL Notes on Organizing Arbitral Proceedings.
27
See, ICSID (2019) ICSID annual report. Available at https://icsid.worldbank.org/en/Documents/
ICSID_AR19_EN.pdf
28
ICC Arbitration Rules, Article 20; SCC Arbitration Rules, Article 21; SIAC Rule 19; PCA
Arbitration Rules 2012, Article 19.
29
HKIAC Administrated Arbitration Rules, Article 15.
translations need to be certified, and what the qualifications are of the translator and
the interpreter. If the tribunal determines that the arbitration shall be in more than one
language, similar issues will arise.
Given the many logistical disagreements relating to language that may occur
during the arbitration process, it is important for parties to make efforts to agree as far
as possible as to language considerations.
Communications
Given the volume of correspondence that occurs in any arbitration, it is useful to set
out parameters for correspondence between the parties and the tribunal. Arbitral
tribunals may limit the correspondence exchanged by confining the correspondence
between parties and the tribunal to requests for rulings and administrative matters
and also stipulating that the arbitral tribunal shall not be copied into unnecessary
correspondence between parties only. Ex parte communications with the arbitral
tribunal in connection with the subject matter of the arbitration are also prohibited.
The ICSID Rules prevent the potential of such communication by stipulating its
rules that all correspondence between the tribunal and the parties shall be channeled
through the ICSID Secretariat by way of the tribunal secretary assigned to the matter.
Recent technological innovations also assist in facilitating communications. The
SCC launched the “SCC Platform” in September 2019 which gives the parties and
the arbitral tribunal and platform to exchange correspondence as well as file case
submissions and materials.30
Written Submissions
This section is similarly logistical in nature. Here, the arbitral tribunal will set out
their preference for overall file management, their preferred formatting for the
written submissions, whether or not they wish to have paper bundles or electronic
bundles only, and how to calculate deadlines for submissions. Some arbitral tribunals
have detailed preferences for case management and require parties to comply
explicitly; other arbitral tribunals leave it to the parties to agree on a common system
of management of written submissions which the arbitral tribunal will then follow.
Document Production
Document production is one of the more time intensive exercises during the course
of an arbitration proceeding. Production of documents requires advanced planning
and meticulous organization. Document production issues that are unique to invest-
ment arbitration can also arise and warrant early attention.
All of the relevant arbitral rules that might be applicable in investment arbitration
expressly empower the arbitral tribunal to deal with document production issues. For
instance, Article 27(3) of the of the 2010 UNCITRAL Rules stipulates that the
arbitral tribunal may require the parties to produce documents at any time during the
arbitral proceedings. Article 34(2)(a) of the ICSID Rules grants the arbitral tribunal
30
See more at https://sccinstitute.com/scc-platform/
930 C. Bao
the power to “call upon the parties to produce documents, witnesses and experts.”
The Annulment Committee in Azurix v. Argentina interpreted this to mean that the
tribunal is empowered to request evidence sua sponte or at the request of a party.31
The tribunal in Tokios Tokeles v. Ukraine similarly highlighted its power to call upon
the parties to produce documents if the tribunal deemed necessary to do so.31 When
the arbitral tribunal is asked to order a production of documents, it has the broad
discretion to take into account a “potentially wide range of considerations . . . such as
the timing of the request, the importance of the documents to an identified issue, the
relevance of the identified issue to the determination of the dispute, the reasonable-
ness of the scope of the request and, in particular, whether the other party objects to
the request, and if so, the nature and basis for those objections.”36 When a party is
expected to produce documents and fails to do so, the tribunal must “take formal
note of” such failure and may also draw “whatever inference it deems appropriate.”32
Under most sets of arbitral rules, the arbitral tribunal will also have the power to
order provisional measures “it deems necessary in respect of the subject-matter of
the dispute,”33 with a view to preserving the requesting parties’ rights.34 This broad
language grants the tribunal the capacity to order provisional measures in relation to
preservation and production of documents, whenever the standards for granting such
measures are met (prima facie jurisdiction, urgency, necessity, a right that requires
protection, and irreparable harm).35 By way of example, in Abaclat v. Argentina, the
tribunal granted Argentina’s request for provisional measures ordering claimants to
“refrain from altering or destroying any document.”36
When agreeing to the procedure for document production, parties will generally
agree to the application of the International Bar Association Rules on the Taking of
Evidence in International Arbitration (the IBA Rules). These rules were drafted with
the intent to be palatable to lawyers from both common and civil law backgrounds.
The result is a set of parameters for document production that serve as a foundation
for document production and can be used by parties to object to certain requests for
document production and to respond to such objections. As generally set out in the
Procedural Order No. 1, requests for production of documents will be set out in a
31
Tokios Tokeles v Ukraine, ICSID Case No. ARB/02/18, Procedural Order No. 3, 18 Jan. 2005,
para. 25.
32
The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award, (6 May 2013),
para. 181.
33
UNCITRAL Rules, Article 26.
34
ICSID Rule 39.
35
Perenco Ecuador Ltd. v. Republic of Ecuador, ICSID Case No. ARB/08/6, Decision on Provi-
sional Measures (8 May 2009), } 39; See Biwater Gaff (Tanzania) Ltd. v. United Republic of
Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 1, 31 March 2006; Rahim Moloo,
Procedural Issues in International Investment Arbitration, 45.
36
Abaclat v. Argentine Republic, ICSID Case No. ARB/07/5, Procedural Order No. 11, 27 June
2012, paras. 16–17, 40.
table called the Redfern Schedule. Objections can then be made by the counterparty,
and responses will then be made to those objections.37 When objections to requests
for document production are made, the arbitral tribunal will generally air on the side
of narrowing the request in the spirit of the IBA Rules. However, it is also recognized
that arbitral tribunals from civil law backgrounds will naturally tend to require
greater specificity than their common law background arbitrator counterparts.
As suggested above, unique issues may arise during the course of the document
production phase in an investment arbitration. A few common issues are set out in
this section. First, States will sometimes invoke the State secret privilege when
making an objection to an investor’s request for documents. Sometimes such
privilege is set out in the treaty itself.38 Other times, the privilege is set out in the
domestic law of the State. Article 9(2)(f) of the IBA Rules provide that the arbitral
tribunal shall, “at the request of a Party or own its own motion, exclude from
evidence or production any document, statement, oral testimony or inspection
for. . .grounds of special political or institutional sensitivity (including evidence
that has been classified as secret by a government or a public international institu-
tion) that the Arbitral Tribunal determines to be compelling.”39 This objection has
been received by arbitral tribunals with disparate results.40
Another issue that arises is in relation to the nature of the investor in the
arbitration. In many instances, the investor will be an entity set up specifically for
37
Kang S (2020) Jurisdictional objections and defenses (Ratione Personae, Ratione Materiae, and
Ratione Temporis). In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international invest-
ment law and policy. Springer, Singapore
38
See Canada-Jordan BIT (2009), Article 15.4: “the Tribunal shall not require a Party to furnish or
allow access to information the disclosure of which would impede law enforcement or would be
contrary to the Party’s law protecting Cabinet confidences, personal privacy or the financial affairs
and accounts of individual customers of financial institutions, or which it determines to be contrary
to its essential security.” Also see USMCA, Article 32.2: “Nothing in this Agreement shall be
construed to: (a) require a Party to furnish or allow access to information the disclosure of which it
determines to be contrary to its essential security interests . . ..”
39
IBA Rules, Article 9.2(f).
40
See Pope & Talbot v Canada, where the tribunal found the objection to production of a range of
documents to be valid on the basis that “cabinet confidence” did protect State secrets, but rejecting
the application of Canadian law in general to broaden the scope of privilege, explaining that it was
inapplicable to an international arbitral tribunal. In the same vein, the arbitral tribunal in Biwater
Gauff v Tanzania, rejected the state’s objection to the production of certain documents on the basis
of “public interest immunity,” a principle set out under Tanzanian law, as Tanzanian law did not
apply to the arbitral tribunal. Also see UPS Inc. v. Canada, Decision of the Tribunal Relating to
Canada’s Claim of Cabinet Privilege (8 October 2004). Available at http://naftaclaims.com/
Disputes/Canada/UPS/UPSDecisionReCabinetPrivilege.pdf para. 7. However, tribunals have also
upheld States’ objections with regard to production of documents that were part of the government’s
policy decision-making process (Glamis Gold, Ltd v. The United States of America, Decision on
Objections to Document Production, July 20, 2005, paras. 24–25).
932 C. Bao
the purpose of investing into the host State.41 As a result, the investor does not
actually possess the documents the host State might be seeking but rather such
documents will be in the possession of a parent company. While the State may resort
to avenues outside of the arbitration and through proceeding in the domestic courts
in order to obtain documents held by the investor.
A further issue relates to the organization of documents held by the State. Most
States will not have centralized document storage systems or sophisticated document
retention policies. As such, investors seeking to obtain documents from States may
face challenges in navigating the labyrinthine system and requesting searches for
documents that are not possible based on antiquated IT systems and systems
fundamentally unequipped to handle such request.
Most relevant arbitral rules will empower the arbitral tribunal to issue provisional
measures to retain documents, prevent destruction of documents, etc. However, even
which such orders, obtaining the relevant document might not always be successful.
Tribunals often take a range of case-specific measures so as to protect the
confidentiality of the information provided by the parties, with a view to striking a
balance between such protection and the respect of the other party’s due process
rights.42 Redaction of documents is a useful method in cases where the redacted
information is not material to the dispute; otherwise, the tribunal can issue proce-
dural orders restricting the access to documents to few individuals within the pro-
ceedings.43 Measures to return or destroy documents are also common measures
used by tribunals.
Witnesses
The parties’ reliance on witness testimony can often be key to the factual matrix. In
particular, the presentation of a witness is an opportunity to humanize the party’s
case. Therefore, parties are often particularly keen to set out parameters for witnesses
that are appropriate for their set of witnesses. Many issues must be considered when
setting out the procedure for handling witnesses. For example, parties will want to
agree in advance the number of witnesses for each side, the order of the witness
testimony, whether the witnesses can be prepared by counsel, whether witnesses can
attend the hearing when they are not testifying, and how the witnesses are to be
examined. Direct testimony is not always necessary if witness statements are
prepared (as is often the case). Instead, parties may wish to move directly into the
cross-examination phase of the witness examination process. The party summoning
41
Chaisse J (2015) The issue of treaty shopping in international law of foreign investment –
structuring (and restructuring) of investments to gain access to investment agreements. Hast Bus
Law Rev 11(2):225–306
42
Lamb S, Pape S, Hamzi L, Scogings E (2018), Procedural issues. In: Global Arbitration Review
(ed) The guide to damages in international arbitration, 2 edn. https://globalarbitrationreview.com/
chapter/1151333/procedural-issues, p 6
43
the witness may then reexamine the witness. At all times, the arbitral tribunal shall
have control over the procedure for hearing a witness and has the discretion to ensure
that the testimony is relevant as are the questions being asked of the witness. All of
these decisions should be made at the procedural hearing for good order.
Experts
Early on in the arbitral process, parties may wish to consider whether expert
evidence will be useful to support certain aspects of a party’s position and assist
the tribunal in understanding of specialized legal or technical areas. This is permitted
under both the UNCITRAL Rules and the ICSID Rules.44 The typical Procedural
Order No. 1 will also usually stipulate that parties may retain and submit the
evidence of one or more experts to the arbitral tribunal.
In determining whether an expert would be useful, parties should consider
whether the case warrants an opinion on specific legal or technical areas that could
be better presented by an expert. As well, parties will want to factor in the back-
ground and experience of the arbitrators sitting on the tribunal to see if there are gaps
in experience and expertise on the tribunal that is best filled by expert evidence.
Expert evidence can be divided into two primary categories: legal and technical.
Legal evidence refers to specific areas of international investment law, foreign law
(often that the arbitrator does not possess), or a specific area of law such as tax law,
administrative law, property law of a foreign legal jurisdiction. Some practitioners
resist the notion of appointing experts for the interpretation of foreign law or treaties.
Technical evidence can be divided into two main areas, industry expertise and
quantum. Industry expertise might include technology, construction, and other
areas of specialty. Quantum experts support the valuation aspects of the claims and
are frequently appointed in investment arbitration.
If a party decides to appoint an expert, the next question is who to appoint. There
are certain baseline criteria for qualifications of an expert. Like the appointment of an
arbitrator, experts must be independent and impartial and have the requisite qualifi-
cations. This ensures credibility of evidence. The IBA Rules address these minimum
expectations of independence of the expert. This is further elaborated upon in the
Chartered Institute of Arbitrators Protocol for the Use of Party-Appointed Expert
Witnesses in International Arbitration.45 Experts must confirm their availability and
have the appropriate nationality and language capabilities to communicate effec-
tively during the arbitral proceedings.
In practice, parties will aim to identify an expert that not only meets this criteria,
but also one that has a reputable profile in his or her industry such that the
information provided will be credible and effectively assist the tribunal in its
decision-making process. Strategically, this may require early identification of the
best expert available for a given issue, especially if there is a dearth of qualified
experts in the specific area. Parties must also be mindful of the potential of repeat
44
UNCITRAL Article 27(2);
45
https://www.ciarb.org/media/6824/partyappointedexpertsinternationalarbitration.pdf
934 C. Bao
appointments by a particular counsel. While it is natural to appoint an expert that the

party has had a positive experience with, parties must bear in mind the risk of
challenge on independence based on repeat appointments.
Once an expert has been identified, the party appointed expert should be formally
retained by the party through a retainer letter that sets out the scope of engagement,
the expected methods of working, details associated with materials to be provided
(and the understanding that expert reports should be accompanied by the documents
upon why they rely), any confidentiality issues in relation to communications,
and fees.
There are also times when the tribunal may appoint its own expert on its own or at
the request of a party. This is generally stipulated in the Procedural Order no. 1. The
UNCITRAL Rules and the LCIA Rules expressly provide for this possibility.46 A
tribunal’s decision to appoint its own arbitrator is oftentimes as a result of the parties’
appointed experts inability to agree on certain issues, where the tribunal has identi-
fied specific areas of difficulty for the tribunal which requires expert opinion; parties
can also request the tribunal to appoint its own experts.47 This has occurred in a
minority of cases within investment arbitration.48 In Siemens v. Argentina, the
tribunal appointed an expert as the parties did not agree on the evidence to be
submitted to prove Siemens’ investment.49 In National Grid v. Argentina, the
tribunal lacked a valuation of damages from Argentina, and found that claimant’s
expert report contained “manifest errors.”50 If the tribunal inclines for appointing its
own expert, it would generally request the parties to provide a list of proposed
experts for the tribunal to select, or to comment on the elected expert’s report.51
The above sets out the basic framework for using experts in investment arbitra-
tion. However, experts can engage in the arbitral process in other ways, and the
tribunal may wish to review the file early on with the view of identifying what expert
assistance it may need in the decision-making and the drafting process. Expert
46
Article 21.1 of the LCIA Rules; Article 29(1) of the UNCITRAL Rules.
47
48
See 2012 International Arbitration Survey: Current and Preferred Practices in the Arbitral Process.
http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2012_International_Arbitration_
Survey.pdf, p 3
49
Siemens AG v. The Argentine Republic, ICSID Case No. ARB/02/8, Award dated 17 January
2007, p. 115, para. 360
50
National Grid plc v. The Argentine Republic, UNCITRAL, Award dated 3 November 2008, pages
12–13 paras. 47–49.
51
evidence may also be presented jointly or experts may be asked to assist at the time
of deliberations.
Amicus Curiae
Given the public nature of investor-State arbitration, third parties may have an
interest in the outcome of the arbitral proceedings and thus may wish to participate
in the arbitration. Such interventions, which include submission of arguments and
information,52 often made by nongovernmental organizations (NGOs) or other
interest groups, are intended to offer the tribunal perspectives from those who may
be impacted by any award rendered by the arbitral tribunal. Such development can
be seen from the evolution of the NAFTA Rules after the Methanex53 case, wherein
an NGO sought to intervene after Canadian investors brought claims reaching close
to US$ 1 billion after California’s ban on a chemical addictive to gasoline. The
parties to NAFTA issued an interpretive declaration which permitted third-party
amicus briefs to be filed after the Tribunal denied its request to intervene directly in
the arbitration alongside the government.54 With efforts to establish greater trans-
parency in investor-State arbitration over the years, amicus intervention has become
a more frequently seen feature of investor-State arbitrations.55
An arbitral tribunal may set out a framework by which to deal with third parties
who wish to submit an amicus brief during the course of arbitral proceedings.
Pursuant to UNCITRAL’s 2014 Rules on Transparency in Treaty-Based Investor-
State Arbitrations, the arbitral tribunal may decide whether amicus submissions may
be filed and provides a process by which the tribunal should evaluate the admissi-
bility of the submission. ICSID Rules also provide similar provisions: under Rule
37(2), the tribunal may allow a non-disputing party to file a written submission
related to the scope of the dispute, considering, among other issues, whether (a) the
submission would bring a perspective, knowledge, or insight to the tribunal that is
different from that of the parties; (b) the submission addresses a matter that is within
52
Both Ends Discussion Paper, The Mauritius Convention Boosting transparency in Treaty-based
Investor-State Arbitration. Available at https://www.bothends.org/uploaded_files/document/LR_
Mauritius_Convention.pdf
53
Methanex v. United States, UNCITRAL (NAFTA), Petition for Amicus Standing of the Interna-
tional Institute for Sustainable Development (25 August 2000). See also United Parcel Service of
America Inc. v. Canada, UNCITRAL (NAFTA), Application for Amicus Status of the Canadian
Union of Postal Workers and the Council of Canadians (20 October 2005), Application for Leave to
File Submissions as Amicus Curiae of the United States Chamber of Commerce (20 October 2005),
and Letter of the Canadian Union of Postal Workers and the Council of Canadians Responding to
UPS’s Observations Concerning Application for Amicus Curiae standing (3 November 2005);
Glamis Gold Ltd. v. United States, UNCITRAL (NAFTA), Quechan Indian Nation Application
for Leave to File a Non-Party Submission (19 August 2005).
54
NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions
(31 July 2001). Available at http://www.international.gc.ca/trade-agreements-accords-
commerciaux/disp-diff/NAFTA-Interpr.aspx?lang¼en
55
See Chaisse J, Donde R (2018) The state of investor-state arbitration – a reality check of the
issues, trends, and directions in Asia-Pacific. Int Lawyer 51(1):47–67
936 C. Bao
the scope of the dispute; and (c) the non-disputing party’s interest in the proceed-
ing.56 In deciding whether to admit the amicus participation, the arbitral tribunal may
consider the benefit of having the perspective of the third party on a particular issue
balanced against the additional cost and time of such submissions. In Apotex Inc
v. United States, the tribunal reinforced the need to strike a balance between
safeguarding issues of public interest, and safeguarding disputing parties’ rights in
the proceedings, including their rights to equal treatment and the “overall procedural
integrity of the arbitration.”57 In this case, the tribunal rejected the amici submissions
finding they did not meet the criteria set forth in the ICSID Rules.58
However, the recent case Philip Morris v. Uruguay shows how an amicus
submission can have a substantial impact on the tribunal’s final decision: the
documents filed by the WHO and the Pan American Health Organization presented
factual material to which the tribunal relied on throughout its final award.59 It has
been argued that the reason for the tribunal to heavily rely on the submissions was
due to the evidence-based approach character (the amici did not focus on the legal
arguments of the dispute).60
Hearings
Hearings are well recognized to be the most costly portion of the arbitral proceed-
ings. Indeed, the majority of the efforts made during the arbitral process is focused
on the hearing. From a case management perspective, the most critical decision will
be to consider splitting up the different phases of the proceedings with the view to
establishing a more efficient arbitral process. Particularly in investment arbitration
where objections to jurisdiction are routinely raised, arbitral tribunals may bifurcate
the arbitration own its own, by party agreement, or at the request of the respondent.
Regardless, the issue as to bifurcation should be raised as early as possible in the
proceedings. As noted by the Mesa Power Group, LLC v. Canada tribunal: “[I]t is
good. . . to let the parties ‘know where they stand’. . . at an early stage and not to
impose the burden of full fledged proceedings on a party that disputes being subject
to arbitration.”61
56
ICSID Rule 37(2)(b).
57
Apotex Inc v. The Government of the United States (ICSID Case No. UNCT/10/2), Procedural
Order No. 2, para. 34.
58
Apotex Inc v. The Government of the United States (ICSID Case No. UNCT/10/2), Procedural
Order No. 2, para. 36.
59
Philip Morris v. Uruguay (ICSID Case No. ARB/10/7), Award. Also see Biwater Gauf Ltd
v. United Republic of Tanzania (ICSID Case No. ARB/05/22), where the tribunal extensively
referred to the amicus submission, thus showing certain contribution to the development of ISDS
and investment law.
60
Butler N (2019) Non-disputing party participation in ICSID disputes: faux amici? Neth Int Law
Rev 66:143–178, p 159
61
Mesa Power Group, LLC v. Canada (PCA Case No. 2012-17, Procedural Order No. 2, 18 January
2013, para. 16).
Most often, it will be the respondent that seeks to bifurcate the proceedings to deal
with the jurisdictional issue separately from the merits. There may also be a request
to bifurcate the merits phase by hearing the liability and quantum issues separately.
Of course, there may also be instances one party will seek to trifurcate the pro-
ceedings and to divide the arbitration into three phases – jurisdiction, liability, and
quantum.
Where the parties disagree as to the issue of bifurcation (or trifurcation), the
tribunal will need to consider whether bifurcation will assist in narrowing or
dismissing the claims or instead increase costs and duration. Bifurcation of the
jurisdictional issue is a matter of discretion for the arbitral tribunal and is expressly
stated as such. For example, Article 41 of the ICSID Convention states that the
arbitral tribunal has discretion to determine whether a jurisdictional objection would
be dealt as a preliminary question or to join it to the merits of the dispute.62 The
arbitral tribunal may also bifurcate the merits phase when requested to do so on the
basis of its general powers to manage the arbitration as appropriate.63 For example,
in Suez v. Argentina, the tribunal referred to Article 44 of the ICSID Convention in
bifurcating the liability and quantum issues.64
When deciding on whether or not to bifurcate, the arbitral may wish to consider
certain procedural factors. In general, tribunals will decide on the basis of efficiency
in cost of arbitration as well as time and also fairness.65 Tribunals may use the
“Glamis Gold” test which requires an analysis of three primary questions.66 First, is
the objection substantial rather than frivolous? Second, will the resolution of the
jurisdictional objection as a preliminary matter result in more efficiency in the
following phase? Third, are the facts and issues to be addressed in the jurisdictional
phase distinct from the merits phase?
On the one hand, a finding of negative jurisdiction could save the parties
significant cost by ending the matter before time and cost is incurred to deal with
the often more document intensive phase of the proceedings, the merits phase. In
62
ICSID Convention, Article 41. See also Rule 45(5) of the Additional Facility Rules which
provides that “[u]pon the formal raising of an objection relating to the dispute, the Tribunal may
decide to suspend the proceedings on the merits.”
63
Article 44 of the ICSID Rules, Article 35 of the ICSID Additional Facility Rules, and Article 15.1
of the UNCITRAL Rules.
64
Suez and ors v. Argentina, ICSID Case No. ARB/03/17, Decision on Liability, 30 July 2010,
para. 245.
65
Oxford International Arbitration Series, Oxford, p 80. See also the statement made by ICSID
Secretary General, Meg Kinnear, in Investment Disputes Under NAFTA: an Annotated Guide to
NAFTA Chapter 11 (2006): “In complex arbitrations, bifurcation allows the dispute parties and the
tribunal to focus first on the merits of the case, to save costs and time and perhaps to settle on the
quantum of damages or other discrete issues. It is especially useful to determine issues of
jurisdiction or applicable law on a preliminary basis if they can be decided without tribunal fact-
finding or on the basis of agreed-upon facts.”
66
Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Procedural Order
No. 2 (Revised), 31 May 2005, para 12.
938 C. Bao
Methanex v. USA, the tribunal bifurcated the proceedings by hearing the jurisdiction
and merits in phase one and then quantum in phase two. As the claims were denied,
the proceedings did not have to continue to phase two.67
On the other hand, if the tribunal bifurcates the proceedings but then finds that
there is jurisdiction, an additional 12–18 months might be added to an arbitration that
would typically last 3–4 years.68 Indeed, it may occur that a tribunal initially
bifurcated the proceedings in the interest of procedural efficiency, or upon agreement
by the parties, even if later it considered that it would have been more cost-effective
to proceed to a single award.69
A recent study looking at the duration of bifurcated proceedings and
non-bifurcated proceedings suggests that bifurcated proceedings are longer
(4.25 years in contrast with 3.17 years) than non-bifurcated cases, but notably, of
the proceedings that were bifurcated and jurisdictional challenge prevailed, the
average duration of proceedings was 2.33 years while those that were bifurcated
and jurisdictional challenge failed, the average duration increased to 5.17 years.70
Based on the publicly available data there is no clear trend as to the tribunal’s
willingness to grant a request for bifurcation. Bifurcation is generally said to be more
likely in cases involving questions of causation or complex valuations.71 However,
between 2010 and 2017, ICSID counted 17 decisions on bifurcation, nine of which
denied the request, and eight were granted.72 UNCITRAL logs similar statistics with
12 decisions on bifurcation, six of which denied the request and five of which grant
the request (and one where the tribunal discontinued a bifurcated proceeding).
The 4th edition of the ICSID working paper proposes a new ICSID provision to
provide the following guidance to the arbitral tribunal as to the considerations to be
made when an application for bifurcation is made: “In determining whether to
bifurcate, the Tribunal shall consider all relevant circumstances, including whether:
(a) bifurcation would materially reduce the time and cost of the proceeding;
(b) determination of the questions to be bifurcated would dispose of all or a
67
Methanex Corporation v. United States of America, UNCITRAL, Preliminary Award of Jurisdic-
tion and Admissibility, pp. 86, 90.
68
OECD, Investor-State Dispute Settlement Public Consultation: 16 May–23 July 2012, 30 August
2012. Available at https://www.oecd.org/daf/inv/investment-policy/ISDSconsultationcomments_
web.pdf, p 23; ICSID (2014) ICSID annual report. available at https://icsid.worldbank.org/en/
Documents/resources/ICSID_AR14_ENG.pdf, p 30
69
Lamb S, Pape S, Hamzi L, Scogings E (2018) Procedural issues. In: Global Arbitration Review
chapter/1151333/procedural-issues. See Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19,
Award dated 25 November 2015.
70
Greenwood L (2019) Revisiting bifurcation and efficiency in international arbitration proceed-
ings. J Int Arbitr 36(4):421–430, pp 423–424
71
Pope & Talbot Inc v. The Government of Canada, UNCITRAL, Statement of Claim, paras. 96–
104. SD Myers Inc v. Government of Canada, UNCITRAL, Statement of Claim, para. 33; Second
Partial Award, paras., 117–122.
72
Oxford International Arbitration Series, Oxford, p 79.
substantial portion of the dispute; and (c) the questions to be addressed in separate
phases of the proceeding are so intertwined as to make bifurcation impractical.”73
Other issues regarding the hearing are largely logistical in nature: Once these
fundamental decisions are made, the arbitral tribunal shall, in consultation with the
parties, agree by way of a procedural order, the logistics associated with the hearing,
including the place and time for the hearing and the technical and support service
aspects of the hearing. For example, parties will need to arrange transcription
services and translation services (and whether translation is conducted simulta-
neously or consecutively).
Tribunal Secretary
Tribunal secretaries regularly feature in investment arbitrations, and it is often
considered best practice for matters to appoint a tribunal secretary on behalf of the
tribunal in addition to the institution secretary. In recent years, the role of the tribunal
secretary has become under public scrutiny. The reason for this is due to the nature of
the work conducted by the tribunal secretary. The debate centers around the degree
of decision-making influence the tribunal secretary has on the tribunal in an arbitra-
tion. No real efforts were made to establish any protocol on the use of tribunal
secretaries until the issue was brought to the fore in Yukos v. Russia.74 The tribunal in
Yukos had a tribunal secretary who spent 3,006 h during the life of the primary
proceedings.75 This totaled more than 50% of the hours spent by the arbitrators,76
prompting the Respondent to apply for an annulment to the Hague District court on
the basis of Article 1065 of the Dutch Code on Civil Procedure. One of the grounds
raised was the delegation of tasks by the tribunal to the tribunal secretary and the
performance of substantive decisions made in preparing the final award. While the
Hague District Court did not address this issue directly, the surfacing of the issue
prompted greater scrutiny as to the role of the tribunal secretaries.
In a recent decision, P v Q [2017] EWHC 194 (Comm), the English High Court
provided further lessons worth noting. Popplewell J advised that “the safest way to
ensure that the secretary does not become a ‘fourth arbitrator’ is for the secretary
not to be tasked with anything which involves expressing a view on the substantive
merits of an application or issue.” At the same time, it was noted that soliciting or
receiving views from the secretary would not necessarily demonstrate the arbitrator’s
failure to comply with his/her duties related to the decision-making aspect of the
award.77
73
ICSID Working Paper #4, proposed Rule 42. Available at https://icsid.worldbank.org/en/Docu
ments/WP_4_Vol_1_En.pdf
74
Yukos Universal Limited v Russian Federation, UNCITRAL, PCA Case No AA. 227
75
The Hague District Court, Russian Federation v. Hulley Enterprises Limited et al, Pleading Notes
Prof. A.J. Van den Berg, February 9, 2016, paras. 105–106. Available at http://res.cloudinary.com/
lbresearch/image/upload/v1455205591/rf_pleading_notes_9_february_2016_final_edited_111116_
1546.pdf
76
Id.
77
P v Q [2017] EWHC 194 (Comm) 68
940 C. Bao
In 2014, Young ICCA published a Guide on Arbitral Secretaries.78 Other institu-

tions such as the HKIAC have produced similar protocols to establish the parameters
of the tribunal secretaries role. In summary, it is accepted that tribunal secretaries may
provide administrative assistance and support. However, the area of uncertainty are
tasks such as summarizing arguments or drafting memorandums for the tribunal on
certain issues of substance.79 The concern critics have about a tribunal secretary
conducting such tasks is the influence they may have on the arbitral tribunal’s
independent analysis of the case as presented to them. On balance, tribunal secretaries
are seen to be useful in ensuring the smooth running of an arbitral process such that
parties do not tend to push back when the arbitral tribunal introduces a tribunal
secretary to assist with the work of the tribunal, in particular the chair.
In investment arbitration, institutions may also provide tribunal secretary ser-
vices. The secretariat of the PCA and ICSID have expanded their services in recent
years to provide substantive tribunal secretary services. As explained by Antonio
Parra, the first Deputy-Secretary General, in his article entitled “The Role of the
ICSID Secretariat in the Administration of Arbitral Proceedings under the ICSID
Rules,” “[i]t is often said that the role of the ICSID Secretariat, from the constitution
of the arbitral tribunal to the rendition of its award, is to ’administer’ the proceeding.
The general administration of the proceeding, in the sense of its overall management,
is however the responsibility of the arbitral tribunal, and in particular of its president.
It might be more accurate to say that the role of the ICSID Secretariat, in close
consultation with the presiding and other arbitrators, is to administer certain aspects
of the process and to assist the tribunal in its management of the others.”80
Such responsibilities have been set out in ICSID Regulations, specifically Reg-
ulation 25 which states:
The Secretary-General shall appoint a Secretary for each Commission, Tribunal and Com-
mittee. The Secretary may be drawn from among the Secretariat of the Centre, and shall in
any case, while serving in that capacity, be considered as a member of its staff. He shall:
(a) represent the Secretary-General and may perform all functions assigned to the latter by
these Regulations or the Rules with regard to individual proceedings or assigned to the
latter by the Convention, and delegated by him to the Secretary;
(b) be the channel through which the parties may request particular services from the
Centre;
(c) keep summary minutes of hearings, unless the parties agree with the Commission,
Tribunal or Committee on another manner of keeping the record of the hearings; and
(d) perform other functions with respect to the proceeding at the request of the President of
the Commission, Tribunal or Committee, or at the direction of the Secretary-General.
78
https://www.arbitration-icca.org/publications/Young_ICCA_Guide_on_Arbitral_Secretaries.html
79
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic (ICSID
Case No. ARB/97/3), Decision on the Argentine Republic’s Request for Annulment of the, Award
rendered on 20 August 2007, Additional Opinion of Professor JH Dalhuisen under Article 48(4) of
the ICSID Convention, paras. 5–26.
80
Parra A (1998) The role of the ICSID secretariat in the administration of arbitration proceedings
under the ICSID convention. ICSID Rev Foreign Invest Law J 13(1):85–100, p 86
There are several benefits of a legal counsel of a secretariat in serving as an

secretary. First, the procedural aspects of an arbitration under the rules will be
familiar to the legal counsel and this institutional knowledge may be of assistance
for the arbitral tribunal. Second, the legal counsel will not face the same potential
conflict issues as a tribunal secretary working with one of the members of the
tribunal might encounter. Third, a challenge against the tribunal secretary on grounds
of performing substantive tasks that are of a decision-making nature may be less
likely to be raised than in circumstances where there is a tribunal secretary. As such,
any mandatory requirement or otherwise any offer for institutions such as the PCA or
ICSID for a tribunal secretary may be seen as a welcome service offered by such
experienced Secretariats.
Procedural Timetable
The procedural timetable sets out the schedule for the proceedings. The timeframes
set are set by the arbitral tribunal in consultation with the parties. There are four main
stages set out: (1) writing submissions; (2) document production; (3) exchange of
factual and expert witness statements; (4) pre-hearing bundles; (5) hearing; and
(6) post-hearing submissions. Parties should also consider the awards should be
delivered and set other deadlines for the arbitral tribunal on issuing orders and
decisions as appropriate.
Conclusion
Bringing a claim in investment arbitration requires significant advanced planning

from both a procedural and a substantive perspective. Parties are well advised to
consider the various issues ahead of commencing an arbitration and address these
issues at an early stage in the arbitration. Adopting a comprehensive and well
thought out Procedural Order No. 1 can save the parties significant time in poten-
tially contentious correspondence in battling out specific procedural squabbles.
Further, early consideration of the potential procedural issues will allow the parties
save costs by streamlining the process and ensuring that the most effective proce-
dural framework is established to handle the particular dispute. Parties should thus
take great care and seek counsel when planning its investment arbitration matter.
Cross-References
▶ Public Interest and International Investment Law: A Critical Perspective on Three

Mainstream Narratives
Settlement
▶ The Issue of Costs: How much does ISDS Cost and Who Bears the Cost?
Tribunal Jurisdiction and the Relationship
of Investment Arbitration with Municipal 38
Courts and Tribunals
Catherine Amirfar and Nelson Goh
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 944
International Arbitration as a Forum for the Resolution of Investment Disputes . . . . . . . . . . . . . . 945
The Jurisdiction of Investment Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948
Sources of Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948
The Distinction Between Jurisdiction and Admissibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 952
The Multiplicity of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 954
Circumstances Giving Rise to Multiple Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 954
Issues Arising from Multiple Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 956
Use of Treaty Provisions and Institutional Rules to Regulate Multiplicity of
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958
Requirements to Litigate Prior to Arbitration Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958
Fork-in-the-Road Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962
Waiver Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 968
Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 970
The Application of General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974
The Principle of the Primacy of International Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974
Res Judicata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976
Lis Pendens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 977
Abuse of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 978
Ms. Amirfar is a Partner and Co-Chair of the Public International Law Practice at Debevoise &
Plimpton LLP and the President of the American Society of International Law (ASIL). Mr. Goh is a
Senior Associate at Debevoise & Plimpton LLP. The authors wish to thank Duncan Pickard, Juan
Fandino, Agustin Spotorno and Sarah Castles for their excellent assistance in the preparation of this
chapter. The views expressed herein are the authors’ personal views and should not be attributed to
their firm or its clients.
C. Amirfar
Debevoise & Plimpton LLP, New York, NY, USA
e-mail: camirfar@debevoise.com
N. Goh (*)
Debevoise & Plimpton LLP, London, UK
e-mail: ngoh@debevoise.com

https://doi.org/10.1007/978-981-13-3615-7_62
944 C. Amirfar and N. Goh
Comity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981
Abstract
While an investment dispute between a foreign national and a host State typically
results in a single arbitration proceeding, certain circumstances give rise to
multiple proceedings, in arbitration or litigation, being brought in relation to the
same conduct of the host State. This chapter considers the various methods used
by States and arbitral tribunals to regulate multiple proceedings. These methods
include the use of express treaty provisions requiring the exhaustion of local
remedies, local litigation clauses, fork-in-the-road clauses, or waiver clauses. In
addition, arbitral tribunals have applied general principles such as the primacy of
international tribunals, res judicata, lis pendens, abuse of process and comity, in
order to prioritize one set of proceeding over another. Parties can also agree to
consolidate two separate proceedings, whether formally or informally, with
appropriate adaptations.
Keywords
Consolidation · Fork-in-the-road · Admissibility · Jurisdiction · Abuse of
process · Res judicata · Lis pendens · Waiver clauses
Introduction
The jurisdiction of an investment tribunal is founded on the consent of the parties, as

reflected by the terms of the relevant investment treaty, investment contract, or domestic
law concerning foreign investment. Although a dispute arising from alleged wrongful
conduct of a host State may ordinarily lead to a single proceeding involving claims
brought by a foreign investor against the host State, there are a number of situations in
which multiple proceedings can be brought. Such situations may occur, for example,
where: (i) a foreign investor may have recourse against the State pursuant to multiple
agreements; (ii) multiple foreign investors each are entitled to pursue independent
claims in relation to the same conduct complained of; and (iii) the subject matter of a
dispute may be subject to the concurrent jurisdiction of a local court or tribunal.
To date, States have employed several approaches to address expressly the
issues presented by multiple, parallel proceedings in the context of investment
arbitration. Some treaties contain express provisions requiring a claimant to seek
recourse through domestic courts before it can proceed to arbitration. While
clauses requiring the exhaustion of local remedies or local litigation do not
strictly seek to regulate between arbitration and litigation proceedings, they
may indirectly do so by imposing a priority for domestic proceedings before
international proceedings, and to the extent such conditions are not met, reducing
the number of proceedings which may be pursued. Investment treaties may also
38 Tribunal Jurisdiction and the Relationship of Investment Arbitration with. . . 945
contain fork-in-the-road or waiver clauses which require a potential claimant to

elect between arbitration or litigation. In the case of fork-in-the-road clauses,
such an election is final; in the case of waiver clauses, a decision to arbitrate a
dispute requires the claimant to discontinue or desist from commencing litigation
proceedings. Finally, some treaties or applicable arbitration rules may contain
consolidation provisions which allow separate proceedings to be combined
where there may be an overlap of factual and legal questions.
In the absence of express provisions in the underlying treaty, investment tribunals
have applied a number of general principles to regulate multiple proceedings. The
principle of the primacy of international tribunals prioritizes the adjudication by
international tribunal over domestic courts on the basis that they are hierarchically
superior. The principles of res judicata, lis pendens, and comity, which are common
to domestic legal systems, may be used to prioritize one proceeding over another.
The principle of abuse of process may be used to reject related proceedings brought
with a collateral purpose.
Following this introduction, this chapter is divided into five topics, addr-
essing: first, the use of international arbitration as a forum for the resolution of
investment disputes; second, the jurisdiction of investment tribunals; third,
situations involving, and outcomes arising from, multiple proceedings; fourth,
the use of treaty provisions and institutional rules to regulate multiple proceed-
ings; and finally, the application of general principles to regulate multiple
proceedings.
International Arbitration as a Forum for the Resolution

of Investment Disputes
The history of investor-State dispute resolution reveals a movement from exclusive

reliance on national courts and diplomatic protection for the resolution of
investment-related disputes to the development of an additional option on the
international plane for an investor’s right to access directly international
adjudication.
The occurrence of disputes between foreign investors and host States can be
traced to at least to the seventeenth century, during the growth of European trade and
foreign investment.1 During that period, foreign nationals could rely only on the host
State’s laws for the protection of property2 or the “gunboat diplomacy” of their home
1
Miles K, Schneiderman D (2013) The origins of international investment law: empire, environ-
ment and the safeguarding of capital. Eur J Int Law 25:19. See Lipson C (1985) Standing guard,
protecting foreign capital in the nineteenth and twentieth centuries. University of California Press,
Berkeley, pp 4, 8, 37, 38. Schrijver N (2019) Sovereignty over natural resources: balancing rights
and duties, 6th edn. Cambridge University Press, Cambridge, pp 173, 174; see Malanczuk P (1997)
Akehurst’s modern introduction to international law. Routledge, USA/Canada, pp 9, 10.
2
Dolzer R, Schreuer C (2012) Principles of international investment law, 2nd edn. Oxford Univer-
sity Press, p 1.
State.3 But by the nineteenth century, alongside the rise of national overseas trading
companies such as the Dutch Verenigde Oostindishe Compagnie and the East India
Company, rules concerning the protection of foreign investment began to take
shape.4 Trading nations often secured concession contracts or navigation and com-
merce treaties that applied their laws over the conduct of their traders in the host
State.5 In response to such foreign investment, jurists such as Carlos Calvo6 advo-
cated that local rules for the protection of property should equally be applied to a
foreign national and that foreign nationals should exhaust local remedies before
resorting to diplomatic means or international adjudication.7
Following the Drago-Porter Convention of 1907, which aimed to end the use of
“gunboat diplomacy,”8 foreign nationals who wished to pursue the host State for
measures affecting their property had broadly two avenues to pursue: (i) sue the host
State in its domestic courts and (ii) request diplomatic protection from their home
State.9 But domestic courts were unattractive because of the general perception that a
domestic court would look more favorably upon its own government’s position,10
the then prevailing doctrine of absolute State immunity,11 and the possibility that
host governments would change their local laws.12 And even if a foreign national
had exhausted local remedies and it had not waived diplomatic protection in its
3
Id., pp. 1, 2. See, also Sabahi R et al (2019) Investor-state arbitration, 2nd edn. Oxford University
Press, pp 28–30. Miles supra n 1, p. 27.
4
See also Miles and Schneiderman, supra n 1, Chapter 1, pp. 23–25.
5
Miles and Schneiderman, supra n 1, pp. 23–31.
6
Carlos Calvo was an Argentine jurist who published a well-known study titled, “Derecho
internacional teorico y practico de Europa y America,” proposing a series of new interpretations
to the rules for the protection of foreign investments, which then became known as “Calvo
Doctrine” or “Doctrina Calvo.” For further discussion, see Freeman AV (1946) Recent aspects of
the Calvo doctrine and the challenge of international law. Am J Int Law 40:121–147. See Grigera
Naón HA (2007) Arbitration and Latin America: progress and setbacks. Arbitr Int 16:393–454. See
also Juillard P (2007) Calvo doctrine/calvo clause. In: Max Planck encyclopedias of
international law.
7
Dolzer and Schreuer, supra n 2, pp. 2, 3.
8
Id.
9
Sabahi, supra n 3, paras 2.30–2.45.
10
Id. para 2.06; Cornell P, Handley A (2000) Himpurna and hub: international arbitration in
developing countries. Mealey’s Int Arbitr Rep 15(9):39. See also Sipress A (2002) Flawed legal
system impeding Indonesia; lacking confidence, foreign investors flee. The Washington Post,
p A17. See also Bank of the USA v. Deveaux, 9 US 5 Cranch 61 61 (1809).
11
Sabahi, supra n 3, para 2.07; Fox H, Webb P (2013) The law of state immunity. Oxford University
Press, Oxford, pp 25–33.
12
See Dolzer and Schreuer, supra n 2, p. 1, in fine, (stating that the Calvo doctrine “would have left
room for all the vagaries of domestic law.”).
concession contract,13 relying on its home State to espouse a diplomatic protection

claim took the decision to bring a claim out of the hands of the investor.14
The introduction of bilateral investment treaties (“BIT(s)”) – beginning with the
1959 Germany-Pakistan BIT and the 1969 Chad-Italy BIT15 – ushered in a new
means by which foreign nationals could pursue their claims directly against host
States outside of national courts. States also began to negotiate a multilateral
framework to resolve disputes between foreign investors and host States.16 In
1965, these efforts culminated in the signing of the Convention on the Settlement
of Investment Disputes between States and Nationals of Other States (“ICSID
Convention”)17 which regulated the process by which investors could initiate
international arbitration under the auspices of the World Bank’s International Centre
for Settlement of Investment Disputes (“ICSID”), removing the need for diplomatic
protection.18 State parties also undertook to recognize and enforce any resulting
arbitral award.19
Alongside these developments, in the 1950s, the United Nations Economic and
Social Council oversaw a process to reform the existing Geneva Protocol on
Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign
Arbitral Awards of 1927, both of which concerned the enforcement of commercial
arbitration awards. This process led to the signing of the United Nations Convention
on the Recognition and Enforcement of Foreign Awards (“New York Convention”)
in 1958, which now has more than 160 signatories. The New York Convention
provides a global framework for the enforcement of arbitral awards, including those
arising from an investment dispute where arbitration occurs outside of the ICSID
regime.
The increase in BITs and the conclusion of the ICSID Convention and New York
Convention were followed in the 1990s with the emergence of multilateral treaties
which contained provisions for the protection of foreign investment. Initial treaties
of this kind include the North American Free Trade Agreement (“NAFTA”) (1992),
13
See e.g., North American Dredging Company of Texas (USA) v United Mexican States, 4 RIAA
26 (1926).
14
Sabahi, supra n 3, pp. 30–33. See, also, para 2.38 (“states tend[ed] to be quite selective about the
claims they agree[d] to espouse”).
15
Dolzer and Schreuer, supra n 2, pp. 6, 7. See, Treaty between the Federal Republic of Germany
and Pakistan for the Promotion and Protection of Investments, signed on 25 November 1959,
entered into force on 28 April 1962 (replaced by German–Pakistan BIT (2009). See Agreement for
the Promotion and Protection of Investments between the Republic of Chad and the Republic of
Italy, signed and entered into force on 11 June 1969 (text in Italian).
16
Dolzer and Schreuer, supra n 2, pp. 9, 10. See, also, Schreuer CH (2010) Denunciation of the
ICSID Convention and consent to arbitration. In: Waibel M et al (eds) The backlash against
investment arbitration. Kluwer Law International, pp 358–359.
17
Convention on the Settlement of Investment Disputes between States and Nationals of Other
States, in force as of 14 October 1966, Article 27.
18
Dolzer and Schreuer, supra n 2, p. 9.
19
See ICSID Convention, Article 53.
the Energy Charter Treaty (1994), and the ASEAN Agreement for Promotion and
Protection of Investments (1987).20 Today, some 2,600 treaties provide for investor-
State arbitration, with more being added every year.21
The Jurisdiction of Investment Tribunals
The jurisdiction of an investment tribunal – its mandate, competence, or authority22 –

is founded on the parties’ consent as reflected in the relevant instrument or agreement
under which the investor’s claims are brought.23 In many cases, investors who wish to
pursue a claim against a host State are likely to be able to do so in arbitration pursuant
to an investment treaty, a commercial contract between the investor and the State or an
organ of the State (subject to the question of attribution of State conduct24) or domestic
legislation concerning foreign investment.
Sources of Jurisdiction
Investment Treaties
Investment treaties are international instruments agreed between two or more States
for the protection of investments made by the nationals of the other contracting
parties.25 Investment treaties typically contain a suite of protections and arbitration
as a mode of dispute resolution. Investment treaty arbitration has been called
20
See also, Dolzer and Schreuer, supra n 2, pp. 4–16.
21
This figure is based on investment treaties in force according to the investment policy site of the
United Nations Conference on Trade and Development (“UNCTAD”). Available at http://www.
investmentpolicy.unctad.org/international-investment-agreements.
22
Blackaby N et al (2015) Redfern and Hunter on international arbitration, 6th edn. Oxford
University Press, para 5.91.
23
Douglas Z (2009) The international law of investment claims. Cambridge University Press,
New York, p 151.
24
See generally ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts,
with Commentaries (2001). Yearbook of the International Law Commission, 2001, vol II, Part Two
(“ILC Draft Articles on State Responsibility”), arts 4 and 5 and commentary. See also Kovács C
(2018) Attribution in international investment law. Kluwer Law International, pp 57–129.
25
In the case of multilateral agreements, it is common for foreign investment-related provisions to
be included in a chapter of a wider agreement on trade and investment. See, e.g., Agreement
Between the USA, the United Mexican States, and Canada, signed 30 November 2018, entered into
force 1 July 2020, Chapter 14: Investment; see also Comprehensive and Progressive Agreement for
Trans-Pacific Partnership, signed 8 March 2018, entered into force 30 December 2018,
Chapter 9: Investment; Energy Charter Treaty 2080 UNTS 100, signed 17 December 1994, entered
into force 16 April 1998, Parts III (Investment Promotion and Protection) and V (Dispute
Settlement).
“arbitration without privity”26 for the reason that the claimant’s home State, but not
the claimant itself, is party to the agreement that confers jurisdiction on the tribunal.
The claimant accepts the standing offer to arbitrate by notifying the host State or by
filing for arbitration.27
The extent of that standing offer is derived from its express terms.28 The defini-
tion of an “investor” typically circumscribes the tribunal’s personal jurisdiction,29
while provisions defining an “investment” delineate the tribunal’s subject matter
jurisdiction.30 Some treaties may contain provisions dealing with the tribunal’s
temporal jurisdiction.31
As with all dispute resolution clauses, the nature of the consent to arbitration turns
on the precise language of the provision.32 Treaties may qualify the consent of the
State, for instance, by requiring a separate confirmation of consent which should not
be unreasonably withheld33 or by requiring a State to only give a “sympathetic
consideration” to a request.34 Clauses incorporating language to the effect that States
26
Paulsson J (1995) Arbitration without privity. ICSID Rev 10(2):232–257; see also Nolan M,
Caivano FG (2010) Limits of consent – arbitration without privity and beyond. In: Fernandez-
Ballester MA, Arias Lozano D (eds) Liber Amicorum Bernardo Cremades. Wolters Kluwer,
pp 873–911.
27
Nolan and Caivano, id., pp. 874–880; Schreuer CH et al (2009) The ICSID Convention: a
commentary, 2nd edn. Cambridge University Press, New York, p 9; Hobér K (2014) Res judicata
and lis pendens in international arbitration. In: Collected courses of the Hague Academy of
International Law, vol 366, pp 212, 341; Generation Ukraine Inc. v. Ukraine, ICSID Case No
ARB/00/9, Award (16 September 2003) para 12.2; ABCI Investments Limited v. Republic of Tunisia,
ICSID Case No ARB/04/12, Decision on Jurisdiction (18 February 2011) para 115.
28
Schreuer (2010) supra n 16, pp. 357, 358.
29
See e.g., Douglas supra n 23, pp. 284–327.
30
Id., pp. 233–283.
31
Id., pp. 328–343. See also Gallus N (2017) The temporal jurisdiction of international tribunals.
Oxford University Press.
32
Sornarajah M (2010) The international law on foreign investment, 3rd edn. Cambridge University
Press, New York, p 218.
33
See, e.g., Agreement Between the Government of Australia and the Government of the Demo-
cratic Socialist Republic of Sri Lanka for the Promotion and Protection of Investments, signed
12 November 2002, entered into force 14 March 2007, Article 13(3) (“Where a dispute is referred to
the Centre pursuant to paragraph 2(b) of this Article: (a) where that action is taken by an investor of
one Party, the other Party should consent in writing to the submission of the dispute to the Centre
within thirty days of receiving such a request from the investor. Such consent shall not be
unreasonably withheld. Emphasis added).
34
See, e.g., Agreement on Economic Cooperation between the Government of the Kingdom of the
Netherlands and the Government of the Republic of Kenya, signed 11 September 1970, entered into
force 11 June 1979, Article 11. These situations have been recognized as insufficient, without more,
to establish the jurisdiction of an arbitral tribunal: see Sornarajah supra n 32, p. 218.
“shall assent” or “shall consent” to submit to arbitration35 have been subject to

different interpretations on the question of whether that language should be
interpreted as sufficiently conferring unconditional State consent.36
State Contracts and Concessions

In addition to investment treaties, it is common for a foreign investor to enter into a
contract with the host State or one of its organs, in the form of a concession
agreement for the exploration or extraction of natural resources or access to the
domestic energy market.37 Contracts involving cross-border transactions tend to
include international arbitration clauses,38 many of which contain language to the
effect that any and all types of disputes are captured by the scope of the clause.39
35
See, e.g., Agreement Between the Government of the United Kingdom of Great Britain and
Northern Ireland and the Republic of the Philippines for the Promotion and Protection of Invest-
ments, signed 3 December 1980, entered into force 2 January 1981, Article X(1): (“The Contracting
Party in the territory of which a national or company of the other Contracting Party makes or intends
to make an investment shall assent to any request on the part of such national or company to submit,
for conciliation or arbitration, to the Centre established by the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States opened for signature at
Washington on 18 March 1965 any dispute that may arise in connection with the investment.”
Emphasis added).
36
Churchill Mining Plc and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No
ARB/12/14 and 12/40, Decision on Jurisdiction (24 February 2014) paras 179, 180,
230 (interpreting the “shall assent” clause as “functionally equivalent to ‘hereby consents’” and
as granting consent to arbitration based on the drafting history of the treaty); Millicom International
Operations B.V. and Sentel GSM S.A. v. Republic of Senegal, ICSID Case No ARB/08/20, Decision
on Jurisdiction (16 July 2010) paras 63–66 (interpreting the “shall consent” requirement as an
expression of consent in light of the wording of the relevant article and the origin, object, and
purpose of the treaty).
37
See e.g., Duke Energy International Peru Investments No. 1 Ltd. v. Republic of Peru, ICSID Case
No ARB/03/28, Award (18 August 2008) para 46; RSM Production Corporation v. Central African
Republic, ICSID Case No ARB/07/2, Award (11 July 2011); Standard Chartered Bank (Hong
Kong) Limited v. United Republic of Tanzania, ICSID Case No ARB/15/41, Award (11 October
2019); Cambodia Power Company v. Kingdom of Cambodia, ICSID Case No ARB/09/18, Decision
on Jurisdiction (22 March 2011); Sornarajah supra n 32, p. 280.
38
For example, according to the Queen Mary University of London and White & Case LLP 2018
International Arbitration Survey: The Evolution of International Arbitration, “[a]n overwhelming
99% of respondents would recommend international arbitration to resolve cross-border disputes in
the future”: pp. 2, 5. Further, “97% of respondents indicate that international arbitration is their
preferred method of dispute resolution, either on a stand-alone basis (48%) or in conjunction with
ADR (49%),” due primarily to the enforceability of arbitral awards, the availability of a neutral
forum, the flexibility of the proceedings, and the ability of parties to choose the arbitrators:
pp. 2, 5. The survey is available at https://www.whitecase.com/sites/whitecase/files/files/down
load/publications/qmul-international-arbitration-survey-2018-19.pdf.
39
Born G (2014) International commercial arbitration, 2nd edn. Kluwer Law International, pp 1347,
1348. See, e.g., Standard Chartered Bank (Hong Kong) Limited v. Tanzania Electric Supply
Company Limited, ICSID Case No ARB/10/20, Decision on Jurisdiction and Liability (12 February
2014) para 118 (the arbitration clause in the relevant contract provided for the submission to ICSID
arbitration of “[a]ny dispute arising out of or in connection with this Agreement”); Cambodia
Such clauses may provide for ICSID arbitration or arbitration under the auspices of
administering institutions such as the Permanent Court of Arbitration (“PCA”), the
International Chamber of Commerce (“ICC”), the International Centre for Dispute
Resolution (“ICDR”), and the Arbitration Institute of the Stockholm Chamber of
Commerce (“SCC”), to name just a few.40 About 16% of ICSID cases since 1966
were based on contracts between the State and the investor.41
Domestic Laws on Foreign Investment

States can also consent to arbitration through domestic legislation.42 In many
instances, capital-importing States have enacted legislation to expressly provide
for the protection of foreign investment.43 In addition, some such laws provide
that disputes arising in relation to the investment should be submitted to arbitra-
tion.44 As one commentary has said, consent here takes the form of an undertaking to
“the international community at large, or any defined sub-set thereof.”45 The exis-
tence and scope of the obligation to arbitrate depends on the specific drafting of the
relevant legislation.46 Some tribunals have found that the State’s offer to arbitrate is
accepted by an investor when it institutes proceedings.47 When domestic laws
Power Company v. Kingdom of Cambodia, ICSID Case No ARB/09/18, Decision on Jurisdiction

(22 March 2011) (the arbitration clauses in the relevant contracts provided for the submission to
arbitration of “any dispute or difference of any kind whatsoever,” and “any dispute or difference aris
[ing] out of or in connection with [the] [a]greement”): paras 10–14. ICSID has published model
submission clauses, including for expressing consent in respect of “any dispute” arising out of or
relating to the respective agreement, which are available at http://icsidfiles.worldbank.org/icsid/
icsid/staticfiles/model-clauses-en/7.htm.
40
See Dolzer and Schreuer supra n 5, pp. 241–244.
41
ICSID (2019) The ICSID caseload – statistics: issue 2020–1, p 11. Available at https://icsid.
worldbank.org/en/Documents/resources/The%20ICSID%20Caseload%20Statistics%202020-1%
20Edition-ENG.pdf (“ICSID Caseload Statistics 2020–2021”).
42
Schreuer (2010) supra n 16, pp. 357, 358.
43
See, e.g., Law No. 004/2002 of 21 February 2002 on the Investment Code (Democratic Republic
of Congo); Law of Georgia on Promotion and Guarantees of Investment Activity (12 November
1996); Law of the Republic of Uzbekistan on Guarantees and Measures of Protection of Foreign
Investors’ Rights, Law No N 611-I (1998).
44
See, e.g., Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID
Case No ARB/84/3, Decision on Jurisdiction (14 April 1988) para 3; ABCI Investments
N.V. v. Republic of Tunisia, ICSID Case No ARB/04/12, Decision on Jurisdiction (18 February
2011) para 69; Potestà M (2011) The interpretation of consent to ICSID arbitration contained in
domestic investment laws. Arbitr Int 27(2):149, 150.
45
Nolan and Caivano supra n 26, p. 892.
46
See Potestà supra n 44, pp. 154–160; see Law of the Republic of Uzbekistan on Guarantees and
Measures of Protection of Foreign Investors’ Rights, Law No N 611-I (1998), Article 10; see also
Law No. 004/2002 of 21 February 2002 on the Investment Code (Democratic Republic of Congo),
Article 38.
47
See Zhinvali Development Ltd. v. Republic of Georgia, ICSID Case No ARB/00/1, Award
(24 January 2003) para 342; Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case
No ARB/03/26, Award (2 August 2006) para 332.
contain an offer to arbitrate, they often refer to arbitration administered by ICSID.48

Domestic laws of the respondent State have been the basis of consent for about 8%
of investment arbitration cases before ICSID.49
The Distinction Between Jurisdiction and Admissibility
The distinction between jurisdiction and admissibility is covered in several other

chapters in this Handbook and will not be repeated here.50 Specifically in the context
of multiplicity of proceedings, questions arise as to whether a defect relating to the
initiation of proceedings goes to jurisdiction or admissibility.
Tribunals have generally regarded “jurisdiction” as concerning the competence of
the tribunal to adjudicate over a particular dispute and “admissibility” as concerning
the fitness of a claim.51 Admissibility is a concept rooted in the adjudication of
48
See Burgstaller M, Waibel M (2011) Investment codes. In: Max Planck encyclopedias of
international law. The authors discuss the investment laws of Albania, Burundi, Central African
Republic, and Côte d’Ivoire.
49
ICSID Caseload Statistics 2020–2001, supra n 45, p. 11.
50
On admissibility in this Handbook, see ▶ Chaps. 43, “Emerging Practice on Investor Diligence:
Jurisdiction, Admissibility, and Merits,” ▶ 39, “Jurisdictional Objections and Defenses (Ratione
Personae, Ratione Materiae, and Ratione Temporis),” ▶ 51, “Counterclaims Admissibility in
Investment Arbitration” and ▶ 44, “Relevance of Domestic Court Decisions to the Merits in
Investment Arbitration.” For other sources, see generally, Fontanelli F (2018) Jurisdiction and
admissibility in investment arbitration: the practice and the theory. BRILL; Reinisch A (2018)
Jurisdiction and admissibility in international investment law. In: Gattini A, Tanzi A, Fontanelli F
(eds) General principles of law and international investment arbitration. BRILL, pp 130–151;
Waibel M (2014) Investment arbitration: jurisdiction and admissibility. University of Cambridge
Faculty of Law Legal studies research paper series; Paulsson J (2005) Jurisdiction and admissibility.
In: Aksen G et al (eds) Global reflections on international law, commerce and dispute resolution:
Liber Amicorum in honour of Robert Briner. ICC Publishing, Paris, pp 601–617.
51
Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No ARB(AF)/
00/2, Award (29 May 2003) para 73; Ioan Micula, Viorel Micula and Others v. Romania, ICSID
Case No ARB/05/20, Decision on Jurisdiction and Admissibility (24 September 2008) para 63; SGS
Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No ARB/02/6,
Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para 154; HOCHTIEF
Aktiengesellschaft v. Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction
(24 October 2011) para 90; Supervisión y Control S.A. v. Republic of Costa Rica, ICSID Case No
ARB/12/4, Award (18 January 2017) para 269. In contrast, see Daimler Financial Services AG
v. Argentine Republic, ICSID Case No ARB/05/1, Award (22 August 2012) paras 192–194;
Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa
v. Argentine Republic, ICSID Case No ARB/07/26, Decision on Jurisdiction (19 December 2012)
paras 112–129; Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v. Turkmenistan,
ICSID Case No ARB/10/1, Award (2 July 2013), paras 6.3.4–6.3.15.
international law disputes,52 and there is some debate as to whether such a concept
should be applied at all in investment arbitration.53
As the tribunal in Abaclat v. Argentina explained, there appear to be three
distinguishing features as between the two concepts:54
• A lack of jurisdiction means that the claim cannot be brought in front of the
relevant adjudicatory body while a lack of admissibility means that the claim is
not fit or ready for judicial treatment.
• A decision refusing a case based on a lack of jurisdiction is usually subject to
review by another body while a decision refusing a case based on a lack of
admissibility is not usually subject to review by another body.55
• A final refusal based on a lack of jurisdiction will prevent the parties from
resubmitting the same claim to the same body, a refusal based on admissibility
may not prevent the claimant from resubmitting its claim if the defect causing
inadmissibility can be cured.56
Tribunals have found the following to be defects which may render a claim
inadmissible: (i) non-compliance with local litigation requirements;57 (ii) existence
52
ICJ Rules of Court, adopted 14 April 1978, entered into force 1 July 1978, Articles 79, 79bis;
Söderlund C, Burova E (2018) Is there such a thing as admissibility in investment arbitration?
ICSID Rev 33(2):527–528.
53
Hwang M, Lim SC (2018) The chimera of admissibility in international arbitration. In: Kaplan N,
Moser MJ (eds) Jurisdiction, admissibility and choice of law in international arbitration: Liber
Amicorum Michael Pryles. Kluwer Law International, pp 265–288.
54
Abaclat and Others v. Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction
and Admissibility (4 August 2011) para 247.
55
Under the ICSID system, awards are reviewable via annulment proceedings, including on the
grounds “that the Tribunal has manifestly exceeded its powers”: ICSID Convention, Article
52(1) (b). The availability of annulment or similar review mechanisms in non-ICSID arbitrations
will depend on the lex arbitri.
56
Supervisión y Control S.A. v. Republic of Costa Rica, ICSID Case No ARB/12/4, Award
(18 January 2017) para 270.
57
There is an ongoing debate as to whether such cooling-off periods are (i) conditioned expressions
of consent, affecting jurisdiction, or (ii) waivable or curable requirements that go to the admissi-
bility of the claims. Cases where the defect was found to affect jurisdiction include: Enron
Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3,
Decision on Jurisdiction (14 January 2004) para 88; Consortium Groupement L.E.S.I. – DIPENTA
v. People’s Democratic Republic of Algeria, ICSID Case No ARB/03/8, Award (10 January 2005)
para 32; Murphy Exploration and Production Company International v. Republic of Ecuador,
ICSID Case No ARB/08/4, Award (15 December 2010) paras 156, 157; Burlington Resources,
Inc. v. Republic of Ecuador, ICSID Case No ARB/08/5, Decision on Jurisdiction (2 June 2010) para
315; ICS Inspection and Control Services Limited (United Kingdom) v. The Republic of Argentina,
UNCITRAL, PCA Case No 2010-9, Award on Jurisdiction (10 February 2012) paras 273, 326;
Daimler Financial Services AG v. Argentine Republic, ICSID Case No ARB/05/1, Award
(22 August 2012) paras 193, 194; Kılıç İnşaat İthalat İhracat Sanayi veTicaret Anonim Şirketi
v. Turkmenistan, ICSID Case No ARB/10/1, Award (2 July 2013) para 6.3.15. On the other hand,
cases where the defect was deemed to be an issue of admissibility include: Abaclatand Others
of an exclusive jurisdiction clause in the underlying contract;58 and (iii) defective

compliance with waiver clauses.59
The Multiplicity of Proceedings
Although a dispute between a foreign investor and a host State may ordinarily give
rise to a single proceeding, there are various circumstances that may give rise to
multiple proceedings, which in turn may result in inconsistent outcomes and proce-
dural inefficiencies.
Circumstances Giving Rise to Multiple Proceedings
Investment disputes might lead to proceedings before multiple forums for several
reasons.60 First, a foreign investor might have recourse against the State pursuant to
multiple agreements. For example, an investor may be entitled to bring proceedings
arising from the same dispute pursuant to arbitration provisions in an investment
treaty or a concession contract that could give rise to multiple proceedings in
different fora. Some tribunals faced with such a situation have distinguished between
treaty rights and contractual rights and permitted both to proceed in parallel.61
v. Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility

(4 August 2011) paras 496, 590; HOCHTIEF Aktiengesellschaft v. Argentine Republic, ICSID
Case No ARB/07/31, Decision on Jurisdiction (24 October 2011) para 96; İçkaleİnşaat Limited
Şirketi v. Turkmenistan, ICSID Case No ARB/10/24, Award (8 March 2016) para 246.
58
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No
ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para 154;
Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. Republic of Para-
guay, ICSID Case No ARB/07/9, Decision of the Tribunal on Objections to Jurisdiction (29 May
2009) para 159.
59
Salini Impregilo S.p.A. v. Argentine Republic, ICSID Case No ARB/15/39, Decision on Jurisdic-
tion and Admissibility (23 February 2018) para 149.
60
See Rivkin DV (2005) The impact of parallel and successive proceedings on the enforcement of
arbitral awards. In: Cremades BM, Lew JDM (eds) Parallel state and arbitral procedures in
international arbitration. International Chamber of Commerce, pp 270, 271; cf. Compañia de
Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No
ARB/97/3, Decision on Annulment (3 July 2002); Joy Mining Machinery Limited v. Arab Republic
of Egypt, ICSID Case No ARB/03/11, Award on Jurisdiction (6 August 2004); SGS Société
Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No ARB/02/6, Decision
of the Tribunal on Objections to Jurisdiction (29 January 2004); Impregilo S.p.A. v. Islamic Republic
of Pakistan, ICSID Case No ARB/03/3, Decision on Jurisdiction (22 April 2005).
61
For a discussion of the primary ways in which investors have submitted a State’s breaches of a
contract before an investment treaty tribunal, see Malik M (2007) The expanding jurisdiction of
investment-state tribunals: lessons for treaty negotiators. International Institute for Sustainable
Development. See, e.g., Compañía de Aguas del Aconquija, id., para 96; Wena Hotels Limited
v. Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision on the Application by the Arab
Republic of Egypt for Annulment of the Arbitral Award dated December 8, 2000 (5 February 2002)
Second, the right to arbitrate in respect of the same underlying dispute may accrue
to multiple potential claimants that would be entitled to pursue independent pro-
ceedings. So, for example, joint venture partners in a project may be affected by the
same conduct of the host State, and each may be entitled to bring separate pro-
ceedings, and to the extent multiple fora are available, may choose different fora in
which to prosecute their claims.62 In addition, a company directly affected by the
host State’s conduct may have shareholders – organizations or individuals – in its
corporate structure who may be entitled to bring proceedings under the same or a
different investment treaty.63
Third, the subject matter of a dispute may be suitable for adjudication before a
local court, in addition to adjudication before an international tribunal. For instance,
a foreign investor may be able to bring its claim in relation to taxation to a domestic
tax court or pursue arbitration under an investment treaty64 or contract for breach of
relevant provisions.65 Relatedly, there may be instances where foreign investors or
their representatives are subject to criminal investigations by host States for conduct
related to the same conduct implicating the treaty and/or contract. Such ongoing
criminal investigations or proceedings also may overlap with an arbitration
process.66
paras 31, 35, 36; SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID
Case No ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 August 2003) paras
147, 148; Salini Costruttori S.p.A. and Italstrade S.p.A. v. Hashemite Kingdom of Jordan, ICSID
Case No ARB/02/13, Decision on Jurisdiction (29 November 2004) para 152; SGS Société
Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No ARB/02/6, Decision
of the Tribunal on Objections to Jurisdiction (29 January 2004) para 122.
62
See, e.g., Sempra Energy International v. Argentine Republic, ICSID Case No ARB/02/16,
Decision on Objections to Jurisdiction (11 May 2005) para 5; Camuzzi International
S.A. v. Argentine Republic, ICSID Case No ARB/03/2, Decision on Objections to Jurisdiction
(11 May 2005) para 4.
63
See Gaillard E (2019) Parallel proceedings: investment arbitration. In: Max Planck encyclopedias
of international law, paras 2–4, 6, 7; Wehland H (2016) The regulation of parallel proceedings in
investor-state disputes. ICSID Rev 31(3):579–580; Camuzzi International S.A. v. Argentine Repub-
lic, ICSID Case No ARB/03/2, Decision on Objections to Jurisdiction (11 May 2005); Sempra
Energy International v. Argentine Republic, ICSID Case No ARB/02/16, Decision on Objections to
Jurisdiction (11 May 2005); Ampal-American Israel Corporation and Others v. Arab Republic of
Egypt, ICSID Case No ARB/12/11, Decision on Jurisdiction (1 February 2016); OI European
Group B.V. v. Bolivarian Republic of Venezuela, ICSID Case No ARB/11/25, Award (10 March
2015) and Fábrica de Vidrios Los Andes, C.A. and Owens-Illinois de Venezuela, C.A. v. Bolivarian
Republic of Venezuela, ICSID Case No ARB/12/21, Award (13 November 2017).
64
See, e.g., Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No ARB(AF)/99/1,
Award (3 December 2002) para 78; Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No
ARB/08/5, Decision on Jurisdiction (2 June 2010).
65
See, e.g., Duke Energy International Peru Investments No. 1 Ltd. v. Republic of Peru, ICSID Case No
ARB/03/28, Award (18 August 2008). See Chaisse J (2015) Investor-state arbitration in international tax
dispute resolution – a cut above dedicated tax dispute resolution? Va Tax Rev 41(2):149–222.
66
See, e.g., Quiborax S.A. and Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID
Case No ARB/06/2, Decision on Jurisdiction (27 September 2012); Lao Holdings N.V. v. Lao
People’s Democratic Republic, ICSID Case No ARB(AF)/12/6, Ruling on Motion to Amend the
Issues Arising from Multiple Proceedings
Unlike domestic or regional (such as with respect to the European Union)67 court
systems, there is no hierarchy or formal system of coordination between arbitral
tribunals, or between domestic courts and arbitral tribunals.68 As such, the existence
of multiple proceedings could give rise to numerous issues, such as the risk of
inconsistent outcomes.69
Two cases brought against the Czech Republic are a paradigmatic example of
inconsistent outcomes. These cases concerned an investment in the media industry in
the Czech Republic. Ronald Lauder, a US national, owned a stake in CME Czech
Republic BV, which in turn owned shares in a locally incorporated entity, NTS. NTS
was in a joint venture with a local media company. Following efforts by the Czech
Republic’s Media council to invalidate CME and NTS’s roles in the joint venture and
changes to the joint venture’s structure, a total of four proceedings were launched.70
Provisional Measures Order (30 May 2014); Churchill Mining PLC and Planet Mining Pty Ltd
v. Republic of Indonesia, ICSID Case No ARB/12/14 and 12/40, Procedural Order No 9: Provisional
Measures (8 July 2014); Hydro S.r.l. and others v. Republic of Albania, ICSID Case No ARB/15/28,
Decision on Claimants’ Request for a Partial Award and Respondent’s Application for Revocation
or Modification of the Order on Provisional Measures (1 September 2016); Teinver S.A., Trans-
portes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case
No ARB/09/1, Decision on Provisional Measures (8 April 2016); Italba Corporation v. Oriental
Republic of Uruguay, ICSID Case No ARB/16/9, Decision on Claimant’s Application for Provi-
sional Measures and Temporary Relief (15 February 2017); Goh N (2018) Note: the power of
tribunals to enjoin criminal proceedings: a widening power or converging high bar? Italba Corpo-
ration v. Oriental Republic of Uruguay, Hydro Srl and others v Republic of Albania, Teinver and
others v. Argentine Republic. ICSID Rev 33(1):88–102.
67
See, e.g., Regulation (EU) No 1215/2012 of the European Parliament and of the Council of
12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and
commercial matters (recast), Official Journal of the European Union L 351 (20 December 2012)
1 (as amended) (the “Recast Brussels Regulation”). The jurisdiction provisions of the Recast
Brussels Regulation (Articles 4 to 35) establish a hierarchy to determine which court has jurisdic-
tion over civil and commercial matters.
68
This perceived lack of consistency and predictability in investment awards has led to some
criticism of the global investor-state dispute settlement (“ISDS”) system. See Franck SD (2005)
The legitimacy crisis in investment treaty arbitration: privatizing public international law through
inconsistent decisions. Fordham Law Rev 73:1521–1625; Langford M, Behn D, Létourneau-
Tremblay L (2019) Empirical perspectives on investment arbitration: what do we know? Does it
matter? ISDS Academic Forum working group 7 paper. Available at https://www.cids.ch/images/
Documents/Academic-Forum/7_Empirical_perspectives_-_WG7.pdf.
69
See, e.g., CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Final Award (14 March
2003) and Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award (3 September 2001);
Charanne B.V. and Construction Investments S.A.R.L. v. Kingdom of Spain, SCC Case No V
062/2012 and Eiser Infrastructure Limited and Energía Solar Luxembourg S.àr.l. v. Kingdom of
Spain, ICSID Case No ARB/13/36, Award (4 May 2017) (now annulled).
70
In addition to the two investment claims outlined in the text, CME’s local subsidiary, NTS, sued
CET21 in the Czech courts, and CME, in turn, initiated a contract-based ICC arbitration against
CET21’s controlling shareholder.
Relevant for present purposes, Mr. Lauder, as the ultimate shareholder, initiated
arbitration under the US–Czech Republic BIT (the Lauder case), while CME also
commenced arbitration against the Czech Republic under the Czech Republic–
Netherlands BIT (the CME case). The fact that parallel proceedings were taking
place was known to both tribunals. They acknowledged the risk of inconsistent
outcomes but dismissed arguments concerning an abuse of process,71 taking into
account the fact that the Czech Republic had resisted a proposal for consolidation
and coordination of both cases, preferring to defend the claims separately.72
The tribunal in the Lauder case found that the Czech Republic had breached the
treaty prohibition against impairment of use and enjoyment of an investment by means
of discriminatory measures, but ultimately found that the damage to be too remote to
give rise to compensation.73 On the other hand, the CME tribunal found that the Czech
Republic had expropriated the claimant’s investment and breached other treaty stan-
dards,74 and ordered it to pay CME close to USD $270 million in damages.75
In relation to the CME award, the Czech Republic made an unsuccessful attempt
to set aside the award by advancing a res judicata argument before the Svea Court of
Appeal in Stockholm. The Svea Court dismissed its application noting that the CME
and Lauder awards arose out of different treaties, involved different parties and
addressed different injuries,76 and ultimately, the Czech Republic complied with the
award in favor of CME.77
The CME and Lauder cases highlight the practical difficulties parties may face at the
enforcement stage, where courts may be asked to set aside, recognize, or enforce two
decisions with contradictory outcomes.78 In the case of successive enforcement pro-
ceedings, a later award may be precluded as a result of an application of the res judicata
principle. The CME and Lauder cases also highlight the problem of double recovery.79
On this issue, the CME tribunal noted that any risk of double recovery could be handled
by making the appropriate deductions in the decision second in time.80
71
Lauder supra n 69, paras 173–175, 177–178; CME Czech Republic B.V. v. The Czech Republic,
UNCITRAL, Partial Award (13 September 2001) paras 412, 419.
72
Lauder supra n 69, paras 173–175, 177–178; CME id., paras 302, 412, 419.
73
Lauder supra n 69, paras 234–235.
74
CME supra n 69, para 591.
75
CME supra n 69, para 624.
76
Rivkin supra n 60, p. 276.
77
Id.
78
Id.
79
Wehland supra n 63, p. 577; Rivkin supra n 60, pp. 272, 275, 276, 279. See Supervisión supra n
56, para 297.
80
CME supra n 69, paras 410, 419. See also Urbaser supra n 51, para 253; British Caribbean Bank
Limited v. The Government of Belize, PCA Case No 2010-18, Award (19 December 2014) para 190;
ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria
B.V. v. Bolivarian Republic of Venezuela, ICSID Case No ARB/07/30, Award (8 March 2019) paras
961–965.
In addition to the risks demonstrated by the CME and Lauder cases, multiple
proceedings likely increase the costs of resolving a dispute.81 Where separate pro-
ceedings are brought in relation to the same dispute, this may present a challenge to
respondent States who may not be able to obtain third-party funding82 and smaller
States who may bear a “disproportionately heavy burden.”83
Use of Treaty Provisions and Institutional Rules to Regulate

Multiplicity of Proceedings
States, tribunals, claimants, and arbitration institutions have adopted a number of

methods to regulate the multiplicity of proceedings. These include the use of treaty
provisions and the rules of arbitration institutions.
Requirements to Litigate Prior to Arbitration Proceedings
Exhaustion of Local Remedies

The requirement to exhaust local remedies is a longstanding rule of customary
international law, first emerging in the context of diplomatic protection.84 Its origins
are rooted in the goal of safeguarding State sovereignty85 and founded on the
premise that the foreign national’s home government must give the host State an
opportunity of doing justice and avoid occasion for a dispute on the international
plane.86 Although this requirement is not intended to regulate parallel proceedings
stricto sensu, it has been suggested that the rule was also designed to reduce the
overall number of proceedings.87
Article 8 of the Albania–Lithuania BIT provides an example of a typical exhaus-
tion of local remedies clause:
81
Rivkin, supra n 60, p. 274.
82
Guven B, Johnson L (2019) The policy implications of third-party funding in investor-state
dispute settlement. Columbia Center on Sustainable Investment (“CCSI”), CCSI working paper
2019, p 9 (“the economics of providing funding to states is a considerable challenge”).
83
Note by the Secretariat: possible reform of investor-State dispute settlement (ISDS) – cost and
duration, UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), thirty-sixth
session, A/CN.9/WG.III/WP.153 (31 August 2018) para 8. Available at https://undocs.org/en/A/
CN.9/WG.III/WP.153.
84
Sabahi supra n 3, para 13.01; Wehland H (2013) The coordination of multiple proceedings in
investment treaty arbitration. Oxford international arbitration series, paras 5.46–5.49.
85
Sabahi, supra n 3.
86
Sabahi, supra n 3, para 13.02 (quoting Borchard E (1915) Diplomatic protection of citizens
abroad. Bank Law Publication, pp 817–818).
87
Sabahi, supra n 3, para 2.41.
If such a dispute cannot be settled amicably within six months . . . and domestic judicial and
administrative remedies have been exhausted, the Contracting Party or the investor shall be
entitled to submit the dispute. . . (Emphasis added)88
A study by the International Institute for Sustainable Development (“IISD”) notes

that “very few agreements in the universe of over 3,000 bilateral investment treaties
(BITs) and treaties with investment provisions (TIPs) expressly require ELR
[Exhaustion of Local Remedies]”.89 Notwithstanding that, there appears to be a
relatively recent trend by a number of States – including Argentina, India, Romania,
and Uruguay – to introduce such clauses in their investment treaties.90
Where such an express requirement is absent, it is generally accepted that there is
no need to exhaust local remedies,91 unless it is separately an element of a cause of
action.92 Tribunals have also held that the rule generally requires investors to pursue
their claims up to the highest level of the host State’s judicial system,93 although
88
Agreement between the Council of Ministers of the Republic of Albania and the Government of
the Republic of Lithuania on the Promotion and Protection of Investments, signed and entered into
force in 2007, Article 8.
89
See IISD Report, Exhaustion of Local Remedies (2017) IISD Best Practices Series: Exhaustion of
Local Remedies in International Investment Law (“IISD Report”), para 3.1, p 7. Available https://
www.iisd.org/library/iisd-best-practices-series-exhaustion-local-remedies-international-
investment-law; see also Sabahi, supra n 3.
90
See IISD Report, ibid. See e.g., Bilateral Investment Treaty between the Government of the
Kyrgyz Republic and The Government of the Republic of India, signed in 16 June 2019 (not yet in
force), Article 15(1).
91
Schreuer C (2011) Interaction of international tribunals and domestic courts in investment law. In
Rovine AW (ed) Contemporary issues in international arbitration and mediation: the Fordham
papers. Boston, pp 72–73 (“it is well-established that where consent has been given to investor-State
arbitration, there is generally no need to exhaust local remedies”); See also Sabahi, supra n 3. See
also Schreuer (2009), supra n 27 (noting that art. 26 of the ICSID Convention reverses the situation
under traditional customary international law requiring the exhaustion of local remedies unless
otherwise stated). See also Helnan International Hotels A/S v. Arab Republic of Egypt, Decision on
Annulment (14 June 2010) paras 9, 28–57; CME supra n 69, para 412; Yaung Chi Oo Trading
v. Myanmar (ASEAN), Award (31 March 2003) para 40; Mytilineos Holdings v. Serbia and
Montenegro (UNCITRAL), Partial Award on Jurisdiction (8 September 2006) paras 220–221;
EDF International S.A., SAUR International S.A. and León Participaciones Argentinas
S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Award (11 June 2012) para 1127.
92
A requirement to exhaust local remedies may be an element of a claim for denial of justice under
the fair and equitable treatment (“FET”) standard that is discussed in ▶ Chap. 102, “Mapping the
Investor State Dispute Settlement (ISDS) Regime of Bangladesh” of this Handbook.
93
See, e.g., Mondev International Ltd. v. United States of America, ICSID Case No. ARB (AF)/99/
2, Award (11 October 2002). Bekker PHF (2005) The use of non-domestic courts for obtaining
domestic relief. ILSA 338.
some tribunals have dispensed with this where it can be shown that doing so would
be futile or ineffective.94
Older cases have held that, where claims are brought in domestic courts pursuant
to such a requirement, a claimant must include the alleged breaches of international
law in addition to its domestic law complaints.95 In the Finnish Ships Arbitration, the
sole arbitrator reasoned that the raison d’être of the local remedies rule is to provide
the host State every opportunity to investigate the claimant’s complains.96 In its
commentary to the Draft Articles on Diplomatic Protection, the International Law
Commission (“ILC”) considered the Finnish Ships Arbitration decision to represent
astringent approach.97 The more recent approach under customary international
law,98 which appears to be accepted by other tribunals,99 is that it is sufficient that
the essence of the claim has been brought before the competent domestic
tribunals.100
It is unsettled if a failure to exhaust or pursue local remedies would deprive a
tribunal of jurisdiction or results in the claim being inadmissible. Some tribunals
have regarded the requirement as a qualification on the State’s consent to arbitrate,
thereby depriving a tribunal of jurisdiction.101 Others have characterized the
94
Sabahi, supra n 3. See, e.g., Ambiente Ufficio S.P.A. v. The Argentine Republic, ICSID Case No
ARB/08/9, Decision on Jurisdiction and Admissibility (8 February 2013) paras 597–611; Giovanni
Alemanni and Others v. The Argentine Republic, ICSID Case No. ARB/07/8, Decision on Juris-
diction and Admissibility, 17 November 2014, paras 316, 317. In contrast, see İçkale İnşaat Limited
Şirketi v. Turkmenistan, ICSID Case No. ARB/10/24, Award (8 March 2016) para 260, and see
Partially Dissenting Opinion of Carolyn B. Lamm, dated 8 March 2016.
95
Sabahi, supra n 3, paras 2.39–2.42.
96
Finish Ships Arbitration (Finland v. U.K.) 3 UNRIAA 1479 (1934). The Arbitrator concluded
that, indeed, the claimant had exhausted local remedies offered by English law, even if they did not
appeal the decision of the Arbitration Board before the Court of Appeal and House of Lords, since
the appeals would not have changed the decision “of fact” reached by the Arbitration Board. The
same approach was taken in the Case of Certain Norwegian Loans (France v. Norway) (1957) ICJ
Reports, Judgement 9, paras 41–2 (separate opinion of Lauterpacht, J.).
97
ILC, Draft Articles on Diplomatic Protection with commentaries (2006), Article 14 commentary
No 6.
98
Id., p. 45.
99
Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy) (1989) ICJ Reports,
Judgment 15.
100
Id., p. 46, para 59.
101
Siemens A.G. v. Argentine Republic, ICSID Case No ARB/02/8, Decision on Jurisdiction
(3 August 2004) para 104; Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No
ARB/04/14, Award (8 December 2008) paras 124, 127; Impregilo S.p.A. v. Argentine Republic,
ICSID Case No ARB/07/17, Award (21 June 2011) paras 90, 94; Daimler Financial Services AG
v. Argentine Republic, ICSID Case No ARB/05/1, Award (22 August 2012) para 193; ICS
Inspection and Control Services Limited (United Kingdom) v. The Republic of Argentina, PCA
Case No 2010-09, Award on Jurisdiction (10 February 2012) paras 262, 326–327.
requirement as purely procedural, with the result that a defect goes to admissibility
and may be curable.102
Local Litigation Requirements

Similar to the requirement to exhaust local remedies, investment treaties may contain
a requirement for a claimant to pursue its claim in the host State’s domestic courts for
a specific duration before it is entitled to initiate arbitration. “Local litigation
clauses,” as they are sometimes called, are common in Argentina’s BITs.103 Com-
mentators have explained that the 18-month local litigation requirement was seen as
a middle ground between requiring claimants to exhaust local remedies and allowing
them direct recourse to arbitration.104 Tribunals have noted that unlike the traditional
exhaustion of local remedies rule, local litigation requirements do not require a final
decision by the State’s highest court.105
As with the exhaustion of local remedies, it is unclear whether a failure to comply
deprives a tribunal of jurisdiction106 or goes to its admissibility, with the result that
any non-compliance may be curable.107 For instance, in BG Group v. Argentina, the
US Supreme Court ruled that the 18-month litigation requirement was a purely
procedural “claims-processing rule that governs when the arbitration may begin,
102
and Admissibility (4 August 2011) para 247; HOCHTIEF Aktiengesellschaft v. Argentine Republic,
ICSID Case No ARB/07/31, Decision on Jurisdiction (24 October 2011) paras 96, 584–591; Teinver
S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic,
ICSID Case No ARB/09/1, Decision on Jurisdiction (21 December 2012) paras 135–136.
103
Söderlund and Burova supra n 52. See, e.g., Article X(2) of the Agreement between the Republic
of Argentina and the Kingdom of Spain for the Promotion and Protection of Investments, signed
23 August 1995, entered into force 11 January 1997; See also Article X(2) of the Agreement
between the Government of Canada and the Government of the Republic of Argentina for the
Promotion and Protection of Investments, signed 5 November 1991, entered into force
24 April 1993.
104
See, e.g., Aznar P (2016) Local litigation requirements in investment agreements: their charac-
teristics and potential in times of reform in Latin America. J World Invest Trade 17:536–561;
Fernandez de Gurmendi S (1993) Los convenios bilaterales de promoción y protección de
inversiones. In: Gutiérrez Posse H (ed) Los convenios para la promoción y protección recíproca
de inversiones. Universidad de Buenos Aires, p 32.
105
See, e.g., Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7,
Decision on Jurisdiction (25 January 2000), para 28; Siemens A.G. v. The Argentine Republic,
ICSID Case No. ARB/02/Decision on Jurisdiction (3 August 2004), para 104; Gas Natural v. The
Argentine Republic, ICSID Case No ARB/03/10, Decision on Jurisdiction (17 June 2005), para 230.
106
Kılıç İnşaat İthalat İhracat Sanayive Ticaret Anonim Şirketi v. Turkmenistan, ICSID Case No
ARB/10/1, Decision on Treaty Authenticity and Interpretation (7 May 2012) paras 6.3.14, 6.3.15;
Daimler Financial Services AG v. Argentine Republic, ICSID Case No ARB/05/1, Award
(22 August 2012) paras 193–194.
107
BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award (24 December 2007);
İçkale İnşaat Limited Şirketi v. Turkmenistan, ICSID Case No ARB/10/24, Award (8 March 2016)
para 261; Supervision y Control S.A. v. Republic of Costa Rica, ICSID Case No ARB/12/4, Final
Award (18 January 2017) para 299; HOCHTIEF Aktiengesellschaft v. Argentine Republic, ICSID
Case No ARB/07/31, Decision on Jurisdiction (24 October 2011) para 90.
but not whether it may occur” and one relating to admissibility.108 Tribunals have
taken both positions while others have avoided taking a stance, dismissing the issue
as moot.109
Fork-in-the-Road Clauses
A fork-in-the-road (“FITR”) clause derives its name from the Latin maxim una via
electa non datur recursus ad alteram, which means once a road is chosen there can
be no recourse to the other.110 In essence, FITR clauses require an investor to elect to
either litigate its claims against the host State in its courts or pursue its claim in
international arbitration, not both. Article 8(2) of the Argentina–Sweden BIT (1991)
provides an example of a typical FITR provision:111
[The dispute] may be submitted upon request of the investor either to the national jurisdic-
tion of the Contracting Party in whose territory the investment was made, or international
arbitration according to the provisions of Paragraph (3) of this Article. Once an investor has
submitted a dispute to the aforementioned national jurisdiction or to international arbitra-
tion, the choice of one or other of these procedures shall be final. (Emphasis added)
FITR clauses have been considered a useful coordination mechanism to prevent

multiple proceedings from the outset.112
108
BG Group plc v. Republic of Argentina 572 US (2014) 9, para 17. See however Rosenfeld F
(2016) Arbitral praeliminaria – reflections on the distinction between admissibility and jurisdiction
after BG v. Argentina. Leiden J Int Law 29:137.
109
Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and
AbalHermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No ARB/10/7,
Decision on Jurisdiction (2 July 2013) para 142; TSA Spectrum de Argentina, S.A. v. Argentine
Republic, ICSID Case No ARB/05/5, Award (19 December 2008) paras 112, 113.
110
Schreuer C (2004) Travelling the BIT route – of waiting periods, umbrella clauses and forks-in-
the-road. J World Invest Trade 5(2):240.
111
Agreement between the Government of the Kingdom of Sweden and the Government of the
Republic of Argentina on the Promotion and Reciprocal Protection of Investments, signed
22 November 1991. See also Energy Charter Treaty, Article 26(3); Bilateral Agreement for the
Promotion and Protection of Investments between the Government of the United Kingdom of Great
Britain and Northern Ireland and Republic of Colombia, signed 17 March 2010, Article IX(9);
Agreement between the Swiss Confederation and the Arab Republic of Egypt on the Promotion and
Reciprocal Protection of Investments, dated 7 June 2010, Art. 12(6); Agreement among the
Government of Japan, the Government of the Republic of Korea and the Government of the
People’s Republic of China for the Promotion, Facilitation and Protection of Investment, signed
13 May 2005, Art. 15(5).
112
Wehland, supra n 84, para 3.01.
Some tribunals have held that FITR clauses are not triggered where a claimant has
commenced proceedings in domestic courts to preserve the status quo.113 In Genin
v. Estonia, the tribunal found that the claimant’s suit before the Estonian adminis-
trative courts to challenge the revocation of its subsidiary’s banking license was
necessary to “deal with the restoration of the status quo”114 and did not trigger the
applicable FITR clause. Further, where there is an FITR clause, tribunals have
generally not required the claimant to exhaust local remedies, as that may be seen
as a means to forfeit its right to international arbitration.115
FITR clauses are not a universal feature of investment treaties.116 According to
the UNCTAD’s online database of the investment treaties entered into force in the
last 10 years, only about 20% of 187 investment treaties contain FITR clauses of the
type described above.117
FITR Clauses: Triple Identity Test

In evaluating whether a domestic litigation and an international arbitration are in
essence the “same dispute,” thus triggering an FITR clause, some tribunals have
applied a triple identity test,118 requiring that the two sets of proceedings involve the
113
Investors may, at times, need to resort to the domestic courts of the host State in order to preserve
the status quo or to challenge governmental measures to avoid acquiescence under local law. It has
been contended that this, however, should not be taken as them having foreclosed their right to
international arbitration. See, Wehland, supra n 84 para 3.141; see Yannaca-Small K (2008) Parallel
proceedings. In: Muchlinski P et al (eds) The Oxford handbook of international investment law.
Oxford University Press, p 1027. See, also, Sabahi R et al (2019) Investor-state arbitration, 1st edn.
Oxford University Press, p 371 (citingCMS Gas Transmission Co. v. Republic of Argentina, ICSID
Case No. ARB/01/8, Decision on Jurisdiction of July 17, 2003), para78; see, also, Alex Genin
v. Republic of Estonia, ICSID Case No. ARB/99/2, Award of June 25, 2001, 17 ICSID Rev.-F.I.L.J.
395 (2002), paras 332–333.
114
Alex Genin and others v. Republic of Estonia, ICSID Case No ARB/99/2, Award (25 June 2001)
para 332.
115
Quiborax S.A. and Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No
ARB/06/2, Award (16 September 2015) paras 157–158; Mytilineos Holdings SA v. The State Union
of Serbia & Montenegro and Republic of Serbia, UNCITRAL, Partial Award on Jurisdiction
(8 September 2006) paras 220–221.
116
117
UNCTAD. Investment Policy Hub. Available at https://investmentpolicy.unctad.org/interna
tional-investment-agreements. This percentage is based on a review of all investment treaties in
force in the English or Spanish language.
118
Azurix Corp. v. Argentine Republic, ICSID Case No ARB/01/12, Decision on Jurisdiction
(8 December 2003) paras 88–90; Alex Genin and others v. Republic of Estonia, ICSID Case No
ARB/99/2, Award (25 June 2001); CMS Gas Transmission Company v. Argentine Republic, ICSID
Case No ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction (17 July 2003) paras 77–
80; Toto Costruzioni Generali S.p.A. v. Lebanese Republic, ICSID Case No ARB/07/12, Decision
on Jurisdiction (11 September 2009) para 211; Pan American Energy LLC and BP Argentina
Exploration Company v. Argentine Republic, ICSID Case No ARB/03/13, Decision on Preliminary
Objections (27 July 2006) para 157; Yukos Universal Limited (Isle of Man) v. The Russian
Federation, UNCITRAL, PCA Case No. 2005-04/AA227, Award on Jurisdiction (30 November
same parties, the same cause of action, and the same object.119 Some tribunals have
considered this test to be stringent.120
As regards the first element of “parties,” tribunals have held that the claimant(s)
and respondent(s) to both proceedings need to be identical.121 The position on
whether companies in a claimant’s corporate chain can be deemed as the same
party is not settled. Some tribunals have held that the umbrella requirement of the
“same dispute” cannot be interpreted as envisaging non-identical parties,122 while in
other cases it has been suggested that corporate entities within the same group or
under common control should qualify.123
The second element of “cause of action” has given rise to the most debate. In this
regard, some tribunals have held that an FITR clause will only be triggered if the
proceedings have the same legal basis.124 In Genin v. Estonia, treaty claims were
2009) para 598; and see Charanne and Construction Investments v. Spain, SCC Case No. V
062/2012, Award (21 June 2006) paras 90–93.
119
Toto Costruzioni Generali S.p.A. v. Lebanese Republic, ICSID Case No ARB/07/12, Decision on
Jurisdiction (11 September 2009), para 211. See generally Schreuer C (2004) supra n 110, pp. 231–
256.
120
Supervision y Control S.A. v. Republic of Costa Rica, ICSID Case No ARB/12/4, Final Award
(18 January 2017) para 330; McLachlan C et al (eds) (2017) International investment arbitration:
substantive principles, 2nd edn. Oxford University Press, paras 4.106–4.107; Turner P (2006) The
fork in the road revisited. In: Ortino F et al (eds) Investment law – current issues, vol 1. British
Institute of International and Comparative Law, pp 177–182; Wang G (2015) International invest-
ment law: a Chinese perspective. Routledge, pp 248–251; Yannaca-Small K (2008) supra n
113, p. 1027; Sabahi, supra n 3, paras 14.05–14.24.
121
See, e.g., Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa
Assets, L.P. v. Argentine Republic, ICSID Case No ARB/01/3, Decision on Jurisdiction (14 January
2004) paras 96; 97; Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award
(3 September 2001) paras 161–166; CMS Gas Transmission Company v. Argentine Republic,
ICSID Case No ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction (17 July 2003)
paras 89; 90; Azurix Corp. v. Argentine Republic, ICSID Case No ARB/01/12, Decision on
Jurisdiction (8 December 2003); Schreuer C (2004) supra n 110, p. 248.
122
Wehland, supra n 84, para 3.135. See also CMS Gas Transmission Company v. Argentine
Republic, ICSID Case No ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction
(17 July 2003) paras 78–82.
123
Alex Genin and others v. Republic of Estonia, ICSID Case NoARB/99/2, Award (25 June 2001)
para 322 (Estonia’s legal expert, Prof. Andreas F. Lowenfield pointed out that Claimants,
Eurocapital Group, and EIB “(. . .) are affiliated with one another, and that they are or were all
controlled or managed by Mr. Alex Genin and/or his associate Mr. Michael Dashkovsky.” It then
contended that “If I am correct that all of the corporate entities are affiliated with one another and are
or have been under common control, it follows, in my view, that any resort to local administrative or
judicial remedies by any member of the group is attributable to all members of the group and to the
group itself. It would be wholly inconsistent with the principle [of “election of remedies”] and in
particular with the objective of avoiding inconsistent decisions, for one member of the group to try a
domestic court, for another member of the group to try an administrative proceeding, and for still
another member of the group (or its controlling shareholders) to submit the dispute to arbitration
pursuant to the BIT and the ICSID Convention.”. See Wehland, supra n 84, para 3.133.
124
See CMS Gas Transmission Company v. Argentine Republic, ICSID Case No ARB/01/8,
Decision of the Tribunal on Objections to Jurisdiction (17 July 2003) para 80; Compañía de
brought by the principal shareholders of a financial institution, EIB, against Estonia

in relation to the purchase of a branch of a local bank and the revocation of EIB’s
license by the local authorities.125 Two domestic suits were brought: EIB sued the
local bank for losses arising from the sale transaction and challenged the Govern-
ment’s decision to revoke its license before the administrative courts. The tribunal
rejected Estonia’s jurisdictional objections on the basis of the FITR clause,126
reasoning that the local proceedings were different from the investment dispute
submitted to ICSID arbitration which related solely to losses caused by breaches
of the BIT.127
In Middle East Cement v. Egypt, the investor brought a claim under the Egypt–
Greece BIT (1995) in relation to the seizure and sale of its ship M/V Poseidon 8 by
the Egyptian authorities. Prior to launching its investment claim, the claimant had
applied to the Egyptian courts to invalidate the auction of the vessel. The tribunal
rejected Egypt’s FITR clause arguments, taking the view that “[t]he case brought by
the Claimant before the Egyptian Courts regarding the alleged nullity of the auction,
was not and could not be ‘concerning’ Egypt’s obligations under the BIT, but could
only be concerning the validity of the auction under national Egyptian law.”128
Likewise, the tribunal in CMS Gas v. Argentina reasoned ex hypothesi that even if
the claimant had brought contract claims in local courts, it would not have triggered
the FITR clause in the USA–Argentina BIT (1991) since “the causes of action under
separate instruments are different.”129 The Tribunal considered that contractual
claims and treaty claims were different, and a contractual claim in the local courts
could not impede the claimant’s right to international arbitration.130
The tribunal in Toto Construzione v. Argentina was consistent, holding that the
fact that the contractual claims in respect of delays and late payments submitted by
the claimant before the Lebanese courts were distinct from the claimant’s BIT
claims.131
Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No
ARB/97/3, Award (21 November 2000) paras 53–55; Middle East Cement Shipping and Handling
Co. S.A. v. Arab Republic of Egypt, ICSID Case No ARB/99/6, Award (12 April 2002) para 71; Pan
American Energy LLC and BP Argentina Exploration Company v. Argentine Republic, ICSID Case
No ARB/03/13, Decision on Preliminary Objections (27 July 2006) para 157.
125
Alex Genin and others v. Republic of Estonia, ICSID Case No ARB/99/2, Award (25 June 2001).
126
Id., paras 330–334.
127
Id.
128
Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No
ARB/99/6, Award (12 April 2002) paras 70, 71.
129
CMS Gas Transmission Company v. Argentine Republic, ICSID Case No ARB/01/8, Decision of
the Tribunal on Objections to Jurisdiction (17 July 2003) paras 80; 81.
130
Id..
131
Toto Costruzioni Generali S.p.A. v. Lebanese Republic, ICSID Case No ARB/07/12, Decision on
Jurisdiction (11 September 2009) paras 211–212.
The final element of the “same object” is less controversial.132 Unlike the element
of “cause of action” – which pertains to the factual and legal basis of the claim – this
element pertains to the relief requested.133 In Olguin v. Paraguay, the tribunal
rejected Paraguay’s fork-in-the-road argument on grounds that the relief requested
in the local insolvency proceedings involved different relief from that sought in the
claimant’s treaty claim.134
FITR Clauses: Fundamental Basis Test

One early decision that departed from the triple identity test was Vivendi where the
Annulment Committee focused instead on the nature of the claim.135 Although not
critical to its findings, it reasoned hypothetically that a contractual claim in the
Tucumán courts would have triggered the FIR clause under the 1991 France–
Argentina BIT as “it [was] sufficient that the dispute relate[d] to an investment
made under the BIT.”136
This departure was followed in a subsequent line of cases where tribunals have
instead asked if the claims are fundamentally the same.137 In Pantechniki v. Albania,
the sole arbitrator asked whether the claims brought shared the same “fundamental
basis.”138 There, the claimant entered into two contracts with Albania’s General
Road Directorate to perform construction work on bridges and roads in Albania. Due
to violent riots Pantechniki had to abandon its works; its equipment were also looted
and destroyed. In the event, the Ministry of Finance refused to pay an award of
compensation of US$1.8 million rendered by the General Road Directorate, leading
to Pantechniki suing in the local courts.
The sole arbitrator found that while in principle, “[t]he same facts can give rise to
different legal claims,”139 he found that the claimant’s contract claims and certain of
132
Wehland supra n 84, para 3.127.
133
See Petsche MA (2018) The fork in the road revisited: an attempt to overcome the clash between
formalistic and pragmatic approaches. Wash Univ Glob Stud Law Rev 18:391, 407.
134
Eudoro A. Olguín v. Republic of Paraguay, ICSID Case No ARB/98/5, Decision on Jurisdiction
(8 August 2000) para 30.
135
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID
Case No ARB/97/3, Decision on Annulment (3 July 2002) para 55.
136
Id.
137
Pantechniki S.A. Contractors & Engineers v. Republic of Albania, ICSID Case No ARB/07/21,
Award (30 July 2009); H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case
No ARB/09/15, Award (6 May 2014) paras 370–387; Yuri Bogdanov and Yulia Bogdanov
v. Republic of Moldova, SCC Case No V091/2012, Final Award (16 April 2013) paras 172–174.
138
Pantechniki S.A. Contractors & Engineers v. Republic of Albania, ICSID Case No ARB/07/21,
Award (30 July 2009) para 61.
139
Id., para 62.
the treaty claims had “the same normative source,”140 which ultimately related to the
government’s refusal to pay the compensation amount under the General Road
Directorate’s award.141 He concluded that the treaty claim submitted to ICSID
arbitration did not have an autonomous existence outside the contract, and that
“the Claimant’s grievance thus [arose out] of the same purported entitlement that it
invoked in the contractual debate.”142
Likewise, in H&H v. Egypt, the tribunal endorsed the fundamental basis test
established in Pantechniki.143 In this case, a dispute arose out of a contract between
the claimant and Grand Hotels of Egypt (GHE), a State-owned company.144 Dis-
agreements relating to GHE’s alleged interference with the management of a hotel
led to local litigation. Following its eviction from the hotel, the claimants com-
menced ICSID proceedings.145 The ICSID tribunal held that both sets of claims, in
essence, centered on GHE’s interference in the management and operation of the
hotel, and shared the same fundamental basis.146
The fundamental basis test was recently applied in the 2017 decision in Supervision y
Control v. Costa Rica.147 There, the claimant brought a claim arising out of a concession
contract with the Costa Rican Ministry of Public Works and Transport to provide
exclusive vehicle technical inspection services in Costa Rica.148 The claimant alleged
that Costa Rica breached the contract by unilaterally modifying the fee adjustment
mechanism, and submitted its claims to local administrative courts before initiating
arbitration proceedings.149 As with Pantechniki, the tribunal applied the fundamental
basis test, holding that both claims ultimately sought compensation of lost of profits
derived from the failure of Costa Rica to adhere to the agreed fee adjustment mecha-
140
Id., para 67.
141
Id.
142
Id.
143
H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case No ARB/09/15,
Award (6 May 2014) paras 368–370. See also, Chevron Corporation and Texaco Petroleum
Corporation v. The Republic of Ecuador, UNCITRAL, PCA Case No 2009-23, Third Interim
Award on Jurisdiction and Admissibility (27 February 2012).
144
Id., para 371.
145
Excerpts of the Award of May 6, 2014 made pursuant to Rule 48(4) of the ICSID Arbitration Rules
of 2006. Available at http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C720/
DC9652_En.pdf.
146
Award (6 May 2014) paras 378–382.
147
Supervision y Control S.A. v. Republic of Costa Rica, ICSID Case No ARB/12/4, Final Award
(18 January 2017) para 308.
148
Id., para 66.
149
Id., para 118.
nisms under the contract.150 The tribunal added that the claims “share[d] a fundamental
normative source and pursue ultimately the same purposes.”151
Waiver Clauses
Like FITR clauses, waiver provisions help to coordinate among arbitral and court
proceedings. Article 1121(2) (b) of the NAFTA is an example of an oft-cited waiver
clause.152 As a condition to arbitrate, Article 1121(2) (b) requires that investors:
waive their right to initiate or continue before any administrative tribunal or court under the
law of any Party, or other dispute settlement procedures, any proceedings with respect to the
measure of the disputing Party that is alleged to be a breach.153
As a coordination mechanism, waiver clauses avoid double redress for the same
measure154 and “prevent a party from pursuing concurrent domestic and interna-
tional remedies, which could [. . .] give rise to conflicting outcomes (and thus legal
uncertainty).”155 Other investment treaties with waiver provisions include the 2004
150
Id., paras 313–315.
151
Id., para 315.
152
Desierto D (2016) Host state controls over the offer to Arbitrate: waivers against parallel actions
in investor-state arbitration. Kluwer Arbitration, paras 1–2 (“Waivers were in use as early as 1992
through NAFTA Chapter 11, Article 1121(2)(b)”). See also Sabahi, supra n 3, para 14.08 (“One of
the most important waiver clauses in investment treaties is NAFTA Article 1121”). Yannaca-Small,
supra n 113, p. 1028 (“NAFTA has introduced a straightforward solution to the issue of competing
domestic and international proceedings: it does not include a ‘fork-in-the-road’ provision, but a
waiver.”). See also McLachlan C et al (2017) supra n 120, para 4.111 (“The main example in
practice of the adoption of such a method [waiver] is art 1121 of NAFTA”).
153
See North American Free Trade Agreement, signed 17 December 1992, entered into force
1 January 1994, Article 1121(2)(b). The provision required that the investor submit, often together
with the Notice of Institution to ICSID, an express waiver echoing the language of NAFTA’s Article
1121(2)(b). The relevant part of the new US-Mexico-Canada Agreement (which replaced the
NAFTA) is similar.
154
See Puig S, Kinnear M (2010) NAFTA Chapter Eleven at fifteen: contributions to a systemic
approach in investment arbitration. ICSID Rev 25(2):257.
155
International Thuderbird Gaming Corporation v. The United Mexican States, UNCITRAL,
Arbitral Award (26 January 2006) para 118. See Renco Group, Inc. v. Republic of Peru, ICSID
Case No UNCT/13/1, Second Non-Disputing State Party Submission of the United States of
America, dated 1 September 2015, para 5 (“The purpose of the waiver provision is to avoid the
need for a respondent to litigate concurrent and overlapping proceedings in multiple forums with
respect to the same measure and to minimize not only the risk of double recovery, but also the risk of
“conflicting outcomes.”); see Gramercy Funds Management LLC and Gramercy Peru Holdings
LLC v. Republic of Peru, ICSID Case No. UNCT/18/2, United States of America Written Submis-
sion pursuant to Article 10.20.2 of the TPA, dated 21 Jun 2019, para 15 (“[T]his [] is consistent with
the purpose of this waiver provision: to avoid the need for a respondent State to litigate concurrent
and overlapping proceedings in multiple forums, and to minimize not only the risk of double
recovery”); see, also, Lion Mexico Consolidated L.P. v. United Mexican States, ICSID Case
CAFTA-DR Free Trade Agreement156 and the 2019 Australia–Hong Kong BIT,
among others.157
There are a number of noteworthy differences between FITR and waiver clauses.
First, unlike a FITR clause, a waiver clause does not preclude international arbitration
where an investor has first elected to litigate domestically. It only requires that the
investor confirm that it will not initiate or continue domestic litigation before submit-
ting a dispute to international arbitration.158 Second, while FITR clauses generally
refer to the submission of a similar “dispute,” waiver provisions generally refer to the
“measure” of the host State, thus focusing on the conduct of the State giving rise to the
dispute, than the dispute itself.159 Finally, waiver provisions tend to capture a broader
group of possible claimants. Whereas FITR clauses typically apply only to the “same
parties,” NAFTA-style waiver clauses require the relevant waiver to be provided by
the investor as well as any enterprise that is owned or controlled by it.160
Tribunals have not taken a consistent approach toward waiver clauses.161 In
Renco Group v. Peru, the tribunal found that a defective waiver deprives a tribunal
from having jurisdiction.162 There the claimant’s written waiver stated that “to the
extent that the Tribunal may decline to hear any claims asserted herein on jurisdic-
tional or admissibility grounds, Claimant reserves the right to bring such claims in
another forum for resolution on merits.”163 The tribunal considered that the claim-
ant’s qualification meant its written waiver was not treaty-compliant, and as the
No. ARB(AF)/15/2, Submission of the United States of America, dated 21 June 2019, para 25 (“The
purpose of the waiver provision is to avoid the need for a respondent Party to litigate concurrent and
overlapping proceedings in multiple forums and to minimize not only the risk of double recovery,
but also the risk of conflicting outcomes and thus legal uncertainty”); International Thuderbird
Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral Award (26 January 2006)
para 118.
156
Dominican Republic-Central America Free Trade Agreement, signed 5 August 2004, entered
into force 1 January 2009, Article 10.18(2)(b).
157
Australia-Hong Kong Investment Agreement, signed 26 March 2019, entered into force
17 January 2020, Article 27(2)(b). See also United States Model BIT (2012), Article 26(b). See
Free Trade Agreement between the Government of the United States and the Government of the
Republic of Chile, signed on 6 June 2003, entered into force on 1 January 2004, Article 10.17(2)(b).
See USA – Morocco, Free Trade Agreement, Chapter Ten Investment, signed on 15 June 2004,
entered into force on 1 January 2006, Article 10.17(2)(b). See also Investment Protection Agree-
ment between the European Union and its Member States, of the one part and the Republic of
Singapore, of the other part, signed on 19 October 2018, not yet in force, Article 3.7(1)(f).
158
Dodge W (2011) Local remedies under NAFTA Chapter 11. In: Gaillard E, Bachand F (eds)
Fifteen years of NAFTA Chapter 11 arbitration. JurisNet, LLC, p 6.
159
Wehland, supra n 84, paras 3.159–3.163.
160
161
See Desierto D (2016) supra n 152.
162
The Renco Group, Inc. v. Republic of Peru, ICSID Case No UNCT/13/1, Partial Award on
Jurisdiction (15 July 2016). See also European American Investment Bank AG v. Slovakia, PCA
Case No 2010-17, Second Award on Jurisdiction (4 June 2014) paras 261–267.
163
Id., para 58.
tribunal considered a valid waiver to be a precondition to jurisdiction, it ruled that it

did not have jurisdiction.164
In contrast, the tribunal in Waste Management II considered that the validity of a
waiver went to the admissibility of the claim.165 In that case the claimant had brought
a prior investment arbitration case against Mexico.166 That first arbitration was
dismissed because claimant’s written waiver qualified that it did not apply “to any
dispute settlement proceedings involving allegations that [the] Respondent had
violated duties imposed by other sources of law, including the municipal law of
Mexico.”167 The first tribunal considered the waiver to be defective. Subsequently,
the claimant issued a new written waiver and then commenced a second arbitration.
The Waste Management II tribunal declared the claim admissible on the basis that a
new valid waiver was not expressly prohibited by Chapter 11 of the NAFTA.168 The
tribunal in Waste Management II noted that its decision on this issue was not
precluded by the first arbitration as the tribunal in Waste Management I did not
opine on whether a reissued waiver would be valid.169
Consolidation
Consolidation Generally
The process of consolidation refers to the joinder of two or more separate pro-
ceedings that are already pending before different courts or arbitral tribunals.170 It
avoids the duplication of proceedings and ultimately, the possibility of inconsistent
and contradictory decisions.171
Investment treaties and the rules of arbitral institutions may contain provisions for
the consolidation of separate proceedings. For instance, Article 9.28 of the Compre-
hensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”)172
provides:
164
Id., para 138 (“the defective waiver goes to the heart of the Tribunal’s jurisdiction”) and para 189.
165
Waste Management, Inc. v. United Mexican States (“Number 2”), ICSID Case No. ARB(AF)/00/
3, Decision of the Tribunal on Mexico’s Preliminary Objection concerning the Previous Proceed-
ings (26 June 2002) (“Waste Management II”).
166
Waste Management, Inc. v. United Mexican States, ICSID Case No ARB(AF)/98/2, Award of the
Tribunal (2 June 2000) (“Waste Management I”).
167
Id., para 4.
168
Waste Management II, supra n 165, para 27.
169
Waste Management II, supra n 165, paras 22; 23.
170
Kauffmann-Kohler G et al (2006) Consolidation of proceedings in investment arbitration: how
can multiple proceedings arising from the same of related situations be handled efficiently. Final
Report on the Geneva Convention held on 22 April 2006, p 64.
171
Crivellaro A (2005) Consolidation of arbitral and court proceedings in investment disputes. Law
Pract Int Courts Trib 4(3):371–420.
172
Signed 8 March 2018, entered into force 30 December 2018.
If two or more claims have been submitted separately to arbitration [. . .] and the claims have
a question of law or fact in common and arise out of the same events or circumstances, any
disputing party may seek a consolidation order in accordance with the agreement of all the
disputing parties;
. . .A tribunal may then be established for such purposes and . . .[and] in the interest of fair
and efficient resolution of the claims [. . .] assume jurisdiction over, and hear and determine
together all or part of the claims; . . .
Other examples include Article 14.D.12 of the US-Mexico-Canada Agreement

(“USMCA”),173 and Article 28 of the Argentina–Japan BIT (2018).174 Similar
provisions may be found in the rules of arbitral institutions, which may apply to
investment arbitration.175 However, the ICSID Convention, the ICSID Rules, and
the UNCITRAL Arbitration Rules, which are commonly used in investment arbi-
tration, do not contain consolidation-related provisions.176
In the absence of applicable treaty provisions or institutional rules, some parties
have provided ad hoc consent for separate proceedings to be formally consolidated
and adjudicated by the same tribunal.177 In some cases, parties and tribunals have
agreed to quasi-consolidation where, by agreement, proceedings are conducted
separately but before identical tribunals to enable aspects of substance and procedure
to be managed in a coordinated approach.178 In Sanum Investments Limited v. Lao
173
US Department of State (2020) Entry into force of the US-Mexico-Canada Agreement, Press
Statement, 1 July 2020. Available at https://www.state.gov/entry-into-force-of-the-united-states-
mexico-canada-agreement/. The USMCA is the revised version of the NAFTA. Unlike NAFTA’s
Article 1126, which allowed for mandatory consolidation, the new text now states that a consoli-
dation order can only be sought “with the agreement of all the disputing parties sought to be covered
by the order”: see Article 14.D.12 of USMCA.
174
Article 28 of the Argentina-Japan BIT, signed 1 December 2018, not in force.
175
See, e.g., Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce,
arts 14, 15; Rules of Arbitration of the International Chamber of Commerce, Art, 10.
176
Although Article 17.5 of the UNCITRAL Arbitration Rules (2013) allows joinder of third parties
as parties to the pending arbitration proceedings even without party consent provided that the
tribunal is satisfied that such third parties are bound by the arbitration agreement. See Gaillard E
(2019) supra n 63, para 81.
177
See, e.g., BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG
Resources (Guinea) SÀRL v. Republic of Guinea, ICSID Case No ARB/14/22, Procedural Order No
5 (14 February 2016); Churchill Mining Plc and Planet Mining Pty Ltd, formerly ARB/12/40
v. Republic of Indonesia, ICSID Case No ARB/12/40 and 12/14.
178
See, e.g., Wehland, supra n 84, para 4.09; Commission J, Moloo R (eds) (2018) Procedural issues
in international investment arbitration. Oxford University Press, para 9.75; Gaillard E (2019) supra n
63, para 82. Quasi-consolidated investment cases include Salini Costruttori S.p.A. and Italstrade
S.p.A. v. Kingdom of Morocco, ICSID Case No ARB/00/4; Sempra Energy International v. The
Argentine Republic, ICSID Case No ARB/02/16; Camuzzi International S.A. v. The Argentine
Republic, ICSID Case No ARB/03/2. Some commentators have raised due process and confidentiality
concerns over quasi-consolidation as evidence adduced in one set of proceeding may be used and
relied on in the other: See Gaillard E (2019) supra n 63, para 81. See Schreuer C (2009) supra n
27, section 131; Kauffmann-Kohler, supra n 170 (Consolidation), p. 75; Abu Dhabi Gas Liquefaction
People’s Democratic Republic and Lao Holdings N.V. v. Lao People’s Democratic
Republic a hybrid approach was taken.179 Both arbitration proceedings would be
coordinated to run in tandem. To do so, the parties agreed that the party-appointed
arbitrators would be the same in both cases although the chairpersons would be
different.180
As set out in the CPTPP provision above, consolidation of proceedings is generally
apposite where there may be common questions of law or fact in two separate pro-
ceedings. As the tribunal in Canfor Corporation v. United States of America noted, this
may help to avoid conflicting results.181 A consolidation may also lead to increased
efficiency, saving time and costs for all parties.182 There have been few investment
arbitration decisions arising from a contested consolidation application; the majority of
reported decisions record the parties’ consent to consolidate.183
Mass Claims
In addition to a formal consolidation of separate proceedings, tribunals have encoun-
tered mass claims which involve a single investment arbitration claim brought by a
significant number of claimants. This phenomenon first arose in the wake of the
Argentinian financial crisis in 2001.184 Abaclat v. Argentina was the first mass
Co. Ltd v. Eastern Bechtel Corp. 2 Lloyd’s Rep 425, CA (1982); XXI International Legal Materials
1057 (1982); Rev Arb 119 (1983); Yearbook Commercial Arbitration 448 (1984).
179
Sanum Investments Limited v. Lao People’s Democratic Republic, UNCITRAL, PCA Case No.
2013-13; Lao Holdings N.V. v. Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6.
180
The Tribunal in the Sanum arbitration was comprised of Dr. Andres Rodrigo Sureda (Chairper-
son), Professor Bernard Hanotiau and Professor Brigitte Stern, while the tribunal in the Lao
Holdings case included Ian Binnie CC QC (Chairperson) and the same co-arbitrators. Sanum
Investments Limited v. Lao People’s Democratic Republic, UNCITRAL, PCA Case No. 2013-13
(“From and after 23 February 2017 the two cases (ICSID Case No. ARB(AF)/12/6 and PCA Case
No. 2013-13) proceeded in parallel although, as mentioned, not consolidated”).
181
Order of Consolidation Tribunal, 7 September 2005, granting the consolidation of the cases
Canfor Corporation v. United States of America, Tember and ors v. United States of America and
Terminal Forest Products v. United States of America.
182
See Kaufmann-Kohler supra n 170, p. 83.
183
See Wehland supra n 84, para 4.17. See Canfor v. USA, ICSID Case No ARB (AF)/04/1,
NAFTA, Order of the Consolidation Tribunal (20 May 2004) para 79; Pan American Energy
LLC and BP Argentina Exploration Company v. Argentine Republic, ICSID Case No ARB/03/13,
Decision on Preliminary Objections (27 July 2006). See, however, Burlington Resources Inc.
v. Ecuador, ICSID Case No ARB/08/5, Decision on Ecuador’s Counterclaims (7 February 2017);
Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador
(Petroecuador), ICSID Case No ARB/08/6 and Corn Products International, Inc. v. United Mex-
ican States, ICSID Case No ARB(AF)/04/1,NAFTA, Order of the Consolidation Tribunal (20 May
2005) para 12. For commentary on cases concerning the principles of consolidation arising from the
rules of arbitral institutions, see Born G (2014) International commercial arbitration, consolidation,
joinder and intervention in international arbitration, 2nd edn. Kluwer Law International, pp 2564–
2613; Blackaby N et al (2015) Redfern and Hunter on international arbitration, 6th edn. Oxford
University Press; Sutton D et al (2015) Russell on arbitration, 24th edn. Sweet & Maxwell.
184
See Giovanni Alemanni and others v. Argentine Republic, ICSID Case No ARB/07/8, Decision
on Jurisdiction and Admissibility (17 November 2014); Ambiente Ufficio S.P.A. v. The Argentine
investment claim,185 where more than 60,000 bondholders brought proceedings

under the Argentina–Italy BIT in relation to the country’s decision to declare a
moratorium on the service of its outstanding bond debt.186 The tribunal ruled that the
claim was admissible.187 The tribunal noted that the ICSID Convention was silent on
procedures concerning such claims, but held that the procedural discretion granted
by Article 44 of the ICSID Convention and Rule 19 of the ICSID Rules and the
spirit, object, and aim of the ICSID Convention empowered it to make the necessary
procedural adaptations to administer the case.188
In Alemanni v. Argentina, another arbitration against Argentina, the tribunal
analyzed whether a claim brought by 183 bondholders was permissible under Article
25 of the ICSID Convention,189 which states that the jurisdiction of ICSID “shall
extend to any legal dispute arising directly out of an investment, between a
Contracting State [. . .] and a national of another Contracting State.” In the tribunal’s
view, the language of Article 25 suggested that the Convention was meant to apply to
single disputes.190 Notwithstanding that, it considered that a claim involving multi-
ple claimants may be deemed a “single dispute” if the interest of the claimants in
prosecuting their claims and the interest of the respondent in defending the claims
are the same.191 Some commentators have welcomed this view, suggesting that it
helpfully requires claimants to prove the identity of interest between them, and
maintains the equality of parties by preventing the respondent from having to defend
itself from claims that differ considerably from one another.192
Republic, ICSID Case No ARB/08/9, Decision on Jurisdiction and Admissibility (8 February

2013). For the majority in Alemanni and Ambiente, the structure of the ICSID Convention did not
require the investors an additional consent requirement to allow a plurality of claimants, beyond the
requirement of consent in respect of each claim. Nor did the underlying investment treaties in
question require so. See McLachlan C et al (2017) supra n 120, para 4.212. See also Theodoros
Adamakopoulos and others v. Republic of Cyprus, ICSID Case No ARB/15/49 (“a mass claim by
more than 900 Greek bondholders against Cyprus”).
185
and Admissibility (4 August 2011) paras 501, 660; McLachlan et al (2017), supra n 120, para
4.208.
186
See Sabahi, supra n 3, paras 7.131, 7.132.
187
and Admissibility (4 August 2011) para 660. See also Donovan D (2012) Abaclat and others v
Argentine Republic: as a collective claims proceeding. ICSID Rev 27(2):261–267.
188
and Admissibility (4 August 2011) paras 521, 547; Abaclat and Others v. Argentine Republic,
ICSID Case No ARB/07/5, Procedural Order No 12 (7 July 2012).
189
Giovanni Alemanni and others v. Argentine Republic, ICSID Case No ARB/07/8, Decision on
Jurisdiction and Admissibility (17 November 2014) p 6.
190
Id. See also McLachlan C et al (2017) para 4.213.
191
Giovanni Alemanni and others v. Argentine Republic, ICSID Case No ARB/07/8, Decision on
Jurisdiction and Admissibility (17 November 2014) paras 292, 294.
192
See McLachlan C et al (2017) supra 120, para 4.214.
The Application of General Principles
In addition to the above methods, tribunals and courts have employed a number of
general principles to address the issues caused by the multiplicity of proceedings.
The Principle of the Primacy of International Tribunals
In the absence of an express treaty provision or an agreement between the parties on

the coordination of multiple proceedings, some international tribunals have priori-
tized supranational proceedings on the basis that international tribunals are hierar-
chically superior to municipal courts.193 In practical terms, international tribunals
applying the principle have (i) considered that they were not bound by a domestic
court’s decision; (ii) directed domestic courts to stay proceedings; and (iii) directed
domestic courts to adhere to their decision.
Tribunals have explained the basis of the principle in a number of ways. In Amco
v. Indonesia, the tribunal considered that “[i]f a national judgment was binding on an
international tribunal such a procedure could be rendered meaningless.”194 In this
case, a dispute arose between the investor and an Indonesian State-owned entity
leading to the latter suing the former in the Indonesian courts. When the investor
later brought an ICSID arbitration against Indonesia relating to the same matter,
Indonesia objected to the jurisdiction of the tribunal on the basis that the investor had
waived ICSID jurisdiction since it did not object to the jurisdiction of the domestic
courts at any point during the local proceedings.195 The tribunal rejected Indonesia’s
arguments explaining that “an international tribunal is not bound to follow the result
of a national court.”196 The tribunal went on to explain that “one of the reasons for
instituting an international arbitration procedure is precisely that parties—rightly or
wrongly—feel often more confident with a legal institution which is not entirely
related to one of the parties.”197
Likewise, the tribunal in Holiday Inns v. Morocco referred to this principle of
primacy in asserting jurisdiction over the main contract – that contained an ICSID
arbitration clause – as well as two related agreements which contained forum
selection clauses in favor of the Moroccan courts.198 In doing so, the tribunal
expressly recognized that “international proceedings in principle have primacy
193
Crivellaro, supra n 171, pp. 389, 390.
194
Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No ARB/81/1, Award
(20 November 1984), para 177.
195
Crivellaro, supra n 171, p. 391.
196
Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No ARB/81/1, Award
(20 November 1984), para 177.
197
Id.
198
Holiday Inns S.A. and Others v. Morocco, ICSID Case No ARB/72/1. This decision is not public,
but has been reported in detail in Lalive P (1980) The first “World Bank” arbitration (Holiday Inns
v. Morocco) – some legal problems. Br Yearb Int Law 51(1):123.
over purely internal proceedings.”199 Specifically, it explained that the Moroccan

courts should refrain from deciding issues being decided by the tribunal, and follow
relevant decisions of the tribunal. Any other solution, the tribunal explained, “would,
or might, put in issue the responsibility of the Moroccan State and would endanger
the rule that international proceedings prevail over internal proceedings.”200
The tribunals in GAMI v. Mexico201 and Helnan v. Egypt202 referred to Article
32 of the ILC’s Draft Articles on Responsibility of States for Internationally Wrong-
ful Acts as a basis to review a domestic court’s decision based on domestic law,
reasoning that domestic law might itself be contrary to international law.203 This
accords with the longstanding principle of public international law that a State
cannot avoid its international obligations by relying on its local law.204
The tribunal in M.I.N.E. v. Guinea relied on Article 26 of the ICSID Convention
as the legal basis for this principle of primacy.205 Article 26 provides that “consent of
the parties to arbitration under this Convention shall, unless otherwise stated, be
deemed consent to such arbitration to the exclusion of any other remedy.”206 The
tribunal considered that local proceedings in Switzerland and Belgium, connected
with the overall dispute, comprised “other remedies” within the meaning of Article
26 and were thereby precluded. It directed that the claimant “immediately withdraw
and discontinue all pending litigation and that it commence no new action.”207
Other international tribunals have also applied the principle of primacy in
non-ICSID cases. The Franco-Italian Conciliation Commission recognized the prin-
ciple as far back as 1951, in the S.A.I.M.I. Case.208 In that case, the claimant initiated
proceedings before a municipal court and before the international tribunal, which
had been set up under the 1947 Treaty of Peace between France and Italy. Certain
French nationals had sought the invalidation of the transfer of shares in the S.A.I.M.
I. Company to certain Italian nationals, on the ground that the share sale was subject
199
Holiday Inns, supra n 198.
200
Id.
201
Gami Investments Inc. v. Mexico, UNCITRAL (Ad-hoc), Final Award, 15 November 2004.
202
Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No ARB/05/19, Award
(3 July 2010) and Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No
ARB/05/19, Decision of the Tribunal on Objection to Jurisdiction (17 October 2006).
203
Wehland, supra n 84, paras 5.42, 5.75, 5.81.
204
See, e.g., Article 32 of the ILC’s Draft Articles on State Responsibility for Internationally
Wrongful Acts, adopted in 2001; Article 27 of the Vienna Convention on the Law of Treaties,
signed 23 May 1969, entered into force 27 January 1980, 1155 UNTS 331.
205
Maritime International Nominees Establishment (MINE) v. The Republic of Guinea, ICSID Case
No. ARB/84/4, Final Award (6 January 1988) pp. 82–92. See also Delaume G (1984) ICSID
arbitration in practice. Int Tax Bus Lawyer 58:64; See Schreuer C (2009) supra n 27, p. 389.
206
See ICSID Convention, Article 26.
207
Maritime International Nominees Establishment (MINE) v. The Republic of Guinea, ICSID Case
No. ARB/84/4, Final Award (6 January 1988).
208
S.A.I.M.I Case: Franco-Italian Conciliation Commission Decision (13 November 1951), 18 Inter-
national Law Reports (1951), 471 et seq.
to duress. The Franco-Italian Conciliation Commission explained that “as an inter-

national tribunal set up by a treaty [it] has supremacy over municipal courts.” It
therefore directed that municipal court proceeding be discontinued.209
Res Judicata
The principle of res judicata, which has been applied by courts and international
tribunals, holds that decisions in an earlier adjudication are generally conclusive and
cannot be readjudicated.210 It is a general principle recognized in most domestic
legal systems on the basis that “it is in the public interest that there be an end to
litigation” and that “no one should be proceeded against twice for the same
cause.”211 For res judicata to apply, the party invoking the principle must fulfill
the triple identity test212 – there must be an identity of parties, cause of action, and
object – which is the same test applied by some tribunals in relation to FITR clauses.
Res judicata traditionally encompasses both cause of action preclusion and issue
preclusion.213 As a general matter, an arbitral decision has res judicata effects where
it is final and binding.214 The ILA has recommended that “final and binding” awards
includes partial final awards, final awards (including awards on agreed terms), and
awards on jurisdiction, as they contain final determinations.215 In theory, the prin-
ciple of res judicata may be a useful tool to prevent the same claim from being
pursued in multiple fora, as the later claim is at risk of being precluded from an
earlier unfavorable result.216 However, it may have limited practical application. As
between arbitral tribunals, there is no formal system of hierarchy; arbitral tribunals
operate independently. Thus, while a tribunal presiding over a second arbitration
209
Id., at 477 et seq. This decision was expressly followed by the Commission in the Gillemoi-
Jacquemin Claim Case No 127.
210
Reinisch A (2004) The use and limits of res judicata and lis pendens as procedural tools to avoid
conflicting dispute settlement outcomes. Law Pract Int Courts Trib 3:37–77, 43; Cheng B (1987)
General principles of law as applied by international courts and tribunals, reprinted. Cambridge
University Press, p 337; see Hobér (2014), supra n 27, pp. 120, 121; Waste Management II supra n
165, para 39 (“There is no doubt that res judicata is a principle of international law, and even a
general principle of law within the meaning of Article 38 (1) (c) of the Statute of the [ICJ].”);
Elsamex, S.A. v. Republic of Honduras, ICSID Case No ARB/09/4, Award (16 November 2012)
para 212; Petrobart Limited v. The Kyrgyz Republic, SCC Case No 126/2003, Award (29 March
2005) p. 64.
211
Hobér supra n 27, p. 120.
212
Hobér supra n 27, pp. 121, 190, 258, 263.
213
Hobér supra n 27, pp. 154, 155.
214
Hobér supra n 27, p. 264.
215
De Ly F, Sheppard A (2009) ILA Recommendations on Lis Pendens and Res Judicata and
Arbitration. Arbitr Int 25(1):83–86, 85; The US Restatement (Second) Judgments §13 deems as
“final judgments,” with the corresponding preclusive effects, “any prior adjudication of an issue in
another action that is determined to be sufficiently firm to be accorded conclusive effect.”
216
See Reinisch (2004) supra n 210, p. 72; Hobér supra n 27, pp. 121, 122.
may have regard to an earlier decision, but is not strictly required. A preclusive effect
is likely to arise at the enforcement stage before local courts. As between a court and
an investment tribunal, subject to local laws on international arbitration, a court may
respect but not always be bound by the findings of a tribunal. As between an
investment tribunal and a court, tribunals have not generally afforded domestic
court decisions res judicata or binding effects as they have regarded themselves as
operating on a different plane217 or because they regard domestic law claims and
treaty claims as different.218 As an exception, some tribunals have recognized that
local decisions should be respected where local law is part of the governing law.219
Lis Pendens
The principle of lis pendens was developed in the context of domestic litigation to
regulate parallel proceedings.220 As a general principle, lis pendens is applied to
prevent a matter from moving forward while the same dispute is being litigated in a
different forum.221
The principle of lis pendens also involves the application of the triple identity
test.222 In Busta v. Czech Republic, the claimants, shareholders in a Czech entity,
claimed compensation for the alleged expropriation suffered with the material loss of
certain goods.223 The local subsidiary, in parallel, pursued compensation for the
217
Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No ARB/05/19, Award
(3 July 2008) para 124; Industria Nacional de Alimentos, S.A. and Indalsa Perú, S.A. (formerly
Empresas Lucchetti, S.A. and Lucchetti Perú, S.A.) v. Republic of Peru, ICSID Case No ARB/03/4,
Decision on Annulment (5 September 2007) para 87; Adel A Hamadi Al Tamimi v. Sultanate of
Oman, ICSID Case No ARB/11/33, Award, (3 November 2015) para 358; Urbaser S.A. and
Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. Argentine Republic,
ICSID Case No ARB/07/26, Decision on Jurisdiction (19 December 2012) para 191; Emilio Agustín
Maffezini v. The Kingdom of Spain, ICSID Case No ARB/97/7, Decision of the Tribunal on
Objections to Jurisdiction, para 29; Robert Azinian, Kenneth Davitian, & Ellen Baca v. United
Mexican States, ICSID Case No ARB(AF)/97/2, Award (1 November 1999) para 86.
218
Helnan International Hotels id, para 163 (holding that a domestic arbitration award rendering
decision on a contractual claim under Egyptian law had res judicata effect within “the Egyptian
legal order.”); Desert Line Projects LLC v. Republic of Yemen, ICSID Case No ARB/05/17, Award
(6 February 2008) para 136.
219
Helnan International Hotels supra n 232, para 125. See also the dissenting opinion by Professor
Cremades in Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines,
ICSID Case No ARB/03/25, Award (16 August 2007) para 26.
220
See Hobér supra n 27, pp. 126–190 for an overview of lis pendens (as well as res judicata) in
national law.
221
Reinisch (2004) supra n 210, pp. 48–50. C.f. Wehland (2013) supra n 84 para 6.99.
222
Ivan Peter Busta and James Peter Busta v. Czech Republic, SCC Case No. V 2015/014, Final
Award (10 March 2017) paras 210, 211; S.A.R.L. Benvenuti&Bonfant v. People’s Republic of the
Congo, ICSID Case No ARB/77/2, Award, 8 August 1980, para 1.14. See also Hobér, supra n
23, p. 190.
223
Ivan Peter Busta, id., paras 4–6.
damages arising out of the loss of such goods before the Czech Courts.224 The
tribunal held that the requirements of identity of parties and cause of action were not
met, and that any concerns as to double recovery would be addressed on the
merits.225
Courts and tribunals applying the principle have (i) stayed the case before them
pending the outcome of the other proceeding; (ii) sought to enjoin the other
proceeding;226 (iii) recognized the res judicata effects of the decision issued first;
or (iv) taken steps to consolidate or coordinate both sets of proceedings.227
Some commentators have argued that the principle has little role to play between
an arbitral tribunal and a court or another tribunal because the principle presupposes
that as between two forums of equally competence, one should give way to the first
in time.228 In the case of an international arbitration, the competence of a tribunal
depends entirely on the terms of the document conferring jurisdiction, and there is no
equality of competence with another court of tribunal.229
Abuse of Process
Courts and tribunals have applied the doctrine of abuse of process to prevent
claimants from invoking procedural rights where such invocation was “alien to
[the purposes] for which [those] rights were established.”230 An abuse of process
can occur in a variety of contexts in investment arbitration, including improper steps
224
Id., paras 180, 194–196.
225
Id., para 217.
226
E.g., As cited in Crivellaro (see supra n 171), pp. 393–394, the tribunal in the case E-Systems Inc.
v. Iran and Bank Melli, Decision of 4 February 1983, Iran–US Claims Tribunal Reports, vol 2, pp
51 et seq held that: “the award to be rendered [by the Tribunal] . . . will prevail over any decision
inconsistent with it rendered by Iranian or [US] courts.” The tribunal added further that “in order to
ensure the full effectiveness of the Tribunal’s decisions, the Government of Iran should request that
actions in the Iranian Court be stayed until proceedings in [the] Tribunal have been completed.”
227
See De Ly F, Sheppard A (2009) ILA final report on Lis Pendens and arbitration. Arbitr Int
25(1):3–34, para 4.49.
228
Gaillard E (2018) Coordination or chaos: do the principles of comity, lis pendens, and res
judicata apply to international arbitration? Am Rev Int Arbitr 29(3):205–242, 207–212.
229
Gaillard (2018) supra n 228, p. 208. See however Stacher M, Feit M (2018) Parallel proceedings
and lis pendens. In: Arroyo M (ed) Arbitration in Switzerland: the practitioner’s guide, 2nd edn.
Kluwer Law International, pp 2636–2638; see, also, Fomento de Construcciones y Contratas
S.A. v. Colon Container Terminal S.A., 127 III 279, 286.
230
Wehland supra n 84, para 7.29. See also HM Attorney General v. Barker [2000] EWHC, para 19.
Abuse of process (or “procedure”) is considered to be a “special application” of the doctrine of
abuse of rights, as it concerns the abuse of a procedural right by a party: see Kolb R (2019) General
principles of procedural law. In: Zimmermann A et al (eds) The Statute of the International Court of
Justice: a commentary, 3rd edn. Oxford University Press, pp 998–1002.
taken to manufacture treaty access and protection.231 In the context of multiple

proceedings, tribunals have recognized that an abuse of process can occur when a
similar issue is being relitigated in different fora, even where the principles of res
judicata and lis pendens are not triggered.232
Some courts and tribunals have considered that a finding of an abuse of process
tends to be rare.233 This may be exemplified by the CME and Lauder cases, where
the tribunals rejected the notion that the mere bringing of two overlapping suits was
abusive, acknowledging that the exercise of the discrete rights by different claimants
is legitimate.234
Similarly, in Waste Management II, the tribunal considered that the reissuance of
proceedings against Mexico by the same claimant was not an abuse of process.
Although the tribunal admitted that the claimant erred by serving a defective waiver
in its first claim against Mexico, it noted that Claimant’s second claim was “properly
submitted within the framework of the remedies open to it.”235 The tribunal therefore
concluded that there was no “basis for putting an end to these proceedings as an
abuse of process.”236
By contrast, the tribunal in Orascom v. Algeria found that the claimant abused its
procedural rights when it initiated an ICSID arbitration against Algeria after one of
its subsidiaries, Orascom Telecom Holdings (OTA), had previously initiated a PCA
investment arbitration under a different treaty challenging the same measures which
resulted in a settlement.237 The tribunal found that the initiation of multiple pro-
ceedings in such circumstances was an abuse of rights rendering the claim
inadmissible.238
231
See, e.g., Philip Morris Asia Limited (Hong Kong) v. The Commonwealth of Australia, Award on
Jurisdiction and Admissibility (17 December 2015) paras 414, 423, 527, 535–588; Pac Rim
Cayman LLC v. Republic of El Salvador, ICSID Case No ARB/09/12, Decision on the Respondent’s
Jurisdictional Objections (1 June 2012) paras 2.1–2.111; Fukunaga Y (2018) Abuse of process
under international law and investment arbitration. ICSID Rev 33(1):181–211.
232
See, e.g., Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. The Republic of
Ecuador, UNCITRAL, PCA Case No 34877, Interim Award (1 December 2008) para 143 (“the
doctrines of abuse of rights, estoppel and waiver are subject to a high threshold”). As Wehland
notes, “[s]o far the practice of treaty tribunals has failed to deliver a case where the assertion of
related claims in multiple proceedings would have been qualified as abusive”: Wehland supra n
84, para 7.30.
233
See, e.g., Immunities and Criminal Proceedings (Equatorial Guinea v. France) (2018) ICJ
Reports, Preliminary Objections, Judgment 292, para 150. See also Certain Iranian Assets (Islamic
Republic of Iran v. United States of America) (2019) ICJ Reports, Preliminary Objections, Judgment
7, para 114; Jadhav Case (India v. Pakistan), Judgment (17 July 2019), para 49.
234
Lauder supra n 69, para 174; CME supra n 69, para 412.
235
Waste Management IIsupra n 165, para 49.
236
Id., para 50.
237
Orascom TMT Investments S.àr.l. v. People’s Democratic Republic of Algeria, ICSID Case No
ARB/12/35, Award (31 May 2017) paras 544, 545.
238
Id.
The tribunal noted the “inherent unfairness” of having Algeria defend the same
claim in different fora because several entities in the same vertical chain were able to
invoke the protections of different investment treaties.239 It considered that the use of
multiple proceedings did not promote the economic development of the host State
but instead increased the risk of double recovery, inconsistent results, and increasing
time and costs.240
Comity
Finally, domestic courts have had regard to considerations of comity in managing

parallel proceedings.241 Although comity’s contours have been regarded as hard to
define,242 in general terms, comity refers to the mutual respect that adjudicators in
different legal orders afford each other. Comity thus offers a justification for one
adjudicator to defer to another.243
Comity played an important role in SPP v. Egypt, which involved an ICC
arbitration and an ICSID arbitration.244 The jurisdiction of the ICC tribunal was
pending before the French Cour de Cassation at the time the ICSID tribunal had to
rule on its own jurisdiction.245 The ICSID tribunal explained that although it was
competent to rule on its own jurisdiction, it also had the discretion to “stay the
exercise of its jurisdiction” in favor of the other adjudicator to avoid the “practical
problems of international judicial administration.”246 In the event, the tribunal
decided to stay the proceedings “as a matter of comity” and “in the interest of
international judicial order.”247
The tribunal in British Caribbean Bank v. Belize endorsed the principle laid out in
SPP v. Egypt, explaining that it had a “measure of discretion”248 to modulate the
239
Gaillard E (2018) supra n 228, p. 222.
240
Orascom supra n 237, para 543.
241
Airbus Industrie G.I.E. v. Patel and Others [1999] 1 AC 119; Société Nationale Industrielle
Aerospatiale v. Lee Kui Jak [1987] AC 871.
242
Gaillard (2018) supra n 228, p. 207; Paul JR (1991) Comity in international law. Harv Int Law J
32(1):1–79, 15; Slaughter A (2003) A global community of courts. Harv Int Law J 44(1):191–
220, 205.
243
Gaillard (2018) supra n 228, p. 206.
244
Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No
ARB/84/3, Decision on Preliminary Objections to Jurisdiction (27 November 1985).
245
Id., para 81.
246
Id., paras 83, 84.
247
Id., para 84. See also Egyptian Gen. Petroleum Corp. v. E. Mediterranean Gas S.A.E. CRCICA
Case 829/2012, Partial Award on Jurisdiction and Procedural Ruling on Stay Application
(11 November 2013) (unpublished) in Gaillard (2018) supra n 223, pp. 221, 222.
248
British Caribbean Bank supra n 80, para 187.
exercise of its jurisdiction taking into account ongoing court proceedings in Belize
concerning the legality of the State’s alleged expropriation.249 However, the tribunal
refrained from ordering a stay stating that the fulfillment of its duties in no way
depended on a determination by the Belize courts.250
Conclusion
The existence of multiple proceedings presents various challenges for States, foreign
investors, and tribunals. Amongst them, the risk of inconsistent outcomes may pose
challenges at the enforcement stage, while overlapping proceedings tend to increase
the time and cost related to the arbitration processes.
States have included a variety of provisions in their investment treaties to address
the possibility of multiple proceedings, such as requiring a claimant to exhaust local
remedies or to litigate domestically before initiating arbitration proceedings. While
such provisions are not strictly intended to regulate multiple proceedings, they can
have the effect of reducing the risk that such multiple proceedings run in parallel.
States have also used FITR and waiver clauses, which require a potential claimant to
elect between litigation and arbitration, thereby reducing the possibility that multiple
proceedings may be brought in respect of the same underlying situation. Where two
separate but related proceedings are afoot, parties and tribunals have sought to
consolidate proceedings, formally or informally with appropriate adaptations, to
facilitate some amount of coordination.
In the absence of express treaty provisions, tribunals have applied a number of
general principles to regulate multiple proceedings. Some tribunals have applied the
principle of the primacy of international tribunals, prioritizing international adjudica-
tion over domestic adjudication on the basis that international tribunals are hierarchi-
cally superior. Tribunals and courts have also applied the principles of res judicata and
lis pendens to prioritize one set of proceeding over another. In addition, the principle of
abuse of process has been used to address related proceedings brought for a collateral
purpose. Finally, some tribunals have had regard to considerations of comity in
deciding how best to regulate between two or more related proceedings.
While the applicability and appropriateness of the above techniques will depend on
the circumstances of each individual matter, the diversity of methods available can
assist parties and tribunals in tackling the challenges posed by multiple proceedings.
249
Id., paras 177–180.
250
Id., para 189.
Cross-References

Ratione Temporis)
Jurisdictional Objections and Defenses
(Ratione Personae, Ratione Materiae, 39
and Ratione Temporis)
Sungjin Kang
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984
An Investor’s Noncompliance with the Host State Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 985
“Jurisdiction” Versus “Admissibility” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 988
Bifurcated Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990
Discussions on Jurisdiction Rationae Personae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 992
“Nationality” Under International Investment Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 992
Juridical Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 994
Discussions on Rationae Materiae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 997
Existence of a “Dispute” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 998
Legal Nature of the “Dispute” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 999
“Directness” of the Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1000
Existence of an “Investment” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1000
Jurisdiction Rationae Temporis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1010
Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1012
Abstract
The determination of whether a court or an arbitral tribunal has jurisdiction over a
case is a very important stage in the course of such proceedings. Investment
arbitral tribunals have classified the jurisdictional issues as follows: “(1) there
should be jurisdiction over subject-matter of the dispute (jurisdiction rationae
materiae); (2) the claimant must have standing to refer the dispute to the arbitral
tribunal (jurisdiction rationae personae); (3) the parties must establish jurisdiction
under the parties’ consent (Jurisdiction voluntatis); and (4) the dispute must
The views and opinions expressed in this chapter is strictly personal, and nothing in this chapter
reflects any official view of Kim & Chang. All errors are attributed to the author.
S. Kang (*)
Kim & Chang, Seoul, South Korea
e-mail: kangsj1977@gmail.com

https://doi.org/10.1007/978-981-13-3615-7_67
984 S. Kang
satisfy the time limits in the treaty as to standing as well as to the arising of the
cause of action (jurisdiction rationae temporis).”
The issues surrounding the jurisdiction ratione personae and jurisdiction
ratione materiae appear again and again. Article 25 of the ICSID Convention
and the related jurisprudence are usually treated as “leading” rules governing the
jurisdictional objections, and principles like Salini criteria are widely accepted as
principles governing the jurisdictional objections. In addition, principles under
general public international law still governs the issue, and thus tribunals often
apply leading ICJ cases and ILC Draft Articles in many cases. Also, the jurisdic-
tional objections usually take similar form of arguments, citing similar rules. As a
result, the value of precedents is regarded higher by arbitral tribunals. However,
the issues are ultimately handled on a case-by-case basis, as each case is distinct
from one another, dealing with different investment treaties.
Keywords
Jurisdiction · Investment · Arbitration · ICSID · Jurisdiction rationae personae ·
Jurisdiction rationae materiae
Introduction
The determination of whether a court or an arbitral tribunal has jurisdiction over a

case is a very important stage in the course of such proceedings. In this regard, many
international courts and arbitral tribunals have adopted procedural rules to help the
courts/arbitral tribunals to determine the personal and subject matter jurisdiction.
For example, the Statute of the International Court of Justice (ICJ Statute) pro-
vides “only states may be parties in cases before the Court.”1 Then, Article 36(1) of
the ICJ Statute provides “the jurisdiction of the Court comprises all cases which the
parties refer to it and all matters specially provided for in the Charter of the United
Nations or in treaties and conventions in force.” In addition, the States may vest the
ICJ over international law disputes by issuing a declaration to be subject to “com-
pulsory jurisdiction” as well.2 In practice, the ICJ provides for “Preliminary objec-
tion” stage to review “any objection by the respondent to the jurisdiction of the Court
or to the admissibility of the application, or other objection the decision upon which
is requested before any further proceedings on the merits.”3 As a result, almost all
judgments by the ICJ have at least two judgments – judgment on preliminary
objection and the judgment on the merits.
In an arbitration, consent of the parties is the essential basis. On the other hand, unlike
a commercial arbitration, a treaty-based arbitration assumes that the State gave consent
to “present and potential investors who satisfy nationality criteria and whose investment
1
Statute of the International Court of Justice, Article 35(1).
2
Id., Article 36(2)–36(5).
3
Rules of the International Court of Justice, Article 79(1).
39 Jurisdictional Objections and Defenses (Ratione Personae, Ra. . . 985
is protected by the treaty” before an actual dispute arises.4 Just as any international court,
the jurisdiction of an investment dispute tribunals has been subject to queries by the
disputing parties in almost all cases, especially the ICSID arbitration cases.5
In addition, as the number of claims increased, States have been working hard to
create methods to exclude jurisdiction of the arbitral tribunals, and they have been
successful in good number of cases. As a result, recent treaties provide for proce-
dural requirement to reflect the evolution of jurisprudence.
Investment arbitral tribunals have classified the jurisdictional issues as follows:
“(1) there should be jurisdiction over subject-matter of the dispute ( jurisdiction
rationae materiae); (2) the claimant must have standing to refer the dispute to the
arbitral tribunal ( jurisdiction rationae personae); (3) the parties must establish
jurisdiction under the parties’ consent (Jurisdiction voluntatis); and (4) the dispute
must satisfy the time limits in the treaty as to standing as well as to the arising of the
cause of action ( jurisdiction rationae temporis).”6
In this chapter, we will review the issue of jurisdictional objections and defenses
on rationae materiae and rationae personae. In particular, the some of the questions
include:
• What steps should a tribunal take if an investor does not comply with the
requirements of the host State laws on investment?
• The distinction between jurisdiction and admissibility. How to describe the
difference between jurisdiction and admissibility?
• Why States raise so many jurisdictional objections and seek to bifurcate proceedings
• Whether or when bifurcated proceedings are a good idea
• Criteria governing who should have standing to submit an investment claim
• The “continuous nationality” rule
An Investor’s Noncompliance with the Host State Law
In some investment treaties, they require investors and investment to comply with
domestic laws of the host State,7 and the breach of such obligation in the host State
may result in “civil actions for liability in the judicial process” of the Home State of
the investor.8
4
Sornarajah M (2017) The international law on foreign investment, 4th edn. Cambridge University
Press, p 358
5
Id., p. 358.
6
Id., pp. 359–360.
7
E.g., Article 11, SADC Model Bilateral Investment Treaty Template: Investors and Investments
shall comply with all laws, regulations, administrative guidelines and policies of the Host State
concerning the establishment, acquisition, management, operation and disposition of investments.
8
E.g., Article 17(1), SADC Model Bilateral Investment Treaty Template: Investors and Investments
shall be subject to civil actions for liability in the judicial process of their Home State for the acts,
decisions or omissions made in the Home State in relation to the Investment where such acts,
decisions or omissions lead to significant damage, personal injuries or loss of life in the Host State.
986 S. Kang
However, allegations of investor misconduct may arise in any stage of investment

(preestablishment, establishment, operation of the investment, etc.), and treatment of
such issue may be a problem before an investor-State dispute settlement system.
Above all, it is important to identify whether such investor misconduct issue is a
“jurisdictional” issue or a substantive issue.
There are number of cases which discussed whether the investor misconduct issue
is a jurisdictional issue. For example, in Fraport v. Philippines,9 Philippines chal-
lenged the Tribunal’s jurisdiction on the basis that “the protections afforded by the
BIT at issue do not extend to investments made in violation of Philippine law.”10
Philippines further argued that “the duty to comply with the host State’s law is an
ongoing one which must be respected throughout the period in which the investment
is made.”11
The tribunal in this case found that “(i) the BIT explicitly and reiteratedly required
that an investment, in order to qualify for BIT protection, had to be in accordance
with the host State’s law and (ii) local counsel explicitly warned that a particular
structural arrangement would violate a serious provision of Philippine law.”12 The
tribunal also found that the Board of Directors of the complainant, Fraport, knew that
it could not avoid violation of the Philippine law in order to make the investment
operation profitable, which was accomplished in the Article 2.02 of the
FAGPAIRCARGO-PAGS-PTI Shareholders’ Agreement of 6 July 1999.13 In addi-
tion, it was clear that the complainant refused to submit such key documents to the
tribunal in the written proceedings, and therefore Fraport “knowingly and intention-
ally” circumvented the Anti-Dummy Law of the Philippines through secret Share-
holders’ Agreement, which led to the nonexistence of an investment “in accordance
with law” under the relevant BIT.14 As a result, the tribunal found that it had no
jurisdiction ratione materiae.
After the annulment of the abovementioned case, Fraport resubmitted the dispute
to a new tribunal, which was dismissed for lack of jurisdiction.15 In this case, the
Philippines argued that “since the investment was made in violations of the host
State’s law,” the Tribunal lacked jurisdiction rationae materiae, if such violation is
established. The Tribunal agreed with the Philippines and held that an investment
must comply with the host State’s law, and it was appropriate to consider the legality
of the investment. Then the Tribunal concluded that Fraport’s initial investment was
9
Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, Award, ICSID
Case No. ARB/03/25, Award (16 August 2007). (Hereinafter Fraport I)
10
Id., para 285.
11
Id., para 286.
12
Id., para 398.
13
Id., para 398.
14
Id., paras 400–401. On the issue of shareholders legal standing, see Chaisse J (2016) Shareholder
protection reloaded – redesigning the matrix of shareholder claims for reflective loss. Stanford J Int
Law 52(1):51–94
15
ARB/11/12, Award (10 December 2014) (Hereinafter Fraport II)
in violation of the Philippines’ law and therefore it held that the Tribunal lacked
jurisdiction rationae materiae.16
After the two Fraport cases, one may argue that the legality objection is available
“only when the relevant BIT contains an express legality requirement, and the
investor has violated host State law.”17 However, subsequent cases showed that
the reality is not simple.
First, although there is no explicit provision that an investment should be made
“in accordance with” the host State law, there are cases where the Tribunals rejected
the case for lack of jurisdiction.18 In some cases, the tribunals held that the compli-
ance with host State law requirement is “inherent in every BIT.”19 In addition, some
tribunals cited traveaux preparatoires to find the BIT parties’ will to exclude
investment in violation of host State law from the protections under the BIT.20 In
Phoenix Action v. Czech Republic case, the tribunal considered that Article 25 of the
ICSID Convention has such requirement.21
Second, the State must demonstrate that the investment itself is illegal or inten-
tionally wrongful. In order to do so, the State must prove either (a) the investment
itself is illegal under the domestic law of the host State; or (b) the investment is
procured through deceptive or illegal means.22 In case of (a), an ICSID tribunal
declined its jurisdiction over a dispute involving “Ponzi” scheme in Costa Rica,
based on the Canada-Costa Rick BIT defining “investments” as “any kind of asset
owned or controlled . . . by an investor of one Contracting Party in the territory of the
other Contracting Party in accordance with the latter’s laws.”23 The tribunal held that
the entire transaction at issue was illegal in violation of the laws of Costa Rica, and
therefore it lacked jurisdiction under the BIT.24
In addition, regarding the case (b), In Inceysa v. El Salvador, the claimant won a
public bidding concession contract for vehicle inspection services. However, El
Salvador subsequently breached the contracted and expropriated the investment,
16
Id., paras 320–332; 437, 467, 468.
17
Kalicki J, Evseev D, Silberman M (2016) Chapter 9: Legality of investment. In: Kinnear M et al
(eds) Building international investment law: the first 50 years of ICSID. Wolters Kluwer, p 139
18
For example, in World Duty Free v. Kenya, the tribunal refused to move forward to the merits as
the claimant procured bribes to the then-president Kenya, which was “contrary to the international
public policy.” World Duty Free v. Kenya, ICSID Case No. ARB/03/24 (27 August 2008)
19
SAUR International S.A. v. Argentine Republic, ICSID case No. ARB/04/4, Decision on Juris-
diction and Liability (6 June 2012), paras 306–308.
20
Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB 03/26, Award (2
August 2006), paras 194–195.
21
Phoenix Action Ltd. V. Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009), paras
113–114.
22
See footnote 22, p. 135.
23
Canada – Costa Rica BIT, Art. I(g); Alasdair Ross Anderson et al. v. Republic of Costa Rica,
ICSID Case No. ARB (AF)/07/3, Award (19 May 2010), paras 55–57.
24
Alasdair Ross Anderson et al. v. Republic of Costa Rica, ICSID Case No. ARB (AF)/07/3, Award
(19 May 2010), para 57.
988 S. Kang
which constituted an alleged violation of El Salvador – Spain BIT. In the ICSID

proceedings, El Salvador argued that the claimant made a misrepresentation of its
industry experience and financial capabilities, which the tribunal found “fraud” by
the claimant. Then the ICSID tribunal declined to exercise its jurisdiction.25 In
another case, an ICSID tribunal also declined jurisdiction when the claimant investor
was found to commit deliberate concealment of key facts which amounted to
fraud.26 The tribunal found that the claimant investor should have informed the
State “by virtue of good faith” when it has material change in its shareholding which
may affect the State’s approval.27 Also, there is a question of how “material” such
illegal or inappropriate investor conduct should be to decline the tribunal’s jurisdic-
tion. While the tribunals take case-by-case approach, some tribunals also required
“causation” between the fraudulent investor conduct and award of the concession to
the investor.28
On the other hand, some tribunals held that “a government is estopped from
raising violations of its own law as a jurisdictional defense when it knowingly
overlooked them and endorsed an investment which did not comply with its own
law.”29 In other words, a State may be estopped from contesting the validity of an
investment (1) when its government official or entity explicitly ratified the invest-
ment at issue or (2) when it failed to raise the issue in a timely manner.30 A more
recent ICSID case also held that “the relevant law for purposes of determining
whether the investment was legally made is the law of the host State,” and as long
as the investment was made in accordance with the host State law and the host State
did not contest the legality in a timely manner, the host State is estopped from
contesting the same issue.31
“Jurisdiction” Versus “Admissibility”
First, it is necessary to check the definition of the term “jurisdiction” and “admissi-
bility.” If we start with the “ordinary meaning” of the term under international law,
the term usually refers to “powers of the state under international law to regulate or
otherwise impact upon people, property and circumstances and reflects the basic
25
Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB 03/26, Award (2
August 2006), paras 242–244.
26
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (27
August 2008), paras 134–135.
27
Id., paras 134–145.
28
See footnote 25, paras 237, 239.
29
Fraport I, para 346.
30
See footnote 22, p. 139.
31
Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine
Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction (21 December 2012), paras
316–331.
principles of state sovereignty, equality of states and noninterference in domestic

affairs.”32 At the same time, “admissibility” under international law may refer to
“power of a court to decide whether or not to exercise the power to adjudicate a
matter.”33
In case of international investment law, one of the often-cited legal literature on
this issue may be the dissenting opinion by Keith Highet in Waste Management,
Inc. v. United Mexican States. In this case, he argued, “Jurisdiction is the power of
the tribunal to hear the case; admissibility is whether the case itself is defective—
whether it is appropriate for the tribunal to hear it. If there is no title of jurisdiction,
then the tribunal cannot act.”34 Mr. Highet continued that “such would be the case
here if the waiver under Article 1121 had never been given, or were defective.
Moreover, a claim of lack of jurisdiction ought normally be decided without
trenching upon the merits of the case at all; in some instances, however, this will
not be possible.46 Likewise, a tribunal may be able to determine a challenge to the
admissibility of a claim without invading the merits of the case, but it is more
likely that such an examination will have to be postponed and joined to the
merits.”35
He then argued that the Award has dealt with “a matter of admissibility,” rather
than a matter of jurisdiction. As a result, he argued that raising a lawsuit on a small
portion of originally claim amount to a local court in Mexico would not prevent the
rest of the claim amount to be handled by the NAFTA Chapter 11 tribunal.36 As a
result, Mr. Highet argued that the tribunal should not have rejected the claimant’s
arguments, and proceed to render an arbitral award, except for the amount litigated
before a Mexican local court.37
In Alemanni v. Argentina case, some 183 claimants with “debt instruments issued by
the Republic of Argentina” defaulted in 2001 and thereafter filed request for arbitration
against Argentina.38 The ICSID tribunal distinguished “jurisdictional” objections and
“admissibility” objections as follows, based on the Respondent’s objections:
• Jurisdictional objections
– The Claimants have not properly authorized these proceedings, and therefore
have not validly consented to arbitration.
– There is no consent to arbitration on the part of the Respondent.
32
Shaw M (2017) International law, 8th edn. Cambridge University Press, p 483
33
Shany Y et al (2014) The Oxford handbook of international adjudication. Oxford University
Press, p 787
34
Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/98/2, (8 MAY
2000) Dissenting Opinion, para 58.
35
Id., para 58.
36
Id., para 62.
37
Id., para 63.
38
Giovanni Alemanni and Others v. The Argentine Republic, ICSID Case No. ARB/07/8, (Novem-
ber 17, 2014) Decision on Jurisdiction and Admissibility, para 1.
990 S. Kang
– There is no jurisdiction ratione materiae as the Claimants’ assets do not

constitute “investments” under the terms of the BIT, nor were they “made in
the territory of Argentina”.
– The Claimants have not established a prima facie breach of the BIT.
– The Claimants have not duly met the preconditions to arbitration laid down in
the BIT.39
• Admissibility objections
– That investment arbitration is an inherently unsuitable and unacceptable way
of dealing with default on sovereign bonded debt.
– That the multiplicity of Claimants and the variations between them will require
procedural innovations that lie beyond the powers of an ICSID tribunal and
will not be able to protect the due process rights of the Respondent.40
The main point distinguishing the “jurisdiction” objections and “admissibil-

ity” objections was “between those objections that raise the issue whether the
Parties have duly consented to the dispute being brought to ICSID arbitration
(which fall more on the ‘jurisdictional’ side of the line) and those objections that
raise the question whether, even if the Parties have duly consented, there never-
theless exist reasons why the Tribunal should decline to hear the dispute in the
form in which the dispute is brought before it, even though it possesses the formal
competence to do so (which thus fall more on the ‘admissibility’ side of the
line).”41
Bifurcated Proceedings
The term “bifurcation” refers to the separation of jurisdictional issues from the merits
and is defined as “a separate jurisdictional phase to consider the jurisdictional and
admissibility objections raised by the Respondent.”42 Article 41(2) of the ICSID
Convention also recognizes that the tribunal may separate jurisdictional objection
and merits proceedings. The ICSID Arbitration Rule provides that any jurisdictional
objection by a party should be as early as possible.43 If a party formally raises such
objections, the tribunal may suspend the merits proceeding and consider the objec-
tions.44 Upon consultation with the parties, the President of the Tribunal fixes the
39
Id., para 274.
40
Id., para 318.
41
Id., para 260.
42
Itera International Energy LLC and Itera Group NV v. Georgia, (ICSID ARB/08/7), Decision on
admissibility of ancillary claims, 4 December 2009, para 34.
43
ICSID Arbitration Rules, Rule 41(1).
44
ICSID Arbitration Rules, Rule 41(3), first sentence.
time-limit to submit the observations to the jurisdictional issues.45 The Tribunal may
decide whether oral proceedings are required.46
In addition, the ICSID Arbitration Rules also provides for possibility for parties to
file objections that a claim has no legal merit. A party may, between 30 days after
constitution of the tribunal and before the first session of the Tribunal, file such
objections.47 If the Tribunal decides to decide the preliminary objections, it must
issue a decision to that effect.48
The UNCITRAL Rules also permit bifurcation; First, Article 24(4) of the 1976
UNCITRAL Rules states that:
In general, the arbitral tribunal should rule on a plea concerning its jurisdiction as a
preliminary question. However, the arbitral tribunal may proceed with the arbitration and
rule on such a plea in their final award.
Article 23(3) of the 2010 UNCITRAL Rules changed the approach that the
arbitral tribunal must make decision on jurisdiction. It states that:
The arbitral tribunal may rule on a [jurisdictional objection] either as a preliminary question
or in an award on the merits.
Therefore, the 2010 UNCITRAL Rules eliminated the presumption in favor of

bifurcation, and made the rules in line with the ICSID Convention which does not
require presumption of bifurcated proceedings.
There are several strategic considerations for respondents and claimants consid-
ering bifurcation. First, from the respondent’s point of view, if a respondent State has
reasonably sound jurisdictional objections, it should request the tribunal to bifurcate
the proceedings. In addition to this, by bifurcating the proceedings, the respondent
may draw the tribunal’s attention to the facts beneficial to the respondent State. At
the same time, this may be the reason why the claimant opposes bifurcation.49
Second, respondents may use bifurcation to delay any possible adverse conse-
quences of their actions. On the other hand, the claimant investor may seek to avoid
bifurcated proceedings, as claimant’s incentive is to conclude the whole proceedings
and receive a favorable award as quickly as possible.50
In practice, while most investment arbitration cases split the jurisdiction and merit
phase, the way to bifurcate proceedings may vary. For example, in LG&E v.
Argentina case, the proceedings were split into decisions on jurisdiction, liability,
45
ICSID Arbitration Rules, Rule 41(3), second sentence.
46
47
48
49
Carlson M, Childres P (2019) Chapter 5: Bifurcation in investment treaty arbitration. In: The
investment treaty arbitration review. Law Business Research, pp 54–55
50
Id., pp. 54–55.
992 S. Kang
and award.51 In addition, the tribunal in Glencore v. Bolivia ordered to bifurcate the
award and damages.52
Discussions on Jurisdiction Rationae Personae
“Nationality” Under International Investment Law
Natural Persons
In an investment dispute, an investor’s nationality is important for several purposes:
• An investor must be a national of a party to the investment treaty or an ICSID

Convention. In particular, it is important to determine the standard of treatment
guaranteed in the treaty.
• The investor must not be a national of a host State.
An important case to review the issue of the nationality of a natural person is

Soufraki v. UAE Award.53 In this case, the Claimant presented himself as an Italian
national and invoked his Italian nationality to invoke Italy-UAE BIT.54 However, the
tribunal held that Soufraki lost his Italian nationality when he voluntarily acquired
Canadian citizenship in 1991.55 The ICSID Tribunal confirmed that the investor’s
nationality should be determined by the law of the investor’s nationality, i.e., Italian
law in this case.56 His application for annulment was also rejected, and the tribunal
explained three principles:
• The nationality of natural persons is governed by the law of the country whose
nationality is at issue. In Soufraki v. UAE Award, it was Italian law. That law is to
be applied in the way to be applied by the domestic courts and other authorities.
• The decision on the existence of a nationality is with the tribunal in pursuance of
its power to determine its jurisdiction (e.g., Art. 41 of the ICSID Convention).
51
LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc.v. Argentine Republic,
ICSID Case No. ARB/02/1, Decision on Jurisdiction (30 April 2004); Decision on Liability (3
October 2006); Award (25 July 2007).
52
Glencore Finance (Bermuda) Limited v. Plurinational State of Bolivia, PCA Case No. 2016-39,
Procedural Order No. 2 Decision on Bifurcation, 31 January 2018, para 56.
53
Hussein Nuaman Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7, Award (7
July 2004) (Hereinafter Soufraki v. UAE Award)
54
Schreuer C (2016) Chapter 11: Criteria to determine investor nationality (natural persons). In:
Kinnear M et al (eds) Building international investment law: the first 50 years of ICSID. Wolters
Kluwer, p 154
55
Id., para 66–68.
56
Id., para 55.
• Documents issued by the country in question, such as passports and certificates of

nationality, are to be given their appropriate weight. However, they are not
conclusive and do not bind the tribunal.57
In subsequent cases, the tribunals basically endorsed the first principle on

governing law on nationality. For example, in Micula v. Romania, the tribunal
noted that the decision of the law to determine the nationality of an individual is
“the domestic laws of each Contracting State.”58
Also regarding the second principle, the tribunals also adopted the same approach
as the Soufraki v. UAE Award.59 Then, the tribunals consistently held that the
documents issued by the country in question may have probative value, but they
have no binding effects on the tribunals.60 In particular, in Ambiente Ufficio v.
Argentina,61 the tribunal explained the evidentiary value of certificates of nationality
as follows:
[T]he question of the appropriate way for Claimants to meet the substantiation requirement
for their having Italian nationality must be drawn from the general evidentiary regime of the
ICSID Convention. The Tribunal will therefore have to decide whether an investor meets the
Convention’s nationality requirements in the same manner as with the other objective
requirements for ICSID jurisdiction. A certificate of nationality will therefore be treated as
part of the “documents or other evidence” to be examined by the Tribunal in accordance with
Art. 43 of the ICSID Convention. ICSID arbitration is not governed by formal rules nor by
national laws on evidence. ICSID tribunals have full discretion in assessing the probative
value of any piece of evidence introduced before them. In general, the finding of the
Annulment Committee in Soufraki v. United Arab Emirates that “[i]t is only in exceptional
cases [. . .] that ICSID tribunals have to review nationality documentation issued by state
officials”, may be taken as a guidance in that regard.62
In this regard, the issue of nationality of a natural person appears to follow the
principles established by Soufraki v. UAE Award.
In a recent case of Ballantine v. Dominican Republic,63 the PCA arbitral tribunal
had to deal with the issue of investors with dual nationality. Traditionally, the
principle of “genuine link” between the Claimant’s State and the Claimant has
57
Kluwer, p 157
58
Ioan Micula et al. v. Romania, ICSID Case No. ARB 05/20, Decision on Jurisdiction and
Admissibility (24 September 2008), para 86.
59
Id., para 94.
60
Kluwer, p 160
61
Ambiente Ufficio S.p.A. et al. v. Argentine Republic, ICSID Case No. ARB/08/9, Decision on
Jurisdiction and Admissibility (8 February 2013).
62
Id., para 318.
63
Michael Ballantine and Lisa Ballantine v. The Dominican Republic, PCA Case No. 2016-17.
994 S. Kang
been governing principle under public international law.64 In international invest-

ment law context, Article 25(2)(a) of the ICSID Convention states that the “National
of another Contracting State” means “any natural person who had the nationality of a
Contracting State other than the State party to the dispute on the date on which the
parties consented to submit such dispute to conciliation or arbitration.” In addition,
Article 9.1 of the CPTPP also provides, “If that investor is a natural person, who is a
permanent resident of a Party and a national of another Party, that natural person may
not submit a claim to arbitration against that latter Party.” Therefore, both provisions
require that the individual investor should not be a national of the host State.65
Several ICSID tribunals also applied Article 25(2)(a) of the ICSID Convention to
deny access of the claimant with the nationality of host State.66 They also continued
that “noneffective” nationality should be disregarded, and required “dominant and
effective nationality” to determine the jurisdiction rationae personae of the
claimant.67
Juridical Persons
Determination of Corporate Nationality

The nationality of juridical persons has been a matter of international law for the purpose
of diplomatic protection. In Barcelona Traction case, the International Court of Justice
(ICJ) held that the nationality of a corporation would follow the state of incorporation
and the place of the registered office.68 This has been a basic approach to determine
nationality of a corporation and/or other juridical persons. Meanwhile, Article 25(2)(b)
of the ICSID Convention69 does not provide any criteria for determination of nationality
of such juridical person. As a result, the ICSID and other investment arbitral tribunals
applied investment treaties or other legal instruments evidencing the consent between
the parties, and general principles of international law.70
64
Nottebohm Case [1955] ICJ Reports 4.
65
Schreuer C et al (2010) The ICSID convention – a commentary, 2nd edn. Cambridge University
Press, Cambridge, Article 25 – Jurisdiction, para 664.
66
Champion Trading v. Egypt, Decision on Jurisdiction (21 October 2003), p. 11.
67
68
Barcelona Traction, Light and Power Company Limited (Belgium v. Spain), Judgment, 5
February 1970, ICJ Reports 1970, p. 42, para 70.
69
ICSID Convention, Art. 25(2)(b): any juridical person which had the nationality of a Contracting
State other than the State party to the dispute on the date on which the parties consented to submit
such dispute to conciliation or arbitration and any juridical person which had the nationality of the
Contracting State party to the dispute on that date and which, because of foreign control, the parties
have agreed should be treated as a national of another Contracting State for the purposes of this
Convention.
70
ICSID Convention, Art. 42(1): The Tribunal shall decide a dispute in accordance with such rules
of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply
In the ICSID case of Tokios Tokeles v. Ukraine,71 the claimant, a Lithuanian

company controlled by Ukrainian nationals, argued that its wholly owned Ukrainian
subsidiary was subject to series of measures in breach of Ukraine’s obligations under
1994 Ukraine-Lithuania BIT. The majority opinion of the case held that as there is no
definition of an investor’s nationality under the ICSID Convention, the tribunal
would refer to the definition of an “investor” under the 1994 Ukraine-Lithuania
BIT.72 In that BIT, an investor is defined as “any entity established in the territory of
the Republic of Lithuania in conformity with its laws and regulations.”73 The
tribunal found that the claimant was registered in Lithuania in accordance with the
laws of the country, based on the ordinary meaning of the BIT provision at issue.74
The Tribunal also confirmed that the “the state of incorporation” is the key criteria
under the definition of “investors” under that BIT.75 The Tribunal also held that its
reasoning is consistent with other ICSID tribunals.76 Therefore, the Tribunal found
that the claimant was an investor of Lithuania.77
However, the Professor Weil’s Dissenting Opinion argued that the jurisdiction of
the ICSID was limited to “disputes between sovereign states and foreign inves-
tors.”78 He noted that the Article 25 of the ICSID Convention was silent on
definition of the nationality of corporation. However, he argued that this does not
mean that the definition is left for the parties’ discretion.79 He argued that in this
particular case, the question of whether the claimant was the “real investor,”80 but
the Convention itself provides for flexible interpretation.81
As international corporate structures get increasingly complicated, the issue of
defining corporate investor’s nationality increasingly became an issue. Subse-
quent ICSID tribunals also noted that Article 25 of the ICSID Convention did not
specify the test for nationality, and the Contracting States are “free to set the
parameters of nationality within the outer limits” of Article 25 of the ICSID
Convention.82
the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and
such rules of international law as may be applicable.
71
Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction (29 April 2004).
72
Id., paras 25–26.
73
1994 Ukraine – Lithuania BIT, Art. 1(2)(b).
74
See footnote 71, para 29.
75
See footnote 71, paras 30–39.
76
See footnote 71, paras 42–51.
77
See footnote 71, para 39.
78
See footnote 71, Dissenting Opinion of P. Weil, para 21.
79
80
Prof. Weil considered that the claimant could not qualify as an “investor” considering the
corporate structure and ownership. See footnote 71, Dissenting Opinion of P. Weil, para 30.
81
82
KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/08, Award
(17 October 2013), para 121.
996 S. Kang
In a more recent Mera Investment case,83 the ICSID tribunal also analyzed the
issue of corporate nationality again. In this case, the Cyprus-Serbia BIT84 provided
that an investor should be “(i) incorporated, constituted, or otherwise duly organized
according to the laws of the Republic of Cyprus, (ii) having its seat in the territory of
the Republic of Cyprus, and (iii) making investments in the territory of Serbia.”85
The tribunal accepted the certificate of incorporation of the Claimant, and thus the
tribunal found that the first requirement was fulfilled.86 Regarding the second
requirement, the tribunal recalled that “it is well-accepted that Article 25 of the
ICSID Convention leaves it to the contracting parties to determine nationality,
including corporate nationality.” The tribunal noted that there was no further guid-
ance under the BIT and the ICSID Convention regarding the meaning of “seat in the
territory of that Contracting Party.”87 While the Respondent argued that the term
“seat” meant “where the effective management takes place,”88 the tribunal accepted
the term as “reference to an actual location, place, or address” under Section 102 of
the Cypriot Companies Law.89 Regarding the third requirement, the tribunal found
that “the Claimant actively held and managed the investments after it became a
Cyprus entity, thereby ‘making investments’ in Serbia as required by Article 1(3)(b)
of the BIT.”90 As a consequence, the ICSID tribunal found that the Claimant
qualified as an “investor” under the Cyprus-Serbia BIT. The tribunal in Mera
Investment case appeared to have applied the dissenting opinion of Prof. Weil.
“Continuous Nationality”
The continuous nationality rule was developed to limit individual’s ability to choose
a State to demand for diplomatic protection claims.91 Basically, the rule requires “the
bond of nationality” between the claimant private party and the claimant State must
exist at the time of occurrence of violation of international law against the injured
person.92 The ILC Draft Articles on Diplomatic Protection 2006 also provides:
83
Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on
Jurisdiction (30 November 2018)
84
Bilateral investment treaty; specifically, “Agreement between Serbia and Montenegro and the
Republic of Cyprus on Reciprocal Promotion and Protection of Investments” of 21 July 2005
(CL001)
85
Id., para 62.
86
Id., para 70.
87
Id., para 85.
88
Id., paras 86–88.
89
Id., paras 91–92.
90
Id., para 107.
91
Bernardini P (2016) Chapter 12: Continuous nationality rule in investor-state arbitration. In:
Kluwer, pp 163–164
92
Barcelona Traction, para 61.
A State is entitled to exercise diplomatic protection in respect of a corporation that was a

national of that State, or its predecessor State, continuously from the date of injury to the date
of the official presentation of the claim. Continuity is presumed if that nationality existed at
both these dates.93
In case of corporations, the basic rule is that a corporation’s nationality depends

on the State of its incorporation. However, “when the corporation is controlled by
nationals of another State or States and has no substantial business activities in the
State of incorporation, and the seat of management and the financial control of the
corporation are both located in another State, that State shall be regarded as the State
of nationality.”94 In addition, the ILC Draft Articles on Diplomatic Protection
explicitly provides that the Draft Articles “do not apply to the extent that they are
inconsistent with special rules of international law, such as treaty provisions for the
protection of investments.”95 As a result, the principle of “continuous nationality”
does not apply to investor-State arbitration.
However, in Loewen v. United States case,96 the ICSID Tribunal applied “continuous
nationality” principle.97 The ICSID tribunal explained that Articles 1116 and 1117 of
NAFTA did not deal with whether nationality must continue to exist from the beginning
of the dispute to the end of such dispute, the tribunal applied customary international
law.98 However, subsequent cases did not accept the Loewen tribunal, and rejected the
rationale of the case. Instead, Article 25(2) of the ICSID Convention provides that the
jurisdiction of the ICSID would apply to “any juridical person which had the nationality
of a Contracting State other than the State party to the dispute on the date on which the
parties consented to submit such dispute to conciliation or arbitration and any juridical
person which had the nationality of the Contracting State party to the dispute on that
date,” i.e., the nationality is fixed on the date of the parties’ consent to bring the dispute
to ICSID proceedings. In addition, this requirement applies to maintain jurisdiction
ratione personae, rather than continuity of nationality issue.99
Discussions on Rationae Materiae
When we discuss the jurisdiction rationae materiae in an investment dispute, the first
reference may be Article 25 of the ICSID Convention, which reads:
93
UN ILC, Draft articles on Diplomatic Protection 2006, Article 10(1).
94
UN ILC, Draft articles on Diplomatic Protection 2006, Article 9, second sentence.
95
UN ILC, Draft articles on Diplomatic Protection 2006, Article 17.
96
Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB
(AF)/98/3.
97
Id., paras 220–237.
98
Id., para 226.
99
El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15,
Decision on Jurisdiction (27 April 2006), para 135.
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The jurisdiction of the Centre shall extend to any legal dispute arising directly out of or in
relation to an investment between a Contracting State (or any constituent subdivision or
agency of a Contracting State designated to the Centre by that State) and a national of
another Contracting State, which the Parties to the dispute consent in writing to submit to the
Centre.
Article 25 of the ICSID Convention requires that there should be “a legal

dispute arising directly out of or in relation to an investment.” There are elements
that may raise jurisdictional questions: (1) the existence of a “dispute”; (2) legal
nature of the dispute; (3) directness of the dispute; and (4) existence of an
“investment.”100
Existence of a “Dispute”
What is a “dispute” under the ICSID Convention? A legal dictionary defined a

dispute “A conflict or controversy; a conflict of claims or rights; an assertion of
aright, claim, or demand on one side, met by contrary claims or allegations on the
other.”101 The International Court of Justice defined a dispute as “a disagreement on
a point of law or fact, a conflict of legal views or interests between parties.”102 ICJ
further explained that the existence of a dispute means “the claim of one party is
positively opposed by the other.”103
An ICSID Tribunal also defined a “dispute” under US-Ecuador BIT104 as “(i) a
disagreement between the parties on their rights and obligations, an opposition of
interests and views, and (ii) an expression of this disagreement, so that both parties
are aware of the disagreement.”105 In another ICSID case, the Tribunal defined a
dispute as follows:
It begins with the expression of a disagreement and the statement of a difference of views. In
time these events acquire a precise legal meaning through the formulation of legal claims,
their discussion and eventual rejection or lack of response by the other party. The conflict of
legal views and interests will only be present in the latter stage, even though the underlying
acts predate them. It has also rightly commented that the existence of the dispute pre-
supposes a minimum of communication between the parties, one party taking the matter
with the other, with the latter opposing the Claimant’s position directly or indirectly. This
100
University Press, p 245
101
The Law Dictionary, https://thelawdictionary.org/dispute/ (Accessed 1 October 2019)
102
Case Concerning East Timor, ICJ Reports (1995) p. 89, para 22. (Judgment of 30 June 1995)
103
Id., para 22.
104
“Treaty between the United States and Ecuador concerning the Encouragement and Reciprocal
Protection of Investments” of 11 May 1997
105
Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on
Jurisdiction (2 June 2010), para 289.
sequence of events has to be taken into account in establishing the critical date for
determining when under the BIT a dispute qualifies as one covered by the consent necessary
to establish ICSID’s jurisdiction.106
The existence of a dispute also presupposes at least a minimum communication

between the parties, and therefore, failure to respond to a specific demand within a
reasonable time would be sufficient to establish existence of a dispute.107 In addition,
the dispute related to “clearly identified issues between the parties,” i.e., immediate
interest to the parties.108
In Pan American v. Argentina, the ICSID tribunal found that the quantum of
damages would be uncertain to a certain degree. However, the tribunal held it did not
affect its jurisdictions as long as the claimants were able to demonstrate the occur-
rence of some damages.109
Legal Nature of the “Dispute”
Article 36(2) of the ICJ Statute provides that the jurisdiction of the court applies to
“legal disputes.” Article 25(1) of the ICSID Convention also provides that the
jurisdiction of the ICSID would extend to “any legal dispute arising directly out of
an investment.” Then what is the “legal dispute?”
The Report of the Executive Directors to the ICSID Convention explained that
legal disputes exist if they “concern the existence or scope of a legal right or
obligation, or the nature or extent of the reparation to be made for breach of a
legal obligation.”110 The Rule 2(1)(e) of the ICSID Rules of Procedure for the
Institution of Conciliation and Arbitration Proceedings (“Institution Rules”) also
requires that the claimant must demonstrate the legal nature of the dispute.
The ICSID tribunal in Suez v. Argentina case held that the Claimant made legal
claims as the claims were based on “legal rights which they allege have been granted to
them under the bilateral treaties that Argentina has concluded with France and Spain,”
and the tribunal further found that the claimants “consistently presented their case in
legal terms.”111
106
Maffezini v. Kingdom of Spain (ICSID Case No. ARB/97/7), Decision on Objections to Juris-
diction, (25 January 2000), 5 ICSID Rep. 387, para 96. (Cited from Railroad Development
Corporation (RDC) v. Republic of Guatemala, ICSID Case No. ARB/07/23, Second Decision on
Jurisdiction (18 May 2010), para 129.)
107
108
Id., para 44.
109
Pan American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic,
ICSID Case No. ARB/03/13, Decision on Preliminary Objections (27 July 2006), paras 177–180.
110
111
Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales del
Agua SA v. Argentina, Decision on Jurisdiction (16 May 2006), para 34.
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“Directness” of the Dispute
Article 25(1) of the ICSID Convention also provides that the jurisdiction of the ICSID
would extend to any legal dispute arising “directly” out of an investment. On the other
hand, Article 2(b) of the ICSID Additional Facility Rules authorizes the proceedings to
settle disputes which do not directly arise out of investment. At the same time, the
tribunals interpreted that the term “directly arising out of investment” as direct relation-
ship between the dispute and the investment, not whether the investment is “direct” or
not.112
In CSOB v. Slovakia,113 the claimant granted a loan to a Slovak collection company,
by a guarantee of the Slovak Ministry of Finance. When CSOB requested for
arbitration against Slovakia for default of the Slovak collection company, Slovakia
argued that the claims did not arise “directly” out of an investment within the meaning
of the Article 25(1) of the ICSID Convention.114 The ICSID tribunal rejected this
argument as the investment at issue was a complex operation, and therefore, even if the
transaction at issue, standing alone, would not qualify as an “investment” under the
ICSID Convention, as long as the particular transaction forms an “integral” part of an
overall investment operation.115 Having found that the Slovak republic’s obligation
was closely related to the loan made by the CSOB, and the loan was part of the overall
operation to consolidate CSOB and to develop the banking activity in the Slovak
Republic, the tribunal held that the dispute arose “directly” out of the investment.116
In a more recent case, the ICSID tribunal held that “directness” requirement was
met, “because Claimants’ claim that the revocation of ENJASA’s license, coupled
with the subsequent transfer of ENJASA’s operation and employees to new opera-
tors, is the cause of the alleged destruction of Claimants’ investment in the gaming
and lottery sector in Salta, that is, its (direct) shareholding in L&E and (its indirect
shareholding) in ENJASA.”117
Existence of an “Investment”
ICSID Convention
The term “investment” has no definition in the ICSID Convention. When the
ICSID Convention was negotiated in 1960, several attempts to define
112
Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision on Jurisdiction
(11 July 1997), para 28; Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8,
Decision on Jurisdiction (3 August 2004), para 150; Tokios Tokeles v. Ukraine, Decision on
Jurisdiction (29 April 2004), para 90.
113
Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4,
Decision of the Tribunal on Objections to Jurisdiction (24 May 1999).
114
Id., para 62.
115
Id., para 72.
116
Id., paras 75–91.
117
Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine
Republic, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para 194.
“investment” were presented to the drafters.118 For example, the First Draft
introduced a definition of “investment as “any contribution of money or other
assets of economic value for an indefinite period or, if the period be defined, for
not less than five years.”119 This faced a flurry of opposition and Mr. Aron
Broches, the rapporteur, continued to insist against precise delimitation of the
jurisdiction of ICSID.120 As a result, the ICSID Convention did not contain a
definition of “investment.”
Jurisprudence Before Salini Case

Article 1139 (a) through (h) of NAFTA provides an example of an “exhaustive list”
approach to the definition of investment.121 However, it complements its approach
with a negative definition by establishing “certain kinds of property that are not to
be considered investments under the treaty.”122 However, the subparagraphs (i)
and (j) of NAFTA Article 1139 excluded (1) claims to money based on (1)
commercial contracts; (2) extension of credit; and (2) “any other claims to
118
ICSID Convention, First Draft, Article 30 contained a general definition of “investment” as “any
contribution of money or other assets of economic value for an indefinite period or. . . not less than
five years.” Id., p. 287
119
Press, Art. 25, para 114.
120
Id., paras 114–115.
121
NAFTA Article 1139: Investment under NAFTA “means”:
(a) an enterprise;
(b) an equity security of an enterprise;
(c) a debt security of an enterprise
(ii) where the original maturity of the debt security is at least 3 years, but does not include a
debt security, regardless of original maturity, of a state enterprise;
(d) a loan to an enterprise
(ii) where the original maturity of the loan is at least 3 years, but does not include a loan,
regardless of original maturity, to a state enterprise;
(e) an interest in an enterprise that entitles the owner to share in income or profits of the enterprise;
(f) an interest in an enterprise that entitles the owner to share in the assets of that enterprise on
dissolution, other than a debt security or a loan excluded from subparagraph (c) or (d);
(g) real estate or other property, tangible or intangible, acquired in the expectation or used for the
purpose of economic benefit or other business purposes; and
(h) interests arising from the commitment of capital or other resources in the territory of a Party to
economic activity in such territory, such as under
(i) contracts involving the presence of an investor’s property in the territory of the Party,
including turnkey or construction contracts, or concessions, or
(ii) contracts where remuneration depends substantially on the production, revenues or profits
of an enterprise;
Rubins N (2004) The notion of “investment” in international investment arbitration. In: Horn N,
122
Kroell S (eds) Arbitrating foreign investment disputes. Kluwer Law International, pp 293–294
1002 S. Kang
money, that do not involve the kinds of interests set out in subparagraphs (a)
through (h).”123
In the Pope & Talbot v. Canada case, the tribunal found that the access to the US
softwood lumber market was a property interest of the claimant. It found that the
interests at stake were the investment’s asset base as the claimant depended heavily
on export business. As a result, the tribunal concluded that Canada’s measure
affected “investment” under Articles 1139 and 1110 of NAFTA.124 In contrast, the
tribunal of Methanex Corp. v. United States case found that although some intangible
property could qualify as “investment” under NAFTA Article 1139, customer base,
market share, and goodwill could not fall into the category of investment under
Article 1139 on a “stand-alone” basis.125
In Fedax NV v Republic of Venezuela case, an ICSID tribunal considered the
definition of “investment” extensively. In this case, Fedax NV was the beneficiary of
debt instruments issued by Venezuela. The ICSID tribunal noted that there was no
definition of “investment” under Article 25 of the ICSID Convention, and noted that
“a broad approach to the interpretation of the term of Article 25 is warranted.” It then
found that considering the broad scope of Article 25(a) of the ICSID Convention and
the ensuing ICSID practice, there was no issue in finding that promissory notes
qualify as an “investment” as they are “evidence of a loan and a rather typical
financial and credit instrument.” The ICSID tribunal also noted that the definition of
“investment” under the Netherlands-Venezuela BIT was broad enough to include the
promissory notes at issue. In addition, it noted that the BIT at issue was not an
exceptional case in the contemporary treaty practice. Therefore, it found that the
promissory notes would qualify as an “investment” both under Article 25 of the
ICSID Convention and the Netherlands-Venezuela BIT.
Turning to the details of the promissory notes, the tribunal noted that the basic
features of an investment would involve “certain duration, a certain regularity of
profit and return, assumption of risk, a substantial commitment and a significance
for the host State’s development.” The tribunal applied these criteria to the
investment at issue and found that the investment at issue met all these criteria.
In particular, the tribunal found that there was “a significant relationship between
the transaction and the development of Venezuela, as specifically required under
123
NAFTA Art. 1139 (i) and (j): but investment does not mean,
(i) claims to money that arise solely from

(i) commercial contracts for the sale of goods or services by a national or enterprise in the
territory of a Party to an enterprise in the territory of another Party, or
(ii) the extension of credit in connection with a commercial transaction, such as trade financing,
other than a loan covered by subparagraph (d); or
(j) any other claims to money, that do not involve the kinds of interests set out in subparagraphs
(a) through (h);
124
Pope & Talbot Inc. (US) v. Canada, Merits Award (26 June 2000), para 98.
125
Methanex Corp. (Canada) v. United States, Final Award on Jurisdiction and Merits (3 August
2005), para 35.
the Law for issuing the pertinent financial instrument.” Therefore, the tribunal held
that it had jurisdiction over the case at issue.
Salini Test
Background of the Case

In August 1994, the Societé Nationale des Autoroutes du Maroc (ADM), incorpo-
rated in 1989, issued an invitation for international tender for construction of a
highway between Rabat and Fez, Morocco. Salini Costruttori SpA (“Salini”) and
Italstrade SpA (“Italstrade”) submitted a joint tender for Section 2 (50 km long) of
the highway.126 ADM awarded the contract for Section 2 to the claimants. The works
were completed on 14 October 1998, ADM took over the project provisionally on 31
July 1998, and finally on 26 October 1999. On 26 March 1999, ADM sent a draft of
final account, which the claimants responded to with reservation on 29 April 1999.
On 14 September 1999, the Italian companies sent a memorandum of final accounts
rejecting all claims by ADM.127
On 1 May 2001, the two Italian companies filed a Request for Arbitration against
Morocco with ICSID seeking damages of 132,639,617,409 Italian Lira.128 The
complainants based their claims on Article 8 of the Bilateral Investment Treaty
between Morocco and Italy.129
The ICSID Tribunal’s Findings on Definition of “Investment”

The Moroccan government argued that the existence of the ICSID tribunal’s subject
matter jurisdiction depended on (1) the existence of an “investment” and (2)
existence of the claims of violations of the bilateral treaty.130
With regard to the first criterion, the ICSID tribunal noted that its jurisdiction
depended upon (1) the definition under a BIT/FTA and (2) the definition under the
ICSID Convention. The ICSID tribunal considered that both definitions must be
satisfied to find jurisdiction of an ICSID tribunal.131
First, the complainants argued that the contract at issue was an investment within
the meaning of Article 1(c) and (e) of the Italy-Morocco BIT.132 The tribunal found
that construction contract would create “contractual benefit having an economic
126
Salini Costruttori S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on
Jurisdiction (23 July 2001), para 2.
127
Id., paras 4–5
128
Id., para 6.
129
Treaty between the Government of the Kingdom of Morocco and the Government of the
Republic of Italy for the Reciprocal Promotion and Protection of Investments (“Italy-Morocco
BIT”), signed on 18 July 1990, entered into force on 1 January 1992. Id., para 9
130
Id., para 36.
131
Id., para 44.
132
Id., para 38. Italy-Morocco BIT Article 1: The term “investment” designates all categories of
assets invested, after the coming into force of the present agreement, by a natural or legal person,
including the Government of a Contracting Party, on the territory of the other Contracting Party, in
1004 S. Kang
value” under Article 1(c) of the Italy-Morocco BIT and the contractor would benefit
from “a right of an economic nature conferred by law or by contract” under Article
1(e) of the same Treaty.133 The tribunal also reviewed whether the contract was
approved by a competent authority under Article 1(g) of the Italy-Morocco BIT. The
tribunal found that the contract in question was an object of an authorization by a
competent authority because (1) the allocation of the contract occurred in accordance
with the rules and procedures set out by ADM. In addition, the tribunal found that the
“Ministry of Infrastructure approved the conclusion of the public procurement
contracts by ADM in accordance with the mandatory procedure, which was not
alleged to have been violated”; and (2) each stage toward the signature of the
construction contract involved interventions by authorities concerned.134 Therefore,
the tribunal found that the condition of Article 1(g) was also satisfied and the
contract fell within the meaning of “investment” under the Italy-Morocco BIT.
Because there was no definition of “investment” under Article 25 of the ICSID
Convention,135 the tribunal recognized that “ICSID case law and legal authors agree
that the investment requirement must be respected as an objective condition of the
jurisdiction of the Center.”136 It pointed out three factors to indicate the presence of
investment: (1) contributions, (2) a certain duration of the contract, and (3) a
participation in the risks of the transaction.137 The tribunal found that the Italian
companies made contributions in money, in kind, and in industry, e.g., by using their
know-how and provision of necessary equipment and qualified personnel, and
obtaining loans to finance the execution of the deal.138 Also, the Tribunal noted
that the total duration of the contract was originally 32 months, although it took
36 months to complete it. The tribunal noted that this met the “minimal length of
time upheld by the doctrine, which is from 2 to 5 years.”139 Then, with regard to the
risks, the tribunal noted that the contract itself contained an exhaustive list of risks
associated with the project.140 The tribunal found that it would not matter whether
accordance with the laws and regulations of the aforementioned party. In particular, in no way
exclusively, the term “investment” includes:
(c) capitalized debts, including reinvested income, as well as rights to any contractual benefit
having an economic value;
(e) any right of an economic nature conferred by law or by contract, and any license or
concession granted in compliance with the laws and regulations in force, including the
right of prospecting, extraction, and exploitation of natural resources
133
Id., para 45.
134
Id., para 48.
135
Id., paras 50–51
136
Id., para 52.
137
Id., paras 52–54; See footnote 2, pp. 307–308.
138
Id., para 53.
139
Id., para 54.
140
Id., para 55.
the parties freely took these risks.141 Rather, the tribunal noted such construction
contracts would create an “obvious risk” for the investor.142 In the end, the tribunal
also checked the criterion of “contribution of the contract to the economic develop-
ment.” However, the tribunal did not seriously analyze this issue as infrastructure
construction falls within the category of tasks of the State or other public authorities
which serve public interest.143 As a result, the tribunal found that the contracts
between ADM and the Italian companies constituted an investment under both Italy-
Morocco BIT and Article 25 of ICSID Convention.144
Practice After Salini
Treaty Practices
Since the Salini case, many recent investment treaties have also adopted the Salini
test to define “investment.” In particular, the criteria of “certain duration” and
“assumption of risk” in the Salini test appear to have influenced subsequent treaty
practice and investment legislation. In this part, the author will briefly review some
examples of recent treaty laws and national laws to see how the Salini criteria were
implemented.
First, the 2004 and 2012 US Model BIT provides a broad definition of “invest-
ment” and a nonexhaustive list of “forms” of investment. The 2012 US Model BIT’s
definition of “investment” is the following:
“Investment” means every asset that an investor owns or controls, directly or indirectly, that
has the characteristics of an investment, including such characteristics as the commitment of
capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms
that an investment may take include:
(a) An enterprise
(b) Shares, stock, and other forms of equity participation in an enterprise
(c) Bonds, debentures, other debt instruments, and loans
(d) Futures, options, and other derivatives
(e) Turnkey, construction, management, production, concession, revenue-sharing, and other
similar contracts
(f) Intellectual property rights
(g) Licenses, authorizations, permits, and similar rights conferred pursuant to domestic law
(h) Other tangible or intangible, movable or immovable property, rights, such as leases,
mortgages, liens, and pledges145
It is interesting to note that this provision recognizes that the characteristics of

investment include “commitment of capital or other resources” and “assumption of
141
Id., para 56.
142
Id., para 56.
143
Id., para 57.
144
Id., para 58.
145
2004 US Model BIT, Article 1; 2012 US Model BIT, Article 1.
1006 S. Kang
risk.” In particular, the 2012 US Model BIT explains that “Some forms of debt, such
as bonds, debentures, and long-term notes, are more likely to have the characteristics
of an investment, while other forms of debt, such as claims to payment that are
immediately due and result from the sale of goods or services, are less likely to have
such characteristics.”146 Also, it provides that “whether a particular type of license,
authorization, permit, or similar instrument (including a concession, to the extent
that it has the nature of such an instrument) has the characteristics of an investment
depends on such factors as the nature and extent of the rights that the holder has
under the law of the Party.”147 Then it explains that licenses, authorizations, permits,
and similar instruments “that do not create any rights protected under domestic law”
would be deemed not to have the characteristics of an investment.148 In addition,
regarding the issue of whether the term “investment” includes a judicial decision or
administrative order, the 2012 US Model BIT clearly says it does not.149 Against this
background, Chapter XV of the US-Singapore FTA and Chapter 11 of the Korea-US
FTA basically follow the definition of investment contained in the 2004 US Model
BIT. However, at the end of the provision, the KORUS FTA Chapter 11 has the
following provision: “For purposes of this Agreement, a claim to payment that arises
solely from the commercial sale of goods and services is not an investment, unless it
is a loan that has the characteristics of an investment.”150
With respect to the European Union, Articles 206 and 207 of the Treaty on the
Functioning of the European Union (TFEU) give the European Union exclusive
competence on foreign direct investment (FDI). The Communication paper
published by the European Commission on 7 July 2010 outlines its approach to
foreign direct investment issues.151 The European Commission described that “For-
eign direct investment (FDI) is generally considered to include any foreign invest-
ment which serves to establish lasting and direct links with the undertaking to which
capital is made available in order to carry out an economic activity.” (Emphasis
added)152 In particular, the European Commission is of the view that in case of
shareholding, such shareholding involves participation in management or control of
the company. Therefore, it expressly States that an investment without influence,
control, or management of an undertaking does not fall into FDI and would consti-
tute “portfolio investment” which would be regulated under the laws of freedom of
movement of capital (Articles 63–66 TFEU).153
146
2004 US Model BIT, Article 1, Footnote 1.
147
2012 US Model BIT, Article 1, Footnote 2, First Sentence.
148
2012 US Model BIT, Article 1, Footnote 2, Second Sentence.
149
2012 US Model BIT, Article 1, Footnote 3.
150
Korea-US FTA, Article 11.28.
151
Communication From The Commission To The Council, The European Parliament, The Euro-
pean Economic And Social Committee And The Committee Of The Regions: Towards a compre-
hensive European international investment policy, COM(2010)343 (Final), 7 July 2010
152
Id., p. 1.
153
Id., pp. 1–2.
Arbitral Awards After Salini

After the Salini case, tribunals generally followed the Salini criteria as a widely
accepted norm, with some adjustment to the circumstances. For example, in the
Noble Energy v. Ecuador case,154 the ICSID tribunal also recognized that the Salini
test was a widely accepted standard. Interestingly, the ICSID tribunal recognized that
“there is no doubt that under the ICSID Convention, shares in a company qualify as
an investment” and Noble Energy’s shareholding of MachalaPower, would qualify
as an “investment” based on the CMS Gas Transmission Company v. Argentina
case.155 In addition, the tribunal found that “the disputes submitted to the Tribunal
relate to and arise directly from the implementation of a project which was clearly
not a mere commercial operation. The Concession was to last 31 years and the
project clearly benefited the State’s development and involved a risk for the inves-
tors.”156 It then found that MachalaPower’s operation also constituted “investment”
under Article 25 of the ICSID Convention.157
In another case, there was a dispute concerning a series of commercial arrange-
ments involving a company and a hotel owned by a Ukrainian State enterprise
regarding reconstruction and renovation of several floors of the hotel referred to as
“joint activity agreements (JAA).”158 The tribunal found that (1) the claimant’s
economic activity in Ukraine lasted for a sufficient duration, from 1994 through
2004 through multiple JAAs and renovation/reconstruction process; (2) claimant’s
investment bore a high commercial risk as it took place in a time of political turmoil
because the collapse of the Soviet Union led to high inflation, high interest rates and
a high risk premium; (3) the claimant made a substantial economic commitment in
renovating the hotel during the relevant period; and (4) the renovated hotel quickly
became a venue of “many important official functions, and the Ukrainian Govern-
ment even bestowed awards on the Hotel and the project during the period of
operation” and significantly contributed to the promotion of Ukrainian tourism
industry, which the Tribunal viewed as evidence of a significant contribution to the
public interest of the host State.159 As a result, the ICSID tribunal found that the
project at issue met the Salini test, and therefore the claimant had made an “invest-
ment” under Article 25 of the ICSID Convention.
In the Bayindir case,160 Pakistan raised an objection to jurisdiction based on the
alleged lack of an investment within the meaning of Article I(2) of the Turkey-
154
Noble Energy, Inc. and Machala power CIA. LTDA v. Ecuador and Consejo Nacional de
Electricidad, ICSID Case No. ARB/05/12, Decision on Jurisdiction, (5 March 2008).
155
Id., para 130.
156
Id., para 132.
157
Id., para 133.
158
Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award (8 November
2010), paras, 44–229.
159
Id., paras 317–332.
160
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/03/29, Decision on Jurisdiction (14 November 2005).
1008 S. Kang
Pakistan BIT and Article 25 of the ICSID Convention.161 Applying the Salini test,
the ICSID tribunal had no problem finding the existence of investment under the
Turkey-Pakistan BIT as Bayindir made contribution both in terms of know-how,
equipment, and personnel and in terms of injection of funds, within the meaning of
the general definition of “investment” set forth in Article I(2) of the BIT.162
The tribunal found that because the completion of the project involved a sub-
stantial amount of resources and time and Pakistan did not challenge jurisdiction in a
similar dispute involving the construction of a dam.163 Then, the tribunal applied the
Salini test. First, the tribunal found that it had already held that there was a significant
contribution of funds, know-how, equipment, and personnel by Bayindir.164 Regard-
ing the duration element, the tribunal noted that Bayindir pointed out that the
Contract had an initial duration of 3 years followed by a defect liability period of
1 year and a maintenance period of 4 years against payment. In addition, the tribunal
found that the project had been underway for 3 years and that Bayindir was granted a
contractual extension of an additional 12 months. As Pakistan also did not contend
that the project was not sufficiently extended in time to qualify as an investment, the
tribunal considered that the duration element was satisfied.165 The tribunal also
recognized an obvious risk for Bayindir because of “a defect liability period of
1 year and of a maintenance period of 4 years against payment creates an obvious
risk for Bayindir.”166 Also, the Tribunal held that the construction of a highway was
clearly important for Pakistan’s infrastructure development. As a result, the tribunal
held that the tribunal had jurisdiction over the case.167
In the Jan de Nul168 case, the ICSID tribunal began by identifying the key
elements of the Salini test: “(i) a contribution, (ii) a certain duration over which
the project is implemented, (iii) a sharing of operational risks; and (iv) a contribution
to the host State’s development.”169 There was no dispute on (i), (iii), and (iv).
However, Egypt raised a question of whether the dredging project met the duration
criteria. The tribunal noted that an operation may be characterized as an “invest-
ment” if it lasts at least 2 years.170 The ICSID tribunal agreed with the claimants that
there was an investment meeting the duration criteria.
In the Saipem v. Bangladesh case, the ICSID tribunal explicitly applied the “the
well-known criteria developed by ICSID tribunals in similar cases, which are known
161
Id., para 104.
162
Id., para 121.
163
Id., paras 127–129.
164
Id., para 131.
165
Id., paras 132–133.
166
Id., para 136.
167
Id., para 137–138.
168
Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No.
ARB/04/13, Decision on Jurisdiction, (16 June 2006).
169
Id., para 91.
170
Id., para 93.
as the Salini test.”171 The ICSID tribunal in Toto Costruzioni v. Lebanon172 also
faced the issue of the existence of an “investment,” applying the Salini test. The
ICSID tribunal found that Toto’s construction project met the requirements under the
Salini test, i.e., a contribution by the investor, a profitability risk, a significant
duration, and a substantial contribution to the State’s economic development,173
and thus found that Toto’s project met the risk element of the Salini test. Regarding
other issues, the tribunal found that Toto made a significant financial and technical
contribution to undertake the project for the duration of well over 5 years, and the
project significantly contributed to the State’s economic development because it
facilitated land transportation between Lebanon and Syria.174
In a very recent case, the Permanent Court of Arbitration (PCA) also applied
Salini criteria in a dispute arising from the France-Mauritius BIT.175 In this case, the
parties and the tribunal agreed to apply the Salini criteria. However, in analyzing the
nature of the alleged activities, the arbitral tribunal found that the Claimants’ transfer
of 300,000 EUR was just “one-off” payment, and they failed to provide evidence of
contribution of their know-how.176 As a result, the arbitral tribunal held that the
alleged activities could not qualify as an “investment” under the France-Mauritius
BIT, as they lacked (1) evidence of contribution to Mauritius economy and (2)
“commitments of discernible duration.”177
In addition, another ICSID tribunal confirmed that Salini criteria are the starting
point of the analysis of the existence of an “investment” under the Article 25(1) of
the ICSID Convention as well.178 In this case, while the tribunal confirmed that the
first three Salini criteria are fulfilled, the fourth criterion, i.e., the contribution of the
activity to the host State’s development, was a controversial issue, as the business
involved operation of gaming and lottery activities. However, the tribunal held that
the Claimant’s business through shareholding indirectly contributed to the positive
economic development of the province of Salta, and as a result, Argentina. There-
fore, the tribunal held that all four Salini criteria were fulfilled.179
171
Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on
Jurisdiction and Recommendation on Provisional Measures, (21 March 2007), para 99.
172
Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Decision
on Jurisdiction (11 September 2009). See e.g. Chaisse J (2015) The issue of treaty shopping in
access to investment agreements. Hast Bus Law Rev 11(2):225–306
173
Id., para 86.
174
Id., para 86.
175
Christian Doutremepuich and Antoine Doutremepuich v. Republic of Mauritius, PCA Case No.
2018-37, paras 121–155.
176
Id., paras 125–140.
177
Id., paras 141–144.
178
Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine
Republic, ICSID Case No. ARB/14/32, Decision on Jurisdiction (29 June 2018), para 187.
179
Id., paras 188–193.
1010 S. Kang
Jurisdiction Rationae Temporis
There is also an issue of jurisdiction rationae temporis. Generally, the jurisdiction

rationae temporis refers to “the jurisdiction of a court of law over a proposed action
in relation to the passage of time.”180 In many BITs or FTAs, parties limit their
consent to arbitration to disputes arising after the entry into force.181
However, there are cases where an arbitral tribunal may distinguish between “the
events giving rise to the dispute and the dispute itself.”182 The ICSID tribunal in
Maffezini v. Spain case explained that even if the events leading to a dispute occurred
before the entry of force of Argentina-Spain BIT, the dispute itself began with “the
expression of a disagreement and the statement of a difference of views” which
acquired precise legal meaning “through the formulation of legal claims, their
discussion and eventual rejection or lack of response by the other party.”183 There-
fore, the ICSID tribunal held that “the dispute in its technical and legal sense began
to take shape in 1994, particularly in the context of the disinvestment proposals
discussed between the parties,” which was after the entry into force of the Argentine-
Spain BIT. As a result, the ICSID tribunal held that it had jurisdiction over the
dispute.184
In a recent case of Ping An v. Belgium, the claimant relied on 1986 China-
Belgium BIT185 for substance of the case, and 2009 China-Belgium BIT186 to
establish jurisdiction.187 The tribunal began by explaining that the principle of
nonretroactivity under Article 28 of the Vienna Convention on the Law of Treaties
(VCLT) applies as “general principle of international law.”188 The tribunal also
recalled that substantive provisions of a BIT have no retrospective effect.189
180
https://definitions.uslegal.com/j/jurisdiction-ratione-temporis/ (Accessed 9 October 2019)
181
Salini Costruttori S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on
Jurisdiction (23 July 2001), para 170; KORUS FTA, Article 11.1.2: For greater certainty, this
Chapter does not bind either Party in relation to any act or fact that took place or any situation that
ceased to exist before the date of entry into force of this Agreement.
182
Press, Article 25 – Jurisdiction, para 51.
183
Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on
Jurisdiction (25 January 2000), para 95–96.
184
Id., paras 98–99.
185
Agreement between the Government of the People’s Republic of China and the Belgium-
Luxembourg Economic Union on the Encouragement and Reciprocal Protection of Investments
dated June 4, 1984. (entered into force on 5 October 1986)
186
Agreement between the Government of the People’s Republic of China and the Belgium-
Luxembourg Economic Union on the Reciprocal Promotion and Protection of Investments dated
June 6, 2005. (entered into force on 1 December 2009)
187
Ping An Life Insurance Company, Limited and Ping An Insurance (Group) Company, Limited v.
The Government of Belgium, ICSID Case No. ARB/12/29, Award (30 April 2015), para 37–50.
188
Id., paras 168–170.
189
Id., para 171.
However, the tribunal also emphasized, “whether obligations have retroactive effect
is a quite different question from the question whether a BIT applies to investments
made prior to its entry into force.”190 After extensively reviewing Mavrommatis191
case, the tribunal found that “the temporal application of jurisdictional provisions is
a question separate from the retroactivity of substantive provisions.”192
The tribunal recalled that in some cases, there may be an explicit provision in
BITs and FTAs to limit the parties’ consent to arbitration to disputes arising after
the entry into force.193 However, if there is no such provision, the tribunal
explained that the arbitral tribunals sometimes applied presumption of non-
retroactivity.194 However, the ICSID tribunal in Ping An v. Belgium case distin-
guished the case from other precedents, as they viewed it as an issue of
interpretation of successive treaties.195
The tribunal first discussed Article 8(1) of the 2009 China-Belgium BIT, but as
the language was inconclusive, the tribunal turned its attention to the intention of the
parties.196 The tribunal found several indicators that “the 2009 BIT does not cover
disputes which arose before it came into force but whose disposition was not
expressly provided for under the 2009 BIT.” The indicators were (1) the plain
meaning of the text of Articles 8(1), 8(2) and 10(2) refers only to the dispute
which arose after the entry into force of the 2009 China-Belgium BIT; (2) the
preamble of the 2009 China-Belgium BIT cannot offer assistance on the question
the Tribunal must answer; (3) the fact that Article 10(2) that the 2009 BIT applies to
all investments, made before or after its entry into force, does not assist in any way
on the question of the effect of a dispute arising before entry into force; (4) one
cannot infer that disputes which were not under judicial or arbitral proceedings, but
notified under the 1986 BIT fall under the scope of the 2009 BIT; (5) the 2009 China-
Belgium BIT was intended to substitute and replace the 1986 BIT, thus such
inference cannot justify such inference; and (6) it would allow the use of the much
wider dispute resolution provisions of the 2009 BIT to bring claims already notified
under the 1986 BIT, which is far more limited in substantive scope for the purposes
of dispute-settlement jurisdiction.197 As a result, the ICSID tribunal accepted
Belgium’s objection to the jurisdiction rationae temporis, and therefore the ICSID
tribunal dismissed the case.198
190
Id., para 173.
191
Permanent Court of International Justice, Mavrommatis Palestine Concessions, Judgment of 30
August 1924 (Series A, No. 2)
192
Id., para 186.
193
Id., paras 187–188.
194
Id., paras 189–191.
195
Id., para 192.
196
Id., paras 212–219.
197
Id., paras 224–229.
198
Id., para 240.
1012 S. Kang
Concluding Remarks
The issues surrounding the jurisdiction ratione personae and jurisdiction ratione
materiae, appear again and again. Article 25 of the ICSID Convention and the
related jurisprudence are usually treated as “leading” rules governing the jurisdic-
tional objections, and principles like Salini criteria are widely accepted as principles
governing the jurisdictional objections. In addition, principles under general public
international law still govern the issue, and thus tribunals often apply leading ICJ
cases and ILC Draft Articles in many cases. Also, the jurisdictional objections
usually take similar form of arguments, citing similar rules. As a result, the value
of precedents is regarded higher by arbitral tribunals. However, the issues are
ultimately handled on case-by-case basis, as each case is distinct from one another,
dealing with different investment treaties.
Denial of Benefits in Investment
Arbitration: Genesis, Trends, 40
and Application
Intan Murnira Ramli
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1014
The Origins and Objectives of Denial of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1014
Origins of Denial of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1014
Applications of the Denials of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1016
Denial of Benefits in the ISDS Arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1017
Provisions and Cases of Denial of Benefits in ASEAN Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 1021
Denial of Benefits and ACIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1022
Denial of Benefits Under ASEAN Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1026
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1032
Abstract
The denial of benefits provision in International Investment Agreements (IIAs)
provides an avenue for States to discriminate between legitimate investors and
“free-riding” multinational enterprises that have no genuine connection to their
purported home States. When the objective criteria used in the IIA may include
investors to whom a Party would not wish to extend the treaty protection, “denial
of benefits” provisions allow exclusion of investors in certain categories which is
controlled by nationals of a non-Party, especially when there is potential opening
for treaty shopping. This provision gives the host State the authority to effectively
carve out from the definition of “investor” shell companies owned by third-State
nationals or the host State and companies owned by certain third-country aliens.
The provision has been included in all ASEAN IIAs which provides that the
ASEAN Government reserves the right to deny benefits to a company if it is
owned or controlled by third-State nationals and has no substantial business
activities in the home State where it is organized. Typically, a State Party to the
I. M. Ramli (*)
Policy Design Department, Economic Research Institute for ASEAN and East Asia (ERIA),
Jakarta, Indonesia
e-mail: intan@eria.org

https://doi.org/10.1007/978-981-13-3615-7_101
1014 I. M. Ramli
IIA is entitled to deny the treaty protection to investors incorporated in one of the
State Party to the treaty but under control of investors of a third country not party
to the treaty or when they do not have any substantial activity in the country of
incorporation. Therefore, this chapter intends to discuss the conditions for such
denial of benefits and how such provisions have been drafted in the ASEAN IIAs.
So far there has been only one case utilizing the denial of benefits provision even
though it is provided in all ASEAN IIAs.
Keywords
Arbitral tribunals · Denial of benefits · Investor-State Dispute Settlement ·
Investment arbitration · Treaty shopping · International investment agreements
Introduction
“Denial of benefits” provision had only gained traction recently with the introduction
of the Investor-State Dispute Settlement. With the provision in the International
Investment Agreements, whether in the form of Bilateral Investment Treaties or Free
Trade Agreements, investors not having a real (economic) connection with the Home
State will be excluded from the normal protections accorded to investors and their
investments. The provision allows the parties to the IIAs to deny legitimately
although subject to fulfilling certain criteria.
The Origins and Objectives of Denial of Benefits
Origins of Denial of Benefits
Denial of benefit provisions can be traced back to the Treaties of Friendship,

Commerce, and Navigation in which the Contracting States reserve the right to
deny “any rights and privileges” accorded by this Treaty to “any corporation or
association created or organised under the laws and regulations of the other High
contracting Party which is directly or indirectly owned or controlled, through
majority stock ownership or otherwise, by nationals, corporations or associations
of any third country or countries.”1 Australia, Canada, China, and the United States
1
Article XXVI Treaty of Friendship, Commerce, and Navigation between the United States of America
and China (signed 4 Nov. 1946, entered into force 30 Nov 1948), 25 U.N.T.S 69: “5. . . . Moreover, each
High Contracting Party reserves the right to deny any of the rights and privileges accorded by this
Treaty to any corporation or association created or organized under the laws and regulations of the
other High Contracting Party which is directly or indirectly owned or controlled, through majority stock
ownership or otherwise, by nationals, corporations or associations of any third country or countries.”
See, e.g., Treaty of Friendship, Commerce, and Navigation between the United States of America
and China (signed 4 Nov 1946, entered into force 30 Nov 1948), 25 U.N.T.S 69; Treaty of
Friendship, Commerce, and Navigation between the United States of America and Ethiopia (signed
7 Sept 1951, entered into force 8 Oct 1953), Art. VII (3), 206 U.N.T.S 41.
40 Denial of Benefits in Investment Arbitration: Genesis, Trends, and. . . 1015
have inserted in their BITs or FTAs even from the early generation of IIAs, pro-
visions denying the treaty benefits to the investors and their investments under
specific conditions with or without prior consultation.
The United Nations Conference on Trade and Development (UNCTAD) Invest-
ment Policy Hub had identified 264 IIAs/Chapters out of a total number of 2896
mapped IIAs having or referring to a denial of benefit provision in their texts.2 The
main purpose of the denial of benefits provision in the IIAs is to exclude certain
class of investors and their investments from benefits and protections afforded to
all other investors investing in a particular country. Most of the time, investors are
denied benefits when they do not have any real economic connection with the host
country.
The denial of benefits provision tends to operate to limit the definition of
investors, although the effects may differ significantly.3 The effects of denial of
benefits provision will depend on its wordings and the locus of the provision in the
structure of the IIA, thus, affecting the jurisdiction of the tribunal or the admissi-
bility/merit of the claim. Meanwhile, limitations on the definition of the notion of
“investors” will affect the jurisdiction ratione personae of arbitral tribunals.4 It
could be argued that parties inserted the denial of benefits clause in response to the
more recent challenges where investors may conduct forum and IIA shopping by
looking at the most favorable IIAs to fit their purposes, especially in bringing an
Investor-State Dispute Settlement (ISDS) claim.5 This is reflected clearly in the
Philip Morris v. Australia6 and Sanum v. Lao PDR.7 Investors and their invest-
ments may be directly denied the benefits of an IIA when they are categorized
within the class of investors and investments specified by the denial of benefit
clause.
2
Information can be found available at https://investmentpolicy.unctad.org/international-invest
ment-agreements/advanced-search. Accessed as of 9 July 2020.
3
Lee J (2015) Resolving concerns of treaty shopping in international investment arbitration. J Int
Dispute Settle 6:355–379, p 366.
4
See also Kang S (2020) Jurisdictional objections and defenses (Ratione Personae, Ratione
Materiae, and Ratione Temporis). In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of
international investment law and policy. Springer, Singapore. https://link.springer.com/
referenceworkentry/10.1007/978-981-13-5744-2_67-1. Wang G (2010) International investment
law: an appraisal from the perspective of the New Haven School of International Law. Asia Pacific
Law Rev 18:1, 19–44.
5
Chaisse J (2015) The issue of treaty shopping in international law of Foreign Investment –
Bus Law Rev 11(2):225–306.
6
Philip Morris Asia Limited v. The Commonwealth of Australia (PCA Case No. 2012-12) – the
claims arising out of the enactment and enforcement by the Government of the Tobacco Plain
Packaging Act 2011 and its alleged effect on investments in Australia owned or controlled by the
claimant.
7
Sanum Investments Limited v. Lao People’s Democratic Republic (II) (ICSID Case No. ADHOC/
17/1). The dispute involved claims arising out of the Government’s actions allegedly in breach of a
settlement agreement concluded by the claimant and Lao Holdings N.V. with the Government
in 2014.
1016 I. M. Ramli
Applications of the Denials of Benefits
Generally, denial of benefits is applicable to the third-country nationals and to those

investors of one State Party not having any substantive business activities in another
State Party. This is supported by Dolzer and Schreuer who argued that the denial of
benefit clause is a “method to counteract strategies that seek the protection of
particular treaties by acquiring a favourable nationality.”8 In the case of Caratube
International Oil LLP v. Kazakhstan,9 the arbitral tribunal is of the view that “This
denial of benefits provision allows each of the parties to deny the benefits of the BIT’s
protection to a company that is controlled by nationals of a third State and does not
have any substantial activities in the other State-party to the BIT.”
In Amto v. Ukraine,10 the arbitral tribunal posited that Article 17 of the Energy
Charter Treaty (ECT) can be read together with the definition of “investor” in Article
1 (7) in establishing two classes of investors under the ECT, i.e., (1) investors with an
indefeasible right to investment protection under the ECT and (2) investors with
defeasible right to investment protection under the ECT because the host State of the
investment has the power to divest the investor of this right. They are legal entities
who satisfy the nationality requirement by reason of incorporation but are owned or
controlled by nationals of a third State in a manner unacceptable to the invested host
State. Foreign ownership or control is potentially unacceptable if it involves a State
with which the host State does not maintain economic relationship or where there is
no substantial business activity in the state of incorporation.
These views are supported by several scholars. Salacuse, for example, argues that
allowing benefits to a third-country national would be to abandon “the right to
negotiate corresponding privileges and obligations from those countries.”11 In
addition, Mistelis and Baltag stated that the denial of benefit clause not only a
guarantee against abuse of rights but also a safety measure for safeguarding the
reciprocity principle in IIA.12
Not all IIAs subscribe to the idea espoused above. ASEAN has made some
innovations to the denial of benefit provision in the ASEAN Comprehensive
8
Dolzer R, Schreuer C (2012) Principles of international investment law, 2nd edn Oxford University
Press, p 55.
9
ICSID Case No. ARB/08/12 Award, 5 June 2012, para 354, the tribunal held that the relevant IIA
had no denial of benefits clause included.
10
Limited Liability Company Amto v. Ukraine, Arbitration no. 080/2005, Final Award, 26 March
2008, para 61. The claims arising out of the bankruptcy of the Zaporozhskaya nuclear power plant
in eastern Ukraine and its default under contracts to claimant’s subsidiary for maintenance works
carried out at such plant; particularly, the alleged prevention by Ukrainian bankruptcy law and the
conduct of these bankruptcy proceedings from enforcing several court orders obtained by claimant’s
subsidiary against the State-owned company.
11
Salacuse JW (1990) BIT by BIT: the growth of bilateral investment treaties and their impact of
Foreign Investment in developing countries. Int Law 24:655–675, p 655.
12
Mistelis L, Baltag C (2009) Denial of benefits and article 17 of the Energy Charter Treaty. Penn St
L Rev 113:1301–1321, p 1303. Also refer Anthony Sinclair, Investment Protection for “Mailbox
Companies” under the 1994 Energy Charter Treaty. (2005) Transnat Dispute Manag 2(5):3.
Investment Agreement (ACIA) by excluding investors coming from a country not

having any diplomatic relation with the host country despite the investors and their
investments having real economic relations. At the same time, under the ACIA,
ASEAN allows the extension of the benefits of the ACIA to third-country nationals.
Also, indirectly, investors may be denied benefits by way of not complying with
certain procedural requirement spelt out in the IIA concerned such as failure to apply
for an investment approval or formality required in certain way by the national law of
the host country.13
Denial of Benefits in the ISDS Arbitrations
The denial of benefits provision is usually used as a defense against an Investor-

State Dispute Settlement (ISDS) claim by an investor.14 This happens when the
claimant in a case shows a tendency of treaty shopping such as incorporating a
company within the jurisdiction of a Party of an IIA with the respondent after the
event giving the ground for a claim. The defense is generally raised to
deny jurisdiction of the tribunal, that the case does not come within the scope
of the IIA subject to the investigation by the tribunal.15 The State-respondent will
have to prove that the investor-claimant is not entitled to bring the claim in the
first place.
Upon investigating the defense, the arbitral tribunals will have to investigate the
corporate structure of the investors and their investments including related economic
activities. This is to establish the substantive business of the investors is “connected
with” the host country. In the case of any claim of ACIA, the investigation will go
deeper into the nationality of the investors or the persons having substantive
management and control of any corporate body. This will involve lifting the
“corporate veil” to investigate the directors and the shareholders of the corporate
investors. In the case of Charanne B.V. and Construction Investments SARL
13
Under Article 19 of ACIA, the host ASEAN Member State may deny any benefits conferred by
ACIA in the event that an investor or an investment: (a) does not conduct substantive business
operations in the ASEAN Member State where it is incorporated, (b) is from a country without any
diplomatic relations with the host ASEAN Member State, and (c) has breached its domestic law by
misrepresenting its ownership in those areas which are reserved for local investors.
14
Reinisch A (2013) The scope of investor-state dispute settlement in international investment
agreements. Asia Pac Law Rev 21:1, 3–26.
15
See Levine MAJ (2020) Emerging practice on investor diligence: jurisdiction, admissibility, and
merits. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international investment law and
policy. Springer, Singapore. https://link.springer.com/referenceworkentry/10.1007/978-981-13-
5744-2_18-1 and Di Pietro D, Cheung K. The definition of investor. In: Chaisse J,
Choukroune L, Jusoh S (eds) Handbook of international investment law and policy. Springer,
Singapore. https://link.springer.com/referencework/10.1007/978-981-13-5744-2. See also Qian X
(2018) Challenges of water governance (and privatization) in China-Traps, gaps, and law. Georgia
J Int Comp Law (1):49–91.
1018 I. M. Ramli
v. Kingdom of Spain,16 the arbitral tribunal States that this will involve the inves-
tigation of the meaning and definition of the term “investors” as defined in the IIA.
Treaty shopping happens when an investor sets up a seat at a country most
advantageous to the investments, such as providing the best protection or the best
fiscal and non-fiscal incentives. Multinational companies (MNC) has the tendency
for setting different corporate seats hence, taking the advantage of the treaty shop-
ping. Investment definition is usually broad enough to cover all kinds of assets,
tangible and intangible that the investors brought into the investments. In addition,
most IIAs have loose definition of investors. In the modern world, investors may
take opportunities from the protections of IIAs, where investors may move their
corporate seats to a location to take advantage of a provision to the investor’s claim
in an ISDS. There are times when a third-party investor may also move the corporate
seat to another country to take advantage of a third country IIA against the host State.
Sometime respondent States are taken by surprise due to the treaty shopping by the
investors, as shown by various cases.
In 2010, Australia introduced plain packaging for all tobacco products, where
producers are not allowed to show any graphic or trademark or brand of the products.
The purpose of the new bill is to discourage smoking initiation and to implement the
Framework Convention on Tobacco Control (FCTC), as imposed by the World
Health Organization (WHO). Philip Morris, however, challenged the regulation
and brought a case against Australia under the Hong-Kong–Australia BIT.17 Philip
Morris used one of the Asian subsidiaries to bring the case even though the main
company was based in the United States. The Australia–US BIT does not provide an
ISDS provision and this precludes Philip Morris from resorting to ISDS under the
BIT. The practice of investment structuring is not unique to Philip Morris as it is a
common practice among multinational companies around the world. Hence, the
denial of benefit provision doing just that, that any investment rerouted through a
third country must involve a company that operates a “substantial business” and not
through a shell company or “fly by night.”
Another case is Phoenix Action v. Czech.18 In this case, the investor was a Czech
national having a dispute against his own government. He subsequently incorporated
a corporation in Israel and transferred his investment to the Israeli corporation, with
the goal of making the investment eligible for protection under the Czech–Israel BIT.
As an Israeli firm, that investor launched a claim against the Czech Republic.
16
Charanne B.V. and Construction Investments SARL v. Kingdom of Spain, SCC Case
No. 062/2012. Award 21 January 2016, para 41 7. The claims arising out of a series of energy
reforms undertaken by the Government affecting the renewables sector. Shareholding of 18.66%
(by Charanne) and 2.89% (by Construction Investments) in T-Solar Global S.A., a Spanish solar
power plant.
17
Philip Morris Asia Limited v. The Commonwealth of Australia (PCA Case No. 2012-12).
18
Phoenix Action Ltd v. Czech Republic (ICSID Case No. ARB/06/5). Claims arising out of the
alleged continuous freezing of funds in a number of bank accounts belonging to claimant’s
companies, the seizure of accounting and business documents, as well as Czech courts’ delays in
the different actions brought by the investor’s companies.
A denial of benefits provision that contained a substantial “business activity in

Israel” requirement could have been used to deny the benefits of the treaty to the
investor.
Meanwhile, in Rurelec Plc and Guaracachi America Inc. (GAI) v. Bolivia,19 the
two claimants brought a case against Bolivia under the US–Bolivia BIT and the
Arbitral tribunal constituted under the UNCITRAL Rules declined jurisdiction in an
award dated 31 January 2014, on the basis of a denial of benefits provision under the
US–Bolivia BIT. Bolivia argued in its Statement of Defense that the tribunal lacked
jurisdiction over the claims of GAI pursuant to Article XII of the US–Bolivia BIT.
In this case, Bolivia’s contention was that they were entitled to deny the benefits
of the BIT to GAI as the conditions for the application of Article XII of the US–
Bolivia BIT, i.e., GAI was controlled by national of a third State and had no
substantial business activities in the United States. Whereas GAI argued that denial
of benefits cannot operate retroactively as the investment was made prior to the entry
into force of the BIT, and therefore there was legitimate expectation. The Tribunal
acknowledged that Bolivia had correctly denied the benefits afforded in the BIT after
both parties had consented to arbitration but noted that “[w]henever a BIT includes a
denial of benefits provision, the consent by the host State to arbitration itself is
conditional and thus may be denied by it, provided that some objective requirements
concerning the investor are fulfilled.”20
The tribunal also considered that GAI should be aware of the denial of benefits
provision and the potential invocation by host State if the requirements are fulfilled.
There should not be any legitimate expectations when the investor accepts the offer
to arbitrate. Further, the investment was made prior to the entry into force of the BIT
therefore, “[t]he benefits contained in the BIT [. . .] did not play any role in the
decision of the investor to make this investment.”21 The Tribunal rejected the
argument as to the retroactive application of Article XII. The Tribunal held that
“[the] very purpose of the denial of benefits is to give the Respondent the possibility
of withdrawing the benefits granted under the BIT to investors who invoke those
benefits”.22
The Tribunal further reasoned that the denial is activated when the benefits are
claimed and need not be “notified” separately.23 Also the invocation of Bolivia of
Article XII was timely in accordance to Article 23 (1) of the UNCITRAL Rules and
19
Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia (PCA Case
No. 2011-17). The claims arising out of the Government’s nationalization of Guaracachi America,
Inc. and of Rurelec’s controlling 50.001% shareholding in the Bolivian electricity company
Empresa Eléctrica Guaracachi, as well as the alleged failure by the claimants to obtain justice
through the Bolivian court system and the subsequent seizure of assets owned by Rurelec’s
subsidiary, Energía para Sistemas Aislados Energais S.A.
20
Guaracachi America, Inc. (U.S.A.) and 2. Rurelec plc (United Kingdom) v. Plurinational State of
Bolivia, UNCITRAL, Award, 31 January 2014, para 372.
21
para 380.
22
para 376.
23
para 376.
1020 I. M. Ramli
therefore, the Tribunal held that it had no jurisdiction to hear GAI’s claims against
Bolivia. This led to the conclusion that if the treaty in question is silent as to when is
the invocation of a denial of benefit provision, there is no obligation for the host State
to deny the benefits of the treaty before the request for arbitration is filed. This
position in this case was based on the reasoning of ICSID Tribunal in Pac Rim
Cayman LLC c. El Salvador.24
The Tribunal in the latter case dealt with whether El Salvador could deny its
consent to ICSD arbitration after the dispute has arisen pursuant to Article 10.12.2 of
the US-Central America Free Trade Agreement (CAFTA) which reads:
“[a] Party may deny the benefits of this Chapter [which contains the offer of the State to
arbitrate] to an investor of another Party that is an enterprise of such other Party and to
investments of that investor if the enterprise has no substantial business activities in the
territory of any Party, other than the denying Party, and persons of a non-Party, or of the
denying Party, own or control the enterprise”.
Here, the tribunal found that “[t]here is no express time-limit in CAFTA for the
election by a CAFTA Party to deny benefits under CAFTA Article 10.12.”25 The
Tribunal held that the denial of benefits can be invoked retroactively, i.e., no later
than the expiration of the time limit fixed for filling of the counter memorial pursuant
to ICSID Arbitration Rule 41. The Tribunal then went on declaring that it lacked
jurisdiction over claims brought by Pac Rim Cayman under CAFTA.
Generally, both tribunals agreed that the host States were entitled to deny the
benefits afforded in the respective treaties after such benefits have been claimed by
the related investors. However, this is not the case for claims under the Energy
Charter Treaty (ECT) which provide on the invocation of denial of benefits. Article
17 (1) of the ECT provides that:
“Each Contracting Party reserves the right to deny the advantages of this Part [III] to: (1) a
legal entity if citizens or nationals of a third state own or control such entity and if that entity
has no substantial business activities in the Area of the Contracting Party in which it is
organized”.
In the landmark decision of ICSID case of Plama Consortium Ltd. v. Bulgaria,26

Bulgaria denied the benefits of the ECT to the claimant a few months after the filing
24
Pac Rim Cayman LLC v. Republic of El Salvador (ICSID Case No. ARB/09/12). The claims
arising out of the Government’s refusal to issue necessary mining licences for Pacific Rim’s El
Dorado gold mining project in northern El Salvador due to alleged environmental concerns
including the company’s use of certain chemicals in the extraction process.
25
Pac Rim Cayman LLC v. Republic of El Salvador (ICSID Case No. ARB/09/12), para 4.83.
26
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award on
Jurisdiction, 8 February 2005. Claims arising out of the Bulgarian government, national legislative,
judicial authorities, and other public authorities and agencies’ alleged damage to the operation of the
investor’s refinery, as well as their refusal or unreasonable delay in adopting adequate corrective
measures.
of the request of arbitration. The tribunal decided that the right under ECT operates
prospectively only and that Article 17(1) requires that the host State “properly”
notify the investor in advance of the potential effects of this provision contrary to
position adopted in Rulelec and Pac Rim Cayman. The Tribunal further noted that:
“[i]f [. . .] the right’s exercise had retrospective effect, the consequences for the investor
would be serious. The investor could not plan in the ‘long term’ for such an effect (if at all);
and indeed such an unexercised right could lure putative investors with legitimate expecta-
tions only to have those expectations made retrospectively false at a much later date.”27
Furthermore, “[g]iven that in practice an investor must distinguish between Contracting
States with different state practices, it is not unreasonable or impractical to interpret Article
17(1) as requiring that a Contracting State must exercise its right before applying it to an
investor and be seen to have done so.”28
Further, the tribunal in determining the prospective effect of the exercise of the
right to the deny benefits under the ECT held that Article 17(1) does not affect the
jurisdiction of the tribunal but the merits of the case. This was due to Part III of the
ECT only refers to substantive investment protection benefits and not to the offer of
the State to arbitrate. This view has been followed by other ECT tribunals in deciding
on the application of Article 17 (1) of the ECT.
All these decisions reflect the development of diverging jurisprudence as to how
and when denial of benefits provisions should be invoked by host States, and that
although the treaties concluded are different and of distinct context, the provisions
are not so dissimilar. Therefore, the question remains on which approach will be
adopted by tribunals in considering the denial of benefits provisions.
Provisions and Cases of Denial of Benefits in ASEAN Agreements
ASEAN Investors under the ASEAN Comprehensive Investment Agreement

(ACIA) may benefit from access to the ISDS mechanism, which is applicable to
claims for losses and damages after ACIA’s entry into force.
Under Article 29 of the ACIA, the disputing investor must show that it has
incurred a loss or damage by reason of or arising out of the breach of the host
ASEAN Member State (AMS) of its obligations under ACIA. An ASEAN Investor
may file an action under the ISDS based on any of the following causes:
(a) National treatment

(b) Most-favored-nation treatment
(c) Senior management and board of directors
(d) Treatment of investment
27
Jurisdiction, 8 February 2005, para 162.
28
Jurisdiction, 8 February 2005, para 157.
1022 I. M. Ramli
(e) Compensation in cases of strife

(f) Transfers
(g) Expropriation
(h) Compensation relating to the management, conduct, operation or sale or other
disposition of a covered investment
Most of the IIAs, in dealing with the denial of benefits provide for parties to deny
the benefits of the IIAs. The benefits here mean all the main provisions of the IIA,
either a BIT or an FTA. Basically, the denied benefits are all three of the four pillars
of an FTA, i.e., the liberalization, the investment facilitation, and mainly the invest-
ment protections, which also include access to dispute settlement.29 This section
examines the denial of benefits provisions in the ASEAN Comprehensive Invest-
ment Agreements (ACIA), the investment chapters of the ASEAN FTAs, namely,
ASEAN Australia New Zealand Free Trade Agreement (AANZFTA); ASEAN
China Free Trade Agreement (ACFTA); ASEAN India Free Trade Agreement
(AIFTA); ASEAN Japan Comprehensive Economic Partnership Agreement
(AJCEPA); and ASEAN Korea Free Trade Agreement (AKFTA).
Denial of Benefits and ACIA
AMS agreed to the ACIA in 2009, but the Agreement only came into force in 2012.
Article 19 of ACIA provides that an AMS may deny the benefits of ACIA to four
types of investors.
The first type of investor is an investor who is a juridical person of another
Member who is owned and controlled by a non-ASEAN investor and having no
substantive business operations in the territory of the AMS where it is incorporated.
“Ownership” and “control” is defined by Article 19.3 of ACIA. Ownership is
defined as where the ownership is in accordance with the laws, regulations, and
national policies of each Member State. Whereas control is defined as where an
investor has the power to name majority of its directors or otherwise to legally direct
its actions. It also means that third-country investors having substantive business in
one AMS and reinvest in another ASEAN Member State will be considered as
“ASEAN Investors” and thus able to rely on the provisions of the ACIA if they
wish to.
This is because the term “investor” under Article 4 of ACIA does not limit the
ownership and control of an ASEAN juridical person to nationals of AMS. The term
“investors” under ACIA include “natural person of a Member State or a juridical
person of a Member State that is making or has made an investment in the territory of
any other Member State.” This means, if an Indian investor incorporates a company
See Chaisse J (2015) The shifting tectonics of international investment law – structure and
29
dynamics of rules and arbitration on Foreign Investment in the Asia-Pacific Region. George
Washington Int Law Rev 47(3):563–638
in Brunei and that Bruneian company, which has a substantive business in the
country, then invests in Thailand, the investment in Thailand is considered an
investment by an ASEAN company. It means although the ultimate owner of the
company in Brunei is an Indian national, the Bruneian company’s investment in
Thailand will benefit from ACIA.30
The second type of investor is an investor who is a juridical person of another
ASEAN Member State which is owned and controlled by an investor of the denying
State and not having a substantive business operation in the territory of the state of
incorporation. This is quite common in denial benefits provision of any other IIAs.
The third type of investor is the investor who is a juridical person in an AMS and
is owned and controlled by a non-ASEAN investor who originates from a country
where the denying ASEAN Member State does not have any diplomatic relations
with. For example, a Singaporean incorporated juridical person which is owned and
controlled by an Israel or Taiwanese national and reinvest in Malaysia may not
benefit from ACIA for their investment Malaysia. This is because Malaysia does not
have any diplomatic relationship with Israel or Taiwan. In fact, all ASEAN Member
States do not have any diplomatic relationship with Taiwan.
The fourth and final type of investor is an investor of an ASEAN Member State
whose investments is in breach of the domestic laws by breaching the restrictions of
sectors normally reserved for natural or juridical persons of the host Member State. It
means an investor may not use a nominee to go around any shareholding restrictions
imposed in the national list of restricted sectors which may limit foreign sharehold-
ing to a certain percentage. In other words, an ASEAN Member State may deny the
benefits of ACIA to an investor who has breached the domestic law by mis-
representing its ownership in those areas of investment which are reserved for
local investors.
The only arbitration case linked to the fourth type of denial of benefit in ASEAN
is Yaung Chi Oo Trading v. Myanmar.31 The case deals with failure to obtain an
approval in writing for a joint-venture project in Myanmar under the old ASEAN
Agreement for the Promotion and Protection of Investments of 15 December 1987
(the 1987 ASEAN Agreement, which is replaced by ACIA) and the only case under
the ASEAN Investment legal framework.
In this case, Yaung Ching Oo Trading Pte Ltd (YCO) is a company incorporated
in Singapore, and the managing director is a Myanmar diaspora residing in Singa-
pore. The defendants were the Government of Myanmar, as the responsible State for
Myanmar Foodstuff Industries (MFI), an agency of the Union of Myanmar Ministry
of Industry. The dispute is based on a joint-venture (JV) agreement dated
29 November 1993, between MFI, State Industrial Organization of Myanmar, and
30
Chaisse J, Jusoh S (2016) The ASEAN comprehensive investment agreement: the regionalisation
of laws and policy on Foreign Investment. Elgar.
31
Yaung Chi OO Trading Pte Ltd. v. Government of the Union of Myanmar (ASEAN I.D. Case
No. ARB/01/1) where the Claims arising out of the alleged seizure of the investor’s property by
armed agents of the Government and the freezing of certain bank accounts of the investor.
1024 I. M. Ramli
YCO. The joint venture was for the purpose of complying with the Foreign Invest-
ment Law of Myanmar. MFI contributed machinery and land, and YCO contributed
the capital, foreign raw materials, and expertise. The JV obtained all the necessary
permissions and approvals and began operation on 1 October 1994.
According to YCO, the JV was highly successful with the output of the Mandalay
Beer Factory increased greatly and MYCO made significant profits. However, YCO
alleged that between 17 December 1997 and 12 January 1998, armed agents of
Myanmar seized the Mandalay Brewery. YCO also contended that on a further
armed seizure occurred in November 1998 and certain bank accounts belonging
to YCO.
Article VI (1) of the 1987 ASEAN Agreement include a requirement for a specific
approval in writing and registration as a condition for a foreign direct investment to
receive more favorable conditions. In the case of new investments, Article II
(I) provides that the Agreement only applies to “investments brought into, derived
from or directly connected with investments brought into the territory of any
Contracting Party by nationals or companies of any other Contracting Party
which are specifically approved in writing and registered by the host country and
upon such conditions as it deems fit for the purposes of this Agreement.”
YCO commenced the arbitral proceedings claiming that Myanmar had been in
breach of substantive provisions of the 1987 ASEAN Investment Agreement, in
particular Articles III, IV, and VI. Article III of the 1987 ASEAN Agreement pro-
vides that all investments under the 1987 ASEAN Investment Agreement shall be
governed by the laws and regulations of the host country. This includes the rules of
registration and valuation of the investments.32 Article III also provides for the fair
and equitable treatment and full protection of investors in the territory of the host
country.33 Article VI of the 1987 ASEAN Agreement provides for rules for expro-
priation and compensation. Under Article 6, expropriation (direct and indirect) may
only take place if it is for public use, or public purpose, or in the public interest, and
under due process of law, on a nondiscriminatory basis and upon payment of
adequate compensation.
At the early stage of the proceedings, measures, Myanmar argued that the
Tribunal lacked jurisdiction to interfere in pending liquidation and legal proceedings
in Myanmar. Among others, Myanmar argued that the 1987 ASEAN Agreement was
inapplicable to the present case as YCO managed from Singapore and not from
Myanmar as required by Article 1(2) and that there was no registration and approval
of the investment as required under Article 11(3).34
YCO, on the other hand, argued that effective control was required only at the
time the investment was initiated. YCO also argued that it has the valid approval
under Article 11 (3) as shown, among others by the acts of the agents of Myanmar,
32
1987 ASEAN Investment Agreement, Art. III.1.
33
1987 ASEAN Investment Agreement, Art. III.2, also in Art. IV.2.
34
YCO Award, paras 26–27.
and the reports and approval of imports for the purposes of the joint venture, were
sufficient for this purpose.35
The Tribunal focused rather on the main question, whether there was an invest-
ment as defined by the 1987 ASEAN Agreement. The Tribunal held that, as in the
case of companies, the 1987 ASEAN Agreement requires both local incorporation
and effective management.36 The Tribunal held that a tribunal should take into
account the fact that the investors’ key personnel have been engaged in
implementing the investment based on the joint venture. Hence, the question of
effective management of the investor at the place of incorporation may be required.37
The Tribunal also found no evidence of “protection shopping.” The Tribunal
found that once an effective management is established, the investor will not lose
treaty protection and that YCO was effectively managed from Singapore within the
requirement of the 1987 ASEAN Agreement38.
The Tribunal then discussed the provision of Article 11 (a) 1987 ASEAN
Agreement which requires that an investment must have been “specifically approved
in writing and registered by the host country and upon such conditions as it deems fit
for the purposes of this Agreement.”39
YCO argued that it had the specific approval and that it had been registered for the
purpose of foreign investment in Myanmar, and that it had been in compliance with
Article 11. On the other hand, Myanmar argued that YCO required a specific
approval in writing and the approval must be given after the date of the date of
Article 11(3) came into force, even though the investment was already in existence at
the time.40 YCO admitted that it had to qualify under Article 11 (3) for the purpose of
obtaining Treaty Protection. 41
YCO had argued that there has been “continuing approval” by Myanmar to the
investment during the duration of the JV which continued after 23 July 1997. There
were also several approvals given through the Board of Directors of MYCO.
Without a specific procedure of approval under Article 11 of the 1987 ASEAN
Agreement or any specific requirements made public by Myanmar, YCO further
argued those acts fulfilled the requirement under Article 11 (3). Myanmar, on the
other hand, argued that YCO must have applied through the FIC for the treaty
protection.42
The Tribunal noted that there was the 1987 ASEAN Agreement specifically
required the approval in writing and registration of a foreign investment.43 YCO
35
YCO Award, para 27.
36
YCO Award, para 41.
37
YCO Award, para 41.
38
YCO Award, para 52.
39
YCO Award, para 53.
40
YCO Award, para 55.
41
YCO Award, para 56.
42
YCO Award, para 57.
43
YCO Award, para 58.
1026 I. M. Ramli
must have applied for a specific approval under the Myanmar law when the 1987
agreement came into force, as the investment was made before 23 July 1997, when
the 1987 ASEAN Agreement entered into force for Myanmar. Any prior approval
would not be sufficient for obtaining the treaty protection.44 Therefore, the Tribunal
concluded that the Claimant’s investment does not qualify as such under Article
11 (3) of the of the 1987 ASEAN Agreement.45 The Tribunal decided that it lacked
jurisdiction.46
The case of Yaung Chi Oo is important from many perspectives.47 From the
perspective of an investor, the Yaung Chi Oo case highlights the importance of a
foreign investor to comply with any changes to the domestic law and international
investment treaty of the host country. Investors will have to ensure that they remain
alert of any changes to the law or international obligations as this may change the
nature of treatment and protection afforded to domestic investors in the host
country. For example, in this case, YCO should have known that they need to
register the investment with the FIC upon the entry into force of the 1987 ASEAN
Agreement if they would like to continue receiving protections under the said
agreement. The case draws parallel with cases related to the getting consent in
writing or ensuring investments are within the definition of approved projects as
and when required by the relevant treaty. In the more modern treaty related to
investment, an investor has to ensure that the investor investments remain within
“covered investment.”
The same reason applies for the requirement of “approval in writing” under the
law of the host country as provided in Article 4 of ACIA. This mechanism allows
ASEAN Member States to calibrate their investment treaty exposure to approval
(which will often take the form of registration) of foreign investment under domestic
law. Furthermore, there may well be strong public policy grounds for a linkage
between domestic registration and investment treaty exposure. Registration is often a
technique used by States to regulate and administer the grant of benefits to attract
foreign investment (including through use of investment incentives) at first instance.
Denial of Benefits Under ASEAN Investment Agreements
As we note earlier, the purpose of the “denial of benefits” provision is to exclude

from the protection afforded by applicable IIA, for investors and their investments
who, although formally satisfying the definition of investor, do not have a real
44
YCO Award, para 60.
45
YCO Award, para 61.
46
YCO Award, para 85.
47
pp 205–226. https://doi.org/10.1017/9781780688404.008
(economic) connection with the home State.48 Dolzer and Schreuer consider the
denial of benefits as a “method to counteract strategies that seek the protection of
particular treaties by acquiring a favourable nationality.”49 Moreover, Mistelis and
Baltag explained the “denial of benefits” provision is not only a guarantee against the
abuse of rights but also a “safety measure for safeguarding the principle of reciprocity
embodied in investment treaties.”50 Regarding investor protection, the definition of
investor51 protected in the treaty is different from the operation of denial of benefits
provision. Even though a company qualifies as a protected investor, it could be
excluded from the treaty’s protection because of ownership and control exercised by
nationals of a third State.52 These differences can be seen under ACIA53 general
definitions on juridical person54 and denial of benefits criteria of juridical person.55
Types of Investors (Fig. 1)

As mentioned above, the ACIA is the most comprehensive basis agreement under-
lying other ASEAN FTAs.56 Article 19 of ACIA enumerates the four types of
investors who might be denied of the rights and obligations of applicable IIAs and
they are provided as such in the following:
(A) AANZFTA
Denial of benefits applies differently between the different types of investors
and this is varied between agreements. Under the ACIA, and AANZFTA57, the
48
Mistelis L, Baltag C. Denial of benefits’ clause in investment treaty arbitration. Legal Studies
research paper No. 293/2018, Queen Mary University of London, School of Law, p 1.
49
University Press, p 55.
50
Mistelis L, Baltag C (2009) Denial of benefits and article 17 of the Energy Charter Treaty. Penn St
L Rev 113:1301–1321, p 1303. See also, Sinclair A (2005) Investment protection for “Mailbox
Companies” under the 1994 Energy Charter Treaty. Transnat Dispute Manage 2(5):3.
51
Article 4, ACIA, “investor” means a natural person of a Member State or a juridical person of a
Member State that is making or has made an investment in the territory of any other Member State.
52
Banifatemi Y (2018) Taking into account control under denial of benefits clauses. IAI series on
International Arbitration no. 8, pp 233–234.
53
ASEAN Comprehensive Investment Agreement (ACIA), Article 19.
54
Article 4 Paragraph e, ACIA, “juridical person” means any legal entity duly constituted or
otherwise organised under the applicable law of a Member State, whether for profit or otherwise,
and whether privately-owned or governmentally-owned, including any enterprise, corporation,
trust, partnership, joint venture, sole proprietorship, association, or organisation.
55
Article 19 Paragraph 3, ACIA, a juridical person is: “(a) “owned” by an investor in accordance
with the laws, regulations and national policies of each Member States; (b) “controlled” by an
investor if the investor has the power to name a majority of its directors or otherwise to legally
direct its actions.”
56
Nurridzki N. Learning from the ASEAN+1 model and the ACIA. ERIA discussion paper series
2015–2019, p 15
57
Agreement establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA),
Chapter 11, Article 11.
1028 I. M. Ramli
denial of benefits provision covers the first, second, and fourth types of
investors.
1. The first type of investor is provided under Article 11 Paragraph 1(a) of the
AANZFTA, which allow denial of benefits to investors from non-Party State
who own and control a juridical person in other Member States with no
substantive business activities in the territory of such other Member State.
2. The second type is provided under Article 11 Paragraph 1(b) of the
AANZFTA, which allows denial of benefits to investors from Denying
State who owns and control a juridical person in other Member States with
no substantive business activities in the territory of such other Member State.
3. The fourth type is provided under Article 11 Paragraph 2 and 4 of the
AANZFTA. However, additionally for Thailand, in Article 11 Paragraph
2 of the AANZFTA, Thailand may deny benefits under its applicable laws
and regulations relating to the admission, establishment, acquisition, and
expansion of investments of non-Party or Denying Party who own and
control a natural or juridical person in other Member States. On the other
hand, according to Article 11 Paragraph 4 of the AANZFTA, the Philip-
pines may deny benefits for investors from Member States who breach the
Philippines domestic laws (“Anti-Dummy Law”)58 regarding foreign
investments.
(B) ACFTA
Whereas under ACFTA,59 denial of benefits provisions may be exercised
against the first, second, and fourth types of investors.
1. The first type of investor is provided under Article 15 Paragraph 1(a) of the
ACFTA, which allows denial of benefits to investors from non-Party States
who own and control a juridical person in other Member States with no
2. The second type is provided under Article 15 Paragraph 1(b) of the ACFTA,
which allows denial of benefits to investors from Denying State who owns
and control a juridical person in another Member States. However, there is
no detail on whether the denial can be given if there are no substantial
business activities in the territory of such other Member States. According
to Anna F Teini, since the ACFTA does not say otherwise, the benefits will
be denied even where the substantial business activities take place in the
organized territory.60
58
The Philippines Commonwealth Act No. 108 (An Act to Punish Acts of Evasion of Laws on the
Nationalization of Certain Rights, Franchises or Privileges) as amended by Presidential Decree
No. 715, otherwise known as “the Anti-Dummy Law,” as may be amended.
59
eration Between the Association of Southeast Asian Nations and the People’s Republic of China
(ACFTA), Article 15.
60
Tevini AG (2018) Regional economic integration and dispute settlement in East Asia: the
evolving legal framework. Hart Publishing, Oxford, UK.
3. The fourth type is provided under Article 15 Paragraph 2, 2(b), and

4 regarding Thailand, Indonesia, Myanmar, Philippines, and Viet Nam.
For Thailand, in Article 15 Paragraph 2 of the ACFTA, Thailand may
deny benefits under its applicable laws and regulations relating to the
admission, establishment, acquisition, and expansion of investments of
the non-Party or Denying Party who own and control a natural or juridical
person in other Member States. While for Indonesia, Myanmar, Philippines,
and Viet Nam, Article 15 Paragraph 2(b) of the ACFTA, provided that
ownership, and control shall be under their domestic laws and regulations.
For the Philippines, according to Article 15 Paragraph 4 of the ACFTA, the
Philippines may deny benefits for investors from Member States who
breach the Philippines Anti-Dummy Law regarding foreign investments.
(C) AIFTA
For AIFTA,61 denial of benefits provisions may be exercised to all categories
of investors along the criteria set by ACIA.
1. The first type of investor is provided under Article 13 Paragraph 1, 2(a) and
2(b) of the AIFTA, which allow denial of benefits to investors from
non-Party State who own and control a juridical person in other Member
States with no substantive business activities in the territory of such other
Member State.
2. The second type is provided under Article 13 Paragraph 2(a) and 2(b) of the
AIFTA, which allows denial of benefits to investors from Denying State
who owns and control a juridical person in other Member States with no
3. The third type is provided under Article 13 Paragraph 1(a) of the AIFTA,
which allow denial of benefits to investors from non-Party State who does
not have any diplomatic control with the Denying State.
4. The fourth type is provided under Article 13 Paragraph 1(b) and 4 of the
AIFTA, where Article 13 Paragraph 1(b) allow denial of benefits for
investor from non-Party State who own and control a juridical person in
other Member States that violate Denying State measures to prohibits
transactions or giving benefits to the juridical person. According to Article
13 Paragraph 4, the Philippines may deny benefits for investors from
Member States who breach the Philippines Anti-Dummy Law regarding
foreign investments.
Based on the analysis above, the first, second, and fourth type of investors are
provided under the denial of benefits provisions for all ASEAN FTAs, except for the
third type which is only used in AIFTA. Therefore, to avoid denial of benefits,
potential investors should be aware of these four types of investors who can be
61
eration Between the Association of Southeast Asian Nations and the Republic of India (AIFTA),
Article 13.
1030 I. M. Ramli
Fig. 1 The types of investors

in AANZFTA, ACFTA,
AIFTA Fourth First
30% 30%
Third
10% Second
30%
denied of the benefits of the related IIAs by the AMS. Benefits may be extended only
if a non-Party State or Denying Party as the controller or owner of a juridical person
in another Party State has substantial business activities in such Party States.
Moreover, an investor might want to analyze whether their State has a diplomatic
relation with targeted Party States and understand their related domestic investment
laws and regulations.
Control, Ownership, and Substantivity

To avoid extending benefits for shell or mailbox companies, there is some set
limitation on ownership, control, and substantivity. Juridical person ownership and
control differ in each agreement. It is not an easy task to determine what control
means. The Draft 4th Edition of the OECD Benchmark Definition of Foreign
Investment62 emphasizes the percentage of ownership or voting power in a company
as the measure of control, constituting the quantitative approach:
“To classify an enterprise within a country on the basis of the presence or absence of
effective foreign control [emphasis in original text], the criterion recommended for use is
whether or not a majority of ordinary shares or voting power (more than 50% of the capital)
is held by a single foreign direct investor or by a group of associated investors acting in
concert [. . .]. Application of this criterion avoids the use of subjective concepts or case by
case review [. . .].”
Here, the Tribunal in the NAFTA case Thunderbird v. Mexico63 interpreted as

follows:
“Control can also be achieved by the power to effectively decide and implement the key
decisions of the business activity of an enterprise and, under certain circumstances, control
can be achieved by the existence of one or more factors such as technology, access to
supplies, access to markets, access to capital, knowhow and authoritative reputation.”64
62
OECD (2007) Benchmark definition of Foreign Investment (draft), 4th edn. DAF/INV/STAT
(2006)2/REV. 3.
63
International Thunderbird Gaming Corporation v. United Mexican States, Award,
26 January 2006.
64
Thunderbird, para 180.
In Article 19 Paragraph 3 of the ACIA, a juridical person is: “(a) ‘owned’ by an

investor in accordance with the laws, regulations and national policies of each
Member States; (b) ‘controlled’ by an investor if the investor has the power to name
a majority of its directors or otherwise to legally direct its actions.” Both AANZFTA
and ACFTA do not provide details on juridical person ownership or control in their
denial of benefits provision, except for Thailand. However, AIFTA has specified on
the criteria of the juridical person ownership or control as the same as ACIA.65
Furthermore, not only to fulfill the requirement of ownership and control, one
juridical person shall have substantial business activities in order to avoid denial
of benefits. In ACIA, AANZFTA, AIFTA, and AIFTA, there is no mention on the
definition of “substantial business activities.” However, some scholars argue that
substantial business activities or real economic connection exist when
companies are:66
1. Engaged in buying, selling, contracting in that territory beyond normal activities

required merely by the fact of its corporate existence (e.g., corporate registration,
administration, meetings)
2. Have employees in the contracting party which organized to carry out business
3. Have a residence manager who involved in actual decision-making
4. Involve in a substantial transaction in the area of contracting parties
5. Pay taxes to contracting party
6. Engage in procurement locally for inputs of a business
Moreover, the arbitral tribunal of Pac Rim v. El Salvador held that substantial
business activities relate to activities attributable to the “enterprise” itself,67 and the
requirement substantial business activities for traditional holding companies are
“usually a board of directors, board minutes, continuous physical presence, bank
account, active holding shares in subsidiaries.”68
Special Conditions for Certain Countries

There are special conditions for several countries such as Thailand, Indonesia,
Myanmar, the Philippines, and Viet Nam to adhere to their national laws and
regulations related to investment. For Thailand, according to AANZFTA, with
prior notification, may deny the benefits of the AANZFTA under its applicable
laws and regulations relating to the admission, establishment, acquisition, and
expansion of investments of a Party, non-Party, or Denying Party who own and
control a natural or juridical person in other Member States. This provision is also
65
Article 13 (3), AIFTA.
66
Jagusch S, Sinclair A (2016) Part II – Denial of advantages under article 17(1). In: Baumgartner J
(ed) Treaty shopping in international investment law. Oxford University Press, Oxford, UK, p 115.
67
Pac Rim Cayman v. El Salvador (ICSID Case No. ARB/09/12), Decision on the respondent’s
Jurisdictional Objection, 1 June 2012
68
Ibid.
1032 I. M. Ramli
similar to ACFTA, even though there is no requirement for prior notification to

invoke denial of benefit. On the other hand, the special condition for Indonesia,
Myanmar, Philippines, and Viet Nam are only applicable for the ACFTA. Lastly,
with regard to the Philippines, the Philippines may deny the benefits of the
AANZFTA Chapter 11 and AIFTA, after notification, to an investor of any other
Member and to investments of that investor, where it breaches the provisions of their
Anti-Dummy Law. This is also similar to ACFTA; however, it has no requirement
for prior notification to invoke denial of benefits provision.
Conclusion
It is indeed clear that the denial of benefits provision is an important mechanism in

which Members States can, in specific circumstance and subject to specific conditions,
exclude certain categories of investors from the benefits of the IIAs. As in the first case
under the ASEAN Agreement, Yaung Chi Oo Trading Pte Ltd. v. Government of the
Union of Myanmar,69 the tribunal observed that this effective management require-
ment was primarily included in the ASEAN Treaty to avoid what has been referred to
as protection shopping. Therefore, it is most important that in drafting and negotiating
the IIA, procedural requirements to invoke the denial of benefits provision and the
categorization of investors must be provided clearly within the scope of a denial of
benefits provision. States should not be permitted to frustrate any investor’s legitimate
expectations by denying it the treaty’s benefits over alleged violations of his substan-
tive rights under the treaty. Recent developments in bilateral model treaties provide
explanatory notes with further qualifications and clarifications of the term investment.
While it is good for a State to be able to deny benefits to non-Party State, it has to be
clear from the outset to potential investors intending to invest in the State, the scope of
application of rights and obligations of applicable investment agreements, and to the
establishment of the jurisdiction of investment treaty-based arbitral tribunals. Investors
claiming under any IIA should be aware of the existence of the denial of benefits
provision and its potential invocation by host State if the requirements contained
therein are satisfied. When accepting the offer by the host State to arbitrate, investors
simultaneously accept the risk envisaged in Article XII, hence, no legitimate expec-
tations are affected by the denial of benefits.
69
(ASEAN I.D. Case No. ARB/01/1).
Toward Higher Coherence in Shareholder
Claims for Reflective Losses 41
Benny Wuenschmann
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1034
Shareholders’ Legal Standing in Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1036
Shareholders’ Legal Standing Under National and International Law . . . . . . . . . . . . . . . . . . . . 1036
Shareholder Claims in IITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038
Legal Basis for Shareholder Claims in IITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041
Need for Admission of Shareholder Claims in IIT Law? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042
Treaties as a Sufficient Source of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044
Remaining Ambiguity Concerning the Substance of Treaty-Based Shareholder
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047
Toward a Coherent System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048
Need for Higher Coherence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048
Key Features on the Path to Greater Coherence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1050
Reconciling the Risk of Double Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1051
Extent of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1057
Doctrinal Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1057
Overall Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1058
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1060
Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1060
Abstract
Shareholder claims for reflective losses are widely discussed in international
investment treaty arbitration. The debate arises because tribunals in international
investment arbitration commonly grant legal standing for shareholders to claim
for reflective losses, whereas national corporate laws typically bar such claims.
The author would like to express his gratitude to Dr. Jonathan Bonnitcha (University of New South
Wales, Sydney) for his support and for reviewing an earlier draft of this article as well as for his
suggestions and comments.
B. Wuenschmann (*)
Dispute Resolution and Corporate/M&A/VC, Flick Gocke Schaumburg, Germany, Berlin
e-mail: benny.wuenschmann@fgs.de

https://doi.org/10.1007/978-981-13-3615-7_117
1034 B. Wuenschmann
This article seeks to provide a legally sound solution that reconciles the opposing
opinions by a flexible concept. Unlike the common approach in international
investment treaty arbitration, this article regards shareholder claims for reflective
losses not only as a matter of arbitral court jurisdiction but also as a part of the
admissibility assessment (hereinafter referred to as “jurisdiction”). As a conse-
quence, it should be scrutinized whether, and to what extent, immediate compen-
sation of reflective losses to claiming shareholders is required or justified as
appropriate treaty-based investment protection. This article shows that immediate
payment to shareholders for reflective losses ought to be limited to cases where
the payment of damages to the company is not eligible to provide effective
investment protection (i.e., to effectively repair the shareholders’ reflective
losses). In all other cases, the extent of the shareholder’s right ought to be limited
to the entitlement to claim for damages with recovery to the company as the actu-
ally harmed entity.
Keywords
Investor-State arbitration · Shareholder claims · Reflective losses · Determination
of damage · Admissibility
Introduction
Foreign shareholders’ claims for reflective losses, i.e., damage arising from a host
State’s adverse action against a company operating in this State which reflectively
diminishes the value of the company’s shares accordingly,1 are widely accepted in
international investment treaty arbitration (“IITA”).2 As such, IITA jurisprudence
allows foreign shareholders to claim for indirect (i.e., merely reflective) losses with
recovery to the claiming shareholders.
The eligibility of these claims to be admitted3 in IITA is based on a broad
investment definition of the international investment treaty (“IIT”) in question as
an independent source of law. Typical investment definitions comprise shares as
protected investments. Despite the mere enumeration as a protected investment,
1
Hereinafter referred to as “shareholder claims” unless stated otherwise. In contrast, shareholders’
standing in IITA and their protection through diplomatic intervention is undisputed for claims for
direct losses( cf. Bottini G (2008) Indirect Claims under the ICSID Convention. Univ Pa J Int Law
29 (3):563, 564f). These claims concern measures relating to the position as shareholders and are
not a subject of this article.
2
Gaukrodger D (2013) Investment treaties as corporate law: shareholder claims and issues of
consistency. OECD working papers on international investment 3/2013, 7[en] https://doi.org/
10.1787/5k3w9t44mt0v-en; Bottini G (2016) Chapter 15: Indirect shareholder claims. In: Kinnear
and others (eds) Building international investment law: the first 50 years of ICSID. Kluwer Law
International, Alphen aan den Rijn, p 203
3
Hereinafter referred to as “the admission of shareholder claims” or “the admission of these claims”
41 Toward Higher Coherence in Shareholder Claims for Reflective Losses 1035
investment definitions in IITs, however, usually do not provide further insight into
the material content of such protection.
IITA commonly considers the admission of shareholder claims solely as a
jurisdictional matter. More interestingly, IITA typically also grants shareholders
legal standing regardless of whether a claim is filed by a majority or a minority
shareholder and regardless of whether the related shares are held directly or indi-
rectly, including those held through a chain of several intermediaries.
This view in IITA departs significantly from the situation concerning share-
holders’ legal standing regarding claims for reflective losses in customary interna-
tional law and under most national corporate legislations. These legal spectra
commonly do not allow shareholders to claim for such losses. As a result, the
approach adopted in IITA triggers numerous yet unresolved procedural issues and
substantive law matters. They include, for example, the challenge of parallel or
multiple proceedings, including the risk of treaty shopping and the associated issue
of double recovery.4
But above all, the approach adopted in IITA broadly ignores widely accepted
corporate law and corporate governance principles that arise from the distinction
drawn between a company and its shareholders as separate legal persons.5 This
distinction typically reflects a differentiated and reconciled system of various claims,
persons, legal entities, and fields of law. Therefore, the theoretical basis of the
approach adopted in IITA is often criticized as not being sufficiently sound. Against
this background, it is remarkable that the admission of shareholder claims for
reflective losses remains well-established and rarely questioned in IITA. Recently,
however, proposals and initiatives on reforming shareholder claims for reflective
losses in IITA have increased (again).6
The following analysis seeks to contribute to this re-emerging discussion by
addressing the criticism against the approach adopted in IITA with a novel solution.
It will show that particular aspects of treaty-based investment protection do exist that
might justify a deviating approach to shareholder claims in IITA as opposed to
common corporate law principles. However, these particularities do not exist in all
situations. As a consequence, this article proposes a flexible concept that sufficiently
acknowledges the particularities of treaty-based investment protection and that aims
to reconcile them with widely accepted corporate law principles under municipal
law.
This analysis first presents an overview of shareholders’ legal standing and the
main thoughts on shareholder claims for reflective losses being barred under
4
Cf. OECD (2013) Roundtable on Freedom of Investment 18, Summary of Roundtable Discussions
by the OECD Secretariat, 5. http://www.oecd.org/daf/inv/investment-policy/18thFOIRoundta
bleSummary.pdf
5
Similar at the starting point Korzun V (2018) Shareholder claims for reflective loss: how Interna-
tional Investment Law changes corporate law and governance. Univ Pa J Int Law 40(1): 189ff
6
Cf., e.g., Arato and others (2019) Reforming Shareholder Claims in ISDS. Academic Forum on
ISDS (concept paper), 9/2019, 2. https://www.jus.uio.no/pluricourts/english/projects/leginvest/aca
demic-forum/papers/papers/arato-reforming-shareholder-claims-isds-af-9-2019.pdf; Korzun (n 7)
1036 B. Wuenschmann
customary international and most national laws. It goes on to describe shareholdings

as protected investments and shareholder claims in IITA jurisprudence, including
how they differ from related claims and the main criticism of the approach adopted in
IITA. Then, it examines to what extent the admission of shareholder claims in IITA is
legally sound and where the approach shows weaknesses. The analysis culminates in
the description of how necessary investment protection for shareholdings can be
reconciled with broadly accepted corporate law principles before an evaluation and
final conclusions will be made.
Shareholders’ Legal Standing in Context
Shareholders’ Legal Standing Under National and International Law
National Law
As a common principle in both common and civil law countries, shareholders are
generally barred from claiming damages for reflective losses resulting from adverse
action against their company.7 The right to claim is allocated to the company as the
entity directly harmed. In contrast, shareholders can usually only claim for direct
losses relating to their shares that do not simultaneously constitute a damage to the
company.8
Municipal laws apply this “no reflective loss principle” with remarkable
uniformity. It is based on various policy considerations and doctrinal reasons
for consistency and coherence that mainly stem from the recognition of a com-
pany as a separate legal person.9 Although these reasons take various shapes
and forms, they constitute a mirror image of those underlying the objections to
the approach adopted in IITA. Exceptions to the no reflective loss principle are
rarely recognized.10 Notably, these restrictions are commonly based on the
assumption that a company has or had the power to recover the loss by itself
and/or that it has recourse through a derivative claim by a minority shareholder
on its behalf.11
7
Gaukrodger D (2014) Investment treaties and shareholder claims for reflective loss: insights from
advanced systems of corporate law. OECD working papers on international investment, 7. http://
www.oecd.org/investment/investment-policy/WP-2014_02.pdf; OECD (n 6)
8
OECD (n 6); Gaukrodger (n 4) 13
9
OECD (2013) Roundtable on freedom of investment 19, Summary of roundtable discussions by
the OECD Secretariat, 12f. http://www.oecd.org/daf/inv/investment-policy/19thFOIroundta
bleSummary.pdf; Chaisse J, Zhuoyue Li L (2016) Shareholder protection reloaded: redesigning
the matrix of shareholder claims for reflective loss (Winter 2016), Stanf J Int Law 52(1):51, 55ff
10
de Jong BJ (2013) Shareholders’ claims for reflective loss: A comparative legal analysis. Eur Bus
Org Law Rev 14(1):97, 102ff; Gaukrodger (n 9) 18ff
11
Gaukrodger (n 4) 19
Customary International Law

Under customary international (public) law – beyond the authority of the European
Court of Human Rights (“ECHR”) – the rights of shareholders as foreign investors
are shielded indirectly by diplomatic protection. The International Court of Justice
(“ICJ”) as the competent judicial authority is also reluctant to intervene in the
protection of shareholders suffering reflective losses.
The leading cases12 Barcelona Traction13 and Diallo14 emphasize the need to
recognize principles of national law(s) where international law lacks the relevant
principles, specifically as is the case with corporate law. The ICJ distinguishes
between shareholders’ rights and mere interests in the company. As such, the ICJ
follows the approach adopted under most national corporate laws that typically
determine the separation of shareholders and company as different legal persons.
Consequently, it allows shareholders’ protection for reflective losses only as an
exception where a company ceased to exist or (arguably) the company’s state of
residence is unable to act.15
Similar to the ICJ’s approach in Barcelona Traction and Diallo, the ECHR
generally applies the no reflective loss principle. Thus, the ECHR is also reluctant
to adopt a broad interpretation of shareholder rights under the European Convention
on Human Rights.16
Remarkably, however, the ICJ referred to either investor-State agreements or
IITs that might specifically stipulate further shareholder protection.17 In this
light, it is worth noting that in ELSI18 – which arose in an IIT context in
the period between Barcelona Traction and Diallo – the ICJ allowed diplomatic
protection based on a dispute in which shareholders sought remedy for reflective
losses. The judgment is occasionally seen as evidence of a changing view
on the issue at hand.19 Arguably, it implies at least the possibility of
adopting a deviating approach to shareholder protection for mere reflective losses
in IITA.
12
For a detailed summary cf. Sasson M (2010) Chapter 5: Substantive law in investment treaty
arbitration: the unsettled relationship between international law and municipal law. Kluwer Law
International, Alphen aan den Rijn, 112ff
13
Barcelona Traction, Light and Power Company, Limited (Belgium v Spain) (Judgment)
[5 February 1970], ICJ 3
14
Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo) (Judgment on
Preliminary Objections) [24 May 2007] ICJ 582
15
Sasson (n 14) 113
16
Cf. OECD (n 6) 5; OECD (n 11) 15; Tishler SCC (2015) A new approach to shareholder standing
before the European Court of Human Rights. Duke J Comp Int Law 259ff
17
Sasson (n 14) 114, 118f
18
Elettronica Sicula S.p.A. (ELSI) (United States of America v Italy), Judgment [20 July 1989],
ICJ 15
19
For an apparent shift, Tishler (n 18) 275f, against, e.g., Sasson (n 14), 116
1038 B. Wuenschmann
Shareholder Claims in IITA
Foreign Shareholdings as Protected Investments

Shareholders claiming under IITs must satisfy the investment and (foreign) investor/
nationality definitions set forth in the IIT they invoke. The latter often poses minor
problems.20 Even though more complex at first glance,21 the same usually applies to
the investment criterion. This is because IITs commonly define investments very
broadly as every type of asset owned or controlled by foreign investors. Such a
definition is often followed by a list that typically includes shares and other types of
(economic) interests in companies.22 In most cases, protection is provided, regard-
less of whether shares are held directly or indirectly and commonly without any
restriction on majority or controlling shareholdings or the exclusion of minority
shareholdings or portfolio investments.23
Overview of Case Law

Following broad investment definitions in IITs, shareholder claims have been admit-
ted in IITA in virtually all types of corporate structures,24 even though most IITs do
not explicitly address the extent of shareholder rights.25
Shareholder claims in IITA do not only include those made by foreign majority
or controlling shareholders directly investing26 in a company registered in the
host State, which was exposed to an adverse measure allegedly taken by the host
State. They can also be filed by minority27 and indirect shareholders28 holding
20
While for individuals reference is usually made to municipal law, corporate nationality is typically
determined by specific IIT definitions which commonly refer to the place of incorporation and/or
the main seat of the business, cf. Dolzer R, Schreuer C (2012) Principles of international investment
law, 2nd edn. Oxford University Press, 45ff
21
For an overview of case law on the investment requirement cf. ibid. 65ff; Gaillard E, Banifatemi Y
(2016) Chapter: 8 The Long March Towards a Jurisprudence Constante. In: Kinnear and others
(eds), Building international investment law: The first 50 years of ICSID. Kluwer Law Interna-
tional, Alphen aan den Rijn. 97, 105ff
22
Gelovani I (2014) Shareholders’ claims in international investment arbitration. Lat Am J Int
Arbitr 2(2): 652, 656; Bonnitcha J, Skovgaard Poulsen LN, Waibel M (2017) Chapter 2 The
political economy of the investment treaty regime. Oxford University Press, 2f
23
Ibid.
24
For a summary of cases cf. Chaisse and Li (n 11) 69ff; Gelovani (n 24) 659ff
25
For details of contemporary treaty practice cf. Gaukrodger D (2014) Investment treaties and
shareholder claims: analysis of treaty practice. OECD working papers on international investment,
23ff. http://www.oecd.org/daf/inv/investment-policy/WP-2014-3.pdf.
26
E.g., cf. Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales
del Agua S.A. v The Argentine Republic, ICSID Case No ARB/03/17, Decision on Jurisdiction (16
May 2006) para 46.
27
E.g., cf. Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Decision on
Liability (29 December 2014) 171 f
28
Cf. several references in Gelovani (n 24) 663ff; Schreuer (2005) Shareholder protection in
international investment law, 11ff. http://www.univie.ac.at/intlaw/pdf/csunpublpaper_2.pdf
their shares through a third company or even a chain of intermediaries.

This second category of shareholder claims is widely accepted in IITA regardless
of whether a given IIT explicitly mentions the protection of indirect
investments.29
Likewise, the debate among scholars regarding ICSID cases as to whether Art.
25 ICSID Convention stipulates autonomous investment criteria that complement
the IIT requirements under the Salini test30 has not yet become crucial to
shareholder claims. This is not least because tribunals in IITA tend to broadly
apply the Salini criteria.31 Another likely reason is that the initiation and imple-
mentation of ICSID arbitration proceedings entail probable costs of at least USD
1.3 million.32 This typically means that the mere cost-benefit calculation of a
shareholder claim automatically prevents most of the investors who fail to meet
the Salini criteria from filing a claim.33 However, those criteria may become
decisive for minority shareholders in exceptional circumstances or for portfolio
investors.
Furthermore, tribunals usually do not restrict the admission of shareholder
claims in their relationship to (potential) actions initiated by local companies that
are deemed as foreign investors under the relevant IIT in conjunction with Art. 25
(2)(b) ICSID Convention.34 In these situations, shareholder claims are admitted
even though the relevant locally incorporated company exceptionally enjoys the
protection of an IIT and, therefore, is entitled to claim under Art. 25(2)(b) ICSID
Convention in conjunction with the relevant IIT provided that the relevant local
company is controlled by a foreign investor and the IIT explicitly grants such a
right.35
A similar approach was adopted to shareholder claims (of minority shareholders)
despite the explicit option of derivative claims (in favor of controlling share-
29
E.g., cf. Siemens AG v The Argentine Republic, ICSID Case No ARB/02/8, Decision on
Jurisdiction (3 August 2004) para 140
30
Derived from Salini Costruttori S.p.A and Italstrade S.p.A v Kingdom of Morocco, ICSID Case
No ARB/00/4, Decision on Jurisdiction (23 July 2001). For details cf. Gaillard and Banifatemi
(n 23) 114ff
31
Cf. Dolzer and Schreuer (n 22) 76; Bonnitcha, Skovgaard Poulsen, and Waibel (n 24)
32
Cf. Aceris Law (2017) The cost of investment arbitration: UNCITRAL, ICSID proceedings and
third-party funding. https://www.acerislaw.com/cost-investment-arbitration-uncitral-icsid- proceed
ings-third-party-funding/
33
With respect to the criteria of a material contribution, for example, in SGS Société Générale de
Surveillance S.A. v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Decision on
Objections to Jurisdiction (6 August 2003) para 136, it was held that even a contribution of USD
1.5 million might be sufficient to constitute an investment.
34
E.g., cf. Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine Republic,
ICSID Case No ARB/97/3, Decision on Annulment (3 July 2002) para 50
35
Gelovani (n 24) 657f.; Demirkol EC (2015) Admissibility of claims for reflective loss raised by
the shareholders in local companies in investment treaty arbitration. ICSID Rev 30(2):391, 392
1040 B. Wuenschmann
holders)36 in a given IIT.37 However, this interpretation cannot yet be regarded as

well-established in IITA.38
In all cases, the admission of shareholder claims is primarily understood as a
matter of jurisdiction.39 The shareholders’ right to claim is commonly seen as the
shareholders’ own/direct right. In this regard, occasionally, it is explicitly held that
this right cannot be considered as an indirect or a derivative one because IITs are
seen as the independent legal basis of a shareholder’s own right to claim.40
As an additional consequence of the tendency to derive shareholders’ rights to
claim for reflective losses from the mere coverage of shares as protected investments
under common IITs, tribunals have consistently held that the principles regarding
shareholders’ rights that evolved in customary international law – represented by
Barcelona Traction and Diallo – are not directly relevant. Tribunals typically argue
that these principles were derived from the specific context of diplomatic protection
and that IIT law prevails over customary international law as lex specialis.41
Criticism
The broad admission of shareholder claims for reflective losses in IITA has sparked a
growing debate. Numerous scholars sharply criticize the approach adopted in
IITA,42 while others even take the approach in IITA jurisprudence on shareholder
claims as a reason to reconsider the restrictive approach under domestic corporate
and international law.43
The criticism mainly derives from the principles which have consistently evolved
in international public law and national laws. Two aspects seem to be central in this
regard: Firstly, it is often mentioned that IITA jurisprudence fails to distinguish
between the general protection of shares under IITs and the substantive scope these
protections provide; IITs generally do not address the latter. Secondly, opponents
criticize tribunals overemphasizing IIT law as a distinct and independent source of
law, hence, not sufficiently considering widely accepted doctrinal and policy aspects
36
A small but growing number of IITs permit shareholders to file derivative claims based on losses
incurred by their company due to a purported breach of treaty protections. Unlike shareholder
claims, derivative claims are actions on behalf of the company with recovery to the company level.
This possibility, if granted at all, is typically limited to the controlling shareholder. Cf Gaukrodger
(n 27) 16ff
37
E.g., cf. Gami Investments, Inc. v The Government of the United Mexican States, ICC 109 (2004),
Ad hoc tribunal (UNCITRAL), Final Award (15 November 2004) 12ff, 14, 15, 18
38
Cf. Gaukrodger (n 27) 25
39
Cf. several references in Chaisse and Li (n 11) 64f; Demirkol (37) 394 following a critical analysis
and references to the opposite view in IITA jurisprudence
40
E.g., Total S.A. v Argentine Republic, ICSID Case No ARB/04/01, Decision on Objections to
Jurisdiction (25 August 2006) para 81
41
CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No ARB/01/8,
Decision on Objections to Jurisdiction (17 July 2003) para 42ff
42
E.g., Sasson (n 14) 125ff.; Arato (n 8) 4ff.; Korzun (n 7) 189ff
43
E.g., Chaisse and Li (n 11) 82ff (municipal law); Tishler (n 18) 274ff (ECHR proceedings)
of restricting shareholder claims under municipal and customary international law.44
Selected Response to Criticism in IITA

Tribunals occasionally seek to address some issues raised by critics.45 Some tri-
bunals propose to recognize the need for a cut-off point beyond which the connec-
tion to an investment is too remote.46 Others, conversely, consider the need for a
look-through approach to the ultimate owner in terms of foreign control under Art.
25(2)(b) ICSID Convention.47 Still others argue for a narrower interpretation of
protected investments.48 These ideas are supplemented by the proposal to require a
sufficiently close connection to the damage occurred as part of the assessment of the
merits.49
Legal Basis for Shareholder Claims in IITA
Evaluating IITA jurisprudence on shareholder claims is challenging. The opposing

approaches in IITA in contrast to customary international and most national corpo-
rate laws seem to be irreconcilable. At the same time, however, both approaches
show broad uniformity within their legal spectra.
Virtually all kinds of foreign shareholdings formally fall within the scope of IIT
protection. Further protection might be provided by the right to claim damages based
on the concept set forth in Art. 25(2)(b) ICSID Convention or explicit IIT provisions
providing derivative claims. Despite such additional protections, tribunals in IITA
typically grant full protection of shares regardless of whether the State’s adverse
action has only a reflective diminishing effect on the shares’ value or whether it
refers directly to the position as a shareholder.
This conclusion can be challenged if it would automatically entail the full
coverage of the damage (actually) incurred by the company in the first place. The
virtually unrestricted inclusion of all types of shareholdings as protected investments
does not necessarily say anything about the substance of the protection itself. More
favorably it seems that, in the first instance, it refers to the right of action but does not
necessarily answer the question of substance.
44
E.g., Sasson (n 14) 130ff
45
For a brief overview cf. Arato (n 8) 10ff
46
Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic, ICSID Case No ARB/01/3,
Decision on Jurisdiction (14 January 2004) para 39ff
47
Cf. TSA Spectrum de Argentina S.A. v Argentine Republic, ICSID Case No ARB/05/5, Award (19
December 2008) 147ff
48
Standard Chartered Bank v United Republic of Tanzania, ICSID Case No ARB/10/12, Award (2
November 2012) para 230, where the tribunal required an active influence as opposed to mere
ownership based on the specific treaty language which referred to an investment made.
49
Cf. references in Smutny AC (2009) Chapter 20: Claims of shareholders in international invest-
ment law. In: Binder and others (eds), International investment law for the twenty-first century:
essays in honour of Christoph Schreuer. Oxford University Press, p 363, 375
1042 B. Wuenschmann
Thus, one may argue that tribunals in IITA partly fail to provide sufficiently
detailed doctrinal reasoning for allowing shareholders to claim for mere reflective
losses. This is particularly significant given that hardly any other legal issue is, in
principle, resolved uniformly in all legal systems (and other parts of international
law), as is the case with shareholder claims. Similarly, the criticism deserves support
in that IITA has not sufficiently addressed the doctrinal reasons and policy consid-
erations underlying the restriction of shareholder claims under municipal and cus-
tomary international law.
However, this does not necessarily mean that the result in IITA must be wrong.
But to the extent it deserves support, the approach adopted in IITA requires a deeper
analysis and description of the reasons that justify a deviation from widely accepted
corporate law principles under municipal law. Therefore, in the following part, it will
be scrutinized as to whether specifics arising from the IIT context require broader
protection for shareholders and whether common investment definitions in IITs
provide a sufficient legal basis for this.
Need for Admission of Shareholder Claims in IIT Law?
To begin with the essentials of international investment law, many IITs were
based on two fundamental assumptions: first, foreign investments tend to stim-
ulate the economic development of the host and home State and, second, a
predictable legal environment that provides fundamental legal protection tends
to encourage and promote foreign investments.50 The second aspect assumes that
the fundamental legal protection of foreign investments can be achieved only by
international standards that are independent of municipal law. This is why
compliance with domestic law generally does not excuse a breach of international
investment law.51
Even though economic analyses show that economic expectations are more likely
to be met by foreign direct investments (“FDIs”) rather than by mere portfolio
investments, IITs usually do not limit their scope of protection to FDIs.52 This
seems to reflect the idea that investments can take multiple forms and structures
that are influenced by various factors. Accordingly, home and host States tend to
encourage all forms of investments and to not restrict the creativity of markets.53
To name just three aspects, it might be advisable to establish a local company to
gain better access to market opportunities such as participation in (public) tender
procedures or due to tax considerations and/or risk diversification. The corporate
50
Legum B (2006) Defining investment and investor: who is entitled to claim?” (2006) Arbitr Int 22
(4):521, 522
51
Bonnitcha, Skovgaard Poulsen, and Waibel (n 24) ch 1, 9
52
Ibid. ch 2, 21
53
Legum (n 52) 522ff
finance structure of investments is another factor to consider.54 In practice, foreign

investments are typically structured as indirect investments.
Additionally, some States require the establishment of a local company as a
precondition of foreign investment which – beyond Art. 25(2)(b) ICSID Convention
in conjunction with a corresponding treaty provision – is not protected as foreign
investment.55
In light of the broad approach to defining investments, it might be held that the
effective legal protection of all these kinds of investments is a matter of consistency.
The fact that many IITs explicitly mention shares and various other types of
(economic) interests in companies such as loans or bonds, as well as indirect
investments, might leave a significant lack of protection if shareholders and indirect
investors could only invoke IITs in the event of direct harm by the host State to their
investments. In reality, foreign investors are typically affected indirectly. Simulta-
neously, IITs imply that the availability of company recourse through municipal
means of redress is insufficient to provide effective protection of foreign investments
due to their dependence on the host State’s judiciary.56
As stated above, one essential of international investment law is to provide a legal
basis that is independent of national laws. Furthermore, it was pointed out that the
ability of companies to seek remedy for a State’s or third parties’ harm by themselves
is one of the main reasons why shareholders are typically barred from claiming for
reflective losses. This assumption underlying the no reflective loss principle in most
national corporate laws can be adversely affected in the context of international
investments. This is particularly the case where the investment is structured as co-
investment in a local company directly or indirectly controlled by the host State or
similar types of investments with the participation of the host State (i.e., joint
ventures, public-private partnerships). Thus, a broad interpretation of treaty pro-
tections appears to be preferable, at least at the jurisdictional stage.
Accordingly, it seems rational to provide treaty protection regardless of whether
the claimant is the majority shareholder or a minority one. At first glance, this
appears to contradict consistency considerations arising from the well-established
majority rule as a formative corporate law principle in many countries. Upon a closer
look, however, the broad inclusion of shares as protected investments without further
limitations reflects the policy of encouraging all types of foreign investments.
International investment consortia, public-private partnerships with foreign investors
as minority shareholders, or various forms of joint ventures would face severe
disadvantages if this were not the case. This particularly applies to investments
that are made with the direct or indirect participation of the host State.
54
E.g., thin capitalization rules and accounting law might influence the design of corporate finance.
55
Schreuer (n 30) 5; Demirkol (37) 391
56
This even might apply for IITs which allow treaty-based company claims as deemed foreign
companies by reference to Art. 25(2)(b) ICSID Convention, cf. below under “The protection of
shareholdings in context.”
1044 B. Wuenschmann
The importance of a broad interpretation of treaty protections can be illustrated by

the example of a joint venture between a State-owned company (the majority
shareholder) and a privately held company (the minority shareholder). Given the
initial economic purpose underlying IITs, it can scarcely be assumed that the
investment by the minority shareholder should not enjoy the same protection as it
would if the same investor/company were the majority shareholder. IITs are designed
to provide an independent legal framework for foreign investments. Thus, it can be
assumed that they also intend to fully consider and reflect the economic varieties of
investments.
Against this background, it is understandable that tribunals in IITA tend to take a
pro-investor stance. It deserves support that they usually grant legal standing for
shareholder claims by deriving the right to claim from the IIT itself rather than
referring to domestic corporate law principles, regardless of whether the sharehold-
ing purportedly affected is held by a minority or majority shareholder and whether it
is held directly or indirectly.
Treaties as a Sufficient Source of Law
Assuming this broader scope of protection is justified, however, it should further be

examined whether the approach in IITA provides a legally sound solution. As noted
above, the departure in IITA from common municipal corporate law principles and
customary international law is mainly derived from two basic thoughts: First, the
explicit inclusion of shares in a typical investment definition of a given IIT does also
refer to the substantive rights such protection includes. Second, these rights arise
from IITs as lex specialis, i.e., as a legal source independent of municipal and other
international law.57
Conversely, despite the inadequate recognition of policy and doctrinal consider-
ations underlying the general bar of shareholder claims under municipal law, oppo-
nents mainly allege that the approach in IITA is not sufficiently legally sound
because the protection of certain assets as investments must be distinguished from
the rights they include. Thus, IITA tribunals should respect and refer to municipal
law wherever IITs do not provide a further explanation of rights.58 This includes, in
particular, the distinction between rights and mere economic interests in a
company.59
Principles of Treaty Interpretation

The debate can be primarily described as a matter of treaty interpretation. For this
reason, and because IITs provide an independent source of law, it is helpful at this
point to examine well-accepted criteria in this area in more detail.
57
Smutny (n 51) 363
58
Sasson (n 14) 119, 130ff
59
Ibid. 99 f
Most tribunals in IITA correctly invoke the Vienna Convention on the Law of
Treaties (“VCLT”), which in Art. 31 ff. provides binding standards for State parties
on interpreting IIT provisions.60 Following the canon of interpretation set forth in
Art. 31 VCLT, this involves focusing on the true meaning of the text in good faith
that takes into account further aspects such as context, objective, purpose, and State
practice – and, where ambiguity remains, further recourse to supplementary means,
including preparatory work of the IIT and the circumstances of its conclusion, Art.
32 VCLT.61
The inclusion of shares as protected investments leaves ambiguity as to whether
the substance of rights resulting from that inclusion is to be derived from municipal
law or separately from the spirit of the IIT. Recourse to the preparatory work of the
treaty and the circumstances of its conclusion is often futile since the negotiating
history of IITs is typically not, or only poorly, documented.62
Nevertheless, the better reasons argue for the latter approach, even though the
broad consistency of barring shareholder claims for reflective losses under
municipal law might point in the opposite direction. Considering the presumptive
intention linked with the common broad investment definition,63 it can be
assumed that the parties intended to grant effective protection for these assets
as well. This applies in particular if the definition explicitly comprises the
protection of mere interests in companies and indirect investments64 and if the
recourse to municipal law might be insufficient in the international context. The
conceivable need for a different view of shareholder (and indirect investor)
claims for indirect damage in IIT law as opposed to municipal law has already
been shown.65
This view is espoused by the fact that the restrictive approach regarding a
shareholder’s standing in customary international law was adopted with additional
reference to possible further protection in IITs.66 In line with this, some scholars
deserve support in pointing out that the broad investment definitions in IITs must be
seen as an explicit response to avoid the limitations of diplomatic protection of
shareholders under customary international law.67
60
Dolzer and Schreuer (n 22) 28ff
61
Boisson de Chazournes L (2016) Chapter 1: Rules of interpretation and investment arbitration. In:
Kinnear and others (eds), Building international investment law: the first 50 years of ICSID. Kluwer
Law International, Alphen aan den Rijn, 13ff
62
Dolzer and Schreuer (n 22) 31
63
Cf. above under “Need for Admission of Shareholder Claims in IIT Law”
64
Considering the typical broad scope of IIT’s protection, it seems persuasive to include indirect
investments as being protected unless it is explicitly precluded.
65
Cf. above under “Need for Admission of Shareholder Claims in IIT Law”
66
Cf. above under “Customary International Law”
67
Smutny (n 51) 372 (regarding the US Model BIT)
1046 B. Wuenschmann
Development in Treaty Drafting

The fact that treaty language has rarely changed over the years in this regard also
affirms the approach to shareholders’ standing adopted in IITA.68 This applies in
particular since State practice can serve as an interpretative aid as described above.
The fact that the well-established no reflective loss principle in municipal corporate
law is based primarily on case law69 does not necessarily contradict this assumption.
However, such interpretation admittedly is not compelling.
The Protection of Shareholdings in Context

However, for IITs extending the scope of investment protection under Art. 25(2)(b),
it is open to question whether the unrestricted admission of shareholder claims
indirectly bypasses and contradicts the purpose of this provision.70
In cases of doubt and as a matter of consistency, it seems more favorable to apply
the preceding approach here as well. Otherwise, significant protection gaps would
again arise for minority and noncontrolling shareholders71 as well as for certain
forms of indirect investment structures. The latter might arguably concern situations
of indirect foreign control.72 Besides, a company’s recourse as a deemed foreign
company might be prevented in non-ICSID cases since IITs often allow those claims
merely by reference to Art. 25(2)(b) ICSID Convention.73 It is not persuasive to
make substantial treaty provisions dependent on which arbitral forum (ICSID or
non-ICSID) is chosen. Finally, treaty protections through claims by a deemed
foreign company might be ineffective since the host State’s misconduct can neutral-
ize the company’s ability to claim.74 Significant protection gaps remain conceivable.
Consequently, to grant effective treaty protection to all foreign shareholding
investments as indicated in the relevant investment definition, consent contained in
IITs must be understood as an additional option for challenging the host State’s
adverse action rather than as an implied limitation of shareholder claims. More
favorable seems to be that the latter provides “downstream” protection and the
admission of shareholder claims ensures “upstream” protection.
A similar line of thought applies to the relationship between shareholder claims
and derivative claims. At first glance, the existence of derivative claims seems to
argue for a denial of shareholder claims. However, treaty-based derivative claims –
unlike derivative claims under many municipal corporate laws – are typically
68
Until recently only the China-Mexico IIT 2008 appeared to explicitly clarify the treatment of
(minority) shareholder claims for reflective loss, cf. Gaukrodger (n 27) 16 and 26.
69
Cf. Gaukrodger (n 27) 16
70
For argumentum e contrario Bottini (n 3), 570; similar Demirkol (n 37), 405 (but different at 396)
71
Cf. Dolzer and Schreuer (n 22) 57; Demirkol (n 37) 395
72
Cf. the debate on whether Art. 25(2)(b) ICSID Convention includes indirect foreign control,
Schreuer CH (2001) The ICSID convention: a commentary. Cambridge University Press, Art. 25,
para 558ff
73
Gaukrodger (n 27) 20ff
74
Ibid.
granted as majority rights. This might entail agency problems and protection gaps for
minority shareholders.75 Those protection gaps are severe since the general bar on
shareholder claims in municipal law is, at least partly, to be understood against the
background that minority shareholders can protect their investment by way of
derivative claims with recovery to the company under certain circumstances.76
Assuming that IITs can be interpreted as a legal framework that seeks to provide
effective protection for all foreign investments, as shown above, shareholder claims
do not necessarily appear to be precluded if the possibility of derivative claims is
granted in IITs. Yet, as a matter of substance, it ought to be emphasized that this
interpretation still does not fully clarify to what extent actual compensation to the
claiming shareholder is justified.
Interim Result
As far as it concerns the jurisdictional stage, the preceding analysis shows that the
broad inclusion of shares in typical investment definitions provides a sufficient legal
basis to generally derive shareholders’ standing in IITA to claim for reflective losses.
This view is supported by the fact that IITs provide an independent source of law. As
such, IITs shall provide an independent legal regime that effectively secures protec-
tion standards of international investments.
In light of this, it deserves support that the shareholders’ right to claim for
reflective losses is to be regarded as its own and treaty-based original right of action.
It also seems more favorable to derive the substance of treaty-based rights from the
relevant IIT rather than from national corporate laws.
Remaining Ambiguity Concerning the Substance of Treaty-Based

Shareholder Rights
However, the analysis above still does not clarify the actual substance of treaty-based
shareholder rights. In particular, it remains open to question whether and to what
extent shareholders’ reflective losses necessarily have to be remedied through direct
compensation to a claiming shareholder. It also remains open to question based on
which criteria the substance of rights ought to be derived from a given IIT. In this
regard, it particularly remains conceivable that IITA ought to consider matters of
consistency and coherence that arise from the external legal framework in which the
investment is embedded.
Due to the remaining ambiguity regarding the substance of the rights to claim, at
least, it does not seem persuasive only to refer to the argument that the text of the IIT
ought to be deemed to be the authentic expression of contracting State parties’
intentions.77 Rather, there are good reasons that issues of consistency and coherence
75
Ibid. 24ff
76
Ibid. 23
77
Cf. occasional practice in IITA Dolzer and Schreuer (n 22) 31
1048 B. Wuenschmann
still need to be addressed. Although in line with the common approach in IITA, they
cannot be ignored. This particularly applies if consistency and coherence matters can
be taken into account to achieve more sound solutions that do not affect the
presumptive intention of IITs to provide effective investment protection.
The need to do so is shown not only by the criticism IITA has attracted in this
matter but also by occasional attempts to constrain the admission of shareholder
claims in IITA jurisprudence.78 Furthermore, it is hard to believe that States intended
to implicitly waive fundamental and widely accepted corporate law principles in the
international context without an explicit explanation for doing so. In this regard, the
fact that the widely accepted no reflective loss principle in national corporate laws is
primarily case law-based can also be seen as an argument to merely leave this issue
to the tribunals in IITA as well.
Thus, the preliminary result regarding the jurisdictional stage requires further
elaboration concerning the actual extent or substance of the treaty-based rights of
action.
Existing decisions in IITA that attempt to constrain the admission of shareholder
claims lack a common doctrinal concept and a sufficient legal foundation. This
applies at least when it comes to establishing a cut-off point. This is primarily
because policy considerations and matters of coherence are not reflected as part of
an overall concept of shareholders’ standing for reflective losses in the first place.
The analysis thus concludes by examining the extent to which policy consider-
ations barring shareholder claims under municipal law can be recognized and
reconciled with the general admission of shareholder claims in IITA.
Toward a Coherent System
Need for Higher Coherence
The list of insufficiently resolved procedural and substantive law issues arising from
the admission of shareholder claims is long. As indicated above, the key procedural
challenges concern (i) the problem of parallel and multiple proceedings, including
the risk of inconsistent and divergent decisions on basically the same dispute,
complemented by (ii) a virtually endless chain of potential claimants plus (iii) the
controversial issue of treaty and/or forum shopping, linked with (iv) the question of a
possible abuse of process.
Substantive law matters under particular debate range from (i) the risk of double
recovery resulting from the multiplication of claims or, vice versa, the risk of double
jeopardy for the liable State and (ii) the extent of liability and the determination of
damage to (iii) various issues about consistency with widely accepted municipal
Cf. above under “Selected Response to Criticism in IITA”

78
corporate law and corporate governance principles that arise mainly out of the
distinction between a company and its shareholders as separate legal persons as
well as (iv) related coherence matters arising from other fields of law such as
insolvency law and tax law. The latter two aspects include the protection of other
shareholders and stakeholders (especially creditors) in the company by safeguarding
the ranking of claims on corporate assets as a necessary response to the prevalence of
companies with limited liability.
Even though this broader context is important for creating coherent and legally
sound solutions, not all of the issues and concerns mentioned above can be compre-
hensively analyzed in this article. Likewise, not all of them refer solely to the
admission of shareholder claims or are – or seem to be – equally relevant in practice.
However, their potential relevance can scarcely be denied.
This applies in particular to the reconciliation of claims initiated by both share-
holders and the local company based on the same set of facts and multiple claims of
shareholders of the same corporate group.79 One of the major substantive law issues
is the risk of double recovery arising from the admission of shareholder claims and
closely related issues such as the designation of the actual compensation for
damages.
A recent supplementary issue is whether, or to what extent, settlements agreed
between the harmed local company and the host State might affect the right of
shareholders (minority ones, in most cases) to seek further compensation in IITA.
Diverging views on this have already been adopted in IITA.80 However, it can be
tentatively presumed that the prevailing view81 will be that a settlement agreement
does not affect the shareholder’s treaty-based right to claim and the admissibility of
the claim. This view was adopted in Hochtief v Argentina82 and Sempra v
Argentina.83
The issues around the risk of double recovery are representative of various
coherence and consistency concerns that relate to and immediately arise out of the
legal distinction between shareholder and company as separate legal persons. The
following section examines how the general admission of shareholder claims in IITA
can be sufficiently reconciled with those concerns.
79
For different examples cf. Bentolila D (2010) Shareholders’ action to claim for indirect damages
in ICSID arbitration. Trade Law Dev 2(1):87, 128ff
80
Cf. Sempra Energy International v The Argentine Republic, ICSID Case No ARB/02/16, Award (28
September 2007) and Hochtief AG v The Argentine Republic, ICSID Case No ARB/07/31, Decision on
Liability (29 December 2014) on the one hand and SA UR International S.A. v Republic of Argentina,
ICSID Case No ARB/04/4, Decision on Jurisdiction and Liability (6 June 2012) on the other
81
Cf. proponing scholars, e.g., Paez-Salgado D (2017) Settlements in investor-state arbitration: are
minority shareholders precluded from having its treaty claims adjudicated? J Int Disput Settl 8
(1):107, 113ff; Vial G (2016) Effects of settlement between a local company and a host state in a
bilateral treaty claim of foreign shareholders arising from the same conduct. Chic-Kent J Int Comp
Law 16(2):98, 104ff
82
Hochtief (n 82) 175ff
83
Sempra (n 82) para 227
1050 B. Wuenschmann
Key Features on the Path to Greater Coherence
On the path to a more coherent solution for shareholder claims, two aspects seem
worth pointing out. First, the debate has not yet sufficiently considered the difference
between jurisdiction and admissibility. Contrary to the common approach in IITA,
the general admission of shareholders’ standing as a matter of jurisdiction does not
necessarily have a prejudicial effect on the merits. It is contested whether the issue at
hand is a matter of admissibility and, therefore, can be assessed as part of the merits
or (only) as a matter of jurisdiction.84
Rather, it can be presumed to be both, i.e., an issue with double relevance.85
Consequently, from a doctrinal point of view, it is conceivable that substantive law
issues such as the risk of double recovery and coherence matters arising from the
piercing of the corporate veil can be at least partly recognized as part of the
assessment of the merits. This applies even though it deserves support that the
substance of international investment protection is to be developed in the light of
the specific IIT.
Second, as IITs generally grant legal standing for shareholders to claim for
reflective losses, the question remains as to how such losses ought to be remedied.
As a consequence, IITs do not necessarily preclude the consideration of coherence
and consistency aspects as long as they do not undermine the purpose of treaty-based
investment protection.
Although treaty-based international investment protection constitutes a legal
spectrum which is – and essentially ought to be – independent of municipal law, it
cannot be ignored that shareholdings as investments are inseparably linked with
municipal corporate law which, in turn, is embedded and reconciled in a complex
system of other interest holders and other fields of law. Such integral legal connec-
tions are matters of coherence and consistency that essentially do not affect matters
of international investment protection. They might implicitly favor international
investments to a greater or lesser extent. Conversely, immediate adverse action of
the host State in this regard can also trigger treaty-based investment claims.
However, if sovereign measures contested under IITs do not directly concern the
exterior legal system in which an investment is embedded and structured, there are
no fundamental concerns against considering broadly accepted corporate law prin-
ciples and policy issues or matters of coherence related thereto. On the contrary,
since IITs are commonly silent on the extent and substance of rights granted in IITs,
tribunals in IITA should take these matters into account. This applies provided that
the consideration of these principles does not essentially undermine the function of
treaty-based international investment protection as an independent regime.
84
For a detailed analysis cf. Waibel M (2014) Investment arbitration: jurisdiction and admissibility.
University of Cambridge Faculty of Law Research Paper 9/2014. https://ssrn.com/
abstract¼2391789
85
Similar, Demirkol (n 37) 395ff
It is beyond the purpose of treaty-based investment protection to overrule any

constraints arising from the structure of the investment in the first place. If sovereign
measures do not directly intervene in such a system, restrictions arising from the
embedding of the international investment are normally not affected. How foreign
investments are structured reflects a complex investment decision comprising a
detailed consideration of various matters such as corporate governance, liability,
and tax. IITA ought to respect and reflect the outcome of these considerations. Thus,
the legal consequences of treaty-based investment protection must not distort the
system of advantages and disadvantages linked to the consideration of these aspects.
The general admission of shareholder claims with immediate compensation being
awarded to shareholders for damage that affects their company might at least
potentially undermine such a system. This problem cannot sufficiently be addressed
by the mere quantification of losses. Thus, any compensation for damage to share-
holders themselves might provide advantages beyond the purpose of treaty-based
investment protection.
The following simplified example of tax consequences illustrates the problem
where damages for reflective losses are paid to a company’s shareholder. The
damage affects the company in general and reduces its income tax. In turn, the
payment of damages to the shareholders widely ignores several levels of taxation,
including related matters of municipal and international taxation. This might provide
unjustified tax benefits which are difficult to reconcile in an international context.
Any consideration as part of the quantification of losses can hardly be able to
reconcile the problem that for tax reasons damage and damages, in fact, refer to
the same level. A second example is settlement agreements between a local company
and the host State regarding the same detrimental conduct, i.e., materially the same
facts underlying a shareholder’s reflective loss as an (indirect) pro rata reflection of
the immediate damage to the company. This is discussed further below.
In light of the risk of double recovery linked to the admission of shareholder
claims with recovery to the claiming shareholder(s), the following section describes
how the elements above can be placed in a more coherent and consistent framework
that respects both the independence of treaty-based international investment protec-
tion and common corporate law principles.
Reconciling the Risk of Double Recovery
Insufficient Approaches in IITA

According to the prevailing opinion, the admission of shareholder claims with
(proportionate) recovery to the shareholder should not ultimately amount to doubled
compensation. Various solutions appear possible to address the risk of double
recovery.86 One might be to impute awards granting damages within a chain of
86
For an overview of discussed ideas cf. P^
a ez-Salgado (n 83) 117ff
1052 B. Wuenschmann
claiming shareholders and/or to take into account any indirect compensation arising
from a previous settlement agreement, as the case may be.87
This approach is at least not persuasive as a general approach. The method shows
weaknesses in downstream situations, i.e., where indirect shareholders receive an
award for reflective losses and then direct shareholders initiate a separate claim. If
settlement agreements have not been reached in advance, the same applies if a
company seeks remedy following a shareholder’s claim for reflective losses. Fur-
thermore, the imputation approach does not sufficiently reconcile the issue of
coherence, as indicated by the tax consequences outlined above.
Another weakness of the imputation approach is that it materially affects and
fundamentally questions the possibility of settlement agreements between the local
company as the harmed entity and the host State. The same applies to any related
alternative dispute resolutions. As IITA jurisprudence also grants legal standing to
indirect shareholders holding their shares through another company or a chain of
intermediaries, it ultimately precludes host States and directly affected local compa-
nies from evaluating and agreeing on out-of-court settlements.
The key reason for this is that such arrangements are no longer able to achieve
their primary objective: a definite and comprehensive dispute resolution that, at best,
restores confidence at an early stage, which, in turn, simultaneously might best
protect the initial investment of all shareholders. An adversely affected company,
of course, is not entitled to dispose of shareholder rights including those existing
under IITs.88 Conversely, the nationality requirements under Art. 25(2) ICSID
Convention often effectively prevent shareholders from assigning their treaty-
based rights to a local company89 even if they wanted to.
Thus, consent of all shareholders to a negotiated settlement agreement and/or a
waiver of claims of all shareholders would be necessary to preclude treaty-based
shareholder actions following a settlement agreement between an affected company
and the host State. From the State’s point of view, it would even require also
involving all indirect shareholders to achieve a definite settlement of the dispute. It
is obvious that this cannot be deemed practical. The fact that any indirect compen-
sation of a reflective loss due to a settlement agreement with the company is to (or
ought to) be taken into account in an IITA proceeding is not sufficient in this regard.
Private Ordering Solution?

A more recent opinion argues that private ordering, or self-regulation, might offer a
superior solution to restoring the corporate governance dynamics affected by share-
holder claims in IITA. Based on the contractual theory point of view understanding a
corporation as a “nexus of contracts,” it suggests that the company/corporation
87
Cf. Hochtief (n 82) para 180; Sempra (n 82) para 228
88
In this regard correctly Sempra (n 82) 227
89
Discussed in Hochtief (n 82) 165ff. This approach seems feasible only in situations in which the
local company is deemed as foreign under Art. 25(2)(b) ICSID Convention in connection with a
respective treaty provision
generally ought to be entitled to bring claims in IITA.90 The issue of shareholder

claims in IITA can be addressed by tailored provisions in the corporate documents.91
In this regard, for example, a waiver system concerning the shareholders’ right to
claim under an IIT might be agreed, or provisions might be included, stipulating that
damages resulting from a host State’s adverse action shall be only awarded to the
company.92
The proposal deserves support in its concern to consider the corporate governance
structure in which an investment is embedded. However, it is not persuasive to
address the IITA-related issue of shareholder claims for reflective losses in private
agreements because it is an issue which cannot be left to the discretion of the
company and its shareholders.
The extent of investment protection is subject to an agreement by the States of a
respective IIT. The proposed approach would distort the prerequisites on foreign
investors set forth in the IIT. In ICSID proceedings, for example, it would undermine
the States’ agreement in the IIT on whether a local company shall be deemed as
foreign one under Art. 25(2)(b) ICSID Convention.
More importantly, resolving frictions arising from disregarding widely accepted
corporate law and corporate governance principles in IITA including the common
distinction between the company and its shareholders as separate legal persons must
not be at the discretion of the shareholders and their company. Such approach does
not sufficiently consider that these principles do not refer to the internal organization
of the company only. Rather, they are strongly linked to legislative and policy
considerations which refer to the company’s external relationships including overall
aspects regarding creditors and other stakeholders as well as the reconciliation of
various legal principles and fields of law such as insolvency and tax law.
Therefore, the IITA-specific issue of shareholder claims needs to be addressed
and resolved by an approach that is independent from any agreement between the
company and its shareholders. Rather, a resolving approach of this issue needs to be
embedded in the logic of IITA and the contractual framework of IITs. As such, it
seems to be persuasive to seek for an approach that can be adopted in any IITA
proceeding.
Reconciliation by Assessing the Extent of Treaty-Based Rights

In this regard, it is crucial to correctly determine the extent of treaty-based rights. In
line with the aforementioned general considerations, it seems more favorable to
acknowledge the corporate structure in which a given investment is embedded in
assessing the admissibility of a shareholder’s right to claim under the relevant IIT.
As long as the local company’s decision to enter into a settlement agreement
reflects an independent decision of its management and/or its majority shareholders
without any political interference or pressure from the host State, there are no
90
Korzun (n 7) 249
91
Ibid.
92
Ibid.
1054 B. Wuenschmann
grounds for believing that a formally existing treaty-based right to claim should not
respect inherent legal constraints that result from the corporate or corporate gover-
nance structure. Disadvantages arising from a shareholder’s lack of influence or
power in a company to prevent its management from agreeing an out-of-court
settlement typically go beyond the purpose of treaty-based investment protection
and, thus, ought to be respected in general. Like any other management decision, this
limitation originates from the corporate or corporate governance structure in which
the shareholder’s initial investment is embedded.
On a more abstract level, this proposal reflects the conclusion that the admission
of shareholder claims is not only a matter of jurisdiction but also a matter of
the admissibility assessment in the merits. Thus, as a general rule, it appears justified
to reinterpret the extent of shareholders’ rights to claim for reflective losses as part of
the admissibility assessment.
In this regard, tribunals are asked to consider and balance well-established
corporate law principles and the purposes of treaty-based international investment
protection. This can be done as a two-stage examination. It allows tribunals to first
consider and recourse on well-established corporate law principles and then to
evaluate whether the outcome requires an alteration to provide effective investment
protection that is guaranteed by a given IIT. As a result, the proposed reinterpretation
of the extent of treaty-based shareholder rights can take different forms. In some
cases, the balancing process will factually effect a limitation of rights compared to
the current system. In other cases, even higher damages are conceivable even though
payments are to be made to the company.
In the context of shareholder claims following a settlement agreement on mate-
rially the same set of facts, the admissibility of treaty-based shareholder claims ought
generally to be rejected.
As a general rule (at least from a doctrinal point of view), the extent of a
shareholder’s right to claim ought also to be limited in the absence of any settlement
agreement made between the host State and the harmed local company. However, in
this regard, the proposed limitation shall not preclude the admission of a share-
holder’s action. It shall mean that the relevant shareholder is entitled to claim for
damages to be paid to the company.
This limitation appears justified due to similar thoughts that were made in the
context of priorly concluded settlement agreements: if direct compensation to the
relevant shareholder is not required to provide effective treaty-based investment
protection, the shareholder may generally seek damages only with recovery to the
company. The main reason for this is that – in economic terms – shareholder claims
are de facto actions on behalf of the company because they seek compensation for
the damage that occurred at the level of the company.93 Any exception (i.e.,
immediate payment of damages to the claiming shareholder) requires further exam-
ination and ought to be derived from the specific purposes of the relevant IIT.
93
Sasson (n 14) 132
The proposed reinterpretation of the extent of treaty-based shareholder rights as

part of the admissibility assessment thus reflects the other side of the coin for
granting legal standing to shareholders for substantially the same damage caused to
the company by the host State’s adverse action. Consequently, as is the case with
derivative claims, recovery is allocated to where the actual damage occurred,
which heals the reflective loss arising from the damage accordingly.94 This
approach respects and satisfies the individual need and treaty-based right of
shareholders to protect their investment independently of other shareholders and
the company in the absence of any majority decision at the company level. It also
eliminates the risk of double recovery or, conversely, the risk of double jeopardy
for the liable State. The damage occurred once, and, as a general rule, compensa-
tion ought to be awarded only once to the company based on the shareholder’s
action.
However, the proposed conceptual shift regarding shareholder claims is eligi-
ble to contradict the purposes of IITs. It might lead to the consequence that
effective treaty-based protection cannot be achieved in certain circumstances.
The admissibility assessment allows taking these particularities into account. It is
not justified to limit the shareholders’ rights based on the deference of well-
established corporate law principles and the corporate structure in which the
investment is embedded if the host States (indirectly) exploit any constraints
regarding shareholder rights arising therefrom to violate or to perpetuate the
violation of international investment standards guaranteed in a given IIT. This
needs to be addressed as part of a balancing process at the second stage of the
admissibility assessment.
Therefore, in the context of shareholder claims following a settlement agreement
on materially the same set of facts, treaty-based shareholder claims ought to be
admitted in cases in which the settlement agreement does not reflect a normal
business decision of the majority shareholder or the competent body in a company.
This is particularly the case if the majority shareholder or the competent body is
controlled by the State that caused the damage.
Similar applies to the proposal that the payment of damages ought to be made to
the company. In certain circumstances, tribunals ought to be entitled to grant direct
recovery of damages to the claiming shareholder (pro rata). However, these excep-
tions ought to be made upon further examination only. They ought to be derived
from the specific purposes of the relevant IIT and/or from generally accepted
principles that evolved in international law.
In the aforementioned context of shareholder claims following a settlement
agreement that does not reflect an independent decision of its management and/or
its majority shareholders without any political interference or pressure from the host
State, effective investment protection of course requires not only the admission of
94
This at least applies in situations in which the claiming shareholder directly or indirectly holds all
shares in the local company as the harmed entity.
1056 B. Wuenschmann
treaty-based shareholder claims but also direct compensation of the (remaining)

damage to the shareholder.
In all other cases, exceptions can be made based on the following thoughts: taking
up widely accepted principles adopted by the ICJ regarding diplomatic protection of
shareholders in cases of reflective losses,95 immediate recovery to the shareholders
might be an option in situations in which the company, as the party harmed by a
State’s adverse action, ceased to exist and the efficiency of treaty-based investment
protection would otherwise be adversely affected.
Another exception is conceivable where the payment of damages to a company
would contradict the purpose of treaty-based investment protection. One example
could be where the investment is made with a State-owned or State-controlled
company as a (majority) shareholder, as a public-private partnership, or as a joint
venture. In these or similar situations, any restriction formally arising from the
corporate (governance) structure is potentially influenced by the State as the injuring
party. Therefore, the limitation of shareholder claims as mentioned is not or might
not be justified. Given the purpose of IITs, in these situations, it seems justified to
grant shareholders standing to seek remedy for reflective losses with immediate
recovery to the claiming shareholder(s).
Some frictions between IIT law and common corporate law principles have to
be accepted to secure treaty-based international investment protection as an
independent legal spectrum. Any exceptions ought to be accepted only after
careful consideration of the implications arising from insolvency law and asso-
ciated principles such as the priority ranking. Tribunals ought to examine whether
it is justified to depart from the general rule admitting shareholder claims with
recovery to the company. This allows independent criteria in IITA to evolve
which, in turn, affirms IIT law as an independent source of law. One aspect to
examine might be whether municipal insolvency proceedings in any way con-
sider the fact that shareholders intend to claim against the host State’s adverse
action, making recovery to the company possible at all. Another might be the host
State’s actual influence on and independence of municipal insolvency
proceedings.
The novel aspect of the proposed two-stage examination as part of the admissi-
bility assessment lies in its flexibility arising from a careful consideration of suffi-
cient investment protection and common corporate law principles, as well as those of
other related fields of law. Such flexibility is likely to entail more complexity.
However, that added complexity seems necessary to achieve more coherent and
sound solutions regarding shareholder claims in IITA. The greater coherence will, in
turn, strengthen the overall system of IITA as a unique form of international dispute
resolution between States and investors. After all, it is conceivable that “exceptional”
compensation to the claiming shareholder is more often necessary to grant effective
investment protection in practice than it seems to be from the doctrinal perspective
described before.
See above “Customary International Law.”

95
Extent of Damages
Assuming a shareholder’s action is to be admitted as a claim for damages to be paid

to the company only (i.e., no exception occurs that justifies a direct compensation to
the claiming shareholder), it is difficult to answer to which extent the shareholder is
entitled to claim damages to be compensated to the company.
One potential view is that the compensation cannot be calculated in proportion to
the claiming shareholder’s stake in the company – as is common in IITA jurispru-
dence – which allows immediate recovery to the shareholder. The proposed concep-
tual shift to (generally) compensate reflective losses by paying damages to the
company seems to require that shareholders are granted treaty-based standing for
the full damage. Otherwise, the payment of damages would be diluted due to its
allocation to the company, provided that the company is not wholly owned by the
claiming shareholder. As a consequence, the payment would only partly remedy the
reflective loss of the claiming shareholder.
However, it appears more favorable to apply a differentiated approach here again.
The starting point ought to be to grant shareholders standing to claim for reflective losses
with recovery to the company in proportion to their relative equity interest in the
company (i.e., pro rata). In line with the general considerations above on prior settlement
agreements, an associated dilution does not necessarily result from a State’s adverse
action. Instead, it is often a direct consequence of being embedded in a particular
corporate structure, including the decision of other shareholders not to claim. This
limitation ought particularly to be made if an IIT allows derivative claims to be initiated
by the majority/controlling shareholder and the majority/controlling shareholder refrains
from arbitral proceedings. The same should apply if other shareholders refrain from
treaty-based arbitral proceedings even though they are entitled too.
Consequently, in these cases, reflective losses can only be remedied in full if all
shareholders are entitled to claim under a given IIT and if all shareholders decide to
claim for such losses with recovery to their company.
However, it remains open to question as to whether an exception to this general
“pro rata principle” can be made in situations in which non-claiming shareholders in
the company are not entitled to initiate arbitral actions for reflective losses. This
might be the case due to a lack of treaty-based investment protection. In these cases,
it does not seem precluded to grant the payment of full damages as an adequate
consequence of the State’s detrimental action. This does not necessarily undermine
the lack of investment protection or lower standards of investment protection
regarding all other shareholders. Rather, host States are obliged to abstain from mea-
sures violating any IIT in the first place. Thus, in these situations, the proposed
concept ought to result in the entitlement of shareholders to claim even for higher
damages than under the current approach in IITA.
Doctrinal Aspects
The proposed approach does not contradict the assumption that shareholders can
claim damages based on their own (treaty-based) right since the extent of this right is
1058 B. Wuenschmann
derived independently from the relevant IIT based on the objectives and obvious
intention of the parties. As shown, facilitating access to substantive IIT protection,
especially for minority and noncontrolling shareholders, does not automatically
mean that States intended to waive unanimous principles of corporate law.
Neither does the proposed approach distort the distinction between shareholder
claims and derivative claims. Practical outcomes can indeed be similar for both types
in certain situations,96 even though the underlying concepts are different. Claims for
the same harm compete where the company’s preliminary status as the directly
affected entity must be reconciled with the shareholders’ own right to claim for
reflective losses.
As shown, the better reasons argue for generally allowing shareholder claims
with recovery to the company limited to the relative (reflective) proportion of the
damage. However, recovery to the company in full as well as immediate recovery
(pro rata) to the claiming shareholder remains conceivable by way of exception.
These exceptions, however, require further examination. It is likely that these
exceptions from a doctrinal point of view might even constitute the typical
outcome in practice. As a result, the proposed concept is eligible not only to
achieve more coherent and sound solutions but also to provide a higher level of
international investment protection.
Overall Evaluation
Granting shareholders standing for reflective losses upon a two-stage examination

and balancing process as part of the admissibility assessment effectively considers
the criticism that IITA has attracted in the context of shareholder claims without
undermining the overall effectiveness of treaty-based international investment pro-
tection as an independent legal spectrum. This applies at least for substantive law
matters.
The proposed conceptual shift is eligible to provide legally sound and coherent
solutions. As shown, understanding shareholders’ standing in claims for reflective
losses not only as a matter of jurisdiction but also as a matter of the admissibility
assessment makes it possible to sufficiently reconcile IIT protection as an indepen-
dent source of law with common corporate law principles and related policy
considerations, including reconciliation with other fields of law. The fact that IITs
are typically silent on the substance of treaty protections means that substance can be
derived not only in line with the purpose of IITs but also in consideration of
unanimous corporate law principles and associated policy considerations. The pro-
posed approach enables a detailed consideration of separate but linked legal spectra.
As such, it creates an appropriate balance without overemphasizing one spectrum or
the other.
96
In the case of wholly owned subsidiaries, the outcome is practically the same, provided that no
exception allowing immediate recovery to the claiming shareholder applies.
Provided that effective treaty-based investment protection is not materially

affected, the shareholders’ right to claim ought to be limited to the extent that
compensation is to be paid to the company and not to the shareholder. Simulta-
neously, it is conceivable that the shareholder is not limited to claim damages only
pro rata to its share in the company.
This conceptual shift not only broadly eliminates the risk of double recovery
while securing the efficiency of foreign investment protection. It also best reflects
the typical implied intention of an IIT’s contracting States. Moreover, it recog-
nizes the distinction drawn between the company and its shareholders as separate
legal persons and acknowledges that the shareholders’ loss is only reflective or
indirect. The proposed approach also reflects that the actual assets constituting
the shares’ values are vested in the company and that shareholders have
only indirect access to these assets through their shareholder rights. Finally, it
recognizes the balanced corporate governance system as well as the differentiated
system of stakeholder interest reconciliation set forth in municipal corporate
law and, consequently, respects the fundamental principles underlying
the company’s limited liability and liability shielding in favor of its share-
holders if municipal corporate law so provides. This includes fundamental insol-
vency and taxation matters in general and enshrines the equal treatment of
shareholders as well as the positions and interests of the company’s lenders and
other creditors.
Conversely, the proposed approach allows a departure from such principles (i.e.,
the admission of shareholder claims with direct payment of damages to the claiming
shareholder) where effective treaty-based investment protection requires it. How-
ever, these exceptions ought to be made upon further examination only. In these
situations, some contradictions to fundamental municipal corporate governance
principles might remain non-reconcilable. However, they are an expression of IIT
law as a source of international law that is both independent of domestic law and
balanced with other legal spectra. As such, the broader admission of shareholder
claims under IITs, as opposed to municipal corporate law, must be understood as a
prevailing policy consideration in the IIT context to effectively protect all kinds of
foreign shareholders.
Shareholder claims are closely related to a vast number of procedural issues. It
can tentatively be stated that the existing legal instruments cannot provide sufficient
options to resolve these issues. This applies in particular to the problem of parallel or
multiple claims linked with favored forum/treaty shopping and the risk of inconsis-
tent decisions on substantially the same matter. It is often not possible to rely on res
judicata and lis pendens or similar principles,97 unless they are interpreted with
97
For detailed analyses cf. Hansen RF (2010) Parallel proceedings in investor-state treaty arbitra-
tion: responses for treaty-drafters, arbitrators and parties. Mod Law Rev 73(4):523, 537ff; Wehland
H (2016) The regulation of parallel proceedings in investor-state disputes ICSID Rev 31(3):576,
585f; Korzun (n 7) 244ff
1060 B. Wuenschmann
broad flexibility. Likewise, the availability of facilitative options such as consolida-

tion and joinder of parties is limited.98
Given the complexity of multiple treaties, parties, and forums that might be
involved, a comprehensive resolution can only be achieved de lege ferenda. For
example, this might be made as an appropriate State response in the treaty language
or as part of the EU initiative to establish a permanent multilateral investment court
for IIT disputes.
However, these remaining procedural challenges do not seem to call the forego-
ing solution on shareholder claims fundamentally into question. The proposed
approach is primarily based on the interpretation of rights conferred by IITs.
Hence, it must be evaluated separately from other procedural challenges often
associated with shareholder claims. While these challenges can arise in shareholder
claims, they are not inseparably linked with them. Thus, for example, the risk of
multiple proceedings also arises where different shareholders bring parallel actions
under different treaties or different arbitral rules that challenge adverse actions
directly affecting their position as shareholders.
Conclusion
The foregoing analysis revealed that IITs generally provide a sufficient legal basis
for admitting shareholder claims for reflective losses. Simultaneously, it can hardly
be assumed that States intended to implicitly waive all policy considerations under-
lying the general bar of those shareholder claims resulting from the recognition of
companies and their shareholders as distinct legal persons. Since the issue at hand in
IITA is usually only addressed as a jurisdictional matter, IITA (partly) fails to
evaluate and reconcile this ambiguous finding emerging from typical IITs. The gap
regarding substantive law issues can be closed by the admission of shareholder
claims with recovery to the company. However, this is only justified provided that
such compensation at the company level can be seen as effective investment
protection (i.e., the payment of damages to the company indirectly compensates
reflective losses of the shareholder). If not, immediate recovery on a pro rata basis to
the claiming shareholder ought to be accepted where the purpose of treaty-based
international investment protection (i.e., effective investment protection) requires
this. Remaining procedural challenges need to be resolved primarily de lege ferenda.
Cross-References
▶ Critical Perspectives on International Investment Law

▶ Damages and Valuation in International Investment Arbitration
98
Hansen (n 99) 537ff

Ratione Temporis)
Anti-arbitration Injunctions in Investor-
State Arbitration: Instruments of “Abuse 42
of Process”
Sai Ramani Garimella and Wasiq Abass Dar
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1064
Anti-arbitration Injunctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1064
Abuse of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1071
Anti-arbitration Injunctions as Instruments of Abuse of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1074
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1077
Abstract
A host State, depending upon the situation and circumstances, may approach the
national court seeking anti-arbitration injunction either before the establishment
of the arbitral tribunal or once the arbitration tribunal enters into reference. The
reasons, often, cited for seeking an anti-arbitration injunction can vary from
admissibility issue to jurisdictional objection to prohibition of abuse of process.
Jurisprudence on this issue is limited; however, it allows an understanding that
some domestic courts inherently retain the jurisdiction to restrict the initiation of
international treaty arbitrations which are oppressive or vexatious or cause severe
prejudice to the legal process. The decision of the Delhi High Court in the
Vodafone case brings forth some pertinent questions about the law and interpre-
tation of the competence principle and the role of domestic courts in enjoining
international treaty arbitrations. Noting the uncertainty that could result from anti-
arbitration injunctions for the foreign investor, this chapter attempts to understand
S. R. Garimella (*)
Faculty of Legal Studies, South Asian University, New Delhi, India
Research Centre on Private International Law in Emerging Countries, University of Johannesburg,
Johannesburg, South Africa
e-mail: ramani@sau.ac.in
W. A. Dar
Jindal Global Law School, O.P. Jindal Global University, Sonipat, India
e-mail: wadar@jgu.edu.in

https://doi.org/10.1007/978-981-13-3615-7_25
1064 S. R. Garimella and W. A. Dar
the scope of the inherent jurisdiction located within the national law. It also
analyzes and evaluates the rationale offered by the Vodafone court and examines
whether anti-arbitration injunctions could possibly lead to abuse of process.
Keywords
Investment arbitration · Injunctory relief · Appropriate forum · Abuse of process ·
Inherent jurisdiction · Equity
Introduction
Investor-State arbitration is atypical in its own way as it enables investors to take on

sovereign host States – drawing the power to do so from a treaty that is signed between
the home State of the investor and the host State. Though the treaty, either a Bilateral
Investment Treaty or a Multilateral Investment Treaty, may offer various mechanisms
for settlement of disputes between an investor and the host State, once parties agree to
settle the dispute through arbitration the other mechanisms offered stand excluded. Does
that suggest national courts are completely ousted from playing any role? Certainly not.
A party may approach relevant national court(s) having connection with the arbitration
before, during, or after the arbitration proceedings – depending upon the circumstances.
One such occasion where an aggrieved party could approach a national court is
when such party seeks an anti-arbitration injunction. This chapter essentially dis-
cusses anti-arbitration injunctions in investor-State arbitrations and the recent prac-
tice as far as the response of national courts across the jurisdictions is concerned vis à
vis applications seeking such injunctions. The chapter further explores the circum-
stances in which national courts of the host State have agreed to grant anti-arbitration
injunctions, and argues that such injunctions should be allowed only in exceptional
circumstances. The chapter also looks into the concept of abuse of process – a
derivative of the concept of abuse of rights – and analyses whether host States
approaching national courts for anti-arbitration injunctions could possibly amount
to an “abuse of process.” It is argued that if a host State is lacking in good faith and
has intended to disrupt and derail the agreed arbitration process by seeking an anti-
arbitration injunction from its domestic court – such an action squarely falls in the
category of “abuse of process.”
Anti-arbitration Injunctions
Anti-arbitration injunctions have, of late, become quite popular in investor-State

arbitration and have found considerable support from State parties – in particular.1
However, the popularity and support to the practice of approaching courts and
1
Richard Garnett, ‘National Court Intervention in Arbitration as an Investment Treaty Claim’,
(2011) 60 International and Comparative Law Quarterly 485, 488–490; see, Julian Lew, ‘Does
42 Anti-arbitration Injunctions in Investor-State Arbitration: Instruments of. . . 1065
obtaining anti-arbitration injunctions has not gone unnoticed and without getting its
due share of criticism.2 One of the major concerns and criticisms often cited is
that the grant of anti-arbitration injunctions by national courts has the potential of
paving way for an interventionist approach on the part of courts that directly attacks
the very purpose of arbitration as a dispute resolution mechanism.3 Aside from that,
the suspicion of a national court siding with its State to issue anti-arbitration
injunction in order to derail the arbitration process and thereby causing denial
of justice to the investor is also a significant apprehension that cannot be ruled out.4
Whenever a dispute arises between a foreign investor and a host State wherein the
host State as well as the foreign investor’s State are members of the ICSID Conven-
tion, the question of the host State approaching its domestic courts for obtaining an
anti-arbitration injunction generally does not arise. This is so because as per Article
26 of the Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States - International Centre for Settlement Of Investment
Disputes, Washington 1965 (here in after, the ICSID Convention), when the
parties conveyed their consent to arbitration under the said Convention, they are
prohibited from resorting to any other remedy.5
National Court Involvement Undermine the International Arbitration Process?’, (2009) 24 Amer-
ican University International Law Review 489; see also, Sharad Bansal and Divyanshu Agarwal,
‘Are Anti-Arbitration Injunctions a Malaise? An Analysis in the Context of Indian Law’, (2015)
31 Arbitration International 613, 618; see, SGS Société Générale de Surveillance SA (SGS) v
Islamic Republic of Pakistan, Civil Appeal No. 459 & 460, Supreme Court of Pakistan (2002);
Union of India v Vodafone Group Plc, United Kingdom & Anr, CS(OS) 383/2017 & I.A. No 9460/
2017 (Delhi High Court, 7 May 2018); Union of India v Khaitan Holdings (Mauritius) limited &
ors. CS (OS) 46/2019, I.As. 1235/2019 & 1238/2019 (Delhi High Court, 29 January 2019); see
also, British Caribbean Bank Ltd. v The Government of Belize, Caribbean Court of Justice, 10
December 2013.
2
Julian Lew, supra note 1, 536–537; see also, S.I. Strong, ‘Anti-Arbitration Injunctions in Cases
involving Investor-State Arbitration: British Caribbean Bank Ltd. V. The Government of Belize’,
(2014) 15 Journal of World Investment and Trade 324.
3
Richard Garnett, supra note 1, 491 (2011); see also, Christoph Schreuer, ‘Interaction of Interna-
tional Tribunals and Domestic Courts in Investment Law’, in AW Rovine (ed.) Contemporary
Inssues in International Arbitration and Mediation: The Fordham Papers (Brill, 2010) 71, 87.
4
See, for example, Saipem S.P.A v The People’s Republic of Bangladesh, ICSID Case No.ARB/05/
07, Decision on Jurisdiction (2007); see also, Masour Fallah S., ‘Judicial Expropriations: Difficul-
ties in Drawing the Line Between Adjudication and Expropriation’, in Chaisse J. Choukroune L.,
Jusoh S. (eds), Handbook of International Investment Law and Policy, (Springer, 2020) 11.
5
Article 26 of the ICSID Convention reads;
‘Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be
deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may
require the exhaustion of local administrative or judicial remedies as a condition of its consent to
arbitration under this Convention.’; see also, Christoph Schreuer, supra note 3, 73–74, 76. Schreuer
referred to the Helnan v Egypt, (Decision on Annulment, 14 June 2010, 9, 28-57) to reiterate that
consent to investor-State arbitration allowed an understanding that exhaustion of local remedies
may not be required. (Schreuer, at 73) Interestingly, Schreuer noted that the Romania – Sri Lanka
BIT of 1981 included a provision related to exhaustion of local remedies. In Plama v Bulgaria
(Decision on Jurisdiction, 8 February 2005, 13 ICSID Reports 272, para. 224) the exhaustion of
local remedies clause in the Cyprus-Bulgaria BIT of 1987 was subjected to critique for its most
However, where the investment treaty entered into between two States does
not include the possibility of submitting a dispute before a tribunal constituted
under the ICSID Convention, there exists a possibility for a host State to
approach its domestic courts for relief, including for seeking anti-arbitration
injunctions. Host State, depending upon the situation and circumstances, may
approach the national court seeking anti-arbitration injunction either before the
establishment of the arbitral tribunal or once the arbitration tribunal enters into
reference. The reasons cited for seeking an anti-arbitration injunction can vary
from admissibility issue to jurisdictional objection to prohibition of abuse of
process.
a) National Courts vis à vis Anti-arbitration Injunctions
In non-ICSID investor-State arbitrations, in particular, the role of national courts

remains relevant as well as, seemingly, inevitable. From supervisory role of national
courts at the seat of arbitration to assistance in facilitating the enforcement of arbitral
awards, national courts significantly contribute to the success of arbitration as an
investor-State dispute resolution mechanism. Needless, though, to mention here that
the responsibility of the relevant national courts, at all stages, remains to ensure that
they complement the arbitral process and do not in any manner contribute or
facilitate any kind of unnecessary obstruction or hindrance.6
Anti-arbitration injunctions have the potential of turning out to be a potent tool
to obstruct or derail arbitration process. Not discounting the situations where
anti-arbitration injunctions can be the only means left for State parties to ensure
justice, the possibility of using this means to hamper a fair and rightful arbitration
process cannot be ruled out. How a court looks at and responds to anti-arbitration
injunction applications can play a noteworthy role in not just ensuring that
the genuine party’s interests aren’t in any manner jeopardized but also in uphold-
ing faith in arbitration as an effective investor-State dispute resolution
mechanism.
A cursory look at the practice of national courts vis à vis anti-arbitration injunc-
tion applications suggests a difference in approach between prominent common law
likely effect being delay and additional cost. Two reasons that Schreuer identified as causing
disenchantment with such provision are – the delay and expense to the investor because of the
local proceedings, and the possible exacerbation of the dispute because of domestic public pro-
ceedings and its impact on the host State’s investment climate. Schreuer points out that Non-ICSID
tribunals have also variously ruled against exhaustion of local remedies prior to instituting pro-
ceedings for international arbitration (CME v Czech Republic, Final Award, 14 March 2003, 9
ICSID Reports 264, para. 412; Yaung Chi Oo v Myanmar, Award, 31 March 2003, 42 ILM 540
(2003), para. 40; Nycomb v Latvia, Award, 16 December 2003, 11 ICSID Reports 158, sec. 2.4;
Rosinvest v Russian Federation, Award on Jurisdiction, October 2007, para. 153). See, generally, C.
Schreuer, ‘Calvo’s Grandchildren: The Return of Local Remedies in Investment Arbitration’,
(2005) 4 The Law and Practice of International Courts and Tribunals 1, 3–5.
6
Julian Lew, supra note 1, 535; see also, see also, Christoph Schreuer, supra note 3, 92–93.
jurisdictions as against the civil law jurisdictions.7 Courts in common law jurisdic-
tions appear to be more eager to intervene and invoke inherent powers to issue anti-
arbitration injunctions. As a matter of practice, the common law courts more often
than not draw the authority to issue anti-arbitration injunctions from their inherent
equity powers.8 For example, in England the courts have on several occasions
granted anti-arbitration injunctions by resorting to principles of equity and inherent
jurisdiction to do so – provided in relevant provisions of the Supreme Courts Act of
1981.9 Similarly, in the United States, the courts have relied upon their inherent
powers while issuing anti-arbitration injunctions.10 For example, in the case of
Socicété Générale de Surveillance,11 the Court of Appeal held that the Federal
Arbitration Act does allow the Federal Courts to enjoin arbitration, and reiterated that
“to enjoin a party from arbitrating where an agreement to arbitrate is absent is the
concomitant of the power to compel arbitration where it is present.”
Indian courts, as well, have followed the lead and on several occasions have
observed that as courts of law and equity they enjoy the authority to grant anti-
arbitration injunctions.12 The High Courts in India in several decisions have
suggested that Indian law, including the Arbitration and Conciliation Act, 1996
and Civil Procedure Code, 1908, conferred upon them the power to grant anti-
arbitration injunctions.13 Even though there is no provision of the Indian Arbitration
law that speaks of interim relief in context of foreign-seated arbitrations, there is
nothing in the legslation that disallows it. A plain reading of the relevant decisions
7
Gabrielle Kaufmann-Kohler, ‘How to Handle Parallel Proceedings: A Practical Approach to Issues
such as Competence-Competence and Anti-Suit Injunctions’, (2008) 2(1) Dispute Resolution
International 110, 111; see also, Julian Lew, supra note 1, 499.
8
Emmanuel Gaillard, ‘Abuse of Process in International Arbitration’, (2017) 32(1) ICSID Review
17, 32; see also, Sharad Bansal and Divyanshu Agarwal, supra note 1, 628.
9
See, Section 37 of the Supreme Court Act, 1981; see also, Hakeem Seriki, ‘Anti-Arbitration
Injunctions and the English Courts: Judicial Intervention or Judicial Protection’ (2013) 16 Inter-
national Arbitration Law Review 43; see, S.H. Sabbagh v W.S. Khoury & Others, [2018] EWHC
1330 (Comm), paras 17–18; Claxton Engineering Services Ltd v TXM Olaj-es Gazkutato KTF,
[2011] EWHC 345 (Comm), paras 34 & 36; Elektrim SA v Vivendi Universal SA, [2007] EWHC 571
(Comm); Welex A.G. v Rosa Maritime Ltd, APP.L.R. 07/03 (2003), paras 34–40.
10
Jennifer Gorskie, ‘US Courts and Anti-Arbitration Injunction’, (2012) 28 Arbitration Interna-
tional 295, 307; see also, Satcom International Group PLC v Orbcomm International Partners, LP.,
49 F Supp. 2d 331 (SDNY) 1999.
11
Societe Generale de Surveillance, SA, v Raytheon European Management and Systems Co 643
F.2d 863 (USCA, FC) 1981, para 13.
12
S.R. Subramaniun, ‘Anti-arbitration injunctions and their compatibility with the New York
convention and the Indian law of arbitration: future directions for Indian law and policy’ (2018)
34 Arbitration International 185, 201–202; see, Sharad Bansal and Divyanshu Agarwal, supra note
1, 628; see also, Modi Entertainment Network v W.S. G. Cricket Pvt. Ltd., 4 SCC 341(2003); World
Sport Group (Mauritius) v MSM Satellite Singapore, SC 968, AIR (2014); Union of India v
Vodafone Group Plc United Kingdom & Anr, CS(OS) 383/2017 & I.A. No 9460/2017 (Delhi
High Court, 7 May 2018); Union of India v Khaitan Holdings (Mauritius) limited & ors. CS (OS)
46/2019, I.As. 1235/2019 & 1238/2019 (Delhi High Court, 29 January 2019).
13
S.R. Subramaniam, supra note 12, 204.
of the Indian courts suggests that courts consider the power to grant such relief as
‘ancillary to the power to award the main relief’.14 As a result, the Indian courts have
on multiple occasions held that as per Order XXXIX of the Code of Civil Procedure,
1908 (as amended), courts have the power to enjoin arbitration in appropriate
cases.15
On the other hand, an exploration of the civil law jurisdictions reveals that their
courts have shown marked reluctance in exercising authority to enjoin arbitrations.16
For example, in Switzerland, the courts have diligently and consistently held that
anti-arbitration injunctions go against the spirit of Kompetenz-Kompetenz principle,
and therefore are inconsistent with the law and jurisprudence of the swiss legal
system.17 Similarly, French courts have exhibited extreme restraint while dealing
with anti-arbitration injunctions as the law mandates such posturing.18 This
approach is evidently contrary to what is practiced in common law jurisdictions.
However, it is pertinent to mention here that even though courts in common law
jurisdictions have not shied away from granting anti-arbitration injunctions, the
practice generally has been to tread with caution and restraint while exercising
such discretionary powers.
b) Anti-arbitration Injunctions as an Exception and not a Rule
One of the key concerns with regard to the practice of issuing anti-arbitration
injunctions by national courts is that the grant of such relief has the potential to
debilitatingly impact and also possibly frustrate the arbitration system in general and
the relevant arbitration proceedings in particular. And it is certainly not the case that
the national courts are not aware or mindful of such concerns. The practice of
14
In Re Cauvery Water Disputes Tribunal, AIR 1992, SC 522, [16].
15
Tractor Export, Moscow v M/S Tarapore & Co AIR 1971 SC 1. The Court had approvingly
quoted the Halsbury’s Laws of England (Vol 21, Page 407) and stated that it possessed the power to
restrain a person within its jurisdiction from instituting or prosecuting suits in a foreign court
whenever the circumstances of the case make such an interposition necessary or proper. It may be
noted that on this point, i.e. the power of the Indian court to order anti-arbitration injunctions, there
is no much disagreement; see also, Sharad Bansal and Divyanshu Agarwal, supra note 1, at 626.
16
Gabrielle Kaufmann-Kohler, supra note 7, at 111; see also, Julian Lew, supra note 1. at 499.
17
Matthias Scherer and Werner Jahnel, ‘Anti-Suit and Anti-Arbitration Injunctions in International
Arbitration: A Swiss Perspective’, (2009) 4 International Arbitration Law Review 66; see also, Air
(PTY) Ltd. v International Air Transport Association (IATA) and CSA in Liquidation, Case No
C/1043/2005-15SP, Republic and Canton of Geneva Judiciary, Court of First Instance (2005).
18
John Savage & Emmanuel Gaillard, Fouchard Gaillard and Goldman on International Arbitra-
tion (Kluwer Law International, 1997)1, 407; see also, French New Code of Civil Procedure,
Article 1458 – If a dispute pending before an arbitral tribunal on the basis of an arbitration
agreement is brought before a State court, it shall declare itself incompetent. If the dispute is not
yet before an arbitral tribunal, the State court shall also declare itself incompetent, unless the
arbitration agreement is manifestly null and void. In neither case may the State court declare itself
incompetent at its own motion.
Available at https://www.jus.uio.no/lm/france.arbitration.code.of.civil.procedure.1981/doc.
html#51
national courts, from across the jurisdictions, to carefully weigh the competing
interests and to display caution while dealing with the requests to grant anti-
arbitration injunctions is testimony to the fact.
For example, in England, the courts have, incessantly and with much clarity, held the
view that requests for anti-arbitration injunctions should be allowed only when a
compelling case is carved out in favor of the possibility of the arbitration proceedings
being oppressive, vexatious, unconscionable or in violation of the principle of abuse of
process.19 In Excalibur Ventures,20 where the court found that there was a prima facie
case that the Gulf companies (Gulf Keystone Petroleum Limited, Gulf Keystone
Petroleum International Limited and Gulf Keystone Petroleum UK - the ‘Gulf defen-
dants’) were not parties either to the collaboration agreement or to any arbitration
agreement, such a case squarely fell in the category of exceptional cases where the court
could invoke its jurisdiction to enjoin a foreign seated arbitration. The court observed:
It is clear that the English courts have jurisdiction under s.37 of the Senior Courts Act 1981
to grant injunctions restraining arbitrations where the seat of the arbitration is in a foreign
jurisdiction, although it is a power that is only exercised in exceptional circumstances and
with caution. . . An English court will be particularly slow to restrain arbitration proceedings
where there is an agreement for the arbitration to have its seat in a foreign jurisdiction and the
parties have “unquestionably agreed” to the foreign arbitration clause. . . Nonetheless, in
exceptional cases, for example where the continuation of the foreign arbitration proceedings
may be oppressive or unconscionable so far as the applicant is concerned, the court may
exercise the power under s.37 to grant such injunction”.21
Similarly, in Compagnie Nouvelle,22 the English Court of Appeal while offering

guidance vis a vis dealing with applications seeking anti-arbitration injunctions, held
that the courts could consider the exercise of the discretion to grant the injunction if it
does not cause injustice to the claimant in the arbitration and if the court is satisfied
by the applicant's plea that the continuation of the arbitration proceedings would be
oppressive, vexatious, or in violation of the principle of abuse of process. In J. Jarvis
& Sons Ltd.v Blue Circle Dartford Estates Limited,23 where the applicant
sought an anti-arbitration injunction on the grounds that concurrent proceedings
could result in inconsistent findings and could therefore fail the purpose of arbitra-
tion proceedings, the court entertained the application but not without observing that
an order to enjoin arbitration could be made only in exceptional circumstances. The
court further observed that even though it had the authority and discretion to issue
19
see, for instance, Elektrim SA v Vivendi Universal SA, [2007] EWHC 571 (Comm) para 51;
Republic of Kazakhstan (ROK) v Istil Group Inc. (Istil), [2007] EWHC 2729 (Comm); J. Jarvis &
Sons Ltd. v Blue Circle Dartford Estates Ltd., 2007, [40]; Claxton Engineering Services Ltd v TXM
Olaj-es Gazkutato KTF, [2011] EWHC 345 (Comm), [34] & [36].
20
Excalibur Ventures v Texas Keystone Inc. & Ors., [2011] EWHC 1624 (Comm).
21
ibid[54] – [56].
22
Compagnie Nouvelle France Navigation, S.A. v Compagnie Navale Afrique du Nord [1966] 1
Lloyd’s Rep. 477.
23
J. Jarvis & Sons Ltd. v Blue Circle Dartford Estates Ltd, [2007] EWHC 1262 (TCC).
anti-arbitration injunctions, it would exercise such discretion only sparingly so that it

does not conflict with the underlying principles of the national arbitration law.
National courts in other jurisdictions as well, for instance, in the USA, India, and
Singapore, have followed similar approach.24 The common link that one can spot in
the decisions of these national courts is that there is a consensus that courts must
exercise caution and grant anti-arbitration injunctions only when there is sufficient
reason to believe that arbitral proceedings could be oppressive or vexatious or
inequitable or violating the principle of abuse of process.
Despite the usual caveat that national courts often take into account while
granting anti-arbitration injunctions, arbitral tribunals have often been quite critical
of national courts’ exercise of authority to enjoin arbitration proceedings.25 It has
been perceived as a direct usurpation of the tribunal’s authority to decide on the
relevant issues and an attack on the arbitration system in general. For example, in
Saipem v. Bangladesh,26 the tribunal opined that it is “generally acknowledged that
the issuance of an anti-arbitration injunction can amount to a violation of the
principle embedded in Article II of the New York Convention.”27 Even though in
the instant case courts of Bangladesh did not decide on the issues of jurisdiction or
admissibility and instead decided on the authority of the arbitrators to continue with
the proceedings, the tribunal held that revoking arbitrators’ authority also amounted
to a violation of Article II of the New York Convention.28 Similarly, in SGS v.
Pakistan,29 where Pakistan Supreme Court issued anti-arbitration injunction, the
tribunal still preferred to continue with the arbitration. The tribunal was of the
opinion that it had an obligation to ensure the right of access to international
adjudication as envisaged under the relevant BIT and the ICSID Convention. In
other words, the tribunal was of the opinion that the State’s conduct in seeking such
relief was, in a way, encouraging denial of justice.30
24
Satcom International Group PLC v Orbcomm International Partners, LP., 49 F Supp. 2d 331
(SDNY) 1999; Republic of Ecuador v Chevron Corporation 638 F. 3d 384, Court of Appeals, 2nd
Circuit CA (2011); Union of India v Vodafone Group Plc United Kingdom & Anr, CS(OS) 383/2017
& I.A. No 9460/2017 (Delhi High Court, 7 May 2018); Union of India v Khaitan Holdings
(Mauritius) limited & ors. CS (OS) 46/2019, I.As. 1235/2019 & 1238/2019 (Delhi High Court,
29 January 2019).
25
Julian Lew, supra note 1, at 490.; see also, Winnie Ma, ‘Parallel Proceedings and International
Commercial Arbitration: The International Law Association’s Recommendations for Arbitrators’,
(2009) 2 Contemporary Asia Arbitration. Journal 42, 53.
26
Saipem v Bangaldesh, ICSID Case No. ARB/05/07, Award, 30 June 2009.
27
ibid [167].
28
ibid; see also, Richard Garnett, supra note 1, at 495; see, Masour Fallah S., ‘Judicial Expropri-
ations: Difficulties in Drawing the Line Between Adjudication and Expropriation’, in Chaisse J.
Choukroune L., Jusoh S. (eds), Handbook of International Investment Law and Policy, Springer,
2020) 10–12.
29
SGS v. Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to
Jurisdiction, 6 August 2003; see also, SGS Société Générale de Surveillance SA (SGS) v. Islamic
Republic of Pakistan, Civil Appeal No. 459 & 460, Supreme Court of Pakistan (2002).
30
Richard Garnett, supra note 1, at 492.
Looking at the practice of national courts and the observations of arbitral tribunals
and international scholarship on the issue, it would be safe to argue that the opinion
of the stakeholders on anti-arbitration injunctions generally oscillates between strong
objections to the use of anti-arbitration injunctions on one hand and the tacit
acceptance of its utility and therefore application in exceptional circumstances.
Keeping in view the potential of conflict it can create with arbitration as a dispute
resolution mechanism, the unabated or unrestricted use of anti-arbitration injunc-
tions is quite rightly neither favored nor advocated.
Further, there is another argument that is often mooted to effectively restrict the
possible abuse of anti-arbitration injunctions.31 It is suggested that a more plausible way
of avoiding the misuse or abuse of the option of anti-arbitration injunctions is to let only
the supervisory courts or the seat courts to entertain applications seeking enjoinment of
arbitration.32 This, of course, applies to the circumstances where the arbitration has
entered into reference or where the seat of arbitration stands identified. Such a practice
would not only promote uniformity in terms of approaching a neutral forum as far as
applications seeking anti-arbitration are concerned, it would also take care of the
apprehensions of host State resorting to forum shopping to realize vested interests.33
Abuse of Process
The doctrine of “abuse of process” refers to the use of procedural rights in a manner
that is perceived as perverse, as the intent involved is to maximize the possibility of
attaining benefits at the cost of causing injury to the other party.34 The principle is not
only applicable in private law but is much recognized in public international law as
well.35 A derivative of the principle of abuse of rights, it is argued that presence of
abuse of process is tested using the yardstick of fundamental principle of good faith.36
31
See, generally, Hakeem Seriki, Injunctive Relief and International Arbitration (CRC Press, 2014).
32
Jennifer Gorskie, supra note 10, at 295 (2012); see also, Gabrielle Kaufmann-Kohler, supra
note 7, at 112.
33
Wasiq Abass Dar, ‘Abuse of Process’ and Anti-Arbitration Injunctions in Investor-State Arbitra-
tion: Analysis of Recent Trends and the Way Forward’, in Csongor István Nagy (ed.), Investment
Arbitration and National Interest, (Council of International Law and Policy, Indianapolis, 2018) 53,
66–68.
34
Robert Kolb, ‘General Principles of Procedural Law’, in Andreas Zimmermann, The Statute of the
International Court of Justice: A Commentary, (OUP, 2006) 1,831–832; see also, Eric De
Brabandere, ‘Good Faith”, “Abuse of Process” and the Initiation of Investment Treaty Claims’,
(2012) 3(3) Journal of International Dispute Settlement 609, 620; see, Djajić S., ‘Good Faith in
International Investment Law and Policy’, in Chaisse J. Choukroune L., Jusoh S. (eds), Handbook
of International Investment Law and Policy, (Springer, 2020) 22; see, Emmanuel Gaillard, supra
note 8.
35
Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (OUP, 2003) 1,
257.
36
Michael Byers, ‘Abuse of Rights: An Old Principle, A New Age’, (2002) 47 McGill Law Journal
389, 441; Djajić S., ‘Good Faith in International Investment Law and Policy’, in Chaisse J.
This doctrine essentially empowers the courts to prevent misuse of procedural

rights that on the face of it may appear valid under law but because of the conduct or
manner in which the party is using such procedural rights might be unfair to
the opposing party and having the potential of jeopardizing the administration
of justice.37 Some of the key features of the principle of abuse of process are that it
highlights the exercise of procedural rights that may not, on its own, violate any
statutory rule – yet jeopardize the opposing party and cause grave injustice.38
Despite the fact that “abuse of process” does rarely find a mention in statutes or
treaties, it is a well-acknowledged and accepted legal doctrine in national legal systems
as well as under international law practice.39 Courts in Canada exercise an inherent
and residual discretion to prevent abuse of process where it has the potential to be
manifestly unfair to a party or cause hindrance to administration of justice.40 The
Supreme Court of Canada has held that ‘abuse of process may be established where
the proceedings are oppressive or vexatious and violates the fundamental principles of
justice underlying the community’s sense of fair play and decency’.41 In Australia,
abuse of process occurs where the ‘court’s procedures are invoked for an illegitimate
purpose, the use of the court’s procedures is unjustifiably oppressive to one of the
parties, or the use of the court’s procedures would bring the administration of justice
into disrepute’.42 Similarly, in England, abuse of process is the ‘use of court’s process
for a purpose or in a way significantly different from its ordinary and proper use of the
court process’.43 And in the United States, a party alleging abuse of process is required
to demonstrate that an “abuse” or “perversion” of process has already initiated with
some unlawful or ulterior purpose and has the potential to harm the plaintiff.44
In many civil law jurisdictions, though there is no general “abuse of process”
doctrine, they subscribe to the doctrine of “abuse of rights” – which is essentially a
similar concept.45 The principle of abuse of rights finds a mention within
Choukroune L., Jusoh S. (eds), Handbook of International Investment Law and Policy, (Springer,
2020) 4,); see also, Abaclat and others v Republic of Argentina, ICSID Case No. ARB/07/5,
Decision on Jurisdiction and Admissibility, 4 August 2011, paras 647-649; see, Phoenix Action
Ltd. v Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009.
37
Eric De Brabandere, supra note 34, at 620.
38
Emmanuel Gaillard, supra note 8, at 2.
39
Yuval Shany, supra note 35, at 255; see also, Michael Byers, supra note 36, at 397; see, Robert
Kolb, supra note 34, at 831–832
40
Toronto (City) v C.U.P.E., Local 7, [2003] 3 S.C.R. 77.
41
R v Scott [1990] 3 S.C.R. 979, p. 1007.
42
Rogers v The Queen [1994] HCA 42, see also, Australian Human Rights Commission, Federal
Discrimination Law, 2016, at 332 https://humanrights.gov.au/our-work/legal/publications/federal-
discrimination-law-2016#:~:text¼Federal%20Discrimination%20Law%20is%20produced,the%
20federal%20unlawful%20discrimination%20cases.&text¼Federal%20Discrimination%20Law%
202016%20has%20been%20updated%20to%2030%20June%202016
43
Attorney General v Baker [2000] The Times, 7 March 2000.
44
Kendra v Nazareth Hosp., 868 F. Supp. 733, 738 (E.D. Pa. 1994).
45
For discussion see, Hersch Lauterpacht, The Development of International Law by the Interna-
tional Court (CUP, 1982) 1, 164.
the provisions of the French Code of Civil Procedure, 2011 and is also recog-
nized within the law of other civil law jurisdictions including Switzerland, Germany,
Austria, Italy, Spain, and the Netherlands.46
The concept of abuse of process as perceived within the scholarship in interna-
tional law, explains that abuse of process ‘relates to the good order of judicial
proceedings- which is common to all the major legal systems and may be properly
applied by a tribunal in any legal system, including the international legal system, in
the exercise of the tribunal’s competence to regulate its own proceedings’.47 It was
also suggested that jurisdiction may be declined by a tribunal where the ‘action is
rendered vexatious’ as the purpose of the litigation may be to cause prejudice to the
opposing party or seek a claim on frivilous grounds.48 The Statute of the ICJ, as well,
in spite of not containing an express provision dealing with abuse of process has on
a number of occasions entertained the defense of abuse of process.49
As far as investor-State arbitrations are concerned, abuse of process has been a quite
popular defense resorted to by host States before arbitral tribunals as well as before
national courts. Several manifestations or categories of abuse of process have been
raised and evaluated. Since the stakes are quite high, it is but natural for the investors to
go for every possible strategy to maximize the possibility of realizing their claims and
obtaining favorable results. Resorting to strategies like corporate restructuring, filing of
fraudulent claims, filing of multiple proceedings with an aim of forum shopping are
some of the ways in which investors have tried to get into advantageous position.50
Strategies, such as these, are more often than not challenged by host States by relying on
the ground of “abuse of process.”
In case of ICSID arbitrations, Article 25 and 41 of ICSID Convention and Rule 41
of ICSID Rules pave the way for the arbitral tribunal to have exclusive authority to
decide on matters of admissibility and jurisdiction – and those are the stages where
the issue of abuse of process is mostly raised.51 In non-ICSID investor-State
arbitrations, use of “abuse of process” as a defense has increasingly been a cause
46
Emmanuel Gaillard, supra note 8, at 17.
47
Vaughan Lowe, ‘Overlapping Jurisdiction in International Tribunals’, (1999) 20 Australian
Yearbook of International Law 191, 203; see also, Robert Kolb, supra note 34, at 831–832;
Emmanuel Gaillard, supra note 8, at 17, 33.
48
Vaughan Lowe, supra note 47, at 202.
49
See, for instance, Equitorial Guinea v France (Immunities and Criminal Proceedings (Equatorial
Guinea v. France),Preliminary Objections, Judgment,I.C.J. Reports 2018, p. 292, paras 139-152);
see, also, John P. Gaffney, ‘Abuse of Process in Investment Treaty Arbitration’, (2010) 11 Journal
of World Investment and Trade 515, 519.
50
See, for example, Phoenix Action Ltd. v Czech Republic, ICSID Case No. ARB/06/5, Award, 15
April 2009; Philip Morris Asia Limited (Hong Kong) v The Commonwealth of Australia, PCA Case
No. 2012-12, Award on Jurisdiction and Admissibility (2015); Renee Rose Levy and Gremcitel SA v
Republic of Peru, ICSID Case No. ARB/11/17, Award (2015); Rachel S. Grynberg and Others v
Grenada, ICSID Case No. ARB/10/6 (2010).
51
Chiann Bao., ‘Arbitral Procedure: Case Management and Selecting the Place of Arbitration’, in
Chaisse J. Choukroune L., Jusoh S. (eds), Handbook of International Investment Law and Policy,
(Springer, 2020), 19.
of concern. It is not unheard of that the host States have approached national courts –
seat courts as well as domestic courts – requesting for anti-arbitration injunctions on
the grounds of abuse of process. The option of raising this defense before national
courts, particularly before a domestic court of the host State, with an intention to
enjoin the arbitration proceedings, is what has led to apprehensions amongst various
stakeholders – given the potential of such anti-arbitration injunctions to vex the
investor-State arbitration mechanism.
Anti-arbitration Injunctions as Instruments of Abuse of Process
In the light of the aforementioned concerns and apprehensions raised, some pertinent
questions that deserve to be answered would be (a) whether a host State can
approach its own domestic courts for any relief, bypassing the courts at the “seat”
of arbitration which are essentially the supervisory courts as far as arbitration is
concerned, and, (b) whether seeking an anti-arbitration injunction before a domestic
court of host State could itself amounts to an “abuse of process.”
As far as the first question is concerned, there is a popular opinion that only
supervisory courts, that is, the seat courts should be permitted to issue anti-arbitra-
tion injunctions as that would not only keep a check on the potential misuse of such
anti-arbitration injunctions but would also be a better forum to interpret lex arbitri –
not to mention the effect it will have on discouraging the practice of forum shop-
ping.52 However, it needs to be taken into account that the option of approaching a
seat court would be possible only in cases were the seat has already been identified in
the arbitration agreement or when the arbitral tribunal has been established. In
absence of such a situation, particularly when the arbitration agreement itself is in
question, the only forum left for the host State to seek enjoining of arbitral pro-
ceedings would be domestic national court.53
There is also an argument that the New York Convention, Article II(3)54 in
particular, applies to courts other than the court of supervisory jurisdiction as well,
where the arbitration agreements are invalid or inoperative.55 Therefore, it can be
argued that the power of enjoining arbitration is not necessarily vested with super-
visory courts only. However, keeping in mind the apprehensions of possible bias on
52
Jennifer L. Gorskie, supra note 10, at 295, see also, Julian Lew, supra note 1. at 494 and 510.
53
Ting-Wei Chiang, ‘Anti-Arbitration Injunctions in Investment Arbitration: Lesson Learnt from
the India v. Vodafone case’ (2014) 11(2) Contemporary Asia Arbitration Journal 251, 265.
54
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 –
Article II
[. . .]
3. The court of a Contracting State, when seized of an action in a matter in respect of which the
parties have made an agreement within the meaning of this article, shall, at the request of one of the
parties, refer the parties to arbitration, unless it finds that the said agreement is null and void,
inoperative or incapable of being performed.
55
Richard Garnett, supra note 1, at 493.
part of the host State court’s while handling the anti-arbitration injunctions against
investors and to ensure minimal judicial interference which is in line with the larger
pro-arbitration policy, as discussed above, restricting the power to issue anti-arbi-
tration injunctions to seat courts comes across as a viable solution.
As far as the second question concerned, that is, whether seeking an anti-arbitra-
tion injunction before a host State court could amount to abuse of process, the
answer can be best explained through a discussion on the observations made by
the High Court of Delhi in the Vodafone case.56 In this case, the Union of India filed
an application seeking an anti-arbitration injunction against Vodafone alleging abuse
of process as the later had initiated two investor-State arbitration proceedings, under
the India-Netherlands BIT and the India-UK BIT. The court initially, as an interim
relief, allowed Union of India’s application and restrained Vodafone from pursuing
the second arbitral proceedings. However, after the final hearing, the court vacated
the order and rejected Union of India’s request to grant a permanent injunction.
In the instant case, the court addressed some important questions. It established
that it had the authority to issue anti-arbitration injunction as it had personal
jurisdiction over the foreign investor in accordance with Section 20 of the Indian
Civil Procedure Code. The court observed that such jurisdiction of national courts
could only be ousted if “there is an express provision of law or is clearly implied.”
It is settled law that the jurisdiction of the Civil Courts in India is all embracing except to the
extent it is excluded by an explicit provision of law or by clear intendment arising from such
law. The ouster of the jurisdiction of a Civil Court is not to be lightly inferred and can only be
established if there is an express provision of law or is clearly implied. [See: Dhulabhai Vs.
State of M.P., 1968 (3) SCR 662].57
The Court further noted that there is no such statutory bar or a jurisprudential
statement in relation to investment arbitration.
Though Article 253 of the Constitution empowers the Indian Parliament to make a law to
give effect to International Treaties, yet the Parliament has not passed any specific legislation
to give effect to BIPA Agreements. However, there is no statutory bar or case law relating to
treaty obligation which creates an ouster of jurisdiction or threshold bar for Indian courts in
relation to a bilateral investment treaty arbitration. Accordingly, there is no explicit or
implicit ouster of jurisdiction of National Courts.58
The court further noted that since India was not a Contracting State to the ICSID
Convention, ICSID jurisprudence of non-judicial intervention did not apply to
India’s BIPA arbitrations.59 It also observed that India’s refusal to accede to the
ICSID Convention indicated that it did not intend to “dilute or surrender the National
56
Union of India v Vodafone Group Plc, United Kingdom & Anr, CS(OS) 383/2017 & I.A. No 9460/
2017 (Delhi High Court, 7 May 2018).
57
ibid [76].
58
ibid [77].
59
ibid [86].
Courts jurisdiction which it may otherwise have.”60 The Delhi High Court
maintained that it possessed and retains “the jurisdiction to restrain investment treaty
arbitrations which are oppressive, vexatious, inequitable, or constitute an abuse of
the legal process.”61
It also relied on the relevant international practice and jurisprudence noting that
the English courts of law and equity have used their inherent power to regulate the
process when a party exercises its procedural rights in a vexatious and oppressive
way and Civil law courts and international adjudicative bodies have also prohibited
abuse of right and abuse of process as general principles of law.62 Summing up, the
court held that India’s right to invoke such principles could not be restrained by its
agreement with foreign investors to arbitrate any disputes under a BIPA.63
It is pertinent to mention that in the instant case the Delhi High Court could have
possibly held Union of India, that is, the applicant seeking anti-arbitration injunction
on the ground of abuse of process, liable for “abuse of process” due to non-
disclosure by the latter of very pertinent information to the court – which the court
eventually considered to be a bona fide mistake on the part of Union of India and
hence did not address the issue further. The court, in line with the observations of the
Supreme Court of India,64 did suggest that that since the jurisdiction of a court under
Order XXXIX of the Code of Civil Procedure, 1908 to interfere with an order of
interlocutory or temporary injunction is purely equitable in nature, the court would
look at the conduct of the party invoking its jurisdiction and might refuse to interfere
unless the party’s conduct was free from blame.65
It is important to note here that the Delhi High Court emphasized on the
requirement of approaching the courts for such equitable reliefs with good faith.
The court maintained that especially in cases where a party is seeking discretionary
relief from a court and that too at an ex-parte stage, the party has a duty to plead its
case with full “candor” and “good faith.”66 The High Court further observed that
since the dispute in the instant case had arisen from an international treaty route, the
standard of disclosure on the party’s behalf must be the highest.67 Therefore, one can
infer from the observations of the court that had there been prima facie absence of
“good faith” on part of Union of India, that is, if the applicant had “willfully
suppressed” information or if its conduct was “vitiated by malice,”68 the application
60
ibid [86].
61
ibid [104].
62
ibid [105] – [110].
63
ibid [111].
64
Morgan Stanley Mutual Fund v Kartick Das [1994] 4 SCC 225; Gujarat Bottling Co. Ltd & Ors v
The Coca Cola Co. & Ors [1995] 5 SCC 545.
65
Union of India v Vodafone Group Plc United Kingdom & Anr, supra note 56,[129].
66
ibid.
67
ibid.
68
ibid [132].
for an injunctive relief to enjoin arbitration could have very well landed in the
bracket of perverse use of procedural rights, qualifying as “abuse of process.”
Returning to the question whether an application seeking an anti-arbitration
injunction by itself could be a masked attempt to abuse the process, and if such
applications were granted, the injunctory relief applied for without considering the
essential elements of principle of equity and good faith could serve as an instrument
of abuse of process – the Vodafone judgment suggests in affirmative.
Conclusion
Even though the practice of granting anti-arbitration injunctions in investor-State

arbitration continues to carry the baggage of criticism that surrounds it, the inevita-
bility of its application in certain circumstances – particularly where there is an
apparent abuse of process on part of the investor – cannot be completely discounted
or disregarded. On the other hand, it is equally important to take note that the option
before the host States to approach national courts for obtaining such anti-arbitration
injunctions should itself not become an instrument facilitating “abuse of process.”
The Vodafone judgment comes handy in explaining as to how the national courts
must tread with caution while dealing with the application seeking enjoining of
investor-State arbitration. More importantly, the judgment, while putting weight on
the requirement of approaching the courts for such discretionary relief with clean
hands and in line with principles of equity and good faith, sends across a message
that courts need to be wary of the fact that anti-arbitration injunctions must not be
allowed to become instruments or enablers of “abuse of process.”
Cross-References

▶ Judicial Expropriations: Difficulties in Drawing the Line Between Adjudication
and Expropriation
Emerging Practice on Investor Diligence:
Jurisdiction, Admissibility, and Merits 43
Matthew A. J. Levine
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1080
Asymmetry Critique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1081
Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1084
Basis for Investment Arbitration Tribunals to Consider Host State’s Domestic Law . . . . . 1085
Applicability of Domestic Law in Absence of Treaty Carve Out . . . . . . . . . . . . . . . . . . . . . . . . . 1087
Scope of Domestic Laws to Be Considered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1088
Exceptions to the Investor Diligence Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1090
Admissibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1091
Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1091
Clean Hands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1092
Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1093
Merits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1095
Defense to State’s Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1096
State’s Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1098
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1100
Abstract
Blowback against investment treaty arbitration is now more than a decade old
with the asymmetry critique being an especially strong articulation of the under-
lying reasons for this dissatisfaction. While it is widely understood that States are
increasingly committed to addressing the resulting legitimacy crisis, relatively
less attention has been paid to the ways in which investor-State arbitration
tribunals can respond, and to a certain extent already have responded, to invest-
ment treaty arbitration’s troubling asymmetry. This chapter examines this issue
through the lens of emerging practice on investor diligence. In doing so, it has two
M. A. J. Levine (*)
Barrister & Solicitor (Law Society of Ontario), Toronto, ON, Canada
e-mail: matthew@matthewajlevine.com

https://doi.org/10.1007/978-981-13-3615-7_18
1080 M. A. J. Levine
primary objectives. First and foremost, it introduces the doctrinal means through
which tribunals have incrementally developed the concept of investor diligence at
the jurisdiction, admissibility, and merits stages. Second, the chapter brings the
broader debate about the asymmetry critique to bear on these developments. It
concludes by suggesting that investor diligence is a necessary but insufficient
response to the asymmetry critique.
Keywords
International investment law · Investor-State dispute settlement · Investment
arbitration · Investor diligence · Investor obligations
Introduction
Blowback against investment treaty arbitration is now more than a decade old.1
Indeed, one of the world’s leading arbitrators has written “Whereas the relevance,
accuracy and possible consequences of this criticism are highly disputed, it is
undeniable that, nowadays, investment arbitration is largely perceived as lacking
legitimacy.”2 Concurrently, academic commentary about the reasons for public
discontent has proliferated, with the asymmetry critique being particularly perti-
nent.3 It claims, in essence, that: “[existing investment protection treaties] grant
investors rights but not obligations, while imposing upon states obligations unac-
companied by rights.”4 As explored below, while the asymmetry critique may
require qualification, it is clearly correct in pointing to a fundamental orientation
toward investment protection in the existing stock of investment treaties, rather than
toward, for example, investment governance.
Given the perception of a legitimacy crisis and the especially trenchant nature of
the asymmetry critique, States are increasingly committed to reform: for example,
the European Union is pursuing negotiations toward the establishment of a
1
See Capling A, Nossal KR (2006) Blowback: investor–state dispute mechanisms in international trade
agreements. Governance 19(2):151–172. See also, using different nomenclature, Waibel M (2010) The
backlash against investment arbitration: perceptions and reality. Kluwer Law International BV
2
For example, Kaufmann-Kohler G, Potestà M (2016) Can the Mauritius Convention serve as a
model for the reform of investor-State arbitration in connection with the introduction of a permanent
investment tribunal or an appeal mechanism. Analysis and roadmap. Online at http://www.uncitral.
org/pdf/english/CIDS_Research_Paper_Mauritius.pdf, para 17
3
For a thoroughgoing review of scholarship on why and how investment treaties focus on protection
to the exclusion of other issues associated with foreign investment, see Bonnitcha J (2014)
Substantive protection under investment treaties (No. 110). Cambridge University Press. See
also, Pohl J (2018) Societal benefits and costs of International Investment Agreements: a critical
review of aspects and available empirical evidence. OECD working papers on international
investment, no. 2018/01, OECD Publishing, Paris. https://doi.org/10.1787/e5f85c3d-en
4
Yackee JW (2011) Investment treaties and investor corruption: an emerging defense for host states.
Va J Int’l L 52:723
43 Emerging Practice on Investor Diligence: Jurisdiction, Admissibility, and Merits 1081
multilateral investment court, and the United Nations Commission on International

Trade Law Working Group III decided in November of 2018 that multilateral reform
was desirable.5 These developments illustrate the role of States as actors in the
investment treaty arbitration system. Indeed, the notion of investment treaty arbitra-
tion as a system has been discussed by various scholars.6 In addition to States,
another perennial actor in the system is arbitral tribunals. The premise of this chapter
is that this very basic theoretical frame allows us to ask interesting and helpful
questions, such as how have investment arbitration tribunals responded to the
fundamental claim of the asymmetry critique? This question is doubly important
because one of the leading academic responses to the asymmetry critique has been to
argue that it can be resolved through a shift in practice by arbitral tribunals.7
The chapter uses a doctrinal method to identify and tie-together a series of strings
in investment treaty arbitration law bearing on the emerging expectation of investor
diligence. In doing so, it has two primary objectives. First and foremost, it introduces
the interpretive approaches through which tribunals have incrementally developed
the concept of investor diligence. Second, it brings the broader debate about the
asymmetry critique to bear on these developments. It is organized in five sections.
The first reviews the asymmetry critique and highlights Jorge E. Viñuales articula-
tion of arbitral practice on investor diligence as a suitable mechanism for responding
thereto. The next three then proceed to review how an investor’s diligence – or lack
thereof – has been considered by tribunals in making decisions on jurisdiction,
admissibility, and merits, respectively. The final, fifth section concludes by tying
together its two threads, i.e., doctrinal shifts on investor diligence and the debate on
the asymmetry critique.
Asymmetry Critique
This subsection examines specific formulations of the asymmetry critique and

leading responses thereto. An early formulation was advanced by Jeffrey Atik who
argued that investor State arbitration under NAFTA Chap. 11 was aimed at Mexico
5
See European Commission and Government of Canada The case for creating a multilateral
investment dispute settlement mechanism. Informal ministerial meeting, World Economic Forum
20 January 2017 Davos, Switzerland. Available at http://trade.ec.europa.eu/doclib/docs/2017/janu
ary/tradoc_155264.pdf; also, UNCITRAL (2018, November 6) Draft report of Working Group III
(Investor–State Dispute Settlement Reform) on the work of its thirty-sixth session (A/CN.9/964).
Available at https://uncitral.un.org/sites/uncitral.un.org/files/draft_report_of_wg_iii_for_the_
website.pdf
6
See, for instance, Dupont C, Schultz T (2016) Towards a new heuristic model: investment
arbitration as a political system.” J Int Disput Settl 7.1:3–30; An alternative perspective is Salacuse
JW (2010) The emerging global regime for investment. Harv. Int’l LJ 51:427
7
Viñuales JE (2017) Investor diligence in investment arbitration: sources and arguments. ICSID
Rev Foreign Invest Law J 32(2):346–370, 367
in order to lock in investment liberalization.8 For Atik, the result was an “asymmetric
obligation”9 because the treaty provisions were focused on controlling the conduct
of one party, i.e., Mexico, while only formally disciplining that of the other two
parties, i.e., the United States and Canada.10 Subsequently, Gus Van Harten recast
the asymmetry critique in terms of investor-State arbitration’s “asymmetrical claims
structure.”11 In other words, for Van Harten the core asymmetry was that one type of
participant, i.e., foreign investors, is able to initiate claims, while another type of
participant, i.e., States generally and host States in particular, is not.12 This theme is
picked up by Rahul Donde and Julien Chaisse who note that “[i]t is assumed that the
state must always adopt a defensive position when faced with an investment claim
and can, at best, only hope to defeat the claims of an investor. . . . however . . . [are]
counterclaims becoming increasingly common.”13 Most recently, scholars such as
Jason Yackee have shifted the focus away from arbitration and back toward the
underlying treaty norms. Yackee thus writes of the “asymmetry of investment
treaties, which are, traditionally, virtually entirely concerned with granting rights
to investors while imposing obligations on states, and not vice versa.”14 Although
the above is not intended to be a comprehensive review of commentary invoking the
asymmetry critique, it does make clear that at least three different formulations of the
asymmetry critique are possible: first, geographical asymmetry understood in terms
of Global North versus Global South; second, asymmetry between the parties in a
specific dispute; and third, asymmetry in the types of rights and obligations created
by the treaty text. We will return to these ideas in the conclusion where we discuss
the broader question of investor obligations, especially the distinction between
negative obligations – do no harm – and positive obligations, i.e., to take certain
types of actions. The following turns to leading responses to the asymmetry critique.
A prominent response to the asymmetry critique has been advanced by Charles
Brower15 who characterizes it as a “nuanced critique of the perceived unevenness
created by a regime that protects property, investment, and foreign investors without
sufficient regard to other non-investment-related interests of host states.” Brower’s
responses to the “unevenness,” however, are somewhat less than satisfying. His
meta-response is that “overall, states seem to accept that international investment
8
Atik J (2003) Repenser NAFTA chapter 11: a catalogue of legitimacy critiques. Asper Rev Int’l
Bus Trade L 3:215
9
Atik, 221
10
Atik, 221
11
Van Harten G (2012) Arbitrator behaviour in asymmetrical adjudication: an empirical study of
investment treaty arbitration. Osgoode Hall LJ 50:211, 213
12
Van Harten G, 217–218
13
Chaisse J, Donde R (2018) The state of investor-state arbitration – a reality check of the issues,
trends, and directions in Asia-Pacific Int Law 51(1):47–67
14
Yackee JW See also Chung O (2006) The lopsided international investment law regime and its
effect on the future of investor-state arbitration. Va J Int’l L 47:953
15
See especially Brower and Schill.
treaties and investment-treaty arbitration are legitimate”16 with the basis for this
conclusion being that treaties have, by and large, neither been terminated nor
renegotiated.17 In fact, Brower’s real focus is on providing a “forceful defense of
the system,” and he is thus not genuinely engaged with how interests beyond private
property can be secured through investment arbitration.18 As such, he concludes
with the straw man argument that the only other alternative to the current form of
investment arbitration is “a world in which property interests must yield to any other
public interest, where the state’s contractual promises have no real value in the face
of changed political preferences and where good governance standards cannot be
enforced. . ..”19
In contrast, Jorge Viñuales provides a more useful response to the asymmetry
critique that insists on two qualifications.20 First, Viñuales demonstrates that it is
formally incorrect to claim that investors are without obligations, because “[t]he
sources of foreign investment regulation are not merely treaties but also a wide array
of domestic norms, contractual arrangements, and an evolving body of customary
and treaty-based international norms concerning matters such as corruption, social
rights, human (including collective) rights, and environmental protection.” For
Viñuales, the asymmetry critique is thus guilty of “overreliance on IIA[s]” at the
price of excluding “significant parcels of knowledge from the analysis.”21 Second,
Viñuales reminds us that “technically speaking, investors do not have ‘rights’. The
content of investment protection standards is similar to that of some human or
constitutional rights, but technically such standards remain inter-State disciplines.”22
Despite these two qualifications, Viñuales does not seek to reject the asymmetry
critique.23 In light of the practical difficulty of imposing obligations on investors
through treaties, a proposition that Viñuales insists on, he concludes that:
Instead, a change of mindset is necessary: one in which reliance on investment treaties is of

course preserved but as part of a wider array of sources of foreign investment regulation; and
16
Brower and Schill, 495
17
Brower and Schill, 483–489 also reviews growth of proportionality jurisprudence. “Thus, arbitral
tribunals have recognized that despite the lack of express textual support in most investment
treaties, states continue to dispose of their core regulatory powers and are not required to compen-
sate foreign investors for the effects of bona fide, general regulations that further a legitimate
purpose in a nondiscriminatory and proportionate way.”
18
Brower and Schill 476. Indeed, the stated purpose of Brower’s article is to provide a “forceful
defense of the system that explains its advantages over proposed alternatives and justifies the
institutional and structural choices that states made when setting up the current system.” The
perspective is thus fundamentally retrospective.
19
Brower and Schill, 497
20
Viñuales JE (2017) Investor diligence in investment arbitration: sources and arguments. ICSID
Rev Foreign Invest Law J 32(2):346–370, 367
21
Viñuales, 367
22
Viñuales, 367. For Viñuales, neither of these qualifications should be brushed aside as “merely
academic,” p 367.
23
Viñuales, 368
one in which these different sources, including treaties, are interpreted in a more balanced
manner, taking into account the degree of diligence displayed by foreign investors.
Two observations about Viñuales’ conclusion are thus relevant: first, it is pre-
mised on the idea that material changes to treaty-based norms are untenable; and,
second, his preferred approach hinges on the ability and willingness of tribunals to
materially alter their “mindset,” which he also describes as arbitral “practice.”24
The conclusion is thus that while certain qualifications are not unreasonable, there
is no material change: regardless of how one formulates the asymmetry critique,
integrating investor responsibilities will be a necessary, if not necessarily sufficient,
objective for investor-State arbitration to escape from its current legitimacy crisis. In
turn, Viñuales suggests that integration of investor diligence into the law can be
achieved changes in “practice” and “mindset.” Although a definitive answer to the
question of whether a change in mindset/practice has materialized is beyond the
scope of the current chapter, it is possible to survey the existing legal terrain. In
doing so we, have identified the textual hooks and interpretative issues that are most
pertinent to investor diligence. This is the subject of the following three sections.
Jurisdiction
A tribunal’s decision on jurisdiction provides an important opportunity early in the

arbitration process for it to assess investor diligence. In turn, this section examines
issues related to whether the investor has been diligent in making her investment in
accordance with the host State’s domestic law.
To be sure, host State’s law is not – either in theory or practice – the only basis on
which a tribunal may find at the jurisdiction stage that an investor has failed to
exercise sufficient diligence and that the tribunal therefore lacks jurisdiction. Indeed,
recent years have witnessed a proliferation of laws in capital exporting States about
the operation of foreign investments.25 Furthermore, recent treaty practice, as
reviewed elsewhere in this volume, increasingly requires investors to be diligent
vis-a-vis either the abovementioned home State’s laws or independent norms. For
instance, Art. 8.18(3) of the Comprehensive Economic and Trade Agreement
(CETA) between the European Union and Canada states that26:
For greater certainty, an investor may not submit a claim under this Section if the investment
has been made through fraudulent misrepresentation, concealment, corruption, or conduct
amounting to an abuse of process.
24
Viñuales, 368
25
For example, the United States’ Foreign Corrupt Practices Act and the United Kingdom’s Bribery
Act
26
“Foreign Investment Promotion and Protection Agreement between Canada and Costa Rica. . ..”
Accessed at http://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-
acc/ceta-aecg/text-texte/toc-tdm.aspx?lang¼eng
Nevertheless, as regards existing decisions by tribunals, the primary basis for

assessing investor diligence at the jurisdiction stage remains whether or not the
investment was made in accordance with the host State’s law.
Consideration of alleged shortcomings in investor diligence at the jurisdiction
stage has, therefore, typically been framed in terms of the following question: Was
the investment “made in accordance with the law of the host State”? This may appear
simple enough at first glance, but as is so often the case in legal matters, the
complexities are in the details. The resulting body of law is continually evolving,
but four key questions can be distilled and are considered in the following:
• What is the legal basis for an international tribunal to consider the host State’s
domestic law?
• What relevance does domestic law have when the treaty is silent?
• What is the scope of the domestic laws that the tribunal must apply in assessing
the investor’s compliance?
• Finally, what if any exceptions exist to the requirement than an investment be
made in accordance with the law?
Basis for Investment Arbitration Tribunals to Consider Host State’s

Domestic Law
Although the applicable law in investment treaty arbitration is international law, a

significant number of treaties explicitly carve-out a role for the host State’s domestic
law. Accordingly, the Tokios Tokeles v. Ukraine tribunal observed that: “[t]he require-
ment in Article 1(1) of the Ukraine-Lithuania BIT that investments be made in compli-
ance with the laws and regulations of the host State is a common requirement in modern
BITs.”27 It has become commonplace to refer to the textual hook in the treaty that effects
this choice as an “in accordance with the law provision.”28 Specific examples include:
(a) Article 1(1) of the French Model Germany-Philippines BIT providing that:
“investments are investments which have already been made or may be made
subsequent to the entering into force of this Agreement, in accordance with the
legislation of the Contracting Party on the territory or in the maritime area of which
the investment is made.”29
27
See Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/18, Decision on jurisdiction, 1 (29 April
2004). Accessed at https://www.italaw.com/sites/default/files/case-documents/ita0863.pdf, para 84.
See also Chaisse J (2015) The issue of treaty shopping in international law of foreign investment –
Bus Law Rev 11(2):225–306
28
Moloo R, Khachaturian A (2010) The compliance with the law requirement in international
investment law. Fordham Int’l LJ 34:1473
29
Reproduced in Polkinghorne M, Volkmer SM (2017) The legality requirement in investment
arbitration. J Int Arbitr 34(2):149–168
(b) Article 1(1) of the Germany-Philippines BIT providing that “[t]he term ‘invest-
ment’ shall mean any kind of asset accepted in accordance with the respective
laws and regulations of either Contracting State”.30
While the French Model BIT contemplates only the domestic law of the host State,
the Germany-Philippines BIT’s reference to “either Contracting State” appears to leave
the door open to creative arguments about the relevance of the home State’s law. This
umbrella category – referred to as an “IAWTL Provision” in the following – thus
captures a diverse set of drafting techniques.
In particular, IAWTL Provisions are most commonly found within the definition of
“investment.”31 This may include either asset-based definitions of investment, as both
of the above examples illustrate, or enterprise-based definitions, as reviewed below. The
distinction between asset- and enterprise-based definitions does not appear to impact
the application of the “Basic Rule.” But, what exactly is the Basic Rule? In the words of
the first tribunal in Fraport v. Philippines “a failure to comply with the national law to
which a treaty refers will have an international legal effect.”32 The Basic Rule is thus
where the underlying treaty features an IAWTL Provision, the effect is that the legality
of the investment at the host State’s law is a condition precedent to jurisdiction.
Subsequent arbitral awards have endorsed the Basic Rule and by extension its
implications for investor diligence. For instance, the tribunal in Alasdair v. Costa
Rica found that:
prudent investment practice requires that any investor exercise due diligence before com-
mitting funds to any particular investment proposal. An important element of such due
diligence is for investors to assure themselves that their investments comply with the law.
Such due diligence obligation is neither overly onerous nor unreasonable.33
Therefore, on the basis of the IAWTL Provision in the underlying treaty’s

enterprise-based definition of investment34 and the fact that the investment had
30
Germany-Philippines BIT (1997) Accessed at https://investmentpolicy.unctad.org/international-
investment-agreements/treaty-files/1392/download
31
Knahr C (2007) Investments “in accordance with host state law.” Transnatl Dispute Manag 4(5).
Knahr observes that such provisions “can be found in various parts of BITs. Most frequently they
are included in the definition of investment, but they can also be inserted in provisions on protection
or admission of investment.”
32
Fraport AG Frankfurt Airport Serv. Worldwide v. Republic of the Philippines, ICSID Case
No. AR1/03/25, Award, (16 August 2007), [Fraport I]. Accessed at https://www.italaw.com/sites/
default/files/case-documents/ita0340.pdf, para 394. Fraport AG Frankfurt Airport Services World-
wide v. Republic of the Philippines, ICSID Case No. ARB/11/12, Award, (10 December 2014),
[Fraport II]. Accessed at https://www.italaw.com/sites/default/files/case-documents/italaw4114.pdf
33
Anderson et al v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award (19 May 2010).
Accessed at https://www.italaw.com/sites/default/files/case-documents/ita0031.pdf, para 58
34
Article 1 of relevant treaty defines investment as “any kind of asset owned or controlled either
directly, or indirectly through an enterprise or natural person of a third State, by an investor of one
Contracting Party in the territory of the other Contracting Party in accordance with the latter’s
not comported with Costa Rican law, the Alasdair tribunal rejected jurisdiction.35 Thus,
the Basic Rule has been consistently applied in cases where the IATWL Provision was
embedded in both asset-based and enterprise-based definitions of investment. However,
there are a series of potential issues, as demonstrated by other recent cases, which are
explored below.
Applicability of Domestic Law in Absence of Treaty Carve Out
A first issue arises where the underlying treaty does not contain an IAWTL Provi-
sion. In this scenario, tribunals have struggled to consistently account for the legal
significance of host State’s law to allegations of investor misconduct. Following the
tribunal in Plama v. Bulgaria,36 the most well-established approach is to draw a
sharp distinction between jurisdiction and admissibility. However, there is another
line of decisions that would impute compliance with host State’s domestic law as an
implied term of any investment treaty.
The tribunal in Plama was constituted under the Energy Charter Treaty
(“ECT”), which does not contain an IAWTL Provision. It found that the investment
had been secured through conduct that was “in violation of Bulgarian law.”37 The
tribunal found that although domestic illegality was not relevant to jurisdiction
under the ECT, this did not mean that the treaty’s substantive protections would
necessarily apply to “all kinds of investments, including those contrary to domestic
or international law.”38 In short, the Plama tribunal utilized a strict distinction
between admissibility and jurisdiction: in the absence of an IATWL Provision,
certain types of illegal conduct would result in a tribunal first finding its own
jurisdiction and then, ultimately, ruling that the investment was inadmissible. This
distinction has been followed by, for example, the tribunal in Bear Creek v. Peru,
which recently held that “under international law, the Tribunal may not import a
requirement that limits its jurisdiction when such a limit is not specified by the
[contracting] parties.”39
In contrast, beginning with the tribunal in Phoenix Action v. Czech Republic, there
has been a willingness to consider that the requirement of conformity with host
laws.” Foreign Investment Promotion and Protection Agreement between Canada and Costa Rica.
Accessed at https://investmentpolicyhub.unctad.org/Download/TreatyFile/601
35
Anderson et al. v. Costa Rica, para 58
36
Plama Consortium Ltd. v. Republic of Bulg., ICSID Case No. ARB/03/24, Award (27 August,
2008). Accessed at https://www.italaw.com/sites/default/files/case-documents/ita0671.pdf
37
Plama, para 143
38
Plama, para 138
39
Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award,
30 November 2017, https://www.italaw.com/cases/documents/6322 para. 320. Then at para
324, “The above conclusion does not exclude the possible relevance of illegality or lack of good
faith with respect to the merits”
State’s law “is implicit even when not expressly Stated in the relevant BIT.”40 Phoenix
Action has been heavily criticized, with Jan Paulsson writing that: “[m]istakenly clas-
sifying issues of admissibility as jurisdictional may . . . result in an unjustified extension
of the scope for challenging awards, and frustrate the parties’ expectation[s].”41 Never-
theless, it has been influential. The tribunal in Toto v. Lebanon followed Phoenix Action
in finding that compliance with host State’s law could be a jurisdictional prerequisite
even where there is no IATWL Provision.42 Subsequently, the tribunal in Hamester
v. Ghana also affirmed that failure to comply with domestic law is germaine at the
jurisdiction-stage even where the applicable treaty does not contain an IAWTL Provi-
sion.43 Most recently, the tribunal in Cortec v Kenya found that “for an investment such
as a licence, which is the creature of the laws of the Host State, to qualify for protection,
it must be made in accordance with the laws of the Host State.”44
To conclude, the state of the law is in flux and certainty about legal outcomes in
particular cases is thus elusive. A practitioner has, thus, described “[a] lack of clarity
with respect to the emerging implicit obligation for investments to accord with the
law [that] may leave investors, states, and tribunals with an uncertain understanding
as to when the substantive protections of an investment treaty should be denied to an
investor.”45 The section on admissibility considers these implicit obligations in some
detail.
Scope of Domestic Laws to Be Considered
A second issue concerns the scope of the domestic law with which a diligent investor
must concern herself under an IATWL Provision. One answer would, of course, be
40
Phoenix Action, Ltd. v. Czech Republic, ICSID Case No. ARB/06/5, Award, (15 April 2009).
Accessed at https://www.italaw.com/sites/default/files/case-documents/ita0668.pdf, para 101. The
applicable Czech Republic – Holland BIT actually included an IAWTL Provision and the quoted
passage is thus obiter
41
Paulsson J (2005) Jurisdiction and admissibility. In: Aksen G, Briner R (eds) Global reflections on
international law, commerce and dispute resolution: liber amicorum in honour of Robert Briner.
International Chamber of Commerce, Paris, p 601
42
Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID Case No. ARB/07/12,
Decision on jurisdiction, (11 September 2009). Accessed at https://www.italaw.com/sites/default/
files/case-documents/ita0869.pdf, Para 85. However, the Toto tribunal also found that this “criteria”
was “not relevant to the case at hand.” para 85
43
Gustav FW Hamester GmbH & Co. K.G. v. Republic of Ghana, ICSID Case No. ARB/07/24,
Award (18 June 2010). Accessed at https://www.italaw.com/sites/default/files/case-documents/
ita0396.pdf, para 123. Note that the Hamester tribunal addressed this issue in obiter and ultimately
rejected Ghana’s objection to jurisdiction
44
Kenya, ICSID Case No. ARB/15/29, Award, (22 October 2018). Accessed at https://www.italaw.
com/sites/default/files/case-documents/italaw10051.pdf, https://www.italaw.com/cases/3974, para
319
45
Moloo The compliance with the law requirement in international investment law, p 1475
that a diligent investor should seek to comply with all domestic laws; however, from
time to time, tribunals have endorsed two lines of analysis that would limit the scope
of relevant host State’s domestic laws.
First, the suggestion that a diligent investor need only seek to ensure compliance
with fundamental principles of domestic law can be traced back to LESI v Algeria.46
That tribunal interpreted an IAWTL Provision to mean that investments would lose
treaty protection only when made “in violation of fundamental principles in force.”47
Subsequently, the Desert Line tribunal held that investor legality only related to
breaches of “fundamental principles of the host State’s law.”48 The result, which
may be called the “LESI Principle,” is that expectations of investor diligence do not
go beyond the fundamental principles of the host State’s domestic law. However, prior
to adopting or persuading others to adopt the LESI Principle, significant caution is
advisable. Recent tribunals have instead preferred to eschew questions of whether the
relevant instrument formed part of the host State’s fundamental legal principles.49
Moreover, the Quiborax v Bolivia tribunal’s recent decision on jurisdiction expressly
rejected the LESI Principle as going “beyond the terms of the BIT, in an attempt to
further the investor’s protection without due regard for the State’s interests.”50
Second, in Saba Fakes v. Turkey, the treaty’s IAWTL Provision was found to
cover only laws “governing the admission of investments in the host State” and laws
“related to the very nature of investment regulation.”51 For that tribunal, a breach of
any other type of domestic law would not have the effect of extinguishing jurisdic-
tion.52 However, this limitation has also failed to receive more than tepid support
from subsequent tribunals. For instance, Quiborax award summarizes the scope of
the IATWL Provision as covering three scenarios: “nontrivial violations of the host
State’s legal order,” “violations of the host State’s foreign investment regime” (citing
Fakes), and “fraud. . .to secure the investment. . .or to secure profits.”53 On this
46
LESI SpA and Astaldi SpA v People’s Republic of Algeria (ICSID Case No ARB/05/3), Decision
on jurisdiction, (12 July 2006) [LESI v Algeria]. Accessed at https://www.italaw.com/sites/default/
files/case-documents/ita0456_0.pdf
47
LESI v Algeria para 83. Author’s translation of the original French, “en violation des principes
fondamentaux en vigueur”. LESI was followed by the tribunal in Rumeli Telekom AS v Kazakhstan
(ICSID Case No ARB/05/16), Award, (29 July 2008). Accessed at https://www.italaw.com/sites/
default/files/case-documents/ita0728.pdf, para 319.
48
Desert Line Projects LLC v Yemen (ICSID Case No ARB/05/17), Award, 6 February 2008, para
104. citing LESI v Algeria
49
See Hepburn J (2014) In accordance with which host state laws? Restoring the ‘Defence’ of
investor illegality in investment arbitration. J Int Dispute Settl 5(3):531–559. https://doi.org/
10.1093/jnlids/idu011, p 534–539
50
Quiborax S.A., Non Metallic Minerals S.A., Fosk Kaplún (ICSID Case No ARB/06/2), Decision
on Jurisdiction, 27 September 2012, para 263
51
Saba Fakes v. Republic of Turkey, Award, ICSID Case No. ARB/07/20, 14 July 2010, para 119
52
Rather, for that tribunal, “In the event an investor breaches a requirement of domestic law, a host
State can take appropriate action against such investor within the framework of its domestic
legislation”. Saba Fakes v. Turkey, 119
53
Quiborax, para 266
approach, the requirement not to breach the host State’s foreign investment regime is
additive to and not exclusive of other aspects of the domestic legal order.54 The
notion of nontrivial violations is examined in the following section on potential
exceptions to the Basic Rule.
Exceptions to the Investor Diligence Requirement
A third issue is what if any exceptions exist to the Basic Rule. Consideration of this
question dates back to the Tokios Tokeles tribunal’s finding, in obiter, that “to exclude
an investment on the basis of such minor errors would be inconsistent with the object
and purpose of the Treaty.”55 Although the implicit minor errors test has not been
subsequently adopted, more recent tribunals have considered two other bases for
exceptions: first, a good faith standard, and, second, the principle of estoppel.
The tribunal in Fraport 1 considered whether there are exceptions to the Basic
Rule and adopted a good faith standard. It found that, in some circumstances, the
host State’s law “may not be entirely clear and mistakes may be made in good
faith.”56 In particular, it found, in seeking to add flesh to the bones of the concept of
good faith mistakes, that “[a]n indicator of a good faith error would be the failure of a
competent local counsel’s legal due diligence report to flag that issue.”57 Subse-
quently, the Desert Line tribunal affirmed the applicability of a good faith standard: it
rejected the claim that a specific certificate “was necessary to bring the Claimant’s
investment under the ambit of the BIT”58 but, nevertheless, noted the relevance of a
good faith standard a la Fraport in stating that: “[s]uch leniency would be appro-
priate in this case. . ..”59
A second basis for arguing that a host State is precluded from relying on an
IATWL Provision is the principle of estoppel.60 In Fraport I, estoppel, as embedded
in the principle of fairness, was relevant to the application of an IATWL Provision.61
However, the tribunal ultimately denied the investor on the facts as “a covert
agreement, which by its nature is unknown to the government officials who may
have given approbation to the project,” and thus could not “be any basis for
54
The inclusion as a stand-alone ground under the legality requirement is addressed in the following
subsection.
55
Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/18, Decision on jurisdiction, 1 (29 April
2004). Accessed at https://www.italaw.com/sites/default/files/case-documents/ita0863.pdf, para
83–86
56
Fraport I, para 396
57
Fraport I, para 396
58
Desert Line v. Yemen para 116
59
Desert Line v. Yemen para 117
60
For estoppel as a principle of general international law. Legal Status of Eastern Greenland
Judgment (Den. v. Nor.), 1933 P.C.I.J. (ser. A/B) No. 53, 1 186 (Apr. 5)
61
Fraport I, para 346
estoppel.”62 The Inmaris v. Ukraine tribunal relied on evidence that the Respon-
dent’s representatives had, prior to commencement of arbitration, “signed Minutes of
a meeting memorializing that . . . ‘the existing contracts . . . are valid.’”63 This
acknowledgment meant that “while the Tribunal need not go so far as to rely on
this statement under the formal rubric of estoppel, we do view it as indicating that
Respondent did not at that time consider those contracts (or the payment scheme
contained in them) to be illegal under Ukrainian law.”64
Admissibility
This section reviews the primary legal theories that a host State may use to argue that
a tribunal should examine the investor’s conduct and decline to consider the inves-
tor’s claim under the treaty as inadmissible. In doing so, we advance an argument –
in outline form only, for simple reasons of space – that it is not domestic law
illegality per se that renders the investment inadmissible, but rather two ancillary
sets of criterion at the international plain: first, general principles of law, e.g., good
faith and the clean hands doctrine, and, second, the related concepts of international
public policy and transnational public policy.
Good Faith
The International Court of Justice in Case Concerning Continental Shelf deter-

mined that the “the legal concept of equity is a general principle directly appli-
cable as law [in adjudication under international law].”65 A first such principle
that is pertinent to investment diligence is good faith as reviewed herein. In
Inceysa, the tribunal found that good faith was a “supreme principle”,66 and an
absence of good faith by the investor constituted a breach of the “fundamental
rules”67 governing the establishment of the investment. Furthermore, the
Hamester tribunal found that independent of the text of the treaty: “[A]n invest-
ment will not be protected if it has been created in violation of national or
62
Fraport I, para 347
63
Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case
No. ARB/08/8, Decision on Jurisdiction, (8 March 2010). Accessed at https://www.italaw.com/
sites/default/files/case-documents/ita0427.pdf, para 140
64
Inmaris para 140
65
Case Concerning Continental Shelf (Tunisia/Libyan Arab Jamahiriya), Judgment of 24 February
1982, I.C.J. reports 1982, 60 } 71
66
Inceysa Vallisoletana, S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award,
(2 August 2006). Accessed at https://www.italaw.com/sites/default/files/case-documents/ita0424_
0.pdf, 230
67
Inceysa Vallisoletana, 237
international principles of good faith; . . .”68 specifying that “I[t]hese are general
principles that exist independently of specific language to this effect in the
Treaty.”69 To be sure, these tribunals considered lack of good faith as a potential
barrier to jurisdiction. Tribunals have also invoked good faith in assessing
whether an investment was admissible, as illustrated by Vannessa Ventures.70
Clean Hands
A second general principle that is potentially pertinent to the evaluation of investor

diligence as a matter of admissibility is clean hands, which has been expressed in
various Latin maxims.71 Aloysius Llamzon helpfully distills the doctrine’s applica-
tion to the investor-State arbitration context as follows: “if some form of illegal or
improper conduct is found on the part of the investor, his or her hands will be
‘unclean’, his claims will be barred and any loss suffered will lie where it falls.”72
However, there is persistent debate about the scope of the clean hands doctrine’s
application in international law, and especially investor-State arbitration. The fol-
lowing paragraphs, for simple reasons of space, merely highlight two issues: the
trend among investment treaty tribunals toward application of the clean hands
doctrine and renewed debate following the Yukos awards about whether it is actually
a general principle of international law.
An early example of the application of the clean hands doctrine by investment
tribunals to admissibility is the award in Plama.73 Although the ECT does not
contain an IAWTL Provision, the investor’s claims were found to be inadmissible.74
Relying on its factual finding of illegality at domestic law, the tribunal concluded
that the effect of this illegality was that the “the substantive protections of the ECT
cannot apply to investments that are made contrary to law.”75 And, it found two
general principles of law to be specifically germaine, i.e., good faith,76 and “the
68
Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24,
Award (18 June 2010). Accessed at https://www.italaw.com/sites/default/files/case-documents/
ita0396.pdf, para 123
69
Hamester 124. See also Phoenix Action, para 106–107
70
Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)04/6
Award of 16 January 2013, para 113, 164
71
See generally Schwebel SM (2005) Clean hands, principle. MPEPIL online edition. Available
online at http://www.mpepil.com
72
Llamzon A (2015) Yukos universal Limited (Isle of Man) v the Russian Federation: the state of
the ‘unclean hands’ doctrine in international investment law: Yukos as both omega and alpha.
ICSID Rev Foreign Invest Law J 30(2):315–325
73
Plama
74
Plama, para 138–139
75
Plama, para 141
76
Plama para 141
principle of nemo auditur pro priam turpitudinem allegans - that nobody can benefit
from his own wrong.”77 Rahim Moloo has thus observed that “The Plama decision
would suggest that the unclean hands of the claimant (whether a State before the ICJ
or an investor before an arbitral tribunal) may indeed result in the inadmissibility of
its claims.”78 In a similar vein, albeit it in obiter as the treaty contained an IAWTL
Provision, the Fraport II tribunal opined that “[i]nvestment treaty cases confirm that
such treaties do not afford protection to illegal investments either based on clauses of
the treaties. . . or, absent an express provision in the treaty, based on rules of
international law, such as the ‘clean hands’ doctrine.”79
Against the trend towards an “emergent jurisprudence constante recognizing
the unclean hands doctrine, at least within the subset of international investment
law,”80 counsel will have to wrestle with the challenge thrown up by the Yukos
awards.81 In that matter, pertaining to the expropriation of oil and gas assets in
Russia’s Far East, the eminent tribunal extensively reviewed and analyzed deci-
sions from the ICJ and found that the clean hands doctrine could not be consid-
ered as a general principle of law. It also emphasized that the investors alleged
illegalities took place at the operation rather than establishment stage.82 Subse-
quently, another ICSID tribunal has found that “. . . whether the principle forms
part of international law remains controversial and its precise content is ill
defined.”83
Public Policy
This subsection briefly reviews a concept that although not necessarily forming part
of customary international law is pertinent to investor diligence. As explicated in the
following paragraphs, the ambiguous notion of public policy in particular plays a,
growing, role in the investment arbitration field.
77
Plama, para 141
78
Moloo R (2011) A comment on the clean hands doctrine in international law. Transnatl Disput
Manag 8.1 Final page
79
Fraport II para 328
80
Llamzon A (2015) Yukos universal Limited (Isle of Man) v the Russian Federation: the state of
the ‘unclean hands’ doctrine in international investment law: Yukos as both omega and alpha.
ICSID Rev Foreign Invest Law J 30(2):315–325, 317
81
Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case
No. AA 227, Final Award, (18 July 2014). Accessed at https://www.italaw.com/sites/default/files/
case-documents/italaw3279.pdf; Veteran Petroleum Limited (Cyprus) v Russian Federation,
UNCITRAL, PCA Case No AA 228, Final Award (18 July 2014). Accessed at https://www.
italaw.com/sites/default/files/case-documents/italaw3280.pdf
82
Ibid
83
Niko Resources (Bangladesh) Ltd. v Bangladesh Petroleum Exploration and Production Com-
pany Limited and others, ICSID Case Nos ARB/10/11 and ARB/10/18, Decision on Jurisdiction
(19 August 2013) 20 para 477
It has been said that: “[t]he uncertainty and ambiguity as to its actual content is one
of the essential characteristics of public policy.”84 Michael Reisman, writing more
recently, has found that the “invocation of transnational public policy becomes an easy
way for those claiming to have an insight into the heart and the soul of international
law to effect their own preferences without having to prove that they have become
customary international law.”85 Nevertheless, numerous other commentators have
concluded that it is the arbitrator’s duty to apply the notion of public policy in an
international arbitration.86 For these jurists, the duty stems from the arbitrator’s duty to
protect the legal order.87 Indeed, the concept of transnational public policy is clearly
present in investment arbitration today and the following reviews leading decisions on
the subject pertaining to failures of investor diligence and admissibility.
It is worthwhile noting that public policy in international arbitration has at least
three flavors, i.e., transnational public policy, international public policy, and domestic
public policy, as a ground for non-enforcement of awards und the New York Con-
vention. It should be clear enough that the current focus is not on domestic public
policy; however, a hard distinction between transnational public policy and interna-
tional public policy is not always respected by arbitrators who have at times used the
terms interchangeably. Transnational public policy can be helpfully described as a set
of overriding rules and principles which may be applied irrespective of the law
governing the dispute or the law governing at the place of arbitration.88
A leading ICSID case on transnational public policy is World Duty Free
vs. Kenya. That tribunal was constituted under an investment contract rather than
a treaty; however, its findings are still noteworthy. On the notion of transnational
public policy, it found that:
In light of domestic laws and international conventions relating to corruption, and in light of
the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is convinced
that bribery is contrary to international public policy of most, if not all, States or, to use
another formula, to transnational public policy.89
The World Duty Free tribunal thus illustrates three important points. First, bribery of
host State officials by a foreign investor was a violation of transnational public
84
Julian DM (1978) Lew, applicable law in international commercial arbitration. Oceana, Dobbs
Ferry, New York, p 531
85
Reisman WM (2006) “Law, international public policy (so-called) and arbitral choice in interna-
tional commercial arbitration. Int Arbitr 849
86
.Lalive P Transnational (or truly international) public policy and international arbitration, ICCA
Congress series 3/1986, 258, 262. Kreindler RH (2003) Approaches to the application of transna-
tional public policy by arbitrators. J World Invest Trade 4.2:239–250. Keesedjian C (2006)
Transnational public policy. Int Arbitr:857
87
Keesdjian, 861–862
88
Sheppard A (2003) Public policy and the enforcement of arbitral awards. Oil Gas Energy
Law J 1.2
89
World Duty Free Company v Republic of Kenya, ICSID Case No. Arb/00/7, para 157
policy. It was thus significant and perhaps consequential that the misconduct attrib-
uted to the investor was a form corruption, i.e., bribery. As noted by another tribunal,
corruption can be fairly characterized as a “particularly serious cases of fraudulent
conduct.”90 Second, it provides an example of the terms “international public
policy” and “transnational public policy” being treated as synonyms, as noted
above. Third, the tribunal recognized a need for a careful and restrictive approach
to the substance of transnational public policy by stating that: “. . . it has been rightly
stressed that Tribunals must be very cautious in this respect and carefully check the
objective existence of a particular transnational public policy rule in identifying it
through international conventions, comparative law and arbitral awards.”
Tribunals have also considered failures of investor diligence relating to miscon-
duct of a less severe nature than corruption under the rubric of public policy. Indeed,
the tribunal in Churchill Mining and Planet Mining v Indonesia faced allegations
that fraud, in the form of forgery, had been undertaken on the claimants’ behalf by a
local business partner. In Churchill Mining the tribunal found that the claimant had
failed to exercise sufficient diligence with respect to the mining permits at issue. On
this basis, it concluded that the claims related to the forged mining certificates were
inadmissible.91 Of specific relevance to the notion of investor diligence is the
following passage:
the Tribunal disagrees with the Claimants’ contention that they conducted “extensive” and
“exhaustive” due diligence in verifying the authenticity of the disputed mining licenses, both
when the licenses were purportedly issued and when forgery allegations were first brought to
their attention.92
To conclude for this section, public policy and the invocation thereof by investment
treaty arbitral tribunals is an important source of investor diligence norms.
Merits
At the merits stage of an investment treaty arbitration, issues of investor diligence

may be particularly important in two respects: the State’s articulation of a defense
vis-à-vis an obligation that it allegedly owes to the investor and the State’s invoca-
tion of a counterclaim. These are reviewed below in turn.
90
Churchill Mining PLC and Planet Mining Pty Ltd. v. Republic of Indonesia, ICSID Case
No. ARB/12/14 and 12/40, para 493. For this reason, the tribunal grouped World Duty Free together
with another award where the finding was placed under international public policy rather than
transnational public policy, i.e., Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No
ARB/10/3, Award (4 October 2013). Accessed at https://www.italaw.com/sites/default/files/case-
documents/italaw3012.pdf
91
Churchill Mining, Para 507–508
92
Churchill Mining, 508
Defense to State’s Obligation
In the first scenario, the State raises the insufficiency of the foreign investor’s
diligence as a partial or complete defense. In these cases, absence of investor
diligence has been advanced by respondent States as an element for the tribunal to
assess. More specifically, Viñuales has noted that investor diligence may serve as
either an “interpretative” element or a “factual” element in assessing whether a State
has breached its obligation to the investor.93
Investor diligence as an interpretative element arises in relation to the whether an
investor’s expectations were reasonable for the purpose of a treaty’s fair and
equitable treatment provision.94 Viñuales thus writes:
investor diligence is a key consideration in assessing the reasonableness or legitimacy of the

expectations that could potentially be protected by the fair and equitable treatment (FET)
clause. This key point often remains implicit in the characterization of reasonable expecta-
tions, but, in some cases, it has indeed been spelled out.95
In Plama the tribunal found that “the investor is only protected if (at least) reasonable
and justifiable expectations were created” and Bulgaria’s environmental law could
give no such assurance, which was a fact that the investor “was, of course, aware of,
or should have been aware of, . . . when it invested.”96 Without using the language of
due diligence, the tribunal in Parkerings v. Lithuania broadly concurred.97 Two
recently issued awards pertaining to renewable energy procurement in Europe
have generalized this analysis: sophisticated investors in a highly regulated industry
are reasonably anticipated to conduct legal diligence and thus cannot expect zero
regulatory changes.98 Early tribunals also addressed investor diligence as an
93
Viñuales, 361
94
Muchlinski P (2006) ‘Caveat investor’? The relevance of the conduct of the investor under the fair
and equitable treatment standard. Int Comp Law Q 55(3):527–558. Writing prior to the cases
discussed below, Muchlinski explored three emergent principles for investor duties vis-a-vis the fair
and equitable treatment standard
95
Viñuales cites a number of cases where the point remains implicit. See Viñuales 362
96
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award,
(27 August 2008), para 219–220. See also, Parkerings-Compagniet AS v. Lithuania (ICSID Case
No. ARB/05/8) Award (11 September 2007). Accessed at https://www.italaw.com/sites/default/
files/case-documents/ita0619.pdf, para 335. In Parkerings the tribunal arrived at a parallel result
through a qualification of whether the investor’s expectations were “legitimate.”
97
Parkerings–Compagniet AS v. Republic of Lithuania, ICSIDCase No. ARB/05/8, para 332–337.
The tribunal preferred the language of “business risk” [emphasis in the original], para 336.
98
Charanne BV and Construction Investments SARL v Kingdom of Spain, ECT Arbitration
062/2012 (SCC Rules), Award (21 January 2016). Accessed at https://www.italaw.com/sites/
default/files/case-documents/italaw7047.pdf, para 507 [Spanish].” Blusun SA Jean-Pierre Lecorcier
and Michael Stein v Italy (International Centre for Settlement of Investment Disputes, Case No
ARB/14/3), Award (27 December 2016). Accessed at https://www.italaw.com/sites/default/files/
case-documents/italaw8967.pdf, para 367 affirming the relevant analysis in Charanne
interpretative element in assessing the investor’s legitimate expectations under the

regulatory takings doctrine.99
Investor diligence as a factual element has also become increasingly visible at the
merits stage of investment arbitration. Important examples are found in Occidental v
Ecuador,100 the Yukos cases, and Copper Mesa. The tribunal in Occidental found
that the investor’s failure to diligently seek the appropriate authorization prior to
transferring certain rights was causally related to subsequent acts by domestic
authorities.101 In Yukos, the tribunal returned to certain instances of Claimants’
unclean hands finding that they “could have an impact on the Tribunal’s assessment
of liability. . .”102 and ultimately concluding that “as a result of the material and
significant mis-conduct by Claimants and by Yukos (which they controlled), Claim-
ants have contributed to the extent of 25 percent to the prejudice which they suffered
as a result of Respondent’s destruction of Yukos.”103 There was therefore a causal
relationship between the investor’s misconduct and the merit of the claim against the
host State. In Copper Mesa the tribunal decided acts and omissions stemming from
an absence of diligence by the investor’s Canadian management contributed to 30%
of its loss in the host State.104 There is therefore a significant line of analysis that, in
Viñuales’ words, “established a link between investors’ negligence and the measures
challenged.” As such, tribunals increasingly need to and are prepared to grapple with
whether the absence of investor diligence can serve as a justification for subsequent
conduct by domestic authorities. Concurrently, these findings of investor negligence
are also associated with reduced damages at the quantum, a topic which is beyond
the current chapter’s scope.
99
See Methanex Corporation v United States of America, UNCITRAL, Final Award (3 August
2005). Accessed at https://www.italaw.com/sites/default/files/case-documents/ita0529.pdf, part IV,
chap D, paras 9–10. On the legitimate expectations’ doctrine, see Chaisse J, Ng R (2018) The
doctrine of legitimate expectations – comparing international law and common law in Hong Kong
Hong Kong Law J 48(1):79–104
100
Occidental Petroleum Corporation and Occidental Exploration and Production Company v
Republic of Ecuador, ICSID Case No ARB/06/11, Award (5 October 2012). Award subsequently
annulled for manifest excess of powers. Decision on Annulment of the Award (2 November 2015).
Accessed at https://www.italaw.com/sites/default/files/case-documents/italaw1094.pdf
101
307, 662, 678–681
102
Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case
case-documents/italaw3279.pdf, para 1374
103
Yukos Universal Limited (Isle of Man) v. The Russian Federation, , UNCITRAL, PCA Case
case-documents/italaw3279.pdf, para 1637
104
Copper Mesa Mining Corporation v Republic of Ecuador, UNCITRAL, PCA No 2012-2, Award
(15 March 2016). Accessed at https://www.italaw.com/sites/default/files/case-documents/
italaw7443.pdf, paras 6.97, 6.102. See also Bear Creek Mining Corporation v. Republic of Peru,
ICSID Case No. ARB/14/21, Partial Dissenting Opinion, Professor Philippe Sands Q.C. para 37–39
State’s Counterclaims
A rational choice theory suggests that the prospective costs of a counterclaim

incentivize potential claimants to exercise diligence over their conduct. However,
the law and practice of investment treaty arbitration has historically implied a
limited window for recourse to counterclaims by the host State.105 Nevertheless,
several developments in recent years suggest greater availability of counterclaims
may still play a role in the investment diligence jig-saw puzzle. In addition to treaty
practice,106 the practice of arbitral tribunals on this point is also in a state of flux.
The current section proceeds as follows: it first examines the historical reasons why
counterclaims played a minor role in investment treaty arbitration to date, espe-
cially under the ICSID Convention; second, it turns to a significant recent
development.
It is instructive to start by noting the specific frame for counterclaims in ICSID
arbitration.107 Article 46 of the ICSID Convention provides that:
Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine
any incidental or additional claims or counterclaims arising directly out of the subject-matter
of the dispute provided that they are within the scope of the consent of the parties and are
otherwise within the jurisdiction of the Centre.108[emphasis added.]
Early commentators noted that “the ICSID Convention thus specifically provides for
counterclaims.”109 This is certainly correct, provided that the three provisos are
105
See Lalive P, Halonen L (2011) On the availability of counterclaims in investment treaty
arbitration. In: Belohlavek AJ, Rozehnalova N (eds) Rights of the host states within the system
of international investment protection: Czech yearbook of international law (Juris Publishing 2011).
Lalive and Halonen examine the test in Saluka Investments BV v. Czech Republic and argue that it
was excessively narrow and would make counterclaims nearly impossible.
The first tribunal to consider the merits of a counterclaim was, in fact, in 2001; however, that
tribunal dismissed the counterclaims without any detailed (or useful) analysis: Genin and others
v. Estonia, ICSID Case No. ARB/99/2, Award, (25 June 2001). Accessed at https://www.italaw.
com/sites/default/files/case-documents/ita0359.pdf.]
106
See Nathalie’s chapter.
107
Under the UNCITRAL Rules, the relevant Rule is 21(3) states that:
In its statement of defence, or at a later stage in the arbitral proceedings if the arbitral tribunal
decides that the delay was justified under the circumstances, the respondent may make a counter-
claim or rely on a claim for the purpose of a set-off provided that the arbitral tribunal has jurisdiction
over it.
At the risk of excessive simplification, the result is that the tribunal’s attention must again turn to
the basis for its jurisdiction. See The Arbitration Rules of the United Nations Commission on
International Trade Law, adopted on 28 April 1976, amended in June 2010 (UNCITRAL Rules).
108
Convention on the Settlement of Investment Disputes Between States and Nationals of Other
States (adopted 18 March 1965, entered into force 14 October 1966) 575 UNTS 159 (ICSID
Convention)
109
Lalive and Halonen. 7.07
satisfied.110 The following examines issues pertaining to whether the counterclaim is

within the scope of the consent of the parties, which has to date been the primary
consideration of decisions under Article 46.111
Under Article 46, the dominant approach to determining whether a counterclaim
is within the scope of the parties’ consent has been to rely on the specific language of
the underlying treaty’s dispute resolution provision. (The alternative approach being
to consider that where the host State has granted consent to ICSID jurisdiction over
the dispute, then consent to the tribunal’s jurisdiction over ancillary claims and
counterclaims is “ipso facto imported into any ICSID arbitration.”112) In Roussalis
v. Romania the majority scrutinized the dispute resolution clause and concluded that
it limited consent to certain types of disputes, i.e., disputes concerning the host
State’s obligation under the treaty.113 In Metal-Tech the tribunal interpreted a
differently worded clause and also concluded that it lacked jurisdiction over the
counterclaim.114 More recently, the tribunals in both Vestey v Venezuela115 and
Rusoro Mining v. Venezuela116 found the relevant dispute resolution clause narrow
enough to exclude a counterclaim.
The Urbaser v. Argentina117 tribunal’s decision to accept jurisdiction over the
host State’s counterclaim was thus a significant and noteworthy departure.118 The
Urbaser claimants were shareholders in a domestic company (“ProjectCo”) that held
a water and sewerage services concession. Measures taken in response to
Argentina’s 2001–2002 financial crisis resulted in losses for ProjectCo, and, ulti-
mately, the claimants initiated arbitration under the Spain-Argentina BIT.
Argentina’s counterclaim alleged that ProjectCo’s failure to provide the necessary
110
This third requirement pertains to what Lalive, 7.09 describes as the need to “fulfil the other
jurisdictional requirements relating to nationality and timing.”
111
This is the place to cite J Prof. tribunals considering “arising directly out of the subject-matter of
the dispute,” saluka v chezch and Urbaser (below).
112
See Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Michael Reisman’s dissenting
declaration (28 November 2011b). Accessed at https://www.italaw.com/sites/default/files/case-doc
uments/ita0724.pdf, reprinted in Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1,
Award, (7 December 2011a). Accessed at https://www.italaw.com/sites/default/files/case-docu
ments/ita0723.pdf
113
Roussalis, Award, paras 864–866. See Greece-Romania BIT, Article 9(1).
114
Metal-Tech Ltd. v Republic of Uzbekistan, ICSID Case No ARB/10/3, Award (4 October 2013).
Accessed at https://www.italaw.com/sites/default/files/case-documents/italaw3012.pdf, para 408
115
Vestey Group Ltd. v Bolivarian Republic of Venezuela, ICSID Case No ARB/06/4, Award
(15 April 2016). Accessed at https://www.italaw.com/sites/default/files/case-documents/
italaw7230.pdf, para 333
116
Rusoro Mining v. Venezuala ICSID Case No. ARB(AF)/12/5, Award (22 August, 2016).
Accessed at https://www.italaw.com/sites/default/files/case-documents/italaw7507.pdf, para 629
117
Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The
Argentine Republic (ICSID Case No. ARB/07/26), Award (8 December 2016) Accessed at https://
www.italaw.com/sites/default/files/case-documents/italaw8136_1.pdf
118
See Qian X (2018) Challenges of water governance (and privatization) in China-traps, gaps, and
law. Ga J Int Comp Law 47(1):49–91
level of investment led to violations of the human right to water. Following the
dominant approach introduced above, the tribunal scrutinized the BIT’s dispute
settlement clause, which provided that: “[d]isputes arising between a Party and an
investor of the other Party in connection with investments within the meaning of this
Agreement shall, as far as possible, be settled amicably between the parties to the
dispute.”119 This formulation was broad enough for the tribunal to find that a dispute
could be brought by either the investor or the host State120; and, as both parties were
entitled to lodge a claim, it would be unfair if one party could prevent the other from
raising a claim merely by acting first.121 The Urbaser ratio does not prima facie
preclude a host State acting as claimant under this particular BIT.122 Urbaser is thus
important as the first investment treaty award to accept jurisdiction over a State’s
counterclaim for an alleged violation of human rights obligations; ultimately, how-
ever, the counterclaim failed on the merits. The reader will naturally appreciate that
this was a significant move forward in terms of recognizing the right of host States to
use investment treaty arbitration to hold investment accountable for conduct flowing
from a lack of diligence.
Conclusion
Blowback against investment treaty arbitration is now more than a decade old.123
Some practitioners question the basis for public dissatisfaction.124 However, even
insiders acknowledge that investor State arbitration faces a legitimacy crisis. While a
large body of commentary on reasons for this public dissatisfaction continues to
grow, the current chapter has considered only the asymmetry critique. There were
119
In the Spain–Argentina BIT (1991). Accessed at https://investmentpolicy.unctad.org/interna
tional-investment-agreements/treaty-files/119/download, Article X(1)
120
Urbaser, para. 1143
121
Urbaser, para. 1144
122
The tribunal affirmed three other points in finding its jurisdiction over the counterclaim: first, the
claimants’ consent to arbitration covered any disputes in connection with the investment and was
therefore not restricted to the claims of the claimants; second, the counterclaim was filed in time
even though as the relevant cutoff point was submission of the counter-memorial (para. 1150); third,
there was a direct connection between the claimants’ claim under the BIT and the counterclaim
(para. 1151).
123
See Capling A, Nossal KR (2006) Blowback: investor–state dispute mechanisms in international
trade agreements. Governance 19(2):151–172. See also using different nomenclature, Waibel M
(2010) The backlash against investment arbitration: perceptions and reality. Kluwer Law Interna-
tional BV
124
For example, Kaufmann-Kohler G, Potestà M (2016) Can the Mauritius Convention serve as a
model for the reform of investor-State arbitration in connection with the introduction of a permanent
investment tribunal or an appeal mechanism. Analysis and roadmap. Online at http://www.uncitral.
org/pdf/english/CIDS_Research_Paper_Mauritius.pdf, para 17; see also Brower CN, Schill SW
(2008) Is arbitration a threat or a boom to the legitimacy of international investment law. Chi J Int’l
L 9:471
two important reasons for putting the topic of investor diligence in conversation with
the asymmetry critique. First, there is widespread recognition that the system of
investor State arbitration will need to address the asymmetry critique if it is to find its
way out of the current legitimacy crisis. For instance, even Judge Brower – who is an
avowed defender of the existing system – has acknowledged the force of asymmetry
critique. Second, there is an important debate emerging among specialists in this area
about whether the asymmetry critique can be meaningfully addressed by States alone
or whether tribunals also have a role to play.
This debate can be schematically rendered by reference to Viñuales’ primary
argument and the most forceful, direct criticism thereof to date. On the one hand, as
reviewed above, Viñuales has argued that through a shift in mindset and, thus,
practice, investment treaty tribunals can play a salutary role in addressing the
asymmetry critique. Viñuales, however, also assumes that States will not play a
significant role by re-negotiating treaties. On the other hand, Mavluda Sattorova has
specifically argued that Viñuales’ preference for interpretative solutions is inade-
quate and that instead there is a need for substantive and enforceable investor
obligations in new treaties.125 Sattorova argues that:
“The usefulness of jurisprudential solutions may also be limited for resource-poor develop-
ing states, which lack sufficient economic and legal capacity to successfully defend them-
selves in investor-state arbitration cases. In comparison to cash-strapped developing country
governments, multinational corporations are likely to be more influential in shaping the
content and direction of international investment jurisprudence.“126
The purpose of this chapter has not been to resolve that debate but rather to provide
the reader with an overview of relevant arbitral decisions so that they can read,
analyze, and ultimately formulate their own positions.
Furthermore, as noted in the introduction, many States are now publicly commit-
ted to reform of the system, although willingness to include investor obligation
provisions remains limited. Relatively less attention has been given to other actors in
the investment arbitration system, however. This chapter has sought to offer a
complimentary perspective – i.e., in contrast to the many excellent discussions of
what a particular State should do – by shifting the focus to arbitral tribunals. The
primary purpose of this chapter has thus been to introduce a noteworthy trend in the
reasoning and analysis of investment arbitration tribunals, i.e., attention to not just
investor rights but also responsibilities in the form of investor diligence. Investment
treaties rarely provide specific standards of diligence. On the contrary, the notion of
investor diligence has been developed by tribunals based on numerous sources and
at different stages in the arbitration proceedings. This chapter is organized around the
stage of proceedings with specific attention to jurisdiction, admissibility, and merits.
The results of our review are briefly summarized in the following paragraphs.
125
Sattorova M (2019) Investor responsibilities from a host state perspective: qualitative data and
proposals for treaty reform. AJIL Unbound 113:22–27, p 24
126
Sattorova, p 24
On jurisdiction, a significant number of treaties explicitly carve out a role for the
host State’s domestic law. This type of IATWL Provision creates a Basic Rule,
whereby “a failure to comply with the national law to which a treaty refers will have
an international legal effect.”127 However, there are certain complications about the
application of the Basic Rule, which were described in terms of the scope of
domestic laws to be considered in assessing investor diligence and specific excep-
tions to the application of the Basic Rule.
More fundamentally, at the jurisdiction stage, tribunals remain divided between
two competing approaches to the relevance of domestic law in the absence of an
IATWL Provision. At the admissions stage, tribunals have considered investor
diligence in the absence of an IATWL Provision with reference to international
rather than municipal standards. The relevant section introduced pertinent general
principles of law, e.g., good faith and clean hands as well as debates around the
application of public policy in investment treaty arbitration.
Finally, at the merits stage, as well, tribunals have considered investor diligence
vis-a-vis both a State’s defense and a State’s invocation of a counterclaim. In
assessing a State’s defense, i.e., as to whether it has breached its obligation toward
the investor, investor diligence may serve as either an interpretative or factual
element. On the issue of counterclaims, we saw that the interpretative landscape is
shifting as crystalized in the recent case of Urbaser.
Cross-References

Ratione Temporis)
127
Fraport AG Frankfurt Airport Serv. Worldwide v. Republic of the Philippines, ICSID Case
No. AR1/03/25, Award, (16 August, 2007), para 394. The second tribunal in the same matter
concurred. Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID
Case No. ARB/11/12, Award (10 December 2014), [Fraport II], Accessed at https://www.italaw.
com/sites/default/files/case-documents/italaw4114.pdf
Relevance of Domestic Court Decisions to
the Merits in Investment Arbitration 44
Trisha Mitra
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1104
Relevance of Domestic Court Decisions in Interpreting Domestic Law . . . . . . . . . . . . . . . . . . . . . . 1106
Relevance of Domestic Court Decisions on Validity and Existence of Contractual
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1108
Relevance of Domestic Court Decisions in Determining Propriety of State Conduct . . . . . . . . 1111
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1117
Abstract
The relationship between investment tribunals and domestic court decisions is an
important one. Investment tribunals are frequently required to apply both inter-
national law and domestic law. Parties might premise their position on domestic
law on jurisprudence from domestic courts on the interpretation or application of
the domestic law, sometimes in the context of the very State action which has
precipitated the investment arbitration. Therefore, investment tribunals frequently
have to determine the relevance vel non of domestic court decisions on the
interpretation of a domestic law, or the validity and existence of contractual
rights, or propriety of State conduct. This chapter examines the approach of
investment tribunals as well as the ICJ and PCIJ to such domestic court decisions
as they navigate issues of degree of relevance, res judicata, and circumstances
justifying nonreliance on the decisions, and reviews recent investment treaties
which seek to limit the ability of investment tribunals to disregard the pronounce-
ments of domestic courts.
The views expressed in this Chapter do not necessarily reflect the views of Shearman & Sterling or
its clients.
T. Mitra (*)
Shearman & Sterling LLP, Paris, France
e-mail: trisha.mitra@shearman.com

https://doi.org/10.1007/978-981-13-3615-7_122
1104 T. Mitra
Keywords
BIT · Domestic Court · Domestic Law · ICJ · Investment Treaty · Investment
Arbitration · Investment Tribunal · National Court · National Law · PCIJ ·
Res Judicata
Introduction
Investment tribunals do not operate in a vacuum. The nature of claims in investment

arbitration necessarily implies an intersection between domestic law and interna-
tional law, and consequently a convergence between the issues raised before domes-
tic courts as well as investment tribunals. Yet the contours of this relationship are not
always obvious and therefore the ever-evolving jurisprudence makes for an inter-
esting study.
There is significant literature on the dynamics between investment tribunals and
domestic courts on issues impacting the tribunals’ jurisdiction and admissibility of
claims, such as exhaustion of local remedies, fork-in-the road and waiver clauses,
domestic litigation requirements, and denial of benefits among others.1 Scholars
have equally examined a domestic court’s treatment of an investor in terms of
investment protection standards, such as denial of justice, arbitrariness, discrimina-
tion, and due process among others.2
A third relationship exists alongside the two mentioned above. That is when an
investment tribunal has to determine whether to take into account a domestic court’s
decision on, or relating to, the issues at dispute in the treaty arbitration. Investment
1
See, for instance, Kaufmann-Kohler G, Potestà M (2020) Investor-state dispute settlement and
national courts. European yearbook of international economic law (Special Issue), Chapter 3.2;
Banifatemi Y (2018) Taking into account control under denial of benefits clauses. In: Banifatemi Y
(ed) Jurisdiction in investment treaty arbitration, IAI series on international arbitration no. 8, p 223–
267; Hepburn J (2017) Domestic law in international investment arbitration. Oxford University
Press, London; Schreuer C (2010) Interaction of international tribunals and domestic courts in
investment law. In: Rovine A (ed) Contemporary issues in international arbitration and mediation:
the fordham papers, Brill|Nijhoff, p 71–94; Shany Y (2007) Regulating jurisdictional relation
between national and international courts. Oxford University Press, London; Paulsson J (2005)
Jurisdiction and admissibility. In Aksen G and others (eds) Global reflections on international law,
commerce and dispute resolution: Liber Amicorum Robert Briner: ICC Publishing, p 601–617;
Douglas Z (2009) The international law on investment claims. Cambridge University Press,
London, Chapters 3 and 13; James Crawford (2008) Treaty and contract in investment arbitration.
Arbitr Int 24:351–374.
2
See, for instance, Kaufmann-Kohler G, Potestà M, Chapter 3.3; Sabahi B, Rubins N, Wallace Jr. D
(2019) Investor-state arbitration. Oxford University Press, London, Chapters VIII, XVII, XIX;
McLachlan C, Shore L, Weiniger M (2017) Treatment of investors. In McLachlan C, Shore L, et al
(eds) International investment arbitration: substantive principles. Oxford University Press, Chapter
7; Dumberry P (2014) Denial of justice under NAFTA article 1105: a review of 20 years of case law.
ASA Bull Kluwer Law Int 32(2):246–264; Diehl A (2012) Part II: the content and scope of the FET
standard, chapter 6: the content of the FET standard. In: Diehl (ed) The core standard of interna-
tional investment protection, vol 26, Kluwer Law International, Section 6.2.
44 Relevance of Domestic Court Decisions to the Merits in Investment. . . 1105
tribunals are routinely required to interpret and apply both international law and
domestic law.3 The tribunal in AAPL v. Sri Lanka aptly summed up:
[T]he Bilateral Investment Treaty is not a self-contained closed legal system limited to
provide for substantive material rules of direct applicability, but it has to be envisaged within
a wider juridical context in which rules from other sources are integrated through implied
incorporation methods, or by direct reference to certain supplementary rules, whether of
international law character or of domestic law nature.4
Investment tribunal must therefore first adopt the “complex approach” of making a
distinction between the issues governed by international law (these are typically ones
involving assessing the State’s action vis-à-vis investment treaty standards) and
domestic law (these are typically ones involving the property rights of the investor).5
The next step after making this distinction is to identify the sources of law that would
inform the investment’s tribunal decision-making.
One of the sources of interpreting and applying domestic law is jurisprudence
from domestic courts. A domestic court could have decided on the very subject
matter of the arbitration, such as propriety of the State’s action under the domestic
legal system, or on a legal issue in the arbitration, such as the validity and existence
of contractual rights, or on the interpretation of the domestic law. The party benefit-
ting from the domestic court’s decision will usually urge the investment tribunal to
follow the reasoning of the domestic court. The party may even argue that the
investment tribunal is bound to follow the domestic court’s decision.
Some of the recurring questions faced by investment tribunals as they navigate
this third relationship can be: What is the appropriate weightage that an investment
tribunal ought to give to decisions of domestic courts? Should the investment
tribunal scrutinize the reasoning of the domestic court decision before taking it
into consideration? Conversely, do domestic court decisions have res judicata effect
on investment tribunals? Do any circumstances justify not following the interpreta-
tion and application of domestic law by domestic courts?
A study of the approach of investment tribunals in addressing these issues is
interesting and instructive. Parties can shape their position on the relevance of
domestic court pronouncements knowing what arguments have, or have not, been
accepted by investment tribunals in the past. Investment tribunals are not the first to
navigate a relationship with domestic courts. The International Court of Justice (ICJ)
and Permanent Court of International Justice (PCIJ), among others, too have
3
See, for instance, Sabahi, Rubins, Wallace Jr., Chapter VIII; Banifatemi Y (2018) The law
applicable in investment treaty arbitration. In: Yannaca-Small K (ed) Arbitration under international
investment agreements: a guide to the key issues, 2nd edn. Oxford University Press, p 191–210;
Parra A (2007) Applicable law in investor-state arbitration. In Rovine M (ed) Contemporary issues
in international arbitration and mediation: the fordham papers, Brill|Nijhoff, p 1–12.
4
Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final
Award (27 June 1990). https://www.italaw.com/sites/default/files/case-documents/ita1034.pdf,
para 21.
5
Douglas Z, Rule 3, Section A.
1106 T. Mitra
considered these issues. It is therefore interesting to examine their approaches from

the perspective of evolution of international law and, to that extent, scholars of
international law and investment arbitration would benefit from this study too.
This chapter is a tertiary study of the extant jurisprudence where international
tribunals have addressed the import vel non of a domestic court decision while
determining the merits of the case, with a particular emphasis on the test formulated
by them in accepting or rejecting the domestic court’s conclusions. It is organized in
four sections. The first section reviews the approach of international tribunals
towards a domestic court’s interpretation of domestic law. The second section
looks at the international tribunal’s attitude towards determinations on the existence
and validity of contractual rights by domestic courts. The third section then reviews
how international tribunals have considered a domestic court’s adjudication of the
propriety of the State action. The final, fourth section concludes with observations on
the approach taken by the various investment tribunals and outlines the expanding
guidance from modern investment treaties on the subject.
Relevance of Domestic Court Decisions in Interpreting Domestic

Law
The Brazilian Loans and Serbian Loans cases are often considered starting points for
the development of international investment law. They were also early instances of
an international tribunal addressing the interpretations of domestic law by domestic
courts. The cases were in relation to the payment of bonds issued by the Brazilian
and Serbian governments to private bond holders, whose cause was subsequently
espoused by France. Both Courts found that French law applied regarding the
currency of payments.
The Special Agreement under which the Brazilian Loans case was submitted
expressly stated that domestic court pronouncements will not bind the Court:
In estimating the weight to be attached to any municipal law of either country which may be
applicable to the dispute, the Permanent Court of International Justice shall not be bound by
the decisions of the respective courts.6
Nevertheless, the PCIJ decided that it would be guided by the interpretation of

French law by French courts:
Once the Court has arrived at the conclusion that it is necessary to apply the municipal law of
a particular country, there seems no doubt that it must seek to apply it as it would be applied in
that country. It would not be applying the municipal law of a country if it were to apply it in a
manner different from that in which that law would be applied in the country in which it is in
force.
6
Case concerning the Payment in Gold of Brazilian Federal Loans Contracted in France (France v.
Brazil), Judgment 12 July 1929, 1929 P.C.I.J. (ser. A) No. 21 (July 12), p 123.
It follows that the Court must pay the utmost regard to the decisions of the municipal
courts of a country, for it is with the aid of their jurisprudence that it will be enabled to decide
what are the rules which, in actual fact, are applied in the country the law of which is
recognized as applicable in a given case. If the Court were obliged to disregard the decisions
of municipal courts, the result would be that it might in certain circumstances apply rules
other than those actually applied; this would seem to be contrary to the whole theory on
which the application of municipal law is based.
Of course, the Court will endeavor to make a just appreciation of the jurisprudence of
municipal courts. If this is uncertain or divided, it will rest with the Court to select the
interpretation which it considers most in conformity with the law. But to compel the Court to
disregard that jurisprudence would not be in conformity with its function when applying
municipal law.7
The Court’s decision was based on its approach in the Serbian Loans case where too
it followed the French judicial jurisprudence and held:
For the Court itself to undertake its own construction of municipal law, leaving on one side
existing judicial decisions, with the ensuing danger of contradicting the construction which
has been placed on such law by the highest national tribunal and which, in its results, seems
to the Court reasonable, would not be in conformity with the task for which the Court has
been established and would not be compatible with the principles governing the selection of
its members. It would be a most delicate matter to do so, especially in cases concerning
public policy – a conception the definition of which in any particular country is largely
dependent on the opinion prevailing at any given time in such country itself – and in cases
where no relevant provisions directly relate to the question at issue.8
Deference to court decisions on the interpretation of domestic law appears to be the

preferred approach for investment tribunals as well.
In Helnan v. Egypt, the tribunal observed that the prerogative of both applying
and interpreting domestic laws lies with domestic court:
When, as in the present case, a domestic tribunal has ruled on an issue of domestic law which
subsequently has to be considered by an ICSID Tribunal, the ICSID Tribunal will have to
take into account that the task of applying and interpreting domestic law lies primarily with
the courts of the host country.9
While the ICSID tribunal in Marion Unglaube v. Costa Rica did not ultimately have
to decide on the interpretation of Costa Rica’s 1995 National Park Law (having
7
Ibid., p 124.
8
Interestingly, the Court also found that the French law as applied by French courts constitutes
French law and if the performance of the contractual obligation was not prevented by French law,
then such performance cannot be stopped by a possible different interpretation of the French law.
Case Concerning the Payment of Various Serbian Loans Issued in France (France v. Kingdom of
the Serbs, Croats and Slovenes), Judgment (12 July 1929), 1929 P.C.I.J. (ser. A) No. 20 (July 12),
para 105.
9
Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award (3
July 2008). https://www.italaw.com/sites/default/files/case-documents/ita0399.pdf, para 105
(emphasis added).
1108 T. Mitra
decided the expropriation issue on other grounds), it nonetheless held that a decision
of the Costa Rican Supreme Court would have been the authoritative interpretation
of its law:
Had such discussion been required, however, the Tribunal would, without hesitation, have
found that, under the Constitution and laws of Costa Rica, it is the Attorney General and the
Supreme Court who are empowered to give authoritative and final interpretation of the law.
The construction of the 1995 National Park Law is a matter of Costa Rican law, and it is not
appropriate for this Tribunal to substitute an opinion of its own or make any finding of
liability unless the Attorney General and the Court are found to have acted in a manner
which is arbitrary, discriminatory or otherwise shocking to the conscience.10
The tribunal’s opinion was caveated however, suggesting that if the investor proved
that the Supreme Court’s decision was “arbitrary, discriminatory or otherwise shock-
ing to the conscience,” that decision would not have the same effect on the tribunal’s
decision making.
A similar reasoning was followed by the tribunal in Bosca v. Lithuania:
“[n]or is the Tribunal bound by the decisions of the Lithuanian courts on the
subject . . . even though due deference should be given to such decisions, partic-
ularly when they interpret Lithuanian law”, and found that the “the Lithuanian
courts appear to have applied high standards of judicial propriety in each of their
judgments.”11
Relevance of Domestic Court Decisions on Validity and Existence

of Contractual Rights
Investment tribunals regularly adjudicate disputes connected to contracts and the

existence and validity of the party’s contractual rights therefore become crucial in
their assessment of the case.
In Helnan v. Egypt, the investor and an Egyptian State entity had a prior domestic
arbitration award which terminated their management contract and awarded dam-
ages to the investor. While the domestic award was not the result of domestic court
proceedings, the tribunal made certain instructive pronouncements about its relation
with domestic courts. As noted earlier, the tribunal was content to defer to domestic
court’s decision applying and interpreting domestic law. It held:
An ICSID Tribunal will not act as an instance to review matters of domestic law in the
manner of a court of higher instance. Instead, the Tribunal will accept the findings of local
courts as long as no deficiencies, in procedure or substance, are shown in regard to the local
10
Marion Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/08/1, Award (16 May 2012).
https://www.italaw.com/sites/default/files/case-documents/ita1052.pdf, para 253.
11
Luigiterzo Bosca v. Lithuania, UNCITRAL, Award (17 May 2013). https://www.italaw.com/sites/
default/files/case-documents/italaw7179_1.pdf, para 198.
proceedings which are of a nature of rendering these deficiencies unacceptable from the
viewpoint of international law, such as in the case of a denial of justice.12
(. . .)
When in the present case a Tribunal would adopt the wider approach of protection and a
domestic award exists dealing solely with contractual matters, the Tribunal would have to
ask whether under such circumstances it would be necessary to disregard the rule res
judicata and to review the facts de novo in the light of the requirements of fair and equitable
treatment. In this respect, each case will have to be reviewed in the light of the circum-
stances. When it is found by an international tribunal that the holding of the local award was
determined strictly by considerations pertaining to contractual issues, it will not be appro-
priate for an international tribunal to replace the decision of the local court on a contractual
issue subject to local law. Instead, res judicata will apply, and the outcome in this respect will
be the same as that which a tribunal will reach which assumes that strictly contractual matters
generally are not protected under the standard of fair and equitable treatment.13
On the scope of res judicata, the tribunal recognized that domestic court decisions do
not have res judicata effect on international tribunals because they operate in
different legal orders. However, domestic court decisions do have res judicata effect
within their legal order and must be given appropriate effect as such by tribunals in
their assessment.14 The tribunal ultimately held that “[a]s Egyptian law was appli-
cable to the Management Contract, the present Arbitral Tribunal cannot ignore its
effect, unless it would be established that the rendering of the Award was made in
breach of the Treaty, or general international law.”15 No such breach was demon-
strated and therefore, the tribunal relied inter alia on the reasoning of the domestic
award to dismiss the investor’s claims.16
The ICSID award in Liman Caspian Oil v. Kazakhstan shows that the tribunal
deferred to the decision of Kazakh courts which invalidated the transfer of a license
to explore and extract hydrocarbons from a Kazakh company to one of the Claim-
ants. The tribunal first verified that the courts “were not arbitrary, grossly unfair,
unjust, idiosyncratic, discriminatory or lacking due process.” It did not matter that
the decision “might have been incor_rect as a matter of Kazakh law.” On this basis,
the tribunal held that the domestic court decisions were to be “accepted from the
perspective of international law and particularly that of the ECT” and considered the
transfer to be invalid.17 This reasoning became an important basis for the tribunal’s
denial of the investor’s claims of expropriation and breach of umbrella clause.18
12
Helnan, para 106. This was subsequently cited in Mr. Hassan Awdi, Enterprise Business Con-
sultants, Inc. and Alfa El Corporation v. Romania, ICSID Case No. ARB/10/13, Award (2 March
2015). https://www.italaw.com/sites/default/files/case-documents/italaw4208.pdf, para 327.
13
Helnan, para 108.
14
Helnan, paras 123–125.
15
Helnan, para 163.
16
Helnan, paras 163–169.
17
Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No.
ARB/07/14, Award (22 June 2010). https://www.italaw.com/sites/default/files/case-documents/
italaw1429.pdf, para 431.
18
Ibid, paras 432–434, 442–443.
1110 T. Mitra
In AHS Niger v. Republic of Niger, Niger was unable to sustain its argument that
the Investment Law, which granted protections to the investors, had been denounced,
especially in the face of a decision of the State Court of Niger quashing the
denunciation.19 This was one of the factors that resulted in the tribunal finding
unlawful expropriation.20
That tribunals should not sit as court of appeal or analyze the validity of instruments
under domestic law de novo was reiterated by the tribunal in Arif v. Moldova as well.
In that case, the investor raised a claim under a “Specific Commitments” clause in the
BIT relying on certain contractual instruments to argue that it should benefit from more
favorable treatment than prescribed under the BIT. Based on the fact that the contrac-
tual instruments had been consistently held invalid under Moldovan law by the
Moldovan courts, including the Supreme Court. Additionally, the tribunal found that
there was no denial of justice towards the investor. The tribunal held:
This Tribunal cannot and should not act as a court of appeal of last resort. Under these
circumstances, it does not consider appropriate to decide on Claimant’s “specific undertak-
ings” claim to the extent it implies analysing ex novo the validity of these instruments under
Moldovan law. This issue has already been decided by the Moldovan courts.21
A similar reasoning was followed by the tribunals in Bosh v. Ukraine while rejecting
the investor’s claim for breach of umbrella clause under the USA-Ukraine BIT.22
A different approach appears to have been taken by the tribunal in Vigotop v.
Hungary. In that case, the investor argued that the Hungarian Curia’s decision
holding a land swap agreement as null and void should be disregarded because it
was not “credible.”23 At the outset, the tribunal clarified that it was not bound by the
Curia’s decision but would take it into consideration:
The Tribunal notes that there is no dispute between the Parties that, while the decision of the
Curia has res judicata effect as a matter of Hungarian law, it does not have such effect on the
international plane and does not bind this Tribunal. Accordingly, the Tribunal will, in its own
right, decide the issues in light of the evidence before it, giving due consideration to the
Curia decision as evidence of Hungarian law.24
19
AHS Niger and Menzies Middle East and Africa S.A. v. Republic of Niger, ICSID Case No. ARB/
11/11, Award (15 July 2013). https://www.italaw.com/sites/default/files/case-documents/
italaw3034.pdf, paras 117–120.
20
Ibid., paras 124–126.
21
Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award (8 April
2013). https://www.italaw.com/sites/default/files/case-documents/italaw1370.pdf, para 398.
22
Bosh International, Inc and B&P Ltd Foreign Investments Enterprise v. Ukraine, ICSID Case No.
ARB/08/11, Award (25 October 2012). https://www.italaw.com/sites/default/files/case-documents/
23
Vigotop Limited v. Republic of Hungary, ICSID Case No. ARB/11/22, Award (1 October 2014).
https://jusmundi.com/en/document/decision/pdf/en-vigotop-limited-v-republic-of-hungary-award-
wednesday-1st-october-2014, paras 508, 510.
24
Ibid., para 509.
But unlike other tribunals reviewed thus far which accepted the findings of the
domestic courts as such, the Vigotop tribunal analyzed whether the Curia’s decision
was “persuasive” based on the record before it. Only after finding no grounds “to
disagree” with the decision did the tribunal accept the Curia’s finding:
The Tribunal has carefully considered the Curia’s reasoning and has come to the conclusion
that, contrary to Claimant’s view, it is “credible” and persuasive under the circumstances. In
particular, the Tribunal refers to the Curia’s observation that the development of the M4
motorway affected only a “negligible portion?” i.e., 5–6%, of the Albertirsa Land and the
Pilis Land, which Mr. Blum offered in exchange for the Sukoró Site. There is no basis in the
record to disagree with the Curia when it concluded that it was not necessary to “appropri-
ate” the Albertirsa Land and the Pilis Land in their entirety in order to build the motorway.
Therefore, the land swap was not necessary for the State, and the public interest requirement
in Section 13(4) of the National Land Fund Act was not satisfied. As a consequence, the
Curia held that the Land Swap Agreement was null and void in accordance with Section 200
(2) of the Hungarian Civil Code. The Tribunal does not perceive any reason to disagree with
the Curia’s findings and will therefore treat the Land Swap Agreement as null and void in
line with the Curia’s decision.25
Relevance of Domestic Court Decisions in Determining Propriety

of State Conduct
Often times, the investor or the local company in the respondent State will have
first approached a domestic court to challenge the State’s actions. On the one hand,
the domestic court could have upheld the validity of the State’s action, thereby
precipitating the investor’s claim before an investment tribunal. On the other hand,
the domestic court might characterize the State’s action as being unlawful under
domestic laws. Despite this, the investor might continue to be impacted by the
State’s action (e.g., because the State does not give effect to the domestic court’s
decision) and approach an investment tribunal. Investment tribunals have therefore
had to address domestic court decisions both upholding or invalidating the State’s
actions.
Generally, investment tribunals have taken into account domestic court decisions
on propriety of a State’s conduct. The NAFTA tribunal in Mobil and Murphy v.
Canada held Canadian court decisions on Canadian law to be “dispositive” of
domestic law issues which can be factored into the tribunal’s decision:
Although this Tribunal has a different task from that of the Court of Appeal, namely to
determine whether there has been a violation of the law of NAFTA, it is not for us to express
a view as to whether the Court of Appeal got its decision on Canadian law wrong. That
decision is dispositive of the issues that arise as a matter of Canadian law. The conclusions
25
Ibid., para 535. Douglas is of the opinion that it is ‘more of an affront to ignore domestic courts
than to scrutinize them first before deciding whether to abide by their rulings’. See Douglas Z (2003)
The hybrid foundations of investment treaty arbitration. British Yearbook Int Law 74:151–289.
1112 T. Mitra
reached by the Court of Appeal are relevant to and underpin our ruling that no violation of
Article 1105 has occurred.26
The tribunal inter alia relied on the Canadian Court of Appeal’s decision that the
changes in domestic law were lawful under Canadian law to find that Canada had not
breached the Minimum Standard of Treatment clause in NAFTA.27
The ICSID tribunal in Hochtief v. Argentina was faced with the question whether
Argentina had failed to accord the investor fair and equitable treatment by exces-
sively delaying the renegotiation of the concession agreement with the investor. It
decided in the affirmative citing inter alia a decision of the Argentine court which
found such delay to be contrary to Argentine law.28
On similar lines, the decision of the Mongolian Administrative Court that Mon-
golia had not shown legitimate grounds for its refusal to re-register the investor’s
mining and exploration license became pertinent in the tribunal’s determination that
Mongolia had breached its obligations under the Mongolian Foreign Investment
Law as well as ECT.29 Such reliance is arguably correct given that the tribunal had to
determine whether the State’s action was unlawful in the context of the domestic
legislation, that is, Mongolian Foreign Investment Law, which then qualified as a
breach of the ECT through the umbrella clause therein.
But parties have sometimes argued that a domestic court having already decided
on the propriety of the State conduct, that decision is binding on the investment
tribunal. In the awards surveyed for the purpose of this chapter, this argument has
had no success.
In EURAM v. Slovak Republic, the investor’s position was that the Constitutional
Court of Slovakia had found the State’s amendment of the law on health insurance
companies to be expropriatory and was res judicata and had erga omnes effect on the
tribunal.30 The tribunal found that the judgment of the Slovak Constitutional Court
did not have res judicata effect on it, relying on jurisprudence from the British-
United States Claims Tribunal, the Opinion of the PCIJ in Polish Postal Service in
26
Mobil Investments Canada Inc. and Murphy Oil Corporation v. Government of Canada, ICSID
Case No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012).
https://www.italaw.com/sites/default/files/case-documents/italaw1145.pdf, para 167.
27
28
HOCHTIEF Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/07/31, Decision on
Liability (29 December 2014). https://www.italaw.com/sites/default/files/case-documents/
italaw4101.pdf, paras 283, 285.
29
Khan Resources Inc., Khan Resources B.V. and Cauc Holding Company Ltd. v. the Government of
Mongolia and Monatom Co. Ltd., PCA Case No. 2011–09, Award (2 March 2015). https://
jusmundi.com/fr/document/pdf/Decision/IDS-411-800594888-44175286/en/en-khan-resources-
inc-khan-resources-b-v-and-cauc-holding-company-ltd-v-the-government-of-mongolia-and-
monatom-co-ltd-award-monday-2nd-march-2015, paras 317, 337–338, 355, 366.
30
European American Investment Bank AG (EURAM) v. Slovak Republic, UNCITRAL, Award on
Jurisdiction (22 October 2012). https://www.italaw.com/sites/default/files/case-documents/
Danzig and other scholarly works to support its position.31 With this understanding,
the tribunal nevertheless held that it “must inquire into what was decided by the
judgment of the Constitutional Court” because it would be “unduly formalistic” to
disregard the judgment when the BIT allowed the investor to approach State courts
on questions of expropriation.32 It explained:
If the Court considered Amendment I to be an expropriation, or characterised it in such a way

as to make clear that the Court treated Amendment I as an act having effects similar to an
expropriation, that judgment would be of considerable importance for the present
proceedings.33
The tribunal reviewed the judgment in detail but found that the Constitutional Court
had not examined the issue of expropriation, in terms of the provision in the BIT, and
rejected the investor’s claims.34
That an investment tribunal is not bound by the decision of domestic was
elucidated in Amco v. Indonesia as well. That tribunal was faced with the question
whether the revocation of the investor’s license by Indonesia was an international
wrong and, in this context, had to determine whether the Indonesian court rulings
could retroactively legitimize a State’s action which might have been wrongful at the
time of occurrence.35 The tribunal found that the Indonesian court decisions did not
have the effect of legitimizing the State’s action.36 However, it clarified as below:
The Tribunal wants to underline that by discussing the Indonesian courts’ judgments and
decisions, the Tribunal is not departing from its Award on Jurisdiction . . . where it is stressed
that the dispute put before this Tribunal is not a dispute between private parties. The
Respondent before the Tribunal is not PT Wisma but the Republic of Indonesia.
In any case, an international tribunal is not bound to follow the result of a national court.
One of the reasons for instituting an international arbitration procedure is precisely that
parties – rightly or wrongly – feel often more confident with a legal institution which is not
entirely related to one of the parties. If a national judgment was binding on an international
tribunal, such a procedure could be rendered meaningless [.]
Accordingly, no matter how the legal position of a party is described in a national
judgment, an international arbitral tribunal enjoys the right to evaluate and examine this
position without accepting any res judicata effect of a national court. In its evaluation,
therefore, the judgments of a national court can be accepted as one of the many factors which
have to be considered by the arbitral tribunal.37
31
Ibid., para 394.
32
Ibid., para 395.
33
Ibid., para 396.
34
35
Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award
(20 November 1984). https://jusmundi.com/en/document/decision/pdf/en-amco-asia-corporation-
and-others-v-republic-of-indonesia-award-tuesday-20th-november-1984, para 173.
36
37
Ibid.¸ para 177.
1114 T. Mitra
The tribunal subsequently did indeed take into account the decisions of the Indone-
sian District Court and Appellate Court in its finding that the revocation of licence
had a direct causal link to the investor’s losses.38
The reverse issue, that is, whether a finding of unlawfulness by a domestic court
should necessarily result in a finding of breach of international law, too could arise
before investment tribunals.
The ICJ addressed this issue in the ELSI case. The Court was seized to determine
inter alia whether a decision of the Prefect of Palermo, Italy, to requisition the foreign
investor’s plant, was arbitrary or unreasonable under the 1948 Treaty of Friendship,
Commerce and Navigation between Italy and United States, the Protocol and the
1951 Supplementary Agreement thereto. While the Court of Appeal of Palermo
agreed with Italy that Palermo was facing an unforeseen, urgent, and grave economic
situation, it nevertheless found the Prefect’s decision to be unlawful for exercising
excess of power.39 The Court held that this does not automatically mean that the
Prefect’s decision was arbitrary or unreasonable under the Treaty:
[I]t must be borne in mind that the fact that an act of a public authority may have been
unlawful in municipal law does not necessarily mean that that act was unlawful in interna-
tional law, as a breach of treaty or otherwise. A finding of the local courts that an act was
unlawful may well be relevant to an argument that it was also arbitrary; but by itself, and
without more, unlawfulness cannot be said to amount to arbitrariness. It would be absurd if
measures later quashed by higher authority or a superior court could, for that reason, be said
to have been arbitrary in the sense of international law. To identify arbitrariness with mere
unlawfulness would be to deprive it of any useful meaning in its own right. Nor does it
follow from a finding by a municipal court that an act was unjustified, or unreasonable, or
arbitrary, that that act is necessarily to be classed as arbitrary in international law, though the
qualification given to the impugned act by a municipal authority may be a valuable
indication.40
On the facts, it found that:
The analysis of the Prefect's decision as a finding of excess of power, with the result that the
order was subject to a defect of lawfulness does not, in the Chamber's view, necessarily and
in itself signify any view by the Prefect, or by the Court of Appeal of Palermo, that the
Mayor's act was unreasonable or arbitrary.41
The Court finally decided that the Prefect’s decision was not arbitrary because of the
prevailing economic situation in Palermo as well as the form and content of the
38
Ibid.¸ paras 259–261.
39
Elettronica Sicula S.p.A (ELSI) (United States of America v. Italy), Judgment (July 20, 1989) ICJ
Reports, 1989. https://www.icj-cij.org/files/case-related/76/076-19890720-JUD-01-00-EN.pdf,
para. 75.
40
Ibid., para 124.
41
Ibid., para 127.
decision and that Italian law allowed domestic legal remedies against such public
acts.42
Citing ELSI, the tribunal in Tecmed v. Mexico noted that the Mexican courts had
not identified any socio-political crisis, unlike the Court of Appeal of Palermo, that
could justify Mexico’s refusal to renew the investor’s permit to operate landfills. This,
among other reasons, influenced the tribunal to find an unlawful expropriation.43
Domestic courts arguably have at their disposal more evidence-taking mecha-
nisms than investment tribunals. Therefore, their conclusions on the factual patterns
underlying the dispute are often valuable for the investment tribunals. This was the
case in Rompetrol v. Romania. In order to prove mistreatment of the investment by
Romania, the investor relied on several fact patterns, one of which was the tapping of
the former CEO of the investor and the investor’s subsidiary’s communications. The
Romanian High Court of Cassation had issued a judgment upholding the lower
court’s decision that the former CEO’s communication were indeed intercepted,
which justified an award of moral damages for breach of privacy of his private life.44
Relying on the evidentiary finding of the Court, the tribunal rejected Romania’s
national security defense as the motive for the interception.45 Notwithstanding this,
the tribunal noted that the Court was clear that the former CEO’s private life only, not
his business activities, were impacted by the interception.46 This as well as other
factors ultimately led the tribunal to dismiss the investor’s claims.47
Another question before a tribunal can be whether a State’s action which is in line
with its domestic court decisions can be successfully challenged before investment
tribunals. The oft-cited Azinian principle is instructive: “A governmental authority
surely cannot be faulted for acting in a manner validated by its courts unless the
courts themselves are disavowed at the international level.”48 In other words, unless
42
Ibid., para 129.
43
Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB
(AF)/00/2, Award (29 May 2003). https://www.italaw.com/sites/default/files/case-documents/
ita0854.pdf, paras 146–147.
44
The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award (6 May 2003). https://
jusmundi.com/fr/document/pdf/Decision/IDS-227-2041821520-2107326500/en/en-the-rompetrol-
group-n-v-v-romania-award-monday-6th-may-2013, paras 256–257.
45
46
Ibid., para 261.
47
48
Robert Azinian, Kenneth Davitian & Ellen Baca v. United Mexican States, ICSID Case No. ARB
(AF)/97/2, Award (1 November 1999). https://jusmundi.com/en/document/pdf/Decision/IDS-18-
3643029188-2844732515/en/en-robert-azinian-kenneth-davitian-ellen-baca-v-the-united-mexican-
states-award-monday-1st-november-1999, para 97. The principle has been subsequently cited in
multiple awards. See, for e.g., Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of
Kazakhstan, ICSID Case No. ARB/07/14, Award (22 June 2010). https://www.italaw.com/sites/
default/files/case-documents/italaw1429.pdf, paras 433–434; Fouad Alghanim & Sons Co. for
General Trading & Contracting, W.L.L. and Fouad Mohammed Thunyan Alghanim v. Hashemite
Kingdom of Jordan, ICSID Case No. ARB/13/38, Award of the Tribunal (14 December 2017).
https://www.italaw.com/sites/default/files/case-documents/italaw9440.pdf, paras 320–364.
1116 T. Mitra
the domestic court’s decision breaches an international treaty, a State’s action aligned
with its court’s position is generally valid. This demonstrates the high relevance of
the domestic court decisions in the eyes of the tribunal on an issue as important as
determining the propriety of State conduct.
In Azinian, the investor had challenged the decision of the Ayuntamiento (city
council) of Naucalpan nullifying the concession contract, for being invalid under
Mexican law, at three levels of Mexican courts. Each time, the Mexican court upheld
the Ayuntamiento’s decision. At the outset, the tribunal prefaced its decision by
acknowledging that it is not bound by a domestic court decision that has approved
the State’s action.49 However, it found that since the investor had not demonstrated
that the decisions of the Mexican courts violated the NAFTA standard of protection
(such as denial of justice or “a pretence of form to achieve an internationally lawful
end”),50 the investor’s claims necessarily failed.
The Azinian principle might lead one to question its interplay with a well-established
principle of international law, that a State cannot rely on its internal laws to justify its
international wrongs.51 This was addressed in Alghanim v. Jordan. One of the issues in
that arbitration was whether the decision of the Jordanian Cour de Cassation, upholding
a tax measure against the investor, should be disavowed. A preliminary question was
whether the court’s decision can be considered as part of the State’s conduct. The
tribunal decided in the affirmative.52 Next was the question of the relevance of the
court’s decision in the tribunal’s assessment of propriety of State conduct. Citing the
Azinian principle, the tribunal stated that domestic court decisions are not binding on
investment tribunals if there is a valid claim of denial of justice. However, in the absence
of such a valid claim, the domestic court decision would be relevant.53
In response to the investor’s argument that Azinian is contrary to the ILC Draft
Articles, the tribunal held:
Contrary to the Claimants’ submission, this conclusion is consistent with ARSIWA Article 3.
It is precisely because the Tribunal is applying an international law standard to judge the
conduct of the Respondent that it will determine whether the Claimants have been the
subject of a denial of justice in the Respondent’s courts. At the same time, a misapplication
of national law by those courts that does not amount to a denial of justice will not breach the
international standard.54
On the flip side, what is the consequence of a State does not revoking its measure
after a domestic court invalidates the measure? In Siag v. Egypt, the Egyptian
49
Azinian v. Mexico, para 98.
50
51
Article 3, Draft Articles on Responsibility of States for Internationally Wrongful Acts, in Report
of the International Law Commission on the Work of Its Fifty-third Session, UN GAOR, 56th Sess.,
Supp. No. 10, at 43, UN Doc. A/56/10 (2001).
52
Alghanim v. Jordan., paras 317, 365.
53
Ibid., paras 334, 361–362.
54
Ibid., para 363.
Supreme Administrative Court cancelled a governmental resolution revoking a

contract with the investor. Egypt nevertheless did not restore the investor’s property
rights. This persuaded the tribunal to find that Egypt had not satisfied the “according
to legal procedures” requirement in the five-step test for lawful expropriation.55
Conclusion
Domestic courts and investment tribunals can intersect on issues of jurisdiction,

admissibility, merits, and procedure. Yet there is very little guidance on the appro-
priate weight that international tribunals should give to domestic court decisions.
Some investment tribunals have been disinclined to accept a pronouncement that
would negatively impact the jurisdiction of the tribunal or admissibility of a claim, such
as existence of State consent, existence of a protected investment, legality of the
investment, and nationality of the investor. For instance, the Inceysa v. El Salvador
tribunal did not accept two decisions of the Supreme Court of Justice of El Salvador on
the basis:
[A]ny resolutions or decisions made by the State parties to the Agreement concerning the
legality or illegality of the investment are not valid or important for the determination of
whether they meet the requirements of Article 25 of the Convention and of the BIT, in
order ____to decide whether or not the Arbitral Tribunal is competent to hear the dispute
brought before it.
Sustaining an opinion different than the one described above would imply giving
signatory States of agreements for reciprocal protection of investments that include the “in
accordance with law” clause the power to withdraw their consent unilaterally (because they
would have the power to determine whether an investment was made in accordance with
their legislation), once a dispute arises in connection with an investment.
(. . .)
Indeed, what this Arbitral Tribunal must do is to determine the legality of the investment
solely and exclusively for the purpose of deciding on its competence. This decision cannot
be left up to the Courts of the host State, because this would give the State the possibility to
redefine the scope and content of its own consent to the jurisdiction of the Centre unilaterally
and at its complete discretion.56
55
Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/
05/15, Award (1 June 2009). https://www.italaw.com/sites/default/files/case-documents/ita0786_0.
pdf, paras 436–437.
56
Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award (2
August 2006). https://www.italaw.com/sites/default/files/case-documents/ita0424_0.pdf, paras 210,
213. The Inceysa award was subsequently quoted with approval by the tribunals in Fraport v.
Philippines and Ares v. Georgia. See Fraport AG Frankfurt Airport Services Worldwide v. Republic
of the Philippines, ICSID Case No. ARB/11/12, Award (10 December 2014). https://jusmundi.com/
en/document/pdf/Decision/IDS-445-3285940332-1777295171/en/en-fraport-ag-frankfurt-airport-
services-worldwide-v-republic-of-the-philippines-ii-award-wednesday-10th-december-2014, para
391; Ares International Srl and MetalGeo Srl v Georgia, ICSID Case No ARB/05/23, Award (26
February 2008). https://jusmundi.com/en/document/decision/pdf/en-ares-international-s-r-l-and-
metalgeo-s-r-l-v-georgia-award-tuesday-26th-february-2008, paras 5.4.13–5.4.14.
1118 T. Mitra
The investment tribunal did not appear to have concerns of due process or discrim-
ination in the Supreme Court proceedings.57
In EDF Saur v. Argentina, Argentina raised an admissibility objection on the
basis of existing Argentinian court judgments on certain contractual issues. The
tribunal rejected the admissibility objection finding:
Multiple sources of law may apply to a single set of facts, as is the case with the facts of the
Pre-Emergency Measures affecting the concession. While Argentina‘s national courts may
have made decisions pursuant to national laws, the France BIT still furnishes Claimants the
opportunity to seek redress before an international tribunal for violations of rights
established under international law.58
While the tribunal did not ultimately decide on the contractual issues, it suggested
that it would not have even factored in the Argentinian court decisions: “it is
generally accepted that an identity requirement must be satisfied in order for a
tribunal to take into account the decisions of national courts.”59
This approach can be contrasted with the approach of the vast majority of
investment tribunals surveyed in the preceding sections, which appear to be content
to take into account domestic judicial decisions on matters of application and
interpretation of domestic law. Choosing not to reopen the questions already adju-
dicated by the domestic court, these tribunals have clarified that they will not sit as a
court of appeal over a domestic court.60 One can argue that this is a reasonable
approach. After all, domestic courts have at their disposal broader powers to gather
evidence and are often better equipped to inquire into the meaning and background
of a domestic legislation. Absent a concern of unfairness in the proceedings, these
decisions can provide valuable guidance to investment tribunals. The Liman tribunal
went a step even further and held that it would not intervene even if the Kazakh
courts would have been wrong in their reasoning.61 The Vigotop tribunal however
took a different approach, preferring first to test the reasoning of the domestic
judicial pronouncement before relying on it.62
The main safeguard that investment tribunals mention in relation to their defer-
ence is that the domestic courts should not have acted in an arbitrary, discriminatory,
57
A criticism of the Inceysa award has been that the investment tribunal ought to have referred to the
Supreme Court decisions and not completely ignored them. See, Hepburn J, p 127–128.
58
EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v.
Argentine Republic, ICSID Case No. ARB/03/23, Award (11 June 2012). https://www.italaw.com/
sites/default/files/case-documents/ita1069.pdf, para 1131.
59
Ibid., para 1132.
60
See, for instance, Mobil v. Canada, para 167; Arif v Moldova, para 398.
61
Liman v. Kazakhstan, para 431.
62
Vigotop v. Hungary, para 535.
or unjustified manner and due process must have been followed.63 The Azinian
principle that acknowledges that governments are justified in acting in line with the
court’s decisions, unless the court itself repudiates the State’s international law
commitments, follows from this.64 And if there is a finding of arbitrariness, discrim-
ination, or breach of due process, the domestic court’s conclusion can be disregarded
and could even lead to a finding of denial of justice.65
Having said this, most tribunals also hold that domestic judicial decisions are not
binding on them. The reason being that domestic courts and investment tribunals
operate on different planes – domestic courts assess issues within the framework of
the domestic law, whereas investment tribunals make findings on breaches of
investment treaties.66 Investment tribunals have clarified that the domestic judicial
decisions have res judicata effect within their domestic legal system, but not on
them.67 They have often relied on the triple identity test for res judicata: identity of
parties, identity of cause of action and whether the prior decision has become final
and binding.68 For a long time, the investment tribunals have themselves been
defining the contours of their relationship with domestic court because no guidance
could be sought from the wording of the investment treaties. Modern investment
treaties have now started including provisions that govern this relationship. They
require the investment tribunals to necessarily follow the caselaw of domestic courts.
This could be attributed to the fact that States are increasingly keen to demarcate
their sovereignty and preserve their governance space.
For instance, the European Union (EU)–Vietnam Free Trade Agreement states:
For greater certainty, the Tribunal and the Appeal Tribunal shall be bound by the interpre-
tation given to the domestic law by the courts or authorities which are competent to interpret
the relevant domestic law, and any meaning given to the relevant domestic law made by the
Tribunal and the Appeal Tribunal shall not be binding upon the courts and the authorities of
either Party. The Tribunal and the Appeal Tribunal does not have jurisdiction to determine
63
See, for instance, Unglaube v Costa Rica, para 235; Liman v. Kazakhstan, para 431.
64
Azinian v. Mexico, para 97.
65
See, for instance, Arif v Moldova, para 398; Alghanim v. Jordan, para 363.
66
See Mobil v. Canada, para 167; Alghanim v. Jordan, para 334.
67
See, for instance, Helnan v. Egypt, paras 123–125; EURAM v. Slovakia, para 394; Amco v.
Indonesia, para 177.
68
For more on res judicata in international arbitration, see Gaillard E (2019) Coordination or chaos:
do the principles of comity, Lis Pendens, and Res Judicata apply to international arbitration? Am
Rev Int Arbitr 29–3:205–242; Hepburn J, Chapter 5.6.2; Schaffstein S (2016) The doctrine of res
judicata before international commercial arbitral tribunals. Oxford University Press, London; Hobér
K (2014) Res Judicata and Lis Pendens in International Arbitration. Martinus Nijhoff, Netherlands;
Reinisch A (2004) The use and limits of res judicata and lis pendens as procedural tools to avoid
conflicting dispute settlement outcomes. L Practice Intl Courts Tribunals 3:37; Mayer P (2004)
Litispendance, connexité et chose jugée dans l’arbitrage international. In: Liber amicorum Claude
Reymond, Litec, p 195–203.
1120 T. Mitra
the legality of a measure, alleged to constitute a breach of this Agreement, under the
domestic laws and regulations of the disputing Party.69
The Comprehensive Economic and Trade Agreement (CETA) too contains a similar
provision in the section dealing with “[t]he law applicable”:
The Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to
constitute a breach of this Agreement, under the domestic law of a Party. For greater
certainty, in determining the consistency of a measure with this Agreement, the Tribunal
may consider, as appropriate, the domestic law of a Party as a matter of fact. In doing so, the
Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or
authorities of that Party and any meaning given to domestic law by the Tribunal shall not be
binding upon the courts or the authorities of that Party.70
The subsequent subsection further seals the fact that a CETA tribunal can in no
circumstance itself interpret the domestic law. When the tribunal has misgivings
about the domestic court’s interpretation of the domestic law, it is required to
approach the CETA Joint Committee:
Where serious concerns arise as regards matters of interpretation that may affect investment,
the Committee on Services and Investment may, pursuant to Article 8.44.3(a), recommend to
the CETA Joint Committee the adoption of interpretations of this Agreement. An interpre-
tation adopted by the CETA Joint Committee shall be binding on the Tribunal established
under this Section.71
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership

(CPTPP) indirectly lays weightage on domestic judicial decisions by defining the
“law of the respondent” as:
The “law of the respondent” means the law that a domestic court or tribunal of proper
jurisdiction would apply in the same case. For greater certainty, the law of the respondent
includes the relevant law governing the investment agreement, including law on damages,
mitigation, interest and estoppel.72
69
Article 3.42.3, Chapter 3, European Union-Vietnam Free Trade Agreement. The EU’s negotiating
text for TTIP contained a similar provision:
For greater certainty, pursuant to paragraph 1, the domestic law of the Parties shall not be part of
the applicable law. Where the Tribunal is required to ascertain the meaning of a provision of the
domestic law of one of the Parties as a matter of fact, it shall follow the prevailing interpretation of
that provision made by the courts or authorities of that Party. (Article 13.3, Chapter II, EU’s
proposal for the Transatlantic Trade and Investment Partnership)
70
Article 8.31.2, Comprehensive Economic Trade Agreement. See also, Hepburn J (2016) CETA’s
New Domestic Law Clause. EJIL:Talk.
71
Article 8.31.3, Comprehensive Economic Trade Agreement.
72
Explanation 35 to Article 9.25.2(b), Chapter 9, CPTPP.
The CPTPP designates the “law of the respondent” as one of the applicable laws,
along with international law, when the relevant investment treaty does not specify an
applicable law.73
Going forward, it will be interesting to follow how these provisions are addressed
by investment tribunals and the jurisprudence that might result from it. One thing is
for certain – the decision-making paths of domestic courts and investment tribunal
will continue to cross frequently in the future.
73
Article 9.25.2(b), Chapter 9, CPTPP.
Applicable Law in Investment Arbitration
45
Benedetta Cappiello
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1124
The Role of Arbitral Tribunal in Determining the Law Applicable to an Investor-State
Arbitral Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1127
ICSID Art. 42(1) or the Relationship between International and National Laws: The
Optio Legis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1130
Follow. . . ICSID, Art, 42(1) Second Alinea: The Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1132
ICSID Case Law: From Klöckner to Wena Hotels V. Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1136
The (Possible) Coordination of International and European Law: The Arbitral Praxis
on Intra-EU BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1139
Follow: The Arbitral Clause in the New EU Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . 1144
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1146
Abstract
The law applicable to arbitral proceedings in general and to investor-State arbitral
disputes in particular has always been a conundrum. This is for a simple reason:
arbitral proceedings are detached from any national legal system. Given this, the
question raised is how to let arbitrators determine the applicable law for the dispute.
The solution provided by arbitral clauses enacted within arbitral rules of pro-
cedures, or investment treaties, is slightly different. Namely, the freedom conferred
upon the arbitral tribunal to determine the applicable law, absent any party’s choice,
has raised much debate among both academics and the jurisprudential praxis. This
chapter aims to reopen the debate on the lex applicable in investor-State dispute
settlements. After providing some historical background on arbitral proceedings,
along with the interpretation and application given to ICSID Convention Art. 42(1),
B. Cappiello (*)
Faculty of Law, Università degli Studi di Milano, Milan, Italy
Department of Italian and Supranational Public Law, University of Milan, Milan, Italy
e-mail: benedetta.cappiello@unimi.it

https://doi.org/10.1007/978-981-13-3615-7_63
1124 B. Cappiello
the analysis will then show that the recent arbitral praxis has had to tackle a third set
of laws. Reference will be made to European Union law, questioning whether and
how arbitral tribunals should apply European law in disputes arising out of the so-
called intra-EU BITs or the Energy Charter Treaty. Some conclusions on the
relationship between international and European law will then be attempted.
Keywords
International investment law · Investment arbitration · Law applicable · European
and international law relationship · Bilateral investment treaties · Intra-EU BITs
Introduction
The investor-State dispute settlement is an arbitral dispute resolution mechanism

which is an alternative to national jurisdiction.1 Its origin dates back to when, in
1959, the first bilateral investment treaty (BIT) was signed between Germany and
Pakistan. Both parties agreed to get rid of national court competence, favoring as
alternative forums either the International Court of Justice or an ad hoc arbitral
tribunal. The latter would have had the competence to hear and solve all disputes
arising out of the parties’ investment relationship.
Over the years, the investor-State arbitral dispute resolution mechanism has
become the most frequent option agreed on by parties and has been enacted within
investment treaties, both bilateral and multilateral. This choice has implied two
consequences: On one side, the investor’s home State has given up its power to
protect its investor through either diplomatic protection or through domestic pro-
ceedings. On the other side, the host State has agreed to confer competence to rule
over its measures to a third forum: the arbitral one. However, State sovereignty has
always been preserved, thanks to the customary international rule prescribing the
exhaustion of local remedies.2 According to this, foreign investors seeking redress
1
Rubino-Sammartano M (2001) International arbitration. Law and practice. Kluwer Law Interna-
tional, The Hague; Billiet J (2016) International investment arbitration, a practical handbook. Maklu
Publishers, Antwerp; Chaisse J, Donde R (2018) The state of investor-state arbitration– a reality
check of the issues, trends, and directions in Asia-Pacific. Int Lawyer 51(1):47–67
2
See Brauch MD (2017) Exhaustion of local remedies in international investment law, IISD best
practices Series, pp 1–28; Foster GK (2011) Striking a balance between investor protections and
national sovereignty: the relevance of local remedies in investment treaty arbitration. Columbia J
Transnational Law 49(2); Lewis and Clark Law School Legal Studies Research Paper No. 2011–15;
Chaisse J (2015) Investor-state arbitration in international tax dispute resolution – a cut above
dedicated tax dispute resolution? Virginia Tax Rev 41(2):149–222; D’Ascoli S, Scherr KM (2007)
The rule of prior exhaustion of local remedies in the international law doctrine and its application in
the specific context of human rights protection, EUI working papers law 2007/02. European
University Institute, Florence. Retrieved from http://ssrn.com/abstract¼964195; Klafter B (2005)
International commercial arbitration as appellate review: NAFTA’s Chapter 11, Exhaustion of local
remedies and rese judicata. UC Davis J Int Law Policy 12:409–437; and Cançado Trindade AA
(1983) The application of the rule of exhaustion of local remedies in international law: its rationale
in the international protection of individual rights. Cambridge University Press, Cambridge.
45 Applicable Law in Investment Arbitration 1125
for any infringement allegedly caused by the host State must first pursue the claims
in the host State’s jurisdiction. Only then, in case of a lack of redress, is the investor
allowed to start arbitral proceedings.
The rationale behind the investor-State arbitral proceeding choice is easy to
understand: it reflects a disbelief of the national judicial system. This disbelief has
a historical background: the first round of investment agreements was signed
between developed and developing countries, and the judicial systems within the
latter were not considered to abide by international principles of procedural law
such as the right of defense, the right to be heard, and the right to have a third and
impartial judge.
From this, the decision was derived to confer competence to hear disputes
(those precisely defined in the arbitral clause) upon an arbitral tribunal. Firstly,
arbitral tribunals operate outside of any legal system; suffice to say that they are
legitimized by the arbitral clause enacted in the investment treaty itself. Secondly,
they guarantee a procedure which abides by the international principles of proce-
dural law. In this regard, two options soon became available; namely, the arbitral
clause can refer either to ad hoc arbitration (applying the arbitral rules of pro-
cedures chosen in the arbitral clause, such as the UNCITRAL Model Law) or to
institutional mechanisms of dispute resolution (such as those provided by the
International Center for the Settlement of Investment Disputes (ICSID),
1959: “Hirsch M (1993) The arbitration mechanism of the international centre
for the settlement of investment disputes, (International arbitration law library).
Springer”). Frequently, an arbitral clause gives investors the choice to decide
between both options, the ad hoc and the institutional.
Along with rules of procedure, the arbitral clause confers upon the parties the
freedom to determine which law will regulate the dispute. This freedom has a very
strong implication when made available within investment proceedings. As men-
tioned above, arbitral tribunals are separate from legal systems; therefore, neither
national nor international provisions, to which the national system has adapted to,
are applicable, ex se, to the proceedings. The choice of law is then fundamental
because it can determine the outcome of the case.
Given the above, the issue of the applicable law in investor-State arbitration is not
a new one. During the last decades, both academics and arbitral case law have
debated on it. Namely, the debate has, for a long time, focused on the relationship
between the proper national and international law provisions to apply to the case.3
Recent praxis seems to have reinvigorated the debate, and, in fact, a third legal
system option is now applicable and is in competition with the other two, namely, the
European Union.
The new role played by the European Union within the investment field has
a historical background. In 2009, the Lisbon Treaty conferred, upon the EU,
3
See Barcelona Traction, Light and Power Limited (Belgium v. Spain), I.C.J. Judge Morelli,
separate opinion, 5 February 1970, Reports, 1970, 222, at 233.
1126 B. Cappiello
competence for foreign direct investments (FDI).4 As a consequence, the European

Union has been playing a leading role in substituting Member State investment
policies with a European one (the extra-EU BITs have not caused much concern).5
Conversely, the maintenance into force of the intra-EU BITs has raised much
debate.6 The debate is now over, with the Member States having reached an
agreement on a plurilateral treaty for the termination of all the approximately 190
intra-EU BITs.7
However, while the legal value of the intra-EU BITs is still uncertain, numerous
arbitral proceedings have been raised relating to their alleged infringement or to that
of the Energy Charter Treaty (ECT), signed by the EU, the Member States, and third
countries. The facts at stake have always been the same, and the key issue concerns
the relationship between the sources of law allegedly applicable to the pending
proceeding: European and international. Each arbitral tribunal has thus scrutinized
whether, according to the rules of the law applicable to the proceeding, it should
consider the European or the international law as the applicable law. This, in turn,
has meant, and still means, questioning whether or not European Union law applies
when the parties to the intra-EU BIT have not made an expression of choice of law.
In light of the above premises, this chapter aims to reopen the debate on the lex
applicable in investor-State arbitral proceedings, focusing on new doubts raised by
recent arbitral praxis. The next paragraph provides a general overview of the tools
used by the arbitral tribunal to determine the applicable law. In this regard, attention
will be paid to the applicable law provision enacted in both ad hoc and institutional
arbitral procedural rules (para 2). The analysis will then focus on ICSID Art. 42(1),
first alinea, examining the role of the arbitral tribunals in cases where parties have
expressed their optio legis (para.3). Then, this chapter will analyze Art. 42(1) second
alinea, scrutinizing how the old arbitral praxis was interpreted and applied. At the
beginning, the latter was used in a subsidiary way (para. 4). Then subsequent
paragraphs will retrace the evolution of interpretation after the decision in the
Wena Hotel annulment proceeding. Since then, a new praxis has evolved, aimed at
4
See Chaisse J (2012) Promises and pitfalls of the European Union Policy on foreign investment – how
will the new EU competence on FDI affect the emerging global regime? J Int Econ Law 15(1):51–84.
5
See Regulation (EU) No. 1219/2012 of the European Parliament and of the council of 12
December 2012 establishing transitional arrangements for bilateral investment agreements between
Member States and third countries, OJ L 351, 20 December 2012.
6
See Vienna Convention on the law of the treaties concluded in Vienna on 23 May 1969, UN doc. n.
18232, in United Nations Treaty series, at 331, available here: https://treaties.un.org/doc/publica
tion/unts/volume%201155/volume-1155-i-18232-english.pdf
7
The statement is available at the following link: https://ec.europa.eu/info/sites/info/files/business_
economy_euro/banking_and_finance/documents/191024-bilateral-investment-treaties_en.pdf; to
get a leaked version of the agreement, see http://arbitrationblog.kluwerarbitration.com/wp-con
tent/uploads/sites/48/2019/12/a-draft-agreement-has-been-leaked.pdf and Lavranos N (2019) The
EU Plurilateral Draft Termination Agreement for all intra-EU BITs: an end of the Post-Achmea
Saga and the Beginning of a new one, Kluwer arbitration blog, at http://arbitrationblog.kluwerar
bitration.com/2019/12/01/the-eu-plurilateral-draft-termination-agreement-for-all-intra-eu-bits-
an-end-of-the-post-achmea-saga-and-the-beginning-of-a-new-one/.
legitimizing the autonomy of international law (para. 5). The analysis will then focus
on the relationship with the corpora iuridica, which may be applicable in a dispute
arising out of an intra-EU BIT or out of the ECT. Special attention will be given to
the potential struggle between the contents of these two bodies of law (European and
international) where these are equally applicable. In this regard, two main questions
arise: firstly, whether or not a real conflict exists between international and European
provisions and, secondly, which law prevails for the host Member State involved.
This chapter will also question whether the European Union primauté applies to
international law (para.6), and the last paragraph will scrutinize how the EU is now
pursuing its external investment policy with third countries. Accordingly, this
chapter will examine the legitimacy of the arbitral clause included in new European
investment treaties. Reference will be made to the recent decision of the European
Court of Justice (ECJ) in the so-called Achmea case (C-284/18) along with the
Opinion 1/17 (para. 7). Some conclusions will finally be made (para.8).
The Role of Arbitral Tribunal in Determining the Law Applicable

to an Investor-State Arbitral Dispute
When a dispute arises out of an investment agreement and the claimant starts a
proceeding in front of an arbitral tribunal, either ad hoc or institutional, arbitrators have
the power to, firstly, recognize and confirm their competence and, secondly, to deal with
the issue of the applicable law. The determination of the applicable law is of fundamental
importance to an arbitral dispute since the law applied may affect the outcome of the
dispute. In fact, the law regulates how the obligations agreed on by the parties shall be
interpreted and performed. This determination depends on numerous factors.
Firstly, the arbitral tribunal has to understand the claims relevant to the pro-
ceedings. If they are contractual claims and the treaty enacts an umbrella clause,
arbitrators will scrutinize the contract signed by the investor and the host State.8
8
See Ben Hamida W (2006) La clause relative au respect des engagements dans les traités
d’investissement. In: Leben C, Nouvel Y, Nen Hamida W et al (eds) Le contentieux arbitral transnational
relatif à l’investissement. Pedone, Paris, pp 53–106, p. 53 ss.; Wälde T (2005) The Umbrella clause in
investment arbitration. A comment on original intentions and recent cases. J World Inv Trade 6:183–
236, p. 183; Crespi RZ (2009) Diritto internazionale e diritto interno nelle controversie sottoposte ad
arbitrato ICSID. RDIPP 1:5–44; Mauro MR (2004) ICSID-Comitato ad hoc di annullamento (K.D.
Kerameus Pres., A. Bucher, F. Orrego Vicuūna); decision 5 febbraio 2002, Caso Arb. N. 98/4; nella
controversia tra Wena Hotels LTD e Arab Republic of Egypt. Rivista dell’arbitrato 3:827–855;
Alexandrov SA (2006) Breaches of contract and breaches of treaty. The jurisdiction of treaty-based
arbitration tribunals to decide breach of contract claims in SGS v. Pakistan and SGS v. Philippines,
TDM 5. https://www.transnational-dispute-management.com/article.asp?key¼851. See Sinclair AC
(2004) The origins of the Umbrella clause in the international law of investment protection. Arb Int
4:411–434, p. 411; Gaillard E, Banifatemi Y (2010) The law applicable in investment treaty. In:
Yannaca-Small K (ed) Arbitration under international investment agreements: a guide to the key issues.
OUP, Oxford, pp 191–210. See also Moshe H. (1993), Gaillard (E.), 1991. To some case law praxis, see
Asian Agricultural Products Ltd. v. Democratic Socialist Republic of Sri Lanka, ICSID case n. ARB/87/
3, award of 27 June 1990; Generation Ukraine Inc. v. Ukraine, ICSID case n. ARB/00/9 award of 16
1128 B. Cappiello
▶ Chap. 16, “The Umbrella Revolution: State Contracts and Umbrella Clauses in
Contemporary Investment Law.” Frequently, contract claims do not raise much
concern, because the parties agree to subsume their contractual relationship to the
national law of the host State “Gill J, Gearing M, Birt G (2004) Contractual claims
and bilateral investment treaties: a comparative review of the SGS cases”. Besides,
in the case of treaty claims, arbitrators look at the arbitral clause enacted within the
treaty. On close scrutiny, the clause itself can be framed in two ways. It can include
an express choice of law made by the parties, or it can leave the choice up to the
arbitral tribunal. In this latter scenario, the international rules of arbitral procedure
instruct arbitrators on how to make their choice from among the available sources of
law. A few examples of the most frequently used arbitral clauses from both ad hoc
and institutional arbitral procedures might be of help in this regard.
The UNCITRAL arbitral rules of procedure provide, in Art. 35.1, that the
arbitrator “shall apply the rules of law designated by the parties [. . . ] Failing such
designation by the parties, the arbitral tribunal shall apply the law which it deter-
mines to be appropriate”.9 As such, both parties and arbitrators have the freedom to
decide which law to apply. The former are free to decide from among all the “rules of
law” available. This means that parties can pick from both national law provisions
and rules of law which are separate from any national legal system (such as the lex
mercatoria10). In the absence of either party’s choice, arbitrators can choose from
among the sources of law they deem more appropriate to the controversy.
Regarding institutional arbitral mechanisms, the first to mention is the ICSID
Convention Art. 42(1), according to which “the Tribunal shall decide a dispute in
accordance with such rules of law as may be agreed by the parties. In the absence of
such agreement, the Tribunal shall apply the law of the Contracting State party to the
dispute (including its rules on the conflict of laws) and such rules of international law
as may be applicable”.11 Art. 42(1) distinguishes between two scenarios: On one
side, the parties explicitly decide the rules of law that the arbitrator will be bound to
apply. On the other hand, Art. 42(1) acknowledges that, absent any choice, the
arbitral tribunal will apply the law of the State party to the dispute.
Analogous freedom to choose from among rules of law is also embraced by other
arbitral rules of procedures enacted within institutional arbitral mechanisms. Refer-
ence is made to Art. 21 of the International Chamber of Commerce arbitration rules
September 2003; CMS Gas Transmission Co. v. Argentine Republic, ICSID case ARB/01/8, award of
12 May 2005; and Vivendi Universal v. Argentine Republic, ICSID case n. ARB97/3, award of 21
November 2000.
9
United Nation Commission on International Trade Law, UNCITRAL Arbitration rules, 15 August
2010 (revised)
10
Boschiero N (2005) La lex mercatoria nell’era della globalizzazione. Considerazioni di diritto
internazionale pubblico e privato. Sociologia del diritto 2–3:85–158; Konradi W, Fix-Fierro H
(2005) Lex mercatoria in the mirror of empirical research. Sociologia del diritto 2–3:205–228;
Marrella F. (2003)
11
See the International Centre for the Settlement of Investment Disputes (ICSID) Convention
Arbitration Rules, 1 January 1968, Art. 42(1).
according to which “the parties shall be free to agree upon the rules of law to be
applied. In the absence of any such agreement, the arbitral tribunal apply the rules of
law which it determines to be appropriate”.12 Also, Art. 27 of the Stockholm
Chamber of Commerce arbitral rules of procedures states that “the Arbitral Tribunal
shall decide the merits of the dispute on the basis of the law(s) or rules of law agreed
upon by the parties. In the absence of such agreement, the Arbitral Tribunal shall
apply the law or rules of law that it considers most appropriate”.13 In both cases,
absent any explicit choice of law, arbitrators are free to determine the law they deem
appropriate in order to solve the dispute.
According to the above provisions, in case a dispute arises out of an intra-EU BIT,
European Union law can also be invoked, as either the law chosen directly by the
parties or applied as part of the national or the international law that arbitrators deem
appropriate. This second option is possible because of the “multisided” nature of the
European Union: it forms a part of both Member States’ national laws and interna-
tional laws. Indeed, the European Union is grounded in the so-called fundamental
treaties, which are international treaties. More precisely, the European Union can be
described as “an ordre juridique d’origine internationale”.14
Besides, there are also some international treaties which include an arbitral clause.
Accordingly, they provide a procedural framework within which any dispute between
the parties has to be decided. The North American Free Trade Agreement (NAFTA)
provides in Art. 1131 that “A tribunal established under this Section shall decide the
issues in dispute in accordance with this agreement and applicable rules of international
law”; the second paragraph also makes clear that any interpretation on the agreement
provided by the Commission on Free Trade “shall bind the Tribunal”.15 This provision
certainly reduces arbitral freedom of interpretation as arbitrators are bound to apply
NAFTA substantive provisions, as interpreted by the Commission (along with any
applicable international rules). However, a uniform interpretation increases the chance
of having the same factual situation decided in the same way which, in turn, reduces the
need to determine the correct interpretation of the treaty or law to be applied.
With regard to other experiments of regionalization, it is interesting that the new
European investment agreements do include an arbitral clause.16 Regarding the
applicable law, the Comprehensive Economic Trade Agreement (CETA) signed
between Europe, the Member States, and Canada and now under provisional appli-
cation provides, in Art. 8.31, that “1. the Tribunal shall apply this Agreement as
12
ICC Rules of Arbitration, ICC, 1 March 2017 (revised)
13
Stockholm Chamber of Commerce, Arbitration Rules, 2017 (revised)
14
Kadi e Al Baraakat International Foundation v. the Council and the Commission, ECJ in cases C-
402/05 & C-425/05, Opionion of AG P. Maduro, 16 January 2008, ECLI:EU:C:2008:11, para. 21.
Cfr. D. Alland D (2001) Le juge français et le droit d’origine international. In: Dupuy J-M (ed) Droit
international et droit interne dans la jurisprudence comparée du Conseil constitutionnel et du
Conseil d’État. Pedone, Paris, pp. 47–59
15
North America Free Trade Agreement, signed 17 December 1992, Ch. 11
16
Glenn P. (2001), p. 1789; Bauman Z (2000) Globalization, the human consequences. Columbia
University Press, New York
1130 B. Cappiello
interpreted in accordance with the Vienna Convention on the Law of Treaties, and
other rules and principles of international law applicable between the Parties”.17
Lastly, it is worth mentioning the arbitral clause framed in Art. 26 of the ECT,
according to which “a tribunal established [. . .] shall decide the issues in dispute in
accordance with this Treaty and applicable rules and principles of international
law”.18
As with the NAFTA and the CETA, the ECT also includes substantive provisions
applicable to disputes, thus reducing the parties’ freedom to refer to other sources of
law. Only in case of need may international law and principles become of any
relevance. Interestingly to note, arbitral provisions, such as those enacted within
the abovementioned multilateral investment treaties, introduce a certain dialogue
between particular laws (enacted within the treaty itself) and general ones (the
international law provisions potentially relevant to the case). The combination of
these two sources of law renders the host State’s national law useless. Conferring
such a residual role (or even none) upon the host State’s national law also implies an
indirect harmonization of decisions taken.19 In fact, all analogous claims will be
scrutinized with the same substantive provisions, while national law will be men-
tioned only as a fact. The basic requirement for this type of intransitive, or informal,
harmonization in law is “effectuating as understanding of different legal concepts”.20
ICSID Art. 42(1) or the Relationship between International and

National Laws: The Optio Legis
From the analysis so far developed, it seems that despite some slight differences, all
arbitral rules of procedure confer, upon the arbitral tribunal, the duty to follow
parties’ choice or, in the absence of this, the power to freely make their own.
This and the following paragraph focus on the functioning of ICSID Art. 42(1)
first and second alinea. This provision has indeed raised much debate on the
relationship between international and national laws which may be applicable to
the dispute. This issue has interested both academics and arbitral case law, but
neither has yet found a definitive answer. The debate should now be reopened
because the role potentially played by European Union law should be scrutinized
in both scenarios: in the case of an express choice of law by the parties or absent this.
17
See Comprehensive Economic and Trade Agreement (CETA) between Canada and the European
Union and its Member States, signed on 16 October 2016, since 21 September 2017, under
provisional application, available at http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_
152806.pdf
18
See Energy Charter Treaty of 17 December 1994, available at https://www.energycharter.org/
fileadmin/DocumentsMedia/Legal/IEC_EN.pdf
19
Glenn P (2001), p. 1793
20
David R (1968) The methods of unification, and for further discussion of this theme. Am J Comp
Law 16:13–27, p 15
Art. 42(1) first alinea deals with the case where parties have expressed their
choice of law. Parties’ freedom is broad, given that they can pick from the rules of
law as they prefer. Plus, the provision does not require that the parties’ agreement has
to be expressed and in written form. Interestingly to note, during the drafting of the
ICISD, the Convention Committee highlighted that a tribunal could be bound to
apply the rules of law which derive by an implicit agreement which could be
deduced from the facts and circumstances of the relationship between the parties.21
Following a literal interpretation of the provision, the application of European
Union law should not be in doubt. In fact, academics and case law unanimously
conclude that the expression “rules of laws” (which is found in the English version22
and not “laws”) confers upon the parties the right to refer to non-State rules also. This
means that it is sufficient that the parties choose rules which are enacted within either
a judicial legal system (the European Union) or a social group (lex mercatoria).
However, the role of the European Union may change depending on how the
arbitral tribunal interprets the parties’ choice of law. It suffices here to recall the Duke
Energy v. Ecuador award where the arbitral tribunal reasoned on how broadly it had
to interpret the optio legis made by the parties. Indeed, the clause included in the
investment agreement stated that the arbitral tribunal would determine the invest-
ment dispute “under the laws of Ecuador and the applicable principles of interna-
tional law [. . .] the standard of review being based on the terms of the BIT.23 The
question was whether or not the parties, when deciding that the principles of
international law were applicable to the dispute, meant to include the BIT provisions
too.24 This doubt was legitimate because the investment treaty’s praxis counts
numerous BITs in which the arbitral clause clearly states that the BIT provisions
are applicable along with “the principles of international law”25 or “the applicable
rules of international law”.26 The BIT in the Duke Energy case did not include such a
stipulation; therefore, the arbitral tribunal considered whether or not it should apply
the BIT provisions to determine whether they were breached by the State measure
allegedly impairing investors’ rights. If used as a standard of review, the BIT
21
Convention on the settlement of investment disputes between States and nationals of other States,
documents concerning the origin and the formulation of the convention, Vol. II, Part 1, ICSID
publication (2009), at. 570
22
The Spanish version repeats verbatim the English one, referring to aquellas normas de derecho
international, while the French formulation raises confusion, referring to les principes de droit
international en la matière.
23
Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID case no.
ARB/04/19, Award, 18 August 2008, par. 191
24
Gaillard E, Banifatemi Y (2003) The meaning of “and” in Article 42(1), Second Sentence, of the
Washington Convention: the role of international law in the ICSID choice of law process. ICSID
Rev 2:375–411
25
See the BITs of Argentina, Belgium, Luxembourg, Chile, China, Costa Rica, Ecuador, and Spain
(the BIT with Mexico is excluded).
26
See the BITs signed between Canada and Armenia, Barbados, Croatia, Ecuador, Egypt, Latvia,
Lebanon, Panama, the Philippines, South Africa, Romania, Trinidad and Tobago, Ukraine, and
Venezuela.
1132 B. Cappiello
provisions might have led the arbitral tribunal to question whether the measure
abided by the substantive provisions of the BIT interpreted and applied in line
with international law. Vice versa, BIT provisions would have been applied “only
as the substantive framework for the resolution of the dispute”.27
Given this scenario, the arbitral tribunal decided that a double scrutiny was
required. Firstly, the State’s measure was to be read together with the host State’s
national law (and whether this was legitimate or not); then, in case of a positive
answer, the arbitral tribunal would have to decide whether the measure was in line
with, for instance, the standard of treatment as provided in the BIT. Therefore, the
provisions included in the BIT were deemed to be part of the international rules
referred to in the arbitral clause. The arbitral tribunal’s finding seems reasonable
given that it treats the BIT as a truly international source of law which might also
include some international principles of law.28
Given this, in a case where a dispute arises out of an intra-EU BIT, the decision to
apply the BIT’s substantive provisions as a standard of review might preclude
European Union law application because the BITs provisions will be interpreted
and applied according to international law. This also precludes the application of the
European standard of protection, which could be applicable if the arbitrators decided
to apply international law.
Follow. . . ICSID, Art, 42(1) Second Alinea: The Choice of Law
ICSID Convention Art. 42(1) second alinea works as a choice of law clause given
that it confers upon the arbitral tribunal the power to determine the law to apply.
The provision was originally drafted as Art. 35.1 UNCITRAL arbitral rules of
procedures and conferred upon the arbitrators the right to “decide the dispute [. . .]
in accordance with such rules of law, whether national or international, as it shall
determine to be applicable”.29 Such an open formula was framed in the first ICSID
Convention draft where the version of the arbitral clause mentioned that Art. 38 of
the Statute of the International Court of Justice was a tool to be used to find the
applicable law.
However, while negotiating the final version of the ICSID Convention, a major
political change occurred, and the version that it is now in force was accepted.
27
See Duke Energy Electroquil Partners and Electroquil S.A. v. Republic of Ecuador, quoted,
par. 196.
28
See Schreuer C (2011) Investment, International protection. Max Planck encyclopedia of international
law, p1–112. Retrieved from https://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-
9780199231690-e1533, and Reinisch A (ed) (2008) Standards of Investment Protection. OUP, Oxford.
29
Working Paper in the form of a Draft Convention (5 June 1962) in Convention on the Settlement of
Investment Disputes Between States and Nationals of Other States: Analysis of Documents
Concerning the Origin and the Formulation of the Convention 19, 21 International Center for
Settlement of Investment Disputes 1968
Contrary to the “original” version, the one now in force represents a “compro-
mise”.30 It reduces the arbitral tribunal’s power to determine the applicable law while
preserving its freedom to apply international law. In fact, Art. 42(1) second alinea
sets boundaries while identifying the set of laws within which arbitrators are required
to make their choice.
Given this, the interpretation and application of Art. 42(1) second alinea raises
much concern because the relationship between the host State’s law and the inter-
national law is unclear. Namely, it is still much debated whether the two corpora
iuridica are applicable together or as alternatives or whether one plays a primary role
over the other.
The issue is easy to understand because it derives from the wording of the
Convention itself: according to Art. 42(1) ICSID, in the absence of any express
choice of law, the arbitrators apply the contracting parties’ national law and inter-
national law. However, it is not clear what role the Convention’s committee had in
mind for international law. Since the early stages of the Convention’s application, it
was unclear whether arbitrators could decide to apply international law alone,
instead of the host State’s national law, or whether they were bound to limit the
application of international law. Given this uncertainty, earlier arbitral case law
praxis applied international law only in a limited way.
Namely, the decision of the ad hoc Committee in the Klöckner v. Republic of
Cameroon annulment proceeding gave birth to the theory that international law
could play only a supplementary or a corrective role with respect to national law.
In detail, in the Klöckner annulment decision, the ad hoc Committee was required
to understand whether or not the arbitral tribunal had manifestly exceeded its power
when choosing the law to apply. Indeed, the arbitral tribunal had applied “other
national codes” along with “the universal requirements of frankness and loyalty”.31
While questioning the legitimacy of the application of these principles of interna-
tional law, the ad hoc Committee also highlighted that Art. 42(1) second alinea
legitimized the application of international principles of law conferring them: “a
twofold role, that is, complementary (in the case of a “lacuna“ in the law of the
State), or corrective, should the State’s law not conform on all points to the principles
of international law. In both cases, the arbitrators may have recourse to the “princi-
ples of international law“ only after having inquired into and established the content
of the law of the State party to the dispute and after having applied the relevant rules
of the State’s law ”.32 According to the ad hoc Committee, the arbitral tribunal had
correctly applied the above sources of law, given that they were part of the “general
30
See Broches A (1967) The convention on the settlement of investment disputes between states and
nationals of other states: applicable law and default procedure in Sanders P (ed) International
arbitration: Liber Amicorum for Martin Domke. Martinus Nijhoff, The Hague, pp 179–187, at 16.
31
See Klöckner v. United Republic of Cameroon, ICSID case ARB/81/2, decision of the ad hoc
Committee in the annulment procedure, 21 October 1983, para 66.
32
Id. para 61
1134 B. Cappiello
principles of law recognized by civilized nations”.33 Since then, arbitrators have

conferred a residual role upon international law.
In more detail, international law is used in a supplementary way when arbitrators
decide to apply national law as the proper law, but they find that the latter has a lacuna.
However, this approach seems to be grounded on a false premise for two reasons.
Firstly, international law cannot be used to fill all, alleged, gaps of the national legal
system involved – if the latter does not provide any remedies for a certain act or
measure, this does not necessarily represent a lacuna. On the contrary, it might reflect
the State’s choice not to regulate a certain matter.34 Secondly, the lacuna only truly
exists if there is a socio-legal lag35 when, for instance, the State is ready, or is about, to
regulate a certain matter but it has not enacted any regulations yet. Given this case,
national legal systems do frequently have general principles and customary provisions
to cover legal positions not yet regulated by a specific domestic provision. Therefore,
even in the case of an alleged lacuna, arbitrators should first scrutinize whether the
relevant matter is otherwise provided for within the domestic legal framework itself.
Then, only in the case of a negative answer should the arbitrators look at international
law. This line of reasoning is grounded in legal logic; however, it confers a wide
discretion upon the arbitrator. In practice, international law will be applied in a
supplementary way depending on how thoroughly arbitrators have scrutinized the
national legal system.36 This means that international law is applicable only if
arbitrators have not found any domestic principles to fill the gap, notwithstanding
how closely arbitrators have scrutinized the domestic legal system.
In addition, a general consideration seems unavoidable: if international law is
used to fill a national legal system gap, arbitrators might find the host State in breach
of an international law provision. The result would be that national and international
law would then be interchangeable. But this is not the case. As a matter of principle,
national and international provisions have two distinct ambits of application:
national law regulates interindividual relationships, while international law regulates
States as sovereign entities governing the international community. In cases where
arbitrators apply the national law only, they will not question the international
responsibility of the State, and this will be the case even where State international
responsibility exists. As such, the alleged supplementary role of international law, as
left to arbitral discretion, should be avoided.
Besides, international law is allegedly playing a corrective role when the appli-
cation of national law turns out to be in conflict with a principle of international law.
This interpretation relies on an early interpretation of ICSID Convention Art. 42(1)
33
Id. para 69
34
Weil P (2000) The state, the foreign investor, and international law: the no longer stormy
relationship of a Menage A Trois, ICSID Rev 15- FILJ401
35
Reisman WM (2000) The regime for Lacunae in the ICSID choice of law provision and the
question of its threshold. ICSID Rev 15:362–382, p 371
36
See Qian X (2020) Rethinking judicial discretion in international adjudication. Connecticut J Int
Law 35(2):251–310.
(then Art. 45) provided by the Convention Committee working on the ICSID
travaux: “the laws of the host country would be of primary importance and that
international law itself would in the first place refer to them”.37 According to the
Committee, arbitrators should first apply domestic law; secondly, domestic law had
to be tested against international law. If the result was a conflict with international
law, then the former could not be applied.
This conclusion is not convincing. In fact, the ICSID Convention should be
interpreted according to the relevant international law provisions; namely, Art. 31
of VCLT States that a “treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the contract.” Only in the case of an
obscure result might one recur to the supplementary means of interpretation referred
in Art. 32 VCLT. Given the clear wording of Art. 42(1), the need to return to the
history of the ICSID Convention to interpret it is doubtful. Instead, one should
question when the domestic law provision applicable to a dispute will result in a
conflict with a principle of international law, so making international law applicable
in a corrective way.
If one follows a broad interpretation of conflict, Art. 42(1) ICSID would be
deprived of any meaning because such an interpretation would make international
law applicable only at the arbitrator’s discretion. Therefore, a clear distinction
between what is a conflict and what is a difference between an international and a
domestic provision is much needed. The ICSID committee clearly had in mind the
set of provisions that could not be infringed by domestic law application. While
negotiating an early draft of the Convention, reference was made to Art. 53 of the
VCLT.38 According to this, a conflict exists only when the application of a national
law results in a contrast with an international provision of jus cogens.39 However,
this rule does not provide a practical example; it has merely a prescriptive nature
(that a treaty is void when it conflicts with a provision of international law). The
International Law Commission (ILC), in the commentary on the Vienna Convention
draft articles, refused to make a list of jus cogens rules. According to the ILC, “the
full content of this rule [the jus cogens ones] is to be worked out in State practice and
in jurisprudence of international tribunal [. . .].” No specification is then needed ex
ante because “first, the mention of some cases of treaties for conflict with a rule of jus
cogens might, even with the most careful drafting, lead to misunderstanding as to the
position concerning other cases not mentioned in the article. Secondly, if the
37
See the Summary Proceedings of the Legal Committee Meeting, 7 December, in 2 ICSID
Documents, p. 804.
38
Villiger ME (2009) Peremptory Norm of general international law (Jus cogens). In: Villiger ME
(ed) Commentary on the 1969 Vienna Convention on the Law of Treaties. Brill, London, pp. 661–
678, pp 661
39
Veedross A (1966) Jus dispositivum and jus cogens in international law. Am J Int Law 60:55–63.
See Kolb R (2015) Peremptory international law. Jus cogens. A general inventory. Hart Publishing,
Oxford; Villiger ME (2009) Peremptory Norm of general international law (Jus cogens). In: Villiger
ME (ed) Commentary on the 1969 Vienna Convention on the Law of Treaties. Brill, London, pp.
661–678;
1136 B. Cappiello
commission were to attempt to draw up [. . .] a list of the rules of international law

which are to be regarded as having the character of jus cogens, it might find engaged
in a prolonged study.”40 Absent any further indication, one has to adapt the ILC
reasoning to Art. 42(1) second alinea. As a consequence, the conclusion can be
reached that the arbitral tribunals receive their power from an international treaty (the
investment ones). As such, they are organs of international law, and they cannot
apply any domestic law provision which results in a contrast with a fundamental
value protected within the international community ▶ Chap. 84, “Public Interest and
International Investment Law: A Critical Perspective on Three Mainstream
Narratives.”
With regard to the early arbitral praxis, for a long time after the Klöckner
annulment decision, arbitral tribunals applied international law in an either supple-
mentary or corrective way, without even distinguishing between contracts and treaty
claims, which require different treatment.41
This reference to previous decisions proves also that the doctrine of precedent
plays a role within the arbitral praxis.42 Even if ICISID arbitral tribunals are not
bound by other decisions, they often do, in practice, rely on precedent.43
From the above, it can be derived that the use of international law in a supplementary
or corrective way has a purely jurisprudential nature and, as already stated, has no legal
basis: neither in the wording of Art. 42(1) nor in the travaux of the Convention.44
This leads to the conclusion that for a long time, ICSID Art. 42(1) has been
improperly interpreted, following the interpretation given by the Convention Com-
mittee and later confirmed in early case law.
ICSID Case Law: From Klöckner to Wena Hotels V. Egypt
The jurisprudential approach toward the interpretation of Art. 42(1) second alinea
was first eroded by the ICSID tribunal in Siemens AG v. Argentine Republic, when
the arbitral tribunal refused to consider that international law played, in the alterna-
tive, a supplementary or a corrective role.45 According to the tribunal, given that the
case arose out of the alleged treaty infringement committed by Argentina, “the
Tribunal’s inquiry is governed by the [ICSID] Convention, by the [BIT] and by
applicable international law. Argentina’s domestic law constitutes evidence of the
40
See United Nations Conference on the Law of the Treaties, Official Records, Documents of the
Conference, 67–68, UN Doc. A/CONF.39/11/Add.2 (1971).
41
See supra note 7. See Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case
No. ARB/81/1, Decision on the Application for Annulment, 16 May 1986.
42
Schreuer C, Weiniger M (2008) A doctrine of precedent. In: Muchlinski P, Ortino F, Schreuer C
(eds) The Oxford handbook of international investment law. Oxford Handbooks, Oxford, pp 1189–
1205, p 1191
43
See Letco v. Liberia, Awards, 31 March 1986, 2 ICSID Reports 1986, 352.
44
See supra note n. 7.
45
Siemens AG v. Argentine Republic, ICSID case n. ARB/02/8, award of 6 February 2007
measures taken by Argentina and of Argentina’s conduct in relation to its commit-

ments under the [BIT]”.46
Afterward, this line of reasoning was also embraced by the ad hoc Committee in
Wena Hotels LTD v. the Arab Republic of Egypt annulment proceeding. In this case,
the ad hoc Committee stated that “[art.42.1] allowed for both [domestic and inter-
national] legal orders to have a role. The law of the host State can indeed be applied
in conjunction with international law if this is justified. So too international law can
be applied by itself if the appropriate rule is found in this other ambit”.47
The rationale behind the decision is easy to understand. One of the grounds for
requesting the annulment concerned the manifest excess of power used by the
arbitral tribunal. In actual fact, the failure to apply the proper law may constitute a
manifest excess of power. In this case, according to the applicant, the arbitral
tribunal had failed to apply international law as the primary law (namely, the
agreement for the promotion and protection of investments signed between the
United Kingdom (the investor home State) and Egypt). The ad hoc Committee
rejected the applicant’s request as, according to the ad hoc Committee, the arbitral
tribunal’s finding on the wording of ICSID Art. 42(1) was to be followed. “Gaillard
E (2002) Landmark in ICSID arbitration: committee decision in Wena Hotels. New
York Law J 227:3–15; Gill J, Gearing M, Birt G (2004) Contractual claims and
bilateral investment treaties: a comparative review of the SGS cases”. The use of
may, along with the conjunction and, leads to two concurrent options for applica-
tion: either national and international rules are applied in tandem or they are
applied autonomously. Therefore, international rules can too be considered as a
set of autonomous rules which may supersede national law. There can also be cases
where the arbitral tribunal finds both a national and an international law provision
equally applicable; then, it is up to the arbitral tribunal itself to decide to apply the
latter as the proper law, without the need for any further justification. According to
this, in the Wena Hotel annulment proceeding, Art. 42(1) ICSID was interpreted
and applied as never before.
In fact, for the first time, an ICSID ad hoc Committee had acknowledged that its
scrutiny could actually trigger the host State’s international responsibility, notwith-
standing the fact that a measure abides by the host State’s domestic provisions. In
other words, an “expropriatory” measure can be allowed by national law while at the
same time infringing a provision on expropriation in the relevant investment agree-
ment. It is needless to recall that investment treaties have an international nature;
therefore, one could also argue that international law might be applied as the proper
law, notwithstanding Art. 42(1) ICSID. Indeed, Art. 3 of the Draft Articles on the
Responsibility of States for Internationally Wrongful Acts states that “The charac-
terization of an act of a State as internationally wrongful is governed by international
law. Such characterization is not affected by the characterization of the same act as
46
Id. 78
47
Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID case n. 98/4, award of 8 December 2000
1138 B. Cappiello
lawful by internal law”.48 Therefore, to qualify as an act committed by a State toward

a foreign investor, the international law should apply proprio vigore, notwithstand-
ing how the national law concerned interprets it.
Some scholars have strongly opposed the conclusion reached by the Wena ad hoc
Committee on the assumption that it did not consider the amendment made by the
Convention Committee between the early and the final drafts of the convention. In
fact, the final version of Art. 42(1) ICSID drastically reduced arbitral tribunal
freedom to determine which law to apply. The early draft provided that the “arbitral
tribunal shall decide the dispute submitted to it in accordance with such rules of law,
whether national or international, as it shall determine to be applicable” as already
mentioned; the final version changed slightly, stating that “the Tribunal shall apply the
law of the contracting State party to the dispute [. . .] and such rules of international law
as may be applicable.” Clearly, the first draft conferred much more discretion upon
arbitral tribunals; however, it is clear too that the final version still leaves it up to the
tribunal to determine whether, and to what extent, international law shall apply.
In this regard, the finding of the ad hoc Committee is of much interest because it
has made the relationship clear between the national and international laws that is
potentially applicable to investor-State disputes. Namely, the arbitral tribunal is
allowed to determine the applicable law on a case-by-case basis, having also regard
to the nature of claims. In the case of treaty claims, and in the absence of any optio
legis, the tribunal can therefore apply international law as the proper law.
In acknowledging the primary role of international law, the ad hoc Committee
also implicitly acknowledged that investment treaties do create an autonomous legal
system which does not exist in a vacuum but is linked to the international and
national legal systems.
Accordingly, all arbitral tribunals have to clearly distinguish between the host
State and the investor position as derived out of the investment agreement. With
regard to the former, the arbitral tribunal has to scrutinize the host State obligations,
bearing in mind that they derive out of the investment treaty and have an interna-
tional nature. With regard to the latter, arbitrators have to consider that the invest-
ment treaty’s legal system confers an active position upon the private investor toward
the host State. Foreign investors do indeed have the power to seek protection against
host State wrongdoing through the arbitral proceeding. As a consequence, it might
be argued that ICSID Art. 42(1) has a residual role to give evidence of the investor’s
juridical position toward the host State. In this scenario, the foreign investor seems to
be in a similar position (or even equal) to that of any European economic operator.
Indeed, the EU legal system provides that its provisions are directly applicable to
both the national and the administrative Member State courts. Therefore, before
these courts, individuals are allowed to seek protection for any Member State’s
48
See UN, Draft Articles on the Responsibility of States for Internationally Wrongful Acts with
commentaries, doc. A/56/10, in Yearbooks of the International Law Commission 2001, vol. II, Part
Two. See Crawford J., p. 103 ss., and Ago R (1971) Troisieme rapport sur la responsabilite´ des Etats.
Annuaire de la Commission du Droit International II, 1e’re partie: 209 ss, par. 60 ss. et 86 ss.
alleged infringement of an EU provision. Investment treaties confer an equal pre-

rogative upon investors who are allowed to bring a claim against the host State
directly in front of the arbitral tribunal, even if the relevant source of law was agreed
upon between the host State and the investor home State.49
The (Possible) Coordination of International and European Law:

The Arbitral Praxis on Intra-EU BITs
The Lisbon Treaty entered into force in 2009 amending, among others, Art. 207 of
TFEU. The new version of the article also conferred, upon the members of the
European Union’s Common Commercial Policy (CCP), competence for foreign
direct investments (FDI).50 According to Art. 3(1) TFEU, therefore, the EU has
exclusive competence for CCP, and, since 2009, the EU has started to shape its own
policy on FDI, working on two-level fields: on one side, the EU has tackled the issue
of both the extra- and the intra-EU BITs already in force; on the other, the EU has
opened negotiations for concluding investment agreements with third countries in a
mixed51 or in a bilateral way.
The main issue that has been tackled has concerned the legitimacy of the arbitral
clause. Accordingly, maintaining the arbitral clause, within the intra-EU BITs, has
been questioned. In parallel, doubts have been raised regarding the opportunity to
include an arbitral clause within the new EU trade and investment agreements.
The reason behind the EU’s hostile approach toward the investor-State arbitral
proceedings is clear: EU law interpretation and application is an ECJ prerogative
(see Art. 252 ss. TFEU). Therefore, any potential arbitral tribunal’s scrutiny of EU
law should be avoided or, at least, made compatible with the ECJ prerogative.
49
Crespi RZ (2009) Diritto internazionale e diritto interno nelle controversie sottoposte ad arbitrato
ICSID. RDIPP 1:5–44, p. 24; Rigaux M (1982) Contrats d’Etat et arbitrage international in: Le
droits des relations économiques international- Études offertes à Berthold Goldman, Litec, Paris, pp
269–290, p. 504
50
See Dr. G. . .. v. German Bundestag, Bundesverfassungsgericht, in case 2BvE 2/08, decision of 30
Jun 2009 (https://www.bundesverfassungsgericht.de/SharedDocs/Downloads/EN/2009/06/
es20090630_2bve000208en.pdf?__blob¼publicationFile&v¼1); Meunier S (2016) Integration
by stealth: how the European Union gained competence over foreign direct investment, Paper
from the 7th annual conference on the political economy of international organizations, Princeton;
Mola L (2010) Which role for the EU in the development of international investment law? Paper
presented at the society of international economic law, inaugural conference; Leczykiewicz D
(2005) Common Commercial policy: the expanding competence of the European Union in the
Area of international trade. German Law J 6:1673–1685; and Puig V (2013) The scope of the new
exclusive competence of the European Union with Regard to ‘Foreign direct investment’. Legal Iss
Econ Integr 2:133–162
51
Neframi E (2011) International responsibility and mixed agreements. In: Cannizzaro E (ed) The
European union as an actor in international relations. Kluwer Law International, The Hague, pp
193–206; Kujper PJ (1995) The conclusion and implementation of the Uruguay round results by the
European Community. Eur J Int Law 1:222–244; Stein E (1990) External relations of the European
community: structure and process. Collected Course Acad Eur Law 1:115–188, at 162
1140 B. Cappiello
The next paragraph will deal with the intra-EU BITs, leaving the issue concerning
the new European trade and investment agreements to the proceeding one.
With regard to the intra-EU BITs, the Member States agreed, in October 2019, on a
plurilateral treaty for the termination of bilateral investment treaties (BITs).52 This treaty
is the result of almost a decade of debate on the legitimacy of maintaining the intra-EU
BITs already in force. The treaty’s aim is to coordinate the termination of the intra-EU
BITs without unduly impairing foreign investors and also provides some specific pro-
visions with regard to pending, or already initiated, arbitral proceedings.
In fact, since 2009, the intra-EU BITs have been the object of numerous arbitral
proceedings. In addition, EU investors have raised arbitral proceedings against a
Member State for alleged infringement of the ECT’ investment chapter.53
In both scenarios, the facts have been almost the same: the investor has claimed
that its investment has been impaired by a measure enacted by the host State. While
the latter, being both the host and a Member State, has replied that it has acted in
accordance with an EU obligation. If one assumes the European Union perspective,
the relationship between international and European laws should mirror the one
existing between the EU and its Member States ▶ Chap. 62, “General International
Law and International Investment Law: A Systematic Analysis of Interactions in
Arbitral Practice” it has to be read in the light of the theory of limits and counter-
limits.54 As such, international law enters the European Union system provided its
provisions abide by the European public order.55 In other words, international law
must abide by the “very foundations of the Community legal order”.56 This
52
See supra note 6.
53
Tietje C (2008a) The status of International Law in the European legal order: the case of
International Treaties and non-binding international instrument. In: Wouters J, Nollkaemper A, de
Wet E (eds) The Europeanization of International Law: the status of international Law in the EU and
its member states. Kluwer Law International, The Hague, pp 55–85
54
Eeckhout P (2011) EU External Relations Law. Oxford University Press, Oxford, p. 435; von
Bogdandy A, Kottman M, Antphöler C et al (2012) Reverse Solange – protecting the essence of
fundamental rights against EU Member States. Common Market Law Rev 3:489–520
55
See Kadi e Al Barakaat International Foundation v. Council and the Commission, ECJ in cases C-
402/05 & C-425/05, judgement of 3 September 2008, ECLI:EU:C:2008:461, par. 285. See also
Wessel RA (2011) General issues: monism, dualism and the European legal order reconsidering the
relationship between international and EU Law. In: Cannizzaro E, Palchetti P, Wessel RA (eds)
International law as law of the European union. Martinus Nijhoff, Leiden, pp 5–33; Gaja G (2009)
Are the effects of the UN Charter under the EC Law governed by article 307 of the EC Treaty?, EU
Working Paper: 5–9; and Tietje C (2008b) The Applicability of the Energy Charter Treaty in ICSID
Arbitration of EU Nationals vs. EU Member States, Institute of economic law, transnational
economic law research center (TELC).
56
See the opinion delivered pursuant to the second subparagraph of Article 228 (1) of the Treaty -
draft agreement between the Community, on the one hand, and the countries of the European Free
Trade Association, on the other, relating to the creation of the European Economic Area, ECJ
Opinion delivered in case C-1/91on 14 December 1991, ECLI:EU:C:1991:490. See also ERT, ECJ
decision in case C-260/89, of 18 June 1982, ECLI:EU:C:1991:254; Schmidberger, ECJ decision in
case C-112/00 of 12 June 2003, ECLI:EU:C:2003:33; and Omega Spielhallen, ECJ decision in case
C-36/02 of 14 October 2004, ECLI:EU:C:2004:614.
conclusion changes if we adopt the Member State’s perspective. Given that all
Member States are bound to comply with European law as well as with their interna-
tional obligations, it is essential to understand what rank the provisions assume within
the domestic legal system.57 In fact, European law primauté and, as the case may be, its
direct application operate only toward Member State national law.58
However, the content of the two provisions at stake (one enacted in the invest-
ment treaty and the other in the European legal system) might be in alleged conflict
and have equal rank within domestic sources of law.59
In all the proceedings so far mentioned, the arbitral tribunals have concluded that
the Member State measure infringed the BIT or the ECT provision, regardless of
whether or not the measure enacted by the State complied with an EU obligation
itself. In other words, the legitimacy of the State measure with European Union law
has not even been taken into consideration.
What is of interest, in the present analysis, is how arbitral tribunals have reasoned
on the lex applicable issue and therefore on the role that the EU should have played.
Firstly, it should be highlighted that arbitrators have never directly applied EU law.
Instead, they have focused on the possible application of the European Union
provision as part of either the national or the international legal system. In fact, at
least from a theoretical perspective, European law provisions could be applied in
both scenarios. However, the praxis has shown that applying provisions as part of the
international or the national legal system produces different legal effects.
With regard to the former, when European law applies as part of international law,
its application has the same boundary as that referred above regarding the possible
application of national law: namely, the European Union provisions must abide by
the principles of international law.60 This boundary can be easily understood because
the European legal system is subject to all the rules that apply to the international
legal system, of which the European Union is a part. In this regard, the arbitral
57
Von Bogdandy A (2008) Pluralism, direct effect, and the ultimate say: on the relationship between
international and domestic constitutional law. Int J Constitut Law 3–4:397–413
58
See Bermann G (2016) Navigating EU law and the law of international arbitration. Arbitr Int
3:397–438 at 434. See also Klabbers J (2011) The validity of EU norms conflicting with interna-
tional obligations. In: Cannizzaro E, Palchetti P, Wessel RA (eds) International law as law of the
European union. Martinus Nijhoff, Leiden, pp 111–131, and Flaminio Costa v. Enel, ECJ case C-6/
64, judgment of 15 July 1964, ECLI:EU:C:1964:66.
59
Lavranos N (2010) Protecting European Law from international law. Eur Foreign Aff Rev 2:265–
282; Lenaerts K (2010) Droit International de l’ordre juridique de l’Union. Revue de la faculté de
droit de l’Université de Liége 4:505–519; Parra A (2009) Applicable law in investor state arbitra-
tion, TDM 1. Retrieved from https://www.transnational-dispute-management.com/article.asp?key=
1344; See Lenaerts K (2015) Les Fondements constitutionnels de l’Unione européenne dans leur
rapport avec le droit international. In: Tizzano A, Rosas A, Silva de Lapuerat R, Lanaerts et j.
Kokott K (eds) La Cour de justice l’Union Européenne sous la présidence de Vassilios Skouris.
Bruyalant, Bruxelles, pp 367–385
60
See U.N. ILC, doc. A/CN.4/L.682, Fragmentation of international law: difficulties arising from
the diversification and expansion of international law, report of the Study Group of the International
Law Commission, Finalized by Martti Koskenniemi, 13 April 2006, paras. 243–250.
1142 B. Cappiello
tribunal in Electrabel v. Hungary held that “all [european] legal rules are part of a
regional system of international law and therefore have an international legal
character”.61
Besides, in the Achmea (formerly Eureko) case, the arbitral tribunal legitimized the
reference to European law assuming that “in principle the EU legal doctrines, including
those of supremacy, precedence, direct effect, direct applicability is part of the EU law
that might fall to be applied by the Tribunal in this case under art. 8.6 of the BIT”.62 The
arbitral tribunal also stated that its jurisdiction was based on the BIT; therefore, the
consequences of applying European law must be assessed “within the framework of the
rules of international law and not in disregard of those rules”.63 As a consequence,
European Union law provisions could potentially be applied when a disputed arbitral
clause enacted within the investment treaty provides that “the law in force of the
contracting party concerned, the provisions of this agreement, and other relevant
agreements between the contracting parties and the principle of international law”.64
With regard to the second option, when European Union law has been applied as
part of domestic law, the arbitral tribunals have applied it as a fact. As such, EU law
has been used to frame the circumstances of the case, assisting judges engaged in
hermeneutic interpretive activities. Therefore, European law has become an instru-
ment for identifying the substantive rules that are suitable for the case. In AES v.
Hungary, the tribunal highlighted that the agreement between the parties (the ECT)
provided a clause according to which the law applicable to an arbitral dispute would be
the ECT provisions along with the principles of international law. Given this, the
arbitral tribunal acknowledged that EU law should be considered as a fact: “Commu-
nity law, including Community competition law, is considered the equivalent of
internal or municipal law for the purpose of the proceeding. Community law is thus
merely a fact to be considered by the tribunal when determining the law applicable”.65
The award was later subject to an annulment proceeding. Among the grounds for
the annulment, the applicant claimed that the arbitrators had manifestly exceeded
their powers. According to the applicant, the arbitral tribunal omitted to question the
legality of the contested measure under both Hungarian and EU laws. However, the
ad hoc Committee claimed that “the question of legality under Hungarian and EU
law was a significant issue in the original proceedings [. . .]”.66 However, even if
European law had been applied, the outcome of the dispute would not have changed
61
Electrabel S.A. v. Republic of Hungary, ICSID case No. ARB/07/19, Decision on Jurisdiction,
Applicable Law and Liability, 30 November 2012, para 4.122
62
Achmea B.V. v. The Slovak Republic, PCA Case No. 2008–13 (formerly Eureko B.V. v. The
Slovak Republic, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, par. 289
63
Id. para. 229
64
Id. para 231
65
Aes Summit Generation Limited and Aes-Tisza Eromu Kft v. the Republic of Hungary, ICSID
Case No. ARB/07/22, award, 23 September 2010, para. 7.3.4
66
AES Summit Generation Limited and AES-Tisza Erömü kft v. The Republic of Hungary, ICSID
Case No. ARB/07/22, Decision of the ad hoc Committee on the Application for annulment, 29
December 2012, para. 162
because according to the ad hoc Committee, “had Hungary been motivated to

reintroduce price regulation with a view to addressing the EC’s state aid concerns,
there is no doubt that this would have constituted a rational public policy measure”.67
In Electrabel v. Hungary, the arbitral tribunal came to an analogous conclusion
when reasoning on the dual potential application of EU law. According to the
arbitrators, European Union law can be applied as part of the international legal
system when the arbitral clause states that a dispute shall be decided with “the law in
force of the contracting party concerned, the provisions of this agreement, and other
relevant agreements between the contracting parties and the principle of international
law.” Vice versa, “EU law must in any event be considered as part of the Respon-
dent’s national legal order, i.e. to be treated as a “fact” before this international
tribunal”.68 As a consequence, when arbitrators apply European law as a fact, they
implicitly limit their scrutiny on the European judicial order. Such an approach is not
a new one and seems to reveal a monistic approach which favors the international
legal system’s sources of law.69
In all the abovementioned cases, arbitrators scrutinized the measure adopted by
the respondent State without questioning the measure’s legitimacy under EU law. To
reach the conclusion that the international obligation enacted in the investment treaty
applies, notwithstanding the European Union ones, arbitral tribunals have applied
international rules on treaties enacted in the VCLT (Art. 30.3 and Art. 59) along with
the principles of customary law enacted by the ILC report on the Fragmentation of
International Law.70 This legal reasoning seems to be the correct one, also because
in no case have the parties been able to prove that the obligations enacted in the
investment treaty and in the European treaties were in real conflict (meaning that the
two provisions could not have been applied contemporarily). Therefore, the host
Member States were not bound by two equally applicable provisions. The arbitrators
have thus avoided getting involved in the debate concerning whether or not the
international legal system will supersede the European one or vice versa. This debate
is still open, and it may arise again in the pending arbitral disputes on intra-EU BIT
or the ECT. If a real conflict arises between the content of the two provisions, one
could expect two solutions, depending on the approach that the arbitrators follow.
In the first solution, the arbitral tribunal, when it is possible, will solve the conflict
by finding a balance between the obligations enacted under the relevant international
and European provisions. In other words, excluding an isolationist approach
(according to which, a source of law, rectius the legal system within which it has
been enacted, must be interpreted as being disconnected from others), arbitrators
67
Id. para. 172
68
Electrabel v. Ungheria, quoted, par. 4.127 ss
69
See German Interests in Polish Upper Silesia v. Poland, Permanent Court of International Justice,
judgement of 25 August 1925, PCIJ (ser. A) no. 6, p.19; see also India – Patent Protection for
Pharmaceutical and Agricultural Chemical Products, WTO AB in case WT/DS50/AB/R decision of
16 April 1999, paras. 65–66
70
See supra note 57.
1144 B. Cappiello
should follow a systematic evolutionary interpretation. They have therefore to

interpret the obligations enacted within the provisions in mutual support of one
another.71 This approach finds legitimacy in Articles 31.1 and 31.3 (c) of the Vienna
Convention on the Law of Treaties, 1969.
On the other side, the arbitral tribunal can let the European provision prevail in a
case where the defendant host Member State’s enacted measure abides by the
European public order.72 In this situation, arbitrators will always reject the excep-
tions regarding European law primauté as this prerogative only applies to internal
relations between the EU and the Member States.
Follow: The Arbitral Clause in the New EU Investment Agreements
Since the European Union was given competence over FDI, it has started to frame its
own investment policy with third countries.73 Accordingly, the EU has opened
investment treaty negotiations with all potential partners ▶ Chap. 86, “EU Invest-
ment Agreements: A New Model for the Future.” To date, some negotiations have
been suspended due to political reasons (such as TTIP), some are still pending (see
EU-Mercosur Trade Agreement, EU-Mexico Trade Agreement, EU-Australia Trade
Agreement), and some have been concluded already (EU-Singapore, EU-Vietnam,
and CETA).74
Each negotiation has its peculiarities; however, all have raised much debate – still
open – also with regard to the opportunity to include an arbitral clause. Indeed, the
EU’s concern has always been to preclude non-EU forum from interpreting and
71
See Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskai Ur v. The argentine
Republic, ICSID Case No. ARB/07/26, award, 8 December 2016, par 1154. See Vadi V (2015)
Analogies in international investment law and arbitration. Cambridge University Press, Cambridge;
Crema L (2013) Investor rights and well-being remarks on the interpretation of investment treaties
in light of other rights. In: Treves T, Seatzu F, Trevisanut C (eds) Foreign investment, international
law and common concerns. Routledge, London, pp. 70–91; Crawford J (2013) A Consensualist
Interpretation of Art. 31(3) of the Vienna convention on the law of the treaties. In: Nolte G (ed)
Treaties and subsequent practice. Oxford Press, Oxford, pp 29–33; Sands C (1998) Treaty, custom
and the cross-fertilization of international law. Yale Hum Rights Dev Law J 1:85–105.
72
See Eco Swiss, ECJ Judgement C-126/97 of 1 June 1999, ECLI:EU:C:1999:269, para. 31; De
Lange R (2007) The European public order, constitutional principles and fundamental rights.
Erasmus Law Rev 1:1–23; von Bogdandy A. (2006); and Weiler JHH (1999) The Constitution of
Europe. Cambridge University Press, New York.
73
Castellarin E (2013) The Investment Chapters in the new generation of the EU’s Economic
Agreements in TDM 2. Retrieved https://www.transnational-dispute-management.com/article.asp?
key¼1940; Peterson L (2011) EU Member-States approve negotiating guidelines for India, Singa-
pore and Canada investment protection talks; some European governments fear “NAFTA-contam-
ination,” Investment Arbitration Reporter. Retrieved from: https://www.iareporter.com/articles/eu-
member-states-approve-negotiating-guidelines-for-india-singapore-and-canada-investment-protec
tion-talks-some-european-governments-fear-nafta-contamination/
74
See https://ec.europa.eu/trade/policy/countries-and-regions/negotiations-and-agreements/#_pending
applying European Union law. Both these prerogatives are conferred, as mentioned
above, upon the ECJ.
The so-called “Micula saga” represents well the efforts made by the EU Com-
mission to avoid intra-EU arbitral proceedings, even at the cost of precluding, due to
illegitimacy, a Member State from enforcing an arbitral award which might poten-
tially have led to a conflict with an EU provision.75 Particularly, in this case,
according to the Commission, the enforcement of the award would have been
equal to State aid.76
However, it seems the risk feared by the Commission is more political than legal.
Firstly, the arbitral clause framed in the investment agreement does not allow the
arbitral tribunal to scrutinize and rule on the legitimacy, or not, of an EU law
provision. Secondly, any arbitral mistake in applying or failing to apply EU law
can be amended if the recognition and the execution of the award are requested. In
fact, such proceedings are raised in front of Member State domestic courts which,
according to Art. 267 TFEU,77 do have the power to request the ECJ’s opinion on the
final and definitive interpretation to give to a European law.
Given the abovementioned political scenario, the legitimacy of the arbitral clause
has been the object of ECJ scrutiny. Namely, in the Achmea decision, the Court
denied the maintenance into force of the arbitral clause in the intra-EU BITs (not the
ECT). According to the ECJ, “[. . .] in order to ensure that the specific characteristics
and the autonomy of the EU legal order are preserved, the Treaties have established a
judicial system intended to ensure consistency and uniformity in the interpretation of
EU law [. . .] by concluding the BIT, the Member States parties to it established a
mechanism for settling disputes which could prevent those disputes from being
resolved in a manner that ensures the full effectiveness of EU law”.78
This notwithstanding that, to date, as shown in the above paragraph, an arbitral
tribunal has not questioned the legitimacy of an EU provision. This decision has
raised a debate about whether or not the new EU investment agreement should have
dealt with the issue on arbitral proceedings and applicable law.
As a result, in the new European investment agreements, the negotiators have
framed arbitral clauses balancing two necessities: the European Union’s hostility
75
See Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C., Starmill S.r.l. and Multipack S.r.
l. v. Romania, ICSID case No. ARB/05/20, Award, 11 December 2013.
76
See the European Commission Letter to Romania on State Aid investigation, 1 October 2014 and
the European Commission, decision of 30 March 2015 concerning the aid of State SA.38517 (2014/
C) (ex 2014/NN) implemented by Romania – Arbitral award Micula v. Romania of 11 December
2013 in C- 2015/1470 in Eu. Un. Of. Jour. n. L. 232/43; see also the UKSC, Judgment, Micula and
others v. Romania, [2020] UKSC 5, 19 February 2020, para 118.
77
Paschalidis P (2016) Arbitral tribunals and preliminary references to the EU court of justice.
Arbitr Int 1:1–23; Szpunar M (2017) Referrals of preliminary questions by arbitral tribunals to the
CJEU. In: Ferrari F (ed) The impact of EU La[w] on international commercial arbitration. New York
University\Center for transnational Litigation, New York, pp 85–123, p 85 ss
78
Slovak Republic v. Achmea B.V., ECJ case C-284/16, 6 March 2018, ECLI:EU:C:2018;158,
paras. 32–33 and 56
1146 B. Cappiello
toward intra-EU investor-State arbitral proceedings and third countries’ refusal to get
rid of arbitral proceedings.
In this paragraph, we will limit the analysis to the arbitral clause enacted within
the CETA; namely, Art. 8.31 confer upon arbitrators the right to determine the
disputes according to the agreement provisions, along with the rules or the principles
of the international law which may result applicable. Also, paragraph 2 provides that
“the Tribunal shall not have jurisdiction to determine the legality of a measure,
alleged to constitute a breach of this Agreement, under the domestic law of the
disputing Party. For greater certainty, in determining the consistency of a measure
with this Agreement, the Tribunal may consider, as appropriate, the domestic law of
the disputing Party as a matter of fact”.79
From the clause’s wording, two conclusions might be derived.
The clause works as an express optio legis, given that parties have determined which
rules of law must be applied if a dispute arises. Any reference to EU law is absent;
therefore, the arbitrators might use it only as a fact. This limitation in turn precludes any
incorrect interpretation and application of European Union law. Also, the arbitral
clause’s second paragraph seems to go a step further: it states that the arbitrators cannot
determine the legality of the relevant measure by applying the host Member State’s
domestic law. Once again, this means that domestic law can be used only as a fact,
interpreted in line with how it is applied by domestic legislators and courts.
As such, the clause seems to mirror the European approach toward investor-State
arbitral proceedings. Once it was realized that Europe could not force third parties to
negotiate an investment agreement without an arbitral clause, European Union
negotiators have found a way to frame them in a European acceptable way. It is
worthwhile mentioning the recent ECJ Opinion n. 1/17 where the Court Stated that
the arbitral clause enacted within the CETA is compatible with EU Law.80
European Union negotiators have endorsed an equal approach in the UNCITRAL
Committee constituted to establish procedural rules for an international investment
court.81 In pursuing this path, the EU is somehow legitimizing the primacy played by
international law in its external investment relations.
Conclusion
This analysis has tried to reopen the debate on an old issue. Indeed, the question
concerning the lex applicable to investor-State arbitral proceedings has always
been the object of close scrutiny. This is because arbitral tribunals are detached
79
Comprehensive Economic and Trade Agreement (CETA) between Canada and the European
Union and its Member States, in OJ L. 11, 14.1.2017
80
Opinion 1/17 of the Court, ECJ 30 April 2019, ECLI:EU:C:2019:341
81
See Establishing a standing mechanism for the settlement of international investment disputes,
Submission of the EU and Its Member States to UNCITRAL Working Group III, 18 January 2019.
See http://www.uncitral.org/uncitral/en/commission/working_groups/3Investor_State.html
from any legal system and so from any national provisions. As such, determining
the applicable law represents a delicate task. The main difficulties arise when
the parties have not made an express choice of law. In these circumstances,
arbitral tribunals are required to determine the applicable law by following
what is stated in the arbitral clause. In this regard, ICSID Art. 42(1) has, for a
long time, caught the attention of both academics and the case law praxis. The
debate has mostly concerned the role played by international law itself along with
the relationship between international law and national law. As seen, originally
international law played a supplementary or a corrective role with respect to
national law. Only after the ad hoc Committee’s decision in the Wena Hotel
annulment proceeding has international law started to be applied autonomously
as the proper law.
In fact, this should have been the approach since early case law. Treaty claims
arise out of an international agreement – a BIT or a multilateral investment treaty. As
such, treaty provisions should be interpreted and applied within their own legal
system. This, at cost of favoring a monistic approach, according to which interna-
tional law supersedes national law, not viceversa.
This analysis has attempted to show that the debate on the lex applicable within
investor-State arbitral proceedings has been complicated by the “entrance” of a third
system of law. In this respect, reference was made to the numerous arbitral pro-
ceedings arising out of either an intra-EU BIT or the ECT. These proceedings have
raised questions about the role European law should play with respect to interna-
tional and national law. Absent any express choice, European law could be applica-
ble as part of international law or as part of national law. In other words, European
Union law provisions could have easily been included within the functioning of the
ICSID Art. 42(1).
However, recent praxis has shown that in the arbitral proceedings arising out of
intra-EU BITs or out of the ECT, the arbitrators have not questioned the legitimacy
of host State measures with respect to the EU provision allegedly binding it. In fact,
legitimacy was not an issue because arbitrators applied the international law pro-
visions enacted within the treaty. Notwithstanding this, the European institutions
have recently reached the goal of getting rid of intra-EU arbitral proceedings: the
plurilateral treaty on intra-EU BIT termination, above all, will preclude the arisal of
any future arbitral disputes concerning alleged conflict between an EU and an
international provision. Within the internal market, the European Union’s monistic
approach has then prevailed, in which the European Union obligations are above the
international investment one. Contrarily, with regard to external relations, the EU has
had to accept the inclusion of arbitral clauses in new European Union trade and
investment agreements. The clauses so far enacted have been framed in a European
acceptable way, thus avoiding any incertitude with regard to the role – absent – of
EU law.
From this, a general conclusion can be attempted. International law and the
international legal system are becoming primary law in each and every investor-
State arbitral proceeding even when the relationship concerns the EU and third
countries.
1148 B. Cappiello
Cross-References
▶ EU Investment Agreements: A New Model for the Future

▶ From Arbitral Tribunals to a Multilateral Investment Court: The European Union
Approach
▶ General International Law and International Investment Law: A Systematic Anal-
ysis of Interactions in Arbitral Practice
▶ Human Rights in International Investment Law and Adjudication: Legal Method-
ology Questions
▶ Investment in the European Union: Competences, Structures, Responsibility and
Policy
▶ The ICS and MIC Projects: A Critical Review of the Issues of Arbitrator Selec-
tion, Control Mechanisms, and Recognition and Enforcement
▶ The Notion and Development of International Investment Court
Selection, Bias, and Ethics of Arbitrators in
Investor-State Arbitration 46
Mariel Dimsey and Sanjna Pramod
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1150
Selection of Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1153
Introductory Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1153
Selection of Arbitrators in International Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 1155
Selection of Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1157
Challenges to Arbitrators Under Different Institutional Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1168
ICSID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1168
Permanent Court of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1171
United Nations Commission on International Trade Law Arbitration Rules . . . . . . . . . . . . . . 1172
Ethics in Investor-State Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1173
Codes of Conduct for Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1173
Nationality Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1175
Investment Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1176
Select Problems in the Appointment of Arbitrators in Investment Arbitration . . . . . . . . . . . . . . . 1177
Repeat Appointments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1177
Issue Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1181
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1188
Abstract
Selection and appointment of arbitrators in investor-State arbitration has become
a fundamental issue warranting analysis and discussion on a global scale. This is
largely because of both perceived and actual flaws in institutional arbitration
M. Dimsey (*)
CMS Law Firm, Hong Kong, Hong Kong
e-mail: mariel.dimsey@cms-hs.com
S. Pramod
Hong Kong, Hong Kong

https://doi.org/10.1007/978-981-13-3615-7_22
1150 M. Dimsey and S. Pramod
rules, and the practice that has developed therefrom, on the selection of arbitrators
and the standards applied when challenging them. This chapter provides an
overview of investment arbitrator selection ethics from a practitioner’s perspec-
tive and highlights key considerations for ensuring that interests of States and
investors are balanced. It examines appointment of arbitrators under the primary
investment arbitration institutional rules and under selected international invest-
ment treaties, in light of the primary ethical considerations of impartiality and
independence.
Keywords
Bias · Ethics · Arbitrators · Investor-State arbitration
Introduction
A steady increase in international investment arbitration disputes1 has led to increas-

ing accountability and legitimacy concerns.2 One aspect of the investment arbitration
regime which has been subjected to increasing public scrutiny is the appointment
and selection of arbitrators.3 As visible actors and arbiters of a strongly contested
regime, the powers of arbitrators to determine wide-ranging substantive issues have
been thrown into public light increasingly in recent times.4 Notably, some stake-
holders have questioned the impartiality, independence, and expertise of investment
arbitrators and have called for sweeping reforms.5 Others have made arguments in
defense of investment arbitrators and offered proposals for less drastic reforms.6 Due
to the swath of recent public attention, the ethical requirements of arbitrators are thus
at the core of the four reform alternatives being considered by Working Group III
1
See St. John T (2018) The rise of investor-state arbitration: politics, law, and unintended conse-
quences. Oxford University Press.
2
Schill SW (2014) International investment law and comparative public law – an introduction. In:
Schill SW (ed) International investment law and comparative public law. Oxford University Press, p
15; Crawford J (2018) The ideal arbitrator: does one size fit all? Am Univ Int Law Rev 32:1
3
Sornarajah M (2015) Resistance and change in the international law on foreign investment.
Cambridge University Press, p 163; Lim CL, Ho J, Paparinskis M (2018) International investment
law and arbitration. Cambridge University Press, p 76
4
De Brabandere E (2014) Investment treaty arbitration as public international law. Cambridge
5
Schultz T, Kovacs R. The law is what the arbitrator had for breakfast: how income, reputation,
justice, and reprimand act as determinants of arbitrator behaviour. King’s College London Law
School Research Paper No. 2014-36. Available at SSRN: https://ssrn.com/abstract=2496827; Puig
S (2014) Social capital in the arbitration market. Eur J Int Law 25:387
6
Brower CN, Ahmad J (2017) Why the demolition derby that seeks to destroy investor-state
arbitration. South Calif Law Rev 91:1139; Brower CN, Rosenberg CB (2013) The death of the
two-headed nightingale: why the Paulsson – van den Berg presumption that party-appointed
arbitrators are untrustworthy is wrongheaded. Arbitration Int 29:7; Giorgetti C (2013) Who decides
who decides in international investment arbitration Univ Pa J Int Law 35:431
46 Selection, Bias, and Ethics of Arbitrators in Investor-State Arbitration 1151
(Investor-State Dispute Settlement Reform) United Nations Commission on Inter-

national Trade Law.7
The critics of the system essentially cast a dark cloud over the concept of
privatization of justice and reflect an overall concern that the investor-State dispute
settlement (ISDS) community is “self-dealing.”8 Moreover, the voices of dissent beg
tiered yet pertinent questions on the selection of arbitrators and ethics in international
arbitration. This has been captured as “a moral hazard” and “urbane subterfuge”
emerging from the “hypocrisy of party appointments.”9
In his closing speech at the 2015 European Society of International Law confer-
ence, Phillippe Sands QC directed criticism at some members of the international
arbitration community.10 The crux of his concerns was the ethics of investment
arbitrator appointments.11 Sands labeled as “deplorable” the practice of double
hatting in which individuals act simultaneously as arbitrators and legal counsel in
international investment arbitration.12
Ethical considerations are pivotal to justice and fairness of international adjudi-
cation.13 Scholarship has highlighted inherent ethical complexities which assume
more specific dimensions in the context of investment arbitration.14 In particular, the
quasi-precedential, politicalized, and public features of investment disputes raise
more compound ethical considerations.15 Applied to international investment arbi-
tration, ethics may be a test for assessing the limits of moral sentiments and party
autonomy as safeguards for ensuring depoliticalized adjudication.16
In a recent speech, Lord Goldsmith QC aired similar concerns about increasing
criticism of investor-State dispute settlement (“ISDS”) noting that:
7
United Nations Commission on International Trade Law Working Group III (Investor-State
Dispute Settlement Reform) Thirty-sixth session Vienna, 29 October–2 November 2018 A/CN.9/
WG.III/WP.152
8
See Garth B (2018) One window into the state of insiders’ arbitration scholarship. J World Invest
Trade 19:155
9
Paulsson J (2010) Moral hazard in international dispute resolution. ICSID Rev 25:339, 344
10
Sands P. Developments in geopolitics: the end(s) of judicialization? 2015 ESIL Conference
Closing Speech, 12 September 2015. https://www.jus.uio.no/pluricourts/english/blog/guests/
2015-10-22-sands-final-lecture-esil.html
11
Langford M, Behn D, Lie R (2017, July 24) The ethics and empirics of double hatting. ESIL
Reflect 6(7). Available at SSRN: https://ssrn.com/abstract=3008643
12
See Langford M, Behn D, Lie RH (2017) The revolving door in international investment
arbitration. J Int Econ Law 20:301.
13
See generally Rogers C (2014) Ethics in international arbitration. Oxford University Press.
14
Sarvarian A (2013) Professional ethics at the international bar. Oxford University Press, p 163
15
Bjorklund AK (2008) The emerging civilization of investment arbitration. Penn State Law Rev
113:1269, 1297; van den Berg AJ (2012) Qualified investment arbitrators? A comment on arbitra-
tors in investment arbitrations. In: Wautelet P, Kruger T, Coppens G (eds) The practice of
arbitration: essays in honour of Hans van Houtte. Hart Publishing, p 53
16
della Cananea G (2014) Minimum standards of procedural justice in administrative adjudication.
In: Schill SW (ed) International investment law and comparative public law. Oxford University
Press, London, p 51
Such criticism has particularly come from governments and civil society. ISDS is criticised
for being an undemocratic secret court system which hides the activities of big business and
prevents the proper, transparent regulation of industry. Focussing upon cases such as Phillip
Morris’ challenge to tobacco legislation in Australia and Vattenfall’s challenge to regulation
of the nuclear industry in Germany, critics also charge that ISDS and the bilateral investment
treaty system in general improperly restrict the ability of governments to make decisions and
set policy in a way that is in the best interests of their citizens by giving large foreign
investors the ability effectively to hold governments for ransom over any changes that would
have an impact on those investors’ businesses.17
Previous studies have helped to highlight some of the concerns identified

above.18 These include the apparent existence of pro-investor and pro-State arbitra-
tors19; arbitrator bias toward the perceived weaker party20; predominance of dissent-
ing options by arbitrators in favor of the parties who appoint them21; empirical data
which showed that in a total of 47% of investment treaty cases at least one arbitrator
had simultaneously acted as legal counsel22; influence of political views on deci-
sions23; and lack of diversity in arbitrator appointments.24
A large part of the alleged flaws with the international investment law system
stems from the role played by arbitrators. Without appropriate remedial action, rising
discontent over the perceived and actual problems of the international investment
regime risks undermining the tremendous gains in the rule of law on cross-border
investment flows achieved over the last decades.25
Against the foregoing background, this chapter provides an overview of appoint-
ment rules pursuant to different institutional arbitration rules and under selected
international investment agreements. It highlights the key role played by party
17
Keynote Address, Lord (Peter) Goldsmith QC, International Arbitration at the Crossroads, Tel
Aviv Arbitration Day, 25 February 2019, Tel Aviv Arbitration Day
18
Rogers C (2013) The politics of international investment arbitrators. Santa Clara J Int Law 12:223
19
Roberts A (2018) Incremental, systemic, and paradigmatic reform of investor-state arbitration.
Am J Int Law 112:410, 416
20
Puig S, Strezhnev A (2017) The David effect and ISDS. Eur J Int 28:731, 761
21
Van Den Berg AJ (2010) Dissenting opinions by party-appointed arbitrators in investment
arbitration. In: Arsanjani MH, Sloane R, Cogan JK, Wiessner S (eds) Looking to the future: essays
on international law in honor of W. Michael Reisman. Martinus Nijhoff Publishers, p 821; Franck
SD (2010) The ICSID effect-considering potential variations in arbitration awards. Virginia J Int
Law 51:825
22
Langford M, Behn D, Lie R (July 24, 2017) The ethics and empirics of double hatting. ESIL
Reflect 6(7). Available at SSRN: https://ssrn.com/abstract=3008643
23
Waibel M, Wu Y (2017) Are arbitrators political? Evidence from international investment
arbitration. Working paper. http://www-bcf.usc.edu/~yanhuiwu/arbitrator.pdf
24
Pauwelyn J (2015) The rule of law without the rule of lawyers? Why investment arbitrators are
from mars, trade adjudicators from venus. Am J Int Law 109:761, 800
25
Waibel M, Kaushal A, Chung K-H, Balchin C (2010) The backlash against investment arbitration:
perceptions and reality. In: Waibel M, Kaushal A, Chung K-H, Balchin C (eds) The backlash against
investment arbitration. Kluwer Law International, London; Park WW (2015) Arbitrator bias’.
Transnatl Dispute Manag 6:1
counsel in selecting and challenging appointment of arbitrators. This chapter also

examines the criteria for selection of arbitrators and ethics in investment arbitration.
Through illustrations from selected investment arbitration decisions, this chapter
highlights key concerns which emerge in investment arbitration jurisprudence. In
this chapter, it is shown that the forum of the dispute, nationality of the parties,
nationality of the arbitrator, prior decisions, nature of the dispute, prior academic
writings, legal tradition, and peer review are some of the key considerations when
selecting arbitrators. A review of the case law shows the ambivalence of the
applicable rules, which has created several gray areas. While the uncertainty gener-
ated by some of these rules remains a present concern, ongoing reform initiatives
may curb some of the inadequacies in the current rules.
This chapter is divided into five main sections. Section “Introduction” provides
an overview of the selection of arbitrators and discusses the criteria used by private
parties in making such selection. Section “Selection of Arbitrators” outlines the role
of institutions and professional associations in the appointment of arbitrators. Sec-
tion “Ethics in Investor-State Dispute Settlement” discusses the steps taken by States
to tackle the issue of the independence and impartiality of arbitrators. Section “Select
Problems in the Appointment of Arbitrators in Investment Arbitration” analyzes the
“problematic” topics of repeat appointments and issue conflicts. Section “Conclu-
sion” explores avenues for further reform and summarizes the main contributions of
this chapter.
Selection of Arbitrators
Introductory Remarks
International investment arbitration is, today, one of the fastest-growing areas of

international law26 and doubtlessly the preferred option for the settlement of invest-
ment disputes.27 Reports suggest that the use of international arbitration to resolve
investor-State disputes will only increase in the future.28 International arbitration has
developed from the confluence of foreign investment and State involvement in the
marketplace, which has led to increasingly large and complex international disputes.
With billions of dollars and sovereign acts at stake, coupled with the nature of the
investments concerned, which often impact large sections of the population in the
26
Brower CH, Schill SW. Is arbitration a threat or a boon to the legitimacy of international
investment law? Chic J Int Law 9:471, 472
27
Schreuer C. The future of investment arbitration. In: Looking to the future: essays on international
law in Honour of W. Michael Reisman. pp 787, 788
28
2018 International Arbitration Survey: the evolution of international arbitration. Queen Mary
University of London, p 3. http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-Interna
tional-Arbitration-Survey-report.pdf
Host State, these cases are subject to intense public scrutiny and carry with them
sensitive political and social issues.29
The unique attributes of ISDS place arbitrators in a position of privilege and a
position that must be exercised with utmost care. Arbitrators are asked to pronounce
judgment on official government acts and award damages that could significantly
affect the public fisc.30 It is thus essential to understand, and reflect critically on, how
the selection of international arbitrators takes place.
Most international investment arbitrations are decided by a three-member arbitral
tribunal comprised of two party-appointed arbitrators (one per side) and a presiding
arbitrator, chosen by the parties themselves or a neutral third party. By and large,
therefore, the parties decide who resolves their international investment disputes.
This party-constructed system has come under fire in recent years.31 Critics posit that
party-appointed arbitrators are often biased, lack diversity, and are therefore ill-
equipped to decide international disputes.32
However, these criticisms do not dispute the fact that parties having their say in
the appointment of arbitrators is appealing, reassuring, and is one of the main
advantages – as perceived by users – of this form of dispute resolution. Of course,
no equivalent opportunity exists in a court process. Hence, a reason frequently cited
for opting for arbitration is “avoiding specific legal systems/national courts.”33
In fact, a party’s freedom to appoint an arbitrator as a hallmark of the party
autonomy that characterizes international arbitration is widely recognized in inter-
national conventions and national legislation.34 For example, Article 11(2) of the
UNCITRAL Model law on International Commercial Arbitration 1985
(UNCITRAL Model Law) recognizes a right for the parties to agree on a procedure
to appoint arbitrator(s). Thus, as the following paragraphs set out, completely
abandoning party autonomy with respect to the selection of arbitrators is
unwarranted. Rather than attacking one of the key advantages of arbitration, the
system would fare better by adopting better challenge rules and enlarging the pool of
arbitrators.
29
Kotuby CT, Sobota LA (2013) Practical suggestions to promote the legitimacy and vitality of
international investment arbitration. ICSID Rev 28(2):454–465
30
Kotuby CT, Sobota LA (2013) Practical suggestions to promote the legitimacy and vitality of
international investment arbitration. ICSID Rev 28(2):454–465
31
Roberts A (2013) Clash of paradigms: actors and analogies shaping the investment treaty system.
Am J Int Law 107:45, 75–93
32
Brower CH, Schill SW. Is arbitration a threat or a boon to the legitimacy of international
investment law? Chic J Int Law 9:489
33
2018 International Arbitration Survey: the evolution of international arbitration. Queen Mary
University of London, p 7. http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-Interna
tional-Arbitration-Survey-report.pdf
34
US Federal Arbitration Act s. 5; English Arbitration Act s. 15(1); UNCITRAL Model Law Art. 11
(2); Swiss Private International Law Art. 179; French New Code of Civil Procedure Art. 1508(2);
German Code of Civil Procedure s. 1035(1)
Selection of Arbitrators in International Investment Arbitration
It has been said in the international commercial arbitration context that “arbitration is
only as good as its arbitrators,”35 which doubtlessly also holds true for investment
arbitration. When an arbitration is decided by three arbitrators, each party in the
dispute typically selects one arbitrator, and the two party-appointed arbitrators select
the presiding arbitrator. In the case of a three-member tribunal, the very first
responsibility of a party-appointed arbitrator is usually to negotiate with the other
party-appointed arbitrator for the selection of a chairman.36
As one commentator notes, “the selection of the party-appointed arbitrator may
be the most critical decision in an international arbitral proceeding.”37 Respecting
the ability – and the importance – of the parties to influence the composition of the
arbitral tribunal is one of the defining aspects of the arbitral process.38
The selection and appointment of arbitrators depends on the applicable treaty or
other legal instrument (e.g., a foreign investment law) and the institutional rules
applicable to the dispute. The dispute resolution clauses of most bilateral investment
treaties (“BIT”) and other international investment agreements, including bilateral or
multilateral free trade agreements, provide for arbitration, generally either under the
of other States (“ICSID Convention”) or under the Arbitration Rules of the United
Nations Commission on International Trade Law (“UNCITRAL Arbitration
Rules”).39 For instance, the 2012 US Model BIT provides that claimants can submit
their claims under the ICSID Convention and ICSID Rules, the ICSID Additional
Facility Rules, or the UNCITRAL Arbitration Rules.40
The 2012 US Model BIT also provides that, unless otherwise agreed by the
parties, “the tribunal shall comprise of three arbitrators, one arbitrator appointed
by each of the disputing parties and the third who shall be the presiding arbitrator,
appointed by the agreement of the disputing parties.”41
35
Part II: The process of an arbitration (2012) Chapter 5: Selection, challenge and change of
arbitrators. In: Waincymer J (ed) Procedure and evidence in international arbitration. © Kluwer
Law International, pp 255–382
36
Salomon CT (2002) Selecting an international arbitrator: five factors to consider. MEALEY’S Int
Arbitr Rep 17:10
37
Id., } 15 p. 1
38
Constantine Partasides (2001) The selection, appointment and challenge of arbitrators. Vindobona
J 5:217, 217
39
Convention of the Settlement of Investment Disputes Between States and Nationals of Other
States (amended April 2006) (“ICSID Convention”); 68/109 United Nations Commission on
International Trade Law Rules on Transparency in Treaty-based Investor-State Arbitration and
Arbitration Rules (as revised in 2010, with new article 1, paragraph 4, as adopted in 2013)
(“UNCITRAL Arbitration Rules (2013)”)
40
Article 24 (3) US Model BIT. https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%
20Meeting.pdf
41
Article 27 US Model BIT. https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%
20Meeting.pdf
In the absence of a method of appointing arbitrators contained in the applicable

instrument, the ICSID Convention contains default rules. Article 37 of the ICSID
Convention states that the arbitral tribunal “shall consist of three arbitrators, one
arbitrator appointed by each party and the third, who shall be the president of the
Tribunal, appointed by agreement of the parties,”42 thus providing, in default, for the
same rule as the 2012 US Model BIT.
The UNCITRAL Arbitration Rules offer a slightly different approach in provid-
ing that “if three arbitrators are to be appointed, each party shall appoint one
arbitrator. The two arbitrators thus appointed shall choose the third arbitrator who
will act as the presiding arbitrator of the arbitral tribunal.”43
Consequently, there are two main approaches in practice, both of which start with
a party’s right to select an arbitrator. Thereafter, either the parties themselves or the
party-appointed arbitrators attempt to agree on the presiding arbitrator. A failure to
agree triggers default mechanisms under the applicable rules, which usually involve
direct appointment of the presiding arbitrator by a senior member of an arbitral
institution. For example, Article 38 of the ICSID Convention states that “. . . the
Chairman shall, at the request of either party and after consulting both parties as far
as possible, appoint the arbitrator or arbitrators not yet appointed. Arbitrators
appointed by the Chairman . . . shall not be nationals of the Contracting State party
to the dispute or of the Contracting State whose national is a party to the dispute.”
The selection of an arbitrator can be a daunting task. Many instruments set out
requirements that the arbitrators to be appointed thereunder shall possess. For
example, Article 14(1) of the ICSID Convention requires arbitrators to be persons
of “recognized competence” in the fields of law, as well as commerce, industry, or
finance.44 Article 14(1) also demands impartiality and an obligation of independence
from arbitrators. It is interesting to note that the English text of the ICSID Conven-
tion does not expressly State that arbitrators must be impartial, but the Spanish
version does.45
Article 14(1) should be read together with Article 57 as it provides the threshold
for arbitrator’s challenges for impartiality. Article 57 provides the requirements to
make a request for the disqualification of an arbitrator. Article 57 states that “a party
may propose to a Commission or Tribunal the disqualification of any of its members
on account of any fact indicating a manifest lack of the qualities required by . . .
42
ICSID Convention, Article 37 (“(1) The Arbitral Tribunal shall be constituted as soon as possible
after registration of a request pursuant to Article 36 (2) (a) The Tribunal shall consist of a sole
arbitrator or any uneven number of arbitrators appointed as the parties shall agree (b) Where the
parties do not agree upon the number of arbitrators and the method of their appointment, the
Tribunal shall consist of three arbitrators, one arbitrator appointed by each party and the third, who
shall be the president of the Tribunal, appointed by agreement of the parties”).
43
UNCITRAL Arbitration Rules, Article 9(1)
44
ICSID Convention, Article 14(1)
45
Cleis MN (2017) Chapter: Independence and impartiality in the ICSID convention and arbitration
rules. In: The independence and impartiality of ICSID arbitrators. Brill, p 12
Article 14. A party . . . may . . . propose the disqualification of an arbitrator on the

ground that he was ineligible for appointment to the Tribunal.”
In Burlington Resources v. Ecuador, the Chairman disqualified Professor Orrega
Vicuña, who was appointed by the respondent, Ecuador. The Chairman concluded
that a third party undertaking a reasonable evaluation of Professor Vicuña would find
that Professor Vicuña “manifestly evidence[d] an appearance of lack of impartiality”
toward the respondent. The Chairman further explained that Article 14(1) and
Article 57 of the ICSID Convention “do not require proof of actual dependence or
bias; rather it is sufficient to establish the appearance of dependence or bias.”46
Over and above these somewhat objective standards, parties and their counsel
carry out a long drawn exercise of carefully selecting individuals who will hear and
decide their case prior to commencement of the arbitration, which is discussed
further in the next section.
Selection of Arbitrators
The direct choice of arbitrators by the parties is often said to be the preferable method
of selecting arbitrators, as it maximizes party control over the running of the case.47
It should be noted that although we tend to speak of “the parties,” in practice, it is
parties’ legal counsel that tend to make the choice.48
An arbitrator’s credibility is crucial to maintaining parties’ faith in the overall
process and to securing those benefits that make arbitration so attractive, such as
cost, efficiency, neutral forum, and enforceability.49 Thus, there is a particular onus
on counsel to make an informed choice in the best interests of the parties.
Parties and their counsel thus spend substantial time and resources selecting their
party-appointed arbitrator. A proposed arbitrator’s prior decisions and academic
writings are scrutinized, along with professional relations and positions. Parties
also consider the forum, the type of dispute, the nationality of the parties, and
other issues, including of course the nature of the dispute at issue.
Nationality
Nationality is a crucial factor, and under most institution rules, an obvious preference
not to choose an arbitrator of the parties’ nationalities is provided for. This is because
there is a presumption that an arbitrator who is a national of a party could potentially
46
Giorgetti C (2014, July 3) Towards a revised threshold for arbitrator’s challenges under ICSID?
http://arbitrationblog.kluwerarbitration.com/2014/07/03/towards-a-revised-threshold-for-arbitra
tors-challenges-under-icsid/
47
Id., } 14
48
Paulsson J (1997) Ethics, elitism, eligibility. J Int Arbitr 14(4):18
49
Id., } 15, p. 1
favor a party’s position on the basis of a nationality connection, which would be

against the requirements of independence and impartiality.50
The ICSID Convention sets limitations for parties in the selection of arbitrators.
The origins of such limitations can be traced back to the negotiating history of the
ICSID Convention.
The June 1962 Working Paper suggested that party-appointed arbitrators might be
the “least desirable method [of appointment], because of the danger that each party
will look upon the arbitrator to be appointed by it as an advocate.”51 However,
instead of prohibiting such appointments altogether, the drafters sought to (i) restrict
the disputing parties’ choices and (ii) encourage them to draw arbitrators from the
Panel of Arbitrators in order to avoid some of the dangers of having “party
arbitrators.”52
Ultimately, it was agreed (i) to create the Panel of Arbitrators of “qualified
persons” (with each ICSID Contracting State entitled to make use of the Panel,
and the Chairman of the ICSID Administrative Council having the right to designate
ten persons, each of a different nationality, to the Panel),53 (ii) that disputing parties
could appoint arbitrators from outside the Panel of Arbitrators,54 and (iii) that if the
Chairman of the Administrative Council had to appoint one or more arbitrators to a
tribunal, the arbitrator must be selected from the Panel of Arbitrators.55
As to the nationality of arbitrators, rather than prohibiting their appointment,
Article 39 of the ICSID Convention provides that the majority of the Tribunal must
be “nationals of States other than the Contracting State party to the dispute and the
Contracting State whose national is a party to the dispute.”56 In addition, Rule 1(3)
of the ICSID Arbitration Rules requires the consent of the other party to appoint
national arbitrators.57 Rule 1(3) states that “the majority of the arbitrators shall be
nationals of States other than the State party to the dispute and of the State whose
national is a party to the dispute, unless the sole arbitrator or each individual member
of the Tribunal is appointed by agreement of the parties. Where the Tribunal is to
consist of three members, a national of either of these States may not be appointed as
an arbitrator by a party without the agreement of the other party to the dispute.”
When this provision was adopted, experts worried that precluding nationals of
disputing parties from sitting on tribunals would deprive the tribunals of needed
50
Giorgetti C (2014) The arbitral tribunal: selection and replacement of arbitrators. In: Litigating
international investment disputes: a practitioner’s guide. pp 143–172
51
ICSID, History of the ICSID Convention: Documents Concerning the Origin and the Formulation
of the Convention on the Settlement of Investment Disputes between States and Nationals of Other
States (ICSID Publication 1968) (“History of the ICSID Convention”) vol II-1, 40
52
Id.
53
ICSID Convention, Articles 12–13
54
55
Id.
56
ICSID Convention, Article 39
57
ICSID Rules of Procedure for Arbitration Proceedings, Rule 1(3)
expertise in local law.58 This gave rise to the provision that nationality restrictions
would not apply if each member was appointed by agreement of the parties.59
The UNCITRAL Arbitration Rules, on the other hand, are less stringent, pre-
sumably a reflection of the more general application – not limited to investment
arbitration – that these Rules have. Article 7 of the UNCITRAL Arbitration Rules
requires the appointing authority to only take into account “the advisability of
appointing an arbitrator of a nationality other than the nationalities of the parties.”60
By contrast, and also of primary relevance in the commercial arbitration context,
Article 9(5) of the ICC Rules states that the sole arbitrator or the chairman of the
tribunal “shall be of a nationality other than those of the parties.”
Impartiality and Independence

Besides nationality restrictions, arbitrators must be impartial and independent, and
these qualifications are expressed, with some variations, by arbitral institutions and
regimes.
Introduction to Terminology
Although “independence” and “neutrality” are often used interchangeably, they are
in fact discrete.
Independence measures the relationship between an arbitrator and a party,
whether it be personal, social, or financial.61 The closer the relationship with any
of the spheres, the less “independent” the arbitrator will generally be regarded as
being of the party.62
Neutrality is often used in a political or cultural sense. For instance, an arbitrator
is “neutral” if she or he is of a nationality different from that of either of the parties.63
This is a question of appearance of bias: a person will normally be expected to be
sympathetic toward a party with whom he or she shares a language and cultural
roots.64
Impartiality indicates the State of mind. An arbitrator is impartial when free of
actual bias as between the parties.65 Unlike other factors, impartiality is difficult to
58
History of the ICSID Convention, vol II-1, 266: (“Mr Moustafa (United Arab Republic) objected
to the prohibition in Section 2(2) regarding the nationality of arbitrators. An arbitrator of the same
nationality as the party to the dispute was more likely to understand the issues involved and to be in
a better position to offer the necessary explanations; he might even make an unfavorable award
more acceptable”).
59
60
UNCITRAL Arbitration Rules, Article 6(7)
61
Donahey S (1992) The independence and neutrality of arbitrators. J Int Arbitr 9:31
62
Id., p. 31
63
Id., pp. 31–32
64
Griffith G (1998) Constitution of arbitral tribunals: the duty of impartiality in tribunals or choose
your arbitrator wisely. ICSID Rev 13(1):36–50, 38
65
Donahey S (1992) The independence and neutrality of arbitrators. J Int Arbitr 9:32
ascertain since it generally involves an assessment of the actual state of mind and
views of the arbitrator concerned.
Rules
Pursuant to the ICSID Convention, panels of arbitrators must be constituted only
from persons able “to exercise independent judgment.”66 On appointment, an
arbitrator is required to give a written declaration which is intended to constitute a
declaration attesting to impartiality.67 Rule 4 of the ICSID Arbitration Rules sets out
the declaration that an arbitrator must sign. Failure to sign deems the arbitrator to
have resigned. Rule 4 states that the arbitrator “shall judge fairly as between the
parties, according to the applicable law, and shall not accept any instruction or
compensation with regard to the proceeding from any source . . .”.
Similarly, the UNCITRAL Arbitration Rules provide that “when a person is
approached in connection with his or her possible appointment as an arbitrator, he
or she shall disclose any circumstances likely to give rise to justifiable doubts as to
his or her impartiality or independence.”68 Article 11 of the ICC Rules and Article 14
(2) of the SCC Rules also, respectively, require arbitrator(s) to disclose facts that
might be considered as grounds to disqualify arbitrator(s).69
Challenge Procedure
The challenge and disqualification of an arbitrator is an interesting topic due to the
mechanisms provided for in the institutional rules.70 Under the ICSID mechanism,
Article 58 of the ICSID Convention sets out the procedure for the disqualification of
an arbitrator. Article 58 states that “the decision on any proposal to disqualify . . .
[an] arbitrator shall be taken by the other members of the Commission or Tribunal
. . . provided that where those members are equally divided, or in the case of a
proposal to disqualify a sole conciliator or arbitrator, or a majority of the conciliators
or arbitrators, the Chairman shall take the decision.” Article 58 produces a unique
phenomenon, whereby the two unchallenged arbitrators can decide on the disqual-
ification of the challenged arbitrator.
Furthermore, Rule 9 of the ICSID Arbitration Rules sets out the additional
procedures for the disqualification of an arbitrator. Rule 9(1) states that “a party
proposing the disqualification of an arbitrator . . . shall promptly, and in any event
before the proceeding is declared closed, file its proposal with the Secretary-General,
stating its reasons.” The Secretary-General needs to carry out her or his function of
transmitting the proposal to the unchallenged members of the Tribunal or the
66
67
ICSID Arbitration Rules, Rule 6(2)
68
UNCITRAL Arbitration Rules (2013), Article 11
69
Id., } 29
70
Michael Tupman W (1989) Challenge and disqualification of arbitrators in international commer-
cial arbitration. Int Comp Law Q 38(1):26–52
Chairman of the Administrative Council and notifying the other party of the proposal
following Rule 9(2).
Rule 9(3) provides the arbitrator in question the opportunity to furnish explana-
tions to the Tribunal or the Chairman without delay. Rule 9(5) provides that
“whenever the Chairman has to decide on a proposal to disqualify an arbitrator, he
shall use his best efforts to take that decision within 30 days after he has received the
proposal.” The President of the World Bank is the Chairman of the Administrative
Council, according to Article 5 of the ICSID Convention.
The ICSID Convention approach for the disqualification of arbitrators is unusual
among other arbitral institutions. In most international arbitration, the challenge
decision of the arbitrators is usually decided by the arbitral institution or the
appointing authority, not the unchallenged members of the tribunal.71 The ICSID
Convention approach, conversely, has been influenced by the Kompetenz-
Kompetenz principle that stipulates that each tribunal is entitled to decide matters
concerning its own competence. Thus, the two unchallenged members are competent
to decide whether the third challenged member should be disqualified.
One of the advantages of this approach is that it saves time because no additional
time is needed to submit an application to an external body. Another advantage is
that since the unchallenged members have usually witnessed the challenged mem-
ber’s actions in the arbitration proceeding, they will be in a better position to decide
whether the arbitrator should be disqualified.72
However, the ICSID Convention approach is not without disadvantages. Making
the unchallenged arbitrators decide on the disqualification of the challenged arbitra-
tor may affect and influence the unchallenged arbitrators’ views and further actions
in the context of the existing proceeding. Additionally, there is no uniformity in the
standards applied by the unchallenged tribunal members as each tribunal will likely
interpret the qualities required from the challenged arbitrator differently.73
Most importantly, the peer review system is highly criticized. This is because
each challenge decision provides some precedential value by setting standards in
deciding the disqualification of a challenged arbitrator. Consequently, in making a
decision about the challenged arbitrator, the unchallenged arbitrators are also indi-
rectly setting standards to which they themselves may be held in the future. As a
result, the unchallenged arbitrators making decisions in such situations tend to be
overly lenient when voting on a challenge.74 In reality, the number of successful
disqualifications of arbitrators through the ICSID Convention approach is indeed
exceptionally low.
71
See, for example, the ICC Rules or the HKIAC Rules, whereby the administering institution
decides on the challenge.
72
Daele K (2012) Challenge and disqualification of arbitrators in international arbitration. Kluwer
Law International, p 269
73
Id., } 50
74
Id., } 50
By way of contrast, and also particularly relevant in the investment arbitration

context, Article 13 of the UNCITRAL Arbitration Rules set out the procedures for
the disqualification of an arbitrator. Article 13(1) states that “a party that intends to
challenge an arbitrator shall send notice of its challenge within 15 days after it has
been notified of the appointment of the challenged arbitrator, or within 15 days after
the circumstances . . .became known to that party. . .” Article 13(2) provides that the
notice of challenge with the reasons stated shall be communicated to all other parties,
to the challenged arbitrator and the unchallenged arbitrators.
Article 13(3) further provides that when an arbitrator has been challenged by one
party, all other parties may agree to the challenge. The challenged arbitrator may
withdraw from her or his office. However, it does not imply the challenged arbitra-
tor’s acceptance of the validity of the grounds for the challenge. Article 13(4) states
that “if, within 15 days from the date of the notice of the challenge, all parties do not
agree to the challenge or the challenged arbitrator does not withdraw, the party
making the challenge may elect to pursue it. In that case, within 30 days from the
date of the notice of the challenge, it shall seek a decision on the challenge by the
appointing authority.”
Article 6 provides that if the parties have not agreed on the choice of an
appointing authority, they may request the Secretary-General of the Permanent
Court of Arbitration at The Hague to designate the appointing authority. Examples
of persons or institutions that made decisions on the disqualification of arbitrators as
an appointing authority under the UNCITRAL Rules are the Secretary-General of
ICSID, the Secretary-General of the PCA, the LCIA, and the SCC Board. It should
be noted that the number of successful disqualifications of arbitrators is evidently
higher in the UNCITRAL mechanism than when applying the ICSID approach.75
International Bar Association Guidelines

Despite the particularities of ISDS and of the challenge system under the ICSID
Convention, the International Bar Association (IBA) Guidelines are regularly relied
upon by parties challenging an arbitrator and seeking annulment of awards.
The IBA Guidelines on Conflicts of Interest contain general standards designed to
ensure impartiality and independence of arbitrators in international arbitration.76
These include the requirement to disclose certain circumstances upon appointment
(or as soon as possible thereafter), if they exist.77 A list of circumstances is included
in the Guidelines and coded by colors – red, orange, and green. The IBA Guidelines
explain that “these lists are non-exhaustive and detail specific situations that,
depending on the facts of a given case, give rise to justifiable doubts as to the
arbitrator’s impartiality and independence.”78
75
Id., } 50
76
IBA Guidelines on Conflicts of Interest in International Arbitration, adopted by resolution of the
IBA Council on 23 October 2014 (“IBA Guidelines on Conflict of Interest”)
77
IBA Guidelines on Conflict of Interest, General Standard 3
78
IBA Guidelines on Conflict of Interest, Part II, para 2
The Red List details specific situations that, depending on the facts of a given
case, give rise to justifiable doubts as to the arbitrator’s impartiality and indepen-
dence. It consists of (i) “a Non-Waivable Red List” and (ii) “a Waivable Red List.” If
any Non-Waivable Red List conditions exist, an arbitrator should not accept an
appointment,79 for instance, if an arbitrator has a significant financial or personal
interest in one of the parties or the outcome of the case.
The Waivable Red List conditions are also serious, but not as severe, and can be
waived by the parties (albeit only expressly). An example is a scenario where an
arbitrator’s law firm has a significant commercial relationship with an affiliate of one
of the parties.
The Orange List sets out specific situations that, depending on the facts of a given
case, may, in the eyes of the parties, give rise to doubts as to the arbitrator’s
impartiality or independence. For instance, if an arbitrator has, within the past
3 years, been appointed as arbitrator on two or more occasions by one of the parties,
this constitutes a ground giving rise to an Orange List concern.
Finally, the Green List includes specific situations where no appearance and no
actual conflict of interest exist from an objective point of view and thus the arbitrator
has no duty to disclose. An example is where an arbitrator has previously given a talk
in public touching on an issue that arises in the arbitration.
In EDF International S A, SAUR International S A and Leon Participaciones
Argentines S A v. Argentine Republic, the IBA Guidelines played a central role in
parties’ pleadings as well as in the ruling of the two members of the tribunal in
deciding the challenge of the third member.80
Argentina challenged the appointment of Professor Gabrielle Kaufmann-Kohler
and argued that she had been a serving member of the board of directors of the Swiss
bank UBS. According to Argentina, UBS recommended that its customers invest in
Electricite de France (EDF), the parent corporation of EDF International, and UBS
and EDF therefore had a common interest. Other connections between UBS and
EDF alleged by Argentina included a placement of a share offer in the French
financial market. Argentina submitted that Professor Kaufmann-Kohler did not
disclose the existence of these facts which raised doubts about her impartiality and
independence.
The challenge was ultimately rejected, and the tribunal held that links between
UBS and EDF should be considered minor links. Moreover, the tribunal agreed with
Argentina that “arbitrators must disclose circumstances likely to give rise to justifi-
able doubts about impartiality or independence,” but did not find this duty to have
emerged in the case before it because no justifiable doubts existed: “[t]he question is
79
IBA Guidelines on Conflict of Interest, Part II, para 2
80
EDF International S A, SAUR International S A and León Participaciones Argentinas S A v
Argentine Republic, Challenge Decision Regarding Professor Gabrielle Kaufmann-Kohler, ICSID
Case No. ARB/03/23, 25 June 2008
not whether doubts exist, but whether they are ‘justifiable’ doubts. On the facts of
this case, we cannot find any such doubts to be justified.”81
In ASM Shipping Ltd of India v. TTMI Ltd of England82, the High Court of
England drew inferences from the noninclusion of the situation at hand in the IBA
Guidelines, particularly the Red List. An application to set aside an arbitral award
was made to the High Court because of the apparent bias of an arbitrator. The
applicant argued that the challenged arbitrator had been instructed by the respon-
dent’s lawyers in another arbitration proceeding that involved different parties but
the same factual witness. The applicant further argued that in the previous arbitra-
tion, serious allegations were made against the same factual witness in regard to the
process of disclosure, which the arbitrator was involved in as a counsel.83
The court held that the main issue is whether based on the circumstances of the
case that a real possibility of bias of the arbitrator is present as it would cause a
serious irregularity. The court found that the arbitrator had a real possibility of bias
and should not continue to act in the arbitration. The court explained that “prior
contact between parties and their lawyers and arbitrators is to be expected. The mere
fact . . . [an] arbitrator had previously had a trade dispute with one of the parties
would not thereby have caused an objectionable situation. But even in such a case,
much would depend on the facts.”
In support of the court’s finding, the court explained that based on the circum-
stances, the nature of the allegations made against the factual witness, the involve-
ment of the same lawyers, and the arbitrator’s involvement in the process of
disclosure before sitting as an arbitrator, it could be concluded that the challenged
arbitrator had a real possibility of bias and should be disqualified from the tribunal.
The court explained that the “IBA guidelines do not purport to be comprehensive”
and that the Guidelines should be “applied with robust common sense and without
pedantic and unduly formulaic interpretation.”84
In another case, Participaciones Inversiones v. Gabonese Republic, the Republic
of Gabon filed for disqualification of the co-arbitrator nominated by claimant,
Professor Fadlallah, arguing that “Professor Fadlallah has already taken a position
on the issues to be decided in the instant case, i.e. whether the withdrawal of a
concession amounts to expropriation, giving rise to a conflict of interest which
81
ICSID Case No. ARB/03/23, EDF International S A, SAUR International S A and León
Participaciones Argentinas S A v Argentine Republic, Challenge Decision Regarding Professor
Gabrielle Kaufmann-Kohler of 25 June 2008, paragraph 43
82
ASM Shipping Ltd. of India v TTMI Ltd. of England, [2005] EWHC 2238 (Comm) (19 October
2005).
83
Scherer M. The IBA guidelines on conflicts of interest in international arbitration: the first five
years 2004–2009, The IBA conflicts of interest subcommittee, a subcommittee of the IBA arbitra-
tion committee, p 11. https://www.lalive.law/data/publications/The_IBA_guidelines_on_conflicts_
of_interest_in_international_arbitration.pdf
84
Id., } 63
justifies a challenge, according to the orange list of the IBA Guidelines on Conflicts
in International Arbitration.”85
The chairman of ICSID’s Administrative Council was seized with the application
under Article 58 of the Convention. In the decision, the chairman considered that the
IBA Guidelines were helpful in reaching its decision, holding that “the instant
decision is taken under the Washington Convention. The IBA Guidelines on Con-
flicts in International Arbitration relied on by the Respondent have only an indicative
value, despite being accepted that they can possibly provide a useful indication.”86
However, the chairman rejected the proposal for disqualification of Professor
Fadlallah, holding that the applicant had failed to provide sufficient evidence
regarding the connections between ICSID Case No. ARB/04/5 and the instant case.
In W Ltd v. M Sdn Bhd,87 the claimant W Ltd. made an application to the court to
set aside two arbitral awards for serious irregularity. W Ltd. argued that an apparent
bias of the arbitrator is present based on the alleged conflict of interest. The arbitrator
was a partner of a law firm that had advised the respondent. The arbitrator personally
had not provided legal advice to the respondent, but his law firm obtained a
significant income from legal services provided to the respondent’s affiliate. W
Ltd. relied on para. 1.4 of the IBA Guidelines Non-Waivable Red List which states
that “the arbitrator or his or her firm regularly advises the party, or an affiliate of the
party, and the arbitrator or his or her firm derives significant financial income
therefrom.”
The court held that it was not understandable why an arbitrator who had not been
involved in providing advice to the respondent’s affiliate should be barred automat-
ically from acting under the IBA Guidelines Non-Waivable Red List. The court
examined the IBA Guidelines and regarded the categorization as incorrect.88 The
facts of the case demonstrated how a rigid and strict application of the IBA
Guidelines in international arbitration proceedings may lead to a harsh and unrea-
sonable outcome.
Reputation
The overall reputation of an arbitrator is, of course, also of significance. Whether the
arbitrator is “good” or not is, of course, one of the main criteria in assessing
reputation, but not the only one. An arbitrator who took an unfavorable view on,
for example, a limitation of liability clause in one case may, precisely for that reason,
be perfect for another. It would be shortsightedness indeed for an arbitrator to be
appointed merely on the assertion that she was “good.” Rather, a number of factors
85
Participaciones Inversiones Portuarias SARL v Gabonese Republic, Decision on the Proposal to
Disqualify an Arbitrator of 12 November 2009, ICSID Case No. ARB/08/17, para 15
86
Participaciones Inversiones Portuarias SARL v Gabonese Republic, Decision on the Proposal to
Disqualify an Arbitrator of 12 November 2009, ICSID Case No. ARB/08/17, para 34
87
[2016] EWHC 422 (Comm)
88
IBA Guidelines on Conflicts of Interest Under Fire, Hong Kong Lawyer, October 2016. http://
www.hk-lawyer.org/content/iba-guidelines-conflicts-interest-under-fire
will be considered and taken into account when assessing the reputation of an
arbitrator and whether she is suitable to adjudicate the case at hand.
Word of mouth still remains a primary means of recommending or vetting
candidates. To this end, counsel do not hesitate to ask their colleagues whether
they have met a particular arbitrator and what impression he or she has made. It is
also a matter of fact that most law firms active in international arbitration keep –
unofficially, in most cases – lists of arbitrators with whom they have had experience,
and comments concerning such arbitrators’ strengths and weaknesses.
In addition, parties also tend to look to peer reviews. The list of organizations
screening and cataloguing professionals is constantly on the rise. However, these
lists are often unreliable, and it is doubtful whether they are based on qualitative
research. Some organizations suggest that their listed individuals accept to be
featured in their publications for payment. Hence, parties should be wary of solely
relying on peer reviews in their choice of arbitrator.
Legal and Professional Expertise

Choosing an arbitrator with a legal background is important as arbitrators must state
the rationale for their decisions, and, if challenged, the award will be subjected to
legal scrutiny. Moreover, in most investment arbitrations, complex questions of
public international law are at stake, and it is therefore necessary that the arbitrators
appointed to decide the dispute are able to address and analyze such questions.
Even though it is not a mandatory requirement under the ICSID Convention that
arbitrators must be lawyers and be legally trained, parties are highly encouraged to
appoint legally qualified lawyers as their arbitrators. The plain reason is that invest-
ment arbitrations are complex and demand a deep understanding of both substantive
and procedural legal issues.89
Additional qualifications may be present in the dispute of the specific treaties or
contracts at issue. They may require the arbitrator to possess some specific expertise.
For example, Article 24 of the Agreement between the Government of Canada and
the Government of the Republic of China for the Promotion and Reciprocal Protec-
tion of Investment Arbitration states that arbitrators shall “have expertise or experi-
ence in public international law, international trade or international investment rules,
or the resolution of disputes arising under international trade or international invest-
ment agreement.”
An arbitrator’s legal background significantly affects the arbitral proceeding and
the remedies that may be granted. Arbitrators from the United States or Britain,
which operate under a common law system, may expect that during the arbitration,
the parties will exchange documents and other information. Arbitrators from conti-
nental Europe, which operates under a civil law system, will be less inclined to
require parties to exchange documents.90 That being said, it is widely acknowledged
that the growing body of international investment arbitration jurisprudence has
Id., } 29
89
Id., } 15
90
produced a third category of arbitrator, a true internationalist who is able to take

inspiration from both the common law and civil law systems in sculpting the best
procedure for the dispute at hand.
Moreover, there exists a strong incentive for parties to examine previous dispo-
sitions of the arbitrators to ensure that the arbitrator appointed will be hopefully
sympathetic to the views and positions of the appointing party in the dispute at hand.
Parties examine past awards and scholarly writings to determine the general attitude
of contentious questions that may arise in the course of the arbitration.
Availability
It is important to consider the likely future availability of an arbitrator. Parties should
avoid the trap of ignoring availability concerns in pursuit of a star arbitrator. Well-
known arbitrators schedule matters several months in advance. When the arbitrator’s
caseload grows to mammoth proportions, it can effectively thwart a party’s ability to
obtain a speedy resolution of the dispute – one of the more attractive characteristics
of arbitration.91
Language Proficiency
With the growth of international trade, and particularly in the investment arbitration
context, parties of diverse nationalities increasingly come to international arbitration
with differing linguistic and cultural backgrounds. Normally, the language of the
arbitration is determined by the parties. Parties should therefore choose an arbitrator
who is fluent in the language of the proceeding. Otherwise, the party’s ability to
present its case may be impeded because its nominated arbitrator cannot adequately
understand the arguments and evidence presented and participate meaningfully in
the arbitrator’s deliberation. In considering an arbitrator’s language proficiency,
some important considerations include the language of the oral and written evidence
and of course the arbitrator’s drafting abilities.92
Selection by States
The selection of arbitrators by a respondent State is even more complicated because
it may involve the advice of different governmental agencies. For example, in the
United States, most frequently the office of the legal adviser of State Department
takes the lead, although the office frequently consults with the US government
offices such as the Department of Commerce and Treasury and the Office of the
United States Trade Representative. The selection of arbitrators by a State is also a
tool for the State to expand the dispute beyond its bilateral terms to include
consideration of the public interests involved.93
91
Id., } 15, p. 4
92
Id., } 29
93
Id., } 29
Challenges to Arbitrators Under Different Institutional Rules
Unsurprisingly, given the number and nature of the factors to which regard is to be
had in determining whether an arbitrator is independent and impartial, there are
regularly challenges made to arbitrators on this basis. Challenges under the ICSID
regime are by far the most common, and are generally published, thereby contrib-
uting to the development of law in this area.
ICSID
Article 57 of the ICSID Convention sets out two main grounds for disqualification of
ICSID arbitrators: (i) the arbitrator manifestly lacks the qualities required by Article
14(1) of the ICSID Convention or (ii) the arbitrator is ineligible for appointment
under Article 37 to 40 of the ICSID Convention.94
Article 38 of the ICSID Convention requires arbitrators appointed by the ICSID
Administrative Council Chairman not to be nationals of the home State of the
claimant investor(s) or the respondent State, while Article 39 requires the majority
of the arbitrators on the tribunal to be nationals of States other than the State party to
the dispute and the State whose national is a party to the dispute. In Eudoro Armando
Olguin v. Paraguay,95 an arbitrator resigned upon receiving Paraguay’s proposal for
his disqualification on the basis that he and the claimant both held the same
nationality.96
As stated above, Rule 1(3) of the ICSID Arbitration Rules disallows appointment
of arbitrators holding the same nationality as the parties, except where the parties
agree. The authors were involved in a case where the opposing party nominated an
arbitrator with the same nationality, which prompted an objection to such appoint-
ment on the basis of Rule 1(3) of the ICSID Arbitration Rules. The arbitrator
accordingly resigned.
A manifest lack of qualities is invoked frequently as a ground for disqualification
of an arbitrator. Article 14(1) of the ICSID Convention requires ICSID arbitrators to
possess three qualities: (i) “high moral character”; (ii) “recognized competence in the
fields of law, commerce, industry, or finance; and (iii) the fact that the arbitrator “may
be relied upon to exercise independent judgment.”
Although the third ground adopts the term “independent judgment,” as stated
above, it is well settled that standards of both independence and impartiality are
94
95
Mr. Eudoro Armando Olguín v. Republic of Paraguay, ICSID Case No. ARB/98/5, Award (July
26, 2001)
96
Id., }} 15–16
included within the qualities that an ICSID arbitrator must possess.97 In the context
of Article 14(1) of the ICSID Convention, it is generally accepted that independence
means the “absence of external counsel,”98 while impartiality refers to the “absence
of bias or predisposition towards a party.”99 The purpose of these requirements is to
“protect parties against arbitrators being influenced by factors other than the merits
of the case.”100
Article 57 of the ICSID Convention requires a challenging party who alleges that
an arbitrator lacks qualities set out in Article 14(1) of the ICSID Convention to
establish that there was a “manifest lack”101 of those qualities. The meaning of
“manifest” has given rise to varying interpretations, which have inhibited the
development of a clear standard of disqualification under Article 57 of the ICSID
Convention.102
In Amco Asia, Indonesia brought the first arbitrator challenge under the ICSID
Convention. Indonesia requested the disqualification of Edward W. Rubin, the
arbitrator appointed by the claimant. The unchallenged arbitrators dismissed
Indonesia’s challenge for lack of strict proof of actual bias. They explained that
the proof required is the arbitrator’s actual lack of independence, which had to be
“manifest” or “highly probable.” It will not be sufficient if the facts merely indicated
a lack of independence of the arbitrator. They further explained that an arbitrator
cannot be disqualified merely because they have a relationship with the appointer.103
97
Suez, Sociedad General de Aguas de Barcelona S.A. v. Argentine Republic, ICSID Case No. ARB/
03/17, Decision on Proposal for Disqualification (Oct. 22, 2007), }} 28–30; Fábrica de Vidrios Los
Andes, C.A. and Owens-I llinois de Venezuela, C.A. v. Venezuela, ICSID Case No. ARB/12/21,
Reasoned Decision on the Proposal to Disqualify L. Yves Fortier, Q.C., Arbitrator (Mar. 28, 2016),
} 28
98
İçkale İnşaat Limited Şirketi v. Turkmenistan, ICSID Case No. ARB/10/24, Decision on Claim-
ant’s Proposal to Disqualify Professor Phillipe Sands (July 11, 2014), } 116
99
Id.
100
ConocoPhillips Company et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/
30, Decision on the Proposal to Disqualify L. Yves Fortier, Q.C., Arbitrator (Feb. 27, 2012), } 55
101
Article 57 provides “A party may propose to a Commission or Tribunal the disqualification of
any of its members on account of any fact indicating a manifest lack of the qualities required by
paragraph (1) of Article 14. A party to arbitration proceedings may, in addition, propose the
disqualification of an arbitrator on the ground that he was ineligible for appointment to the Tribunal
under Section 2 of Chapter IV.”
102
Amco Asia Corporation et al. v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on
Jurisdiction (Sept. 25, 1983), } 2: “manifest lack” means “not a possible lack of the quality, but a
quasi-certain, or to go as far as possible, a highly probable one.” A standard more akin to reasonable
doubts was suggested in Compania de Aguas del Aconquija S.A. & Vivendi v. Argentina, ICSID
Case No. ARB/97/3, Decision on the Challenge to the President of the Committee (Oct. 3, 2001), }
20. In EDF International S.A., SAUR International S.A. & Leon Participaciones Argentinas S.A. v.
Argentine Republic, ICSID Case No. ARB/03/23, Challenge Decision Regarding Professor
Gabrielle Kaufmann-Kohler (June 25, 2008), }} 65–68, “manifest” relates “not to the seriousness
of the allegation but to the ease with which it may be perceived.”
103
Cleis MN (2017) Chapter: Independence and impartiality in the ICSID convention and arbitra-
tion rules. In: The independence and impartiality of ICSID arbitrators. Brill
The heart of the debate is whether the standard of disqualification under ICSID is
the “justifiable doubts” test or some higher standard.
In deciding a challenge brought against the majority of the tribunal in Blue Bank
v. Venezuela, the chairman of the World Bank applied a lower threshold than in
previous cases. He noted in his decision that “Articles 57 and 14(1) of the ICSID
Convention do not require proof of actual dependence or bias; rather it is sufficient to
establish the ‘appearance of dependence or bias’.”104 Regarding the word “mani-
fest,” the chairman of the World Bank noted that it means “evident” or “obvious.”105
In that light, “manifest” is merely a rule of evidence, not a qualitative modifier to the
standard for disqualification.
Subsequent challenge decisions within the ICSID context followed the approach
adopted in the Blue Bank ruling and held that the “appearance of dependence or bias”
is sufficient to result in disqualification.106 The disqualification of the arbitration in
Blue Bank was successful because a third party would observe evident or obvious
appearance of the arbitrator’s lack of impartiality.
However, the tribunal in Vivendi Universal v. Argentina categorically stated that
the term “manifest” “must exclude reliance on speculative assumptions or arguments
– for example, assumptions based on prior and in themselves innocuous social
contacts between the challenged arbitrator and a party.”107 The tribunal dismissed
Argentina’s challenge against the president of the ad hoc Annulment Committee and
stated that it would not uphold a challenge that was based on “mere speculation or
inference.” The tribunal explained that in order for a disqualification to be success-
ful, the whole circumstances had to raise reasonable doubts about the committee
member’s impartiality.108
In Owens-Illinois v. Venezuela, the tribunal found that the applicable legal
standard to evaluate the independence and impartiality of arbitrators was an objec-
tive standard based on the evaluation of the evidence by a third party. They held that
the meaning of the word “manifest” in Article 57 of the Convention means “evident”
104
Blue Bank International & Trust (Barbados) Ltd. v. Bolivarian Republic of Venezuela, ICSID
Case No. Arb/12/20, Decision on the Parties’ Proposal to Disqualify the Majority of the Tribunal
(Nov. 12, 2013), } 59
105
Id., } 61
106
Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on the
Proposal for Disqualification of Professor Francisco Orrego Vicuña (Dec. 13, 2013), } 66 [herein-
after Burlington v. Ecuador]; Abaclat and Others v. Republic of Argentina, ICSID Case No. ARB/
07/5, Decision on the Proposal to Disqualify a Majority of the Tribunal (Feb. 4, 2014), } 76
107
Compania de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID
Case No. ARB/97/3, Decision on the Challenge to the President of the Committee, 3 October 2001,
} 25
108
Id., } 83
or “obvious” and relates to the ease with which the alleged lack of qualities can be
perceived.109
By contrast, in Société Générale de Surveillance S.A. v. Islamic Republic of
Pakistan, it was stated that an inference of manifest bias is a sufficient ground for
disqualification of an arbitrator. The challenging party has to support it with facts and
not mere speculations or inferences. The standard provides that there is no need to
prove actual bias, but a real risk or a reasonable apprehension of bias will be
sufficient.110
Upon examination of all the cases above, it can be concluded that obvious
inconsistencies of the threshold for the successful disqualification of an arbitrator
are present. It can also be said that a uniform interpretation of “manifest” has not
been formed yet.111
Permanent Court of Arbitration
The PCA Arbitration Rules 2012 (“PCA Rules”) are a consolidation of four prior
sets of PCA procedural rules.112 Article 11 of the PCA Rules requires potential
arbitrators to disclose any circumstance “likely to give rise to justifiable doubts as to
his or her impartiality or independence.”113 The PCA Rules contain grounds for
“justifiable doubts as to the arbitrator’s impartiality or independence,”114 an arbitra-
tor’s failure to act115 or “de jure or de facto impossibility of his or her performing his
or her functions.”116
In Ghana v. Telekom Malaysia, Ghana found out that Professor Gaillard, an
arbitrator in that case, was simultaneously serving as counsel in an application to
annul the RFCC v. Morocco award, an award on which Ghana relied to support its
claim. The District Court of The Hague held that Professor Gaillard’s duty to annul
the RFCC’s claim was incompatible with his duty as an arbitrator in Ghana v.
Telekom Malaysia. The court applied Dutch law, which promulgated standards
similar to the UNCITRAL Arbitration Rules, which would have governed the
challenge before the PCA Secretary-General. The test applied was whether “from
an objective point of view . . . justified doubts exist with respect to [the arbitrator’s]
109
Fabrica de Vidrios Los Andes, C.S. and Owens-Illinois de Venezuela, C.A. v. Bolivarian Republic
of Venezuela, ICSID Case No. ARB/12/21, Reasoned Decision on the Proposal for Disqualification
of Arbitrator L. Yves Fortier, Q.C., 28 March 2016, }} 30–33
110
Id., } 83
111
Id., } 83
112
https://pca-cpa.org/en/services/arbitration-services/pca-arbitration-rules-2012/
113
PCA Arbitration Rules, Article 11
114
Id., Article 12(1)
115
Id., Article 12(3)
116
Id.
impartiality or independence” while taking into account the “outward

appearance.”117
United Nations Commission on International Trade Law Arbitration

Rules
While the rules relating to challenges of arbitrators have remained the same through
all three versions of the United Nations Commission on International Trade Law
(UNCITRAL) Arbitration Rules, the 2013 version introduced a new Article 1(4),
which applies the UNCITRAL Rules on Transparency in Treaty-based Investor-
State Arbitration118 (UNCITRAL Transparency Rules) to investor-State arbitrations
in the following instances:
(a) where the investor-State arbitration was initiated under the UNCITRAL Arbitration
Rules pursuant to a treaty providing for the protection of investments or investors
concluded on or after 1 April 2014, unless the parties to that treaty have agreed
otherwise119;
(b) for investor-State arbitrations initiated under the UNCITRAL Arbitration Rules
pursuant to a treaty providing for the protection of investments or investors concluded
before 1 April 2014:
(i) where the parties to the arbitration agree to their application in respect of that
arbitration; or
(ii) where the parties to that treaty or, in the case of a multi-lateral treaty, the State of the
claimant and the respondent State, have agreed after 1 April 2014 to their
application120;
(c) in an investor-State arbitration in which the respondent is a party to the United Nations
Convention on Transparency in Treaty-based Investor-State Arbitration (Transparency
Convention) that has not made a relevant reservation under article 3(1)(a) or (b) of the
Transparency Convention, and the claimant is of a State that is also a party that has not
made a relevant reservation under article 3(1)(a) of the Transparency Convention; or
(d) in an investor- State arbitration in which the respondent is a party that has not made a
reservation relevant to that arbitration under article 3(1) of the Transparency Conven-
tion, and the claimant agrees to the application of the UNCITRAL Transparency Rules.
Under Article 2 of the UNCITRAL Transparency Rules, the name of the disputing
parties, the economic sector involved, and the treaty under which the claim is made
will be made public. Further, the notice of arbitration, the response to the notice of
arbitration, the statement of claim, the statement of defense, any further written
117
Nathalie Bernasconi-Osterwalder Lise Johnson Fiona Marshall, Arbitrator Independence and
Impartiality: Examining the dual role of arbitrator and counsel, IV Annual Forum for Developing
Country Investment Negotiators Background Papers New Delhi, 27–29 October 2010.
118
United Nations Commission on International Trade Law, UNCITRAL Arbitration Rules (with
new article 1, paragraph 4, as adopted in 2013), UNCITRAL Rules on Transparency in Treaty-
based Investor-State Arbitration (“UNCITRAL Transparency Rules”), Article 1(4)
119
Article 1(4) read with UNCITRAL Transparency Rules, Article 1(1)
120
UNCITRAL Transparency Rules, Article 1(2)
statements or written submissions by any disputing party,121 expert reports and

witness statements122 are to be disclosed unless they contain “confidential or pro-
tected information” as defined in Article 7 of the UNCITRAL Transparency Rules.
Under the UNCITRAL Arbitration Rules, the notice of arbitration and the response
to the notice of arbitration may contain the names of the arbitrators appointed by
each party.123 As a consequence, the names of the arbitrators appointed by each party
may also be made public.
Thus, in an arbitration where the UNCITRAL Transparency Rules are applicable,
parties may rely on such public information to challenge arbitrators, particularly on
the grounds of repeat appointments by the same party or counsel and “issue conflict”
arising from an arbitrator’s involvement in multiple arbitrations concerning the
same, or a similar, subject matter. These issues are discussed in further detail below.
In Iberdrola, S.A. and Iberdrola Energia. S.A.U. v. Bolivia,124 the UNCITRAL
Transparency Rules were applied for the first time. The tribunal issued a procedural
order revealing that the parties had agreed to apply the UNCITRAL Transparency
Rules in the arbitration. It was a claim under the Bolivia-Spain BIT, Iberdrola
alleged that the Bolivian government had directly expropriated its investments
without just compensation.
Subsequently, in BSG Resources Limited v. Republic of Guinea,125 ICSID’s
website disclosed that the parties had agreed to apply the UNCITRAL Transparency
Rules in the arbitration. The application of the UNCITRAL Transparency Rules in
both cases demonstrates a shift in how States and investors consider the public
interest in the arbitration process.
Ethics in Investor-State Dispute Settlement
Codes of Conduct for Arbitrators
Over the years, States have made significant policy revisions of ISDS mechanisms in
response to various criticisms of the process. In the context of the present topic,
recent free trade agreements (“FTAs”) contain several significant reforms to the
appointment of arbitrators.
The Comprehensive Economic and Trade Agreement (“CETA”) between the EU
and Canada was the first trade and investment agreement which introduced a binding
code of conduct for arbitrators. The code of conduct obliges arbitrators to continu-
ously disclose any possible conflict of interest as well as to maintain their indepen-
dence and impartiality.
121
UNCITRAL Transparency Rules, Article 3(1)
122
Id., Article 3(2)
123
UNCITRAL Arbitration Rules, 2013, Article 3(4)
124
PCA Case No. 2015-05
125
ICSID Case No. ARB/14/22
Under the CETA, the Joint Committee that administers the agreement must
appoint 15 individuals to serve as judges for a 5-year term that may be renewed
once.126 These individuals must “possess the qualifications required in their respec-
tive countries for appointment to judicial office, or be jurists of recognized compe-
tence” and “have demonstrated expertise in public international law.”127 The
agreement expresses a preference for judges who have experience in the fields of
international trade or investment law and familiarity with dispute resolution in these
same fields.128 Tribunal members are required to comply with the IBA Guidelines on
Conflicts of Interest in International Arbitration,129 and parties may ask the President
of the International Court of Justice to decide a challenge to a tribunal member’s
independence.130
A code of conduct has also been included in the EU-Singapore Investment
Protection Agreement (“EU-Singapore IPA”) and the EU-Viet Nam Investment
Protection Agreement (“EU-Viet Nam IPA”).131 An arbitrator has an obligation to
“disclose to the Parties any past or present interest, relationship or matter that is
likely to affect his or her independence or impartiality or that might reasonably create
an appearance of impropriety or bias.”132
The Code of Conduct for Members of the Tribunal, the Appeal Tribunal and
Mediators of the latest draft text of the Transatlantic Trade and Investment Partner-
ship (“TTIP”),133 and the Code of Conduct for the Australia-China Free Trade
Agreement contain a substantially identical provision.134
The EU-Vietnam FTA135 requires the Trade Committee, which oversees the
operation of the agreement, to establish a list of arbitrators that “have demonstrated
expertise and experience of law and international trade. They shall be independent,
serve in their individual capacities and not take instructions from any organisation or
126
Comprehensive Economic Trade Agreement between the EU and Canada (“CETA”), Article
8.23 (5)
127
CETA, Article 8.23 (4)
128
Id.
129
Id., Article 8.30
130
Id.
131
Text of the EU-Singapore IPA is available at https://investmentpolicyhub.unctad.org/Download/
TreatyFile/5714. Text of the EU-Viet Nam IPA is available at http://trade.ec.europa.eu/doclib/press/
index.cfm?id=1437. At the date of writing, both IPAs have not yet entered into force.
132
EU-Singapore IPA, Annex 7, } 3. Very similar wording is found in the EU-Viet Nam IPA, Annex
8, } 3
133
Draft text of the Transatlantic Trade and Investment Partnership (“TTIP”), Annex II, Article 3, } 1.
134
Australia-China Free Trade Agreement, signed on 17 June 2015, entered into force on 20
December 2015, Annex 9-A, } 2
135
Text of the EU-Vietnam Free Trade Agreement (“EU-Vietnam FTA”) is available at http://trade.
ec.europa.eu/doclib/press/index.cfm?id=1437. At the date of writing, the EU-Vietnam agreement
has not been ratified.
government, or be affiliated with the government of any of the Parties and shall
comply with the Code of Conduct in Annex 15-B.”136 The EU-Vietnam FTA
contains a code of conduct for arbitrators with restrictions on conflicts of interest,
disclosure requirements, and confidentiality.137
It is thus unsurprising, in the wave of new FTAs and IPAs that set out codes of
conduct for arbitrators, that the UNCITRAL Working Group III has also devoted
attention to this topic within the scope of its mandate addressing Investor-State
Dispute Settlement Reform.138 In July 2018, the Working Group identified a number
of issues surrounding the sufficiency of guarantees of independence and impartiality
of arbitrators, going so far as to report that “the party appointment mechanism had
attracted much criticism, reflecting a perception of bias.”139 By way of potential
solutions, the Report noted that:
there was broad agreement on the importance of codes of conduct and other ethical
requirements for arbitrators. It was suggested that any improvement to ensure independence
and impartiality of the arbitrators should be welcomed as it would be in the interests of both
States and investors. Taking note of a number of existing texts on the conduct of arbitrators
(including soft law instruments), the need for efforts at a multilateral level was mentioned. In
that context, suggestions were made to the effect that UNCITRAL and ICSID might
cooperate in developing such a code.140
Based on the above, as-yet ad hoc developments and initiatives, a universal

approach to codes of conduct for arbitrators, particularly in the investor-State
context, seems inevitable.
Nationality Requirements
Another development in recent investment agreements is the inclusion of more

specific and detailed rules concerning the nationality of the arbitrators. For instance,
the Agreement on Investment under the Framework Agreement on Comprehensive
Economic Cooperation between ASEAN and India (“ASEAN-India Investment
136
EU-Vietnam FTA, Article 15.23. Available at http://trade.ec.europa.eu/doclib/docs/2018/septem
ber/tradoc_157375.pdf
137
EU-Vietnam FTA, Annex 15-B. Available at http://trade.ec.europa.eu/doclib/docs/2018/septem
ber/tradoc_157377.pdf
138
UNCITRAL Working Group III documents are available at https://uncitral.un.org/en/working_
139
Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its
thirty-fifth session (New York, 23–27 April 2018), para 54, https://documents-dds-ny.un.org/doc/
UNDOC/GEN/V18/029/59/PDF/V1802959.pdf?OpenElement
140
Id., para 64.
Agreement”)141 not only requires the presiding arbitrator to be of a different nation-

ality than the investor but also not to have his or her usual place of residence in the
territory of the investor’s home State or the respondent State.142
Under the bilateral investment agreement between Israel and Myanmar, arbitra-
tors are required to be nationals of States having diplomatic relations with both Israel
and Myanmar.143 The bilateral investment agreement between India and the United
Arab Emirates (“UAE”) provides that the presiding arbitrator and the appointing
authority be a national of a country (apart from India and UAE) which has diplo-
matic or consular relations with both India and UAE.144
Investment Courts
In an effort to address public concerns raised in the context of the traditional investor-
State dispute settlement, the EU has proposed to overhaul the entire model of arbitral
tribunals hearing investment arbitrations and replace it with a standing investment
court, staffed by judges or members appointed by State parties.145
With a similar objective, the latest draft of the TTIP envisages the creation of an
investment court system, comprising a permanent tribunal of first instance and a
permanent appeal tribunal.146 The former is to be composed of 15 judges selected
by a specialized committee established under the TTIP: five nationals of an EU
Member State, five nationals of the United States and five nationals of third
countries.147 The TTIP prescribes stringent requirements for their qualifications,
setting out as follows:
The Judges shall possess the qualifications required in their respective countries for appoint-
ment to judicial office, or be jurists of recognised competence. They shall have demonstrated
expertise in public international law. It is desirable that they have expertise in particular, in
141
Text of the Agreement on Investment under the Framework Agreement on Comprehensive
Economic Cooperation between the Association of Southeast Asian Nations and the Republic of
India (ASEAN-India Investment Agreement”). Available at https://investmentpolicyhub.unctad.
org/Download/TreatyFile/3337. At the time of writing, the ASEAN-India Agreement has not been
ratified.
142
ASEAN-India Investment Agreement, Article 20, } 11
143
Agreement between the Government of the State of Israel and the Government of the Republic of
the Union of Myanmar for the Reciprocal Promotion and Protection of Investments (“Myanmar-
Israel BIT”) art. 8(5). At the time of writing, the Myanmar-Israel BIT has not been ratified.
144
Agreement between the Government of the Republic of India and the Government of the United
Arab Emirates on the Promotion and Protection of Investments art. 10, }} 7(a) and 7(b)
145
European Council of the European Union, Press Release, Multilateral investment court: Council
gives mandate to the Commission to open negotiations. https://www.consilium.europa.eu/en/press/
press-releases/2018/03/20/multilateral-investment-court-council-gives-mandate-to-the-commission-
to-open-negotiations/
146
Draft text of the TTIP, Chapter II, Article 9(4)(3) and Article 10(4)(3)
147
Id., Article 9(2)
international investment law, international trade law and the resolution of disputes arising
under international investment or international trade agreements.148
The permanent appeal tribunal will hear appeals from the awards issued by the
tribunal of first instance. It will be comprised of six members: two nationals of an EU
Member State, two nationals of the United States, and two nationals of third
countries. The qualifications required for selection to the permanent appeal tribunal
are largely the same as those required for selection to the tribunal of first instance
except that the judges shall possess the qualifications “required in their respective
countries for appointment to the highest judicial offices.”149
This recent practice indicates the efforts undertaken by the States in defining the
contours of the notions of independence and impartiality. While the creation of the
permanent investment court system might address some public concerns, it admit-
tedly gives impetus to the proliferation of investment courts. For instance, the EU-
Vietnam IPA150 also envisages the establishment of a permanent first instance
tribunal and a permanent appeal tribunal.151 The replication of this model across
several investment agreements will lead to the institution of multiple investment
courts, all of which must be necessarily staffed with members having demonstrated
experience in public international law and possessing the qualifications required in
their respective countries for appointment to the highest judicial officers or jurists of
recognized competence.
Select Problems in the Appointment of Arbitrators in Investment

Arbitration
In recent years, there has been an uptake in arbitrator challenges in investment

arbitration. Decisions on challenges on the same issues have, in many cases, resulted
in the development of standards on what constitutes a lack of independence and
impartiality in certain contexts.
Repeat Appointments
The issue of repeat appointments of the same arbitrator by the same party or counsel,
or to related proceedings, has been a much debated and discussed topic by the
international arbitration community. Investment arbitration is a relatively small
world in terms of arbitrators, counsel, and companies involved, where contacts are
148
Id., Article 9(4)
149
Id., Article 10(7)
150
Text of the EU-Vietnam Investment Protection Agreement. Available at http://trade.ec.europa.eu/
doclib/press/index.cfm?id=1437
151
Id., Article 3.39
easily made, but also a relatively big world, in terms of the global reach of corporate
clients and international law firms involved, meaning that there is a high likelihood
of their paths frequently crossing.152
The ICSID website contains a list of all ICSID arbitrators and conciliators. It also
publishes their curriculum vitae in a standard format and sets out all and enlists all
the ICSID cases they have acted in, whether as arbitrator or as counsel. The ICSID
website also provides updated information on specific cases, such as the subject
matter of the dispute, the parties, the arbitrators, the counsel that have appointed
them, and the outcome of the case. This potentially may give rise to challenges based
on repeat appointments of an arbitrator by a particular party, “double-hat” issues
arising out of an arbitrator’s acting as counsel in another arbitration involving similar
issues and “issue conflict” arising out of an arbitrator’s appointment as an arbitrator
in another case.
Although repeat appointments may be an inevitable outcome of limits in the
number of skilled and experienced arbitrators in investment arbitration, such
appointments can create justifiable doubts as to an arbitrator’s independence or
impartiality if the arbitrator has a history of ruling in favor of his appointer, has a
financial or other personal stake in the outcome, or has a relationship of financial
dependence resulting from repeat appointments. As a result, the issue of repeat
appointments can jeopardize public trust and faith in international arbitration.
The term “repeat arbitrator” can refer to any of the following situations: a repeat
arbitrator is an arbitrator who is repeatedly appointed by the same party or counsel.153
Further, an arbitrator appointed repeatedly to decide related issues or similar types of
claims can also be classified as a repeat arbitrator, which is dealt with in II below.
Sections 3.1.5 and 3.3.1 of the Orange List of the IBA Guidelines are usually
cited by parties who challenge an arbitrator’s multiple appointments by the same
party or law firm. The list determines when the frequency of repeat appointments
may give rise to justifiable doubts as to an arbitrator’s impartiality or independence.
Section 3.1.3 and Section 3.3.7 of the IBA Guidelines require an arbitrator who “has
within the past three years been appointed as arbitrator on two or more occasions by
one of the parties or affiliate of one of the parties”154 or “has within the past three
years received more than three appointments by the same counsel or the same law
firm”155 to promptly disclose the relevant circumstances to the parties. However, it is
important to note that the Guidelines do not require a repeat arbitrator to recuse
himself or herself from the case. The arbitrator’s sole duty is to disclose the relevant
circumstances and wait for 30 days to see if a party will challenge his or her
appointment or to resign. If no challenge is made, he or she can accept the case.156
152
Id., } 50
153
Saloui F-Z (2009) The rising issue of “repeat arbitrators”: a call for clarification Arbitr Int Law 25
(1):103
154
IBA Guidelines, Section 3.1.3
155
Id., Section 3.3.7
156
Id.
Therefore, in accordance with the IBA Guidelines, although the frequency of

appointment of an arbitrator itself may give rise to doubts about his impartiality or
independence, additional proof is required to truly demonstrate that an arbitrator’s
ethics are questionable.157
How many repeat appointments are too many? Several tribunals have attempted
to answer this question.
The mere fact of holding three other arbitral appointments by the same party does
not, without more, indicate a manifest lack of independence or impartiality.158 This
was held in the context of Professor Brigette Stern being appointed by Venezuela in
Tidewater v. Venezuela, where the tribunal noted that
Professor Stern has held or currently holds arbitral appointments in many ICSID cases and so
cannot be said to be dependent on any one party for her extensive practice as an arbitrator in
investment cases. Moreover, in each of the two cases in which she was appointed by Venezuela,
and where she has to date rendered decisions, Vanessa and Brandes, Professor Stern has joined
unanimous preliminary decisions rejecting applications made by Venezuela.159
The Tidewater tribunal went on to hold that “the question of whether multiple
appointments to arbitral tribunals may impugn the independence or impartiality of an
arbitrator is a matter of substance, not of mere mathematical calculation.”160 Further,
the “starting point is that multiple appointments as arbitrator by the same party in
unrelated cases are neutral, since in each case the arbitrator exercises the same
independent arbitral function.”161
In another case involving Venezuela, Universal Compression, Professor Stern
was again challenged by the claimant based on her multiple appointments by
Venezuela and by the law firm representing Venezuela and based on her having
heard multiple arbitrations with related issues.162 The claimant asserted that “a single
situation included on the Orange List may necessitate an arbitrator’s disqualifica-
tion.”163 In addition, the claimant argued that her previous appointments in related
proceedings conflicted with a situation listed on the Orange List of the IBA Guide-
lines which has “placed her on an unequal footing in her understanding of the
proceeding, as she may have heard Venezuela’s position several times.”164
157
Harris C (2008) Arbitrator challenges in investment arbitration. Transnatl Disp Manag 4:1
158
Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela,
ICSID Case No. ARB/10/5, Decision on Claimant’s Proposal to Disqualify Professor Brigette
Stern, Arbitrator, 23 December 2010 (“Tidewater v. Venezuela”), } 64
159
Tidewater v. Venezuela, } 64
160
161
162
Universal Compression v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/9,
Decision on Claimant’s Proposal to Disqualify Professor Brigitte Stern and Professor Guido S.
Tawil, Arbitrators (May 20, 2011), }} 24–26.
163
Id., } 22
164
Id., } 15
The Chairman of the ICSID Administrative Council rejected the claimant’s

challenge based on repeat appointment by the same party or law firm, noting that
there were no objective facts to suggest that her independence or impartiality would
be manifestly impacted by the multiple appointments.165 The Chairman held that
Professor Stern’s appointment to more than 20 ICSID cases indicates that she is not
dependent, economically or otherwise, upon the respondent for her appointments in
these cases.166
It could be concluded that an arbitrator cannot be disqualified on the sole basis
that he or she participated in a similar arbitration proceeding. The World Bank
President went on to state that “international investment framework would cease
to be viable if an arbitrator was disqualified simply for having faced similar factual or
legal issues in other arbitrations.”167
In Opic Karimun v. Venezuela, the tribunal found that Professor Philippe Sands’
previous appointment by respondent’s counsel in two unrelated cases (involving
Turkmenistan, not Venezuela) did not “reach the level of multiple appointments that
would by themselves demonstrate the manifest lack of independence required to be
established for a successful proposal to disqualify under the Convention.”168
In similar tone, the tribunal in Elitech v. Croatia cited Tidewater to state that the
claimants had failed to provide evidence (i) of dependence, financial or otherwise
that existed between Professor Stern and the respondent or its counsel and (ii) that
would give rise to the inference that Professor Stern’s decisions would be influenced
in any way by the fact of such multiple appointments by one party.169
The above case law may perhaps be telling of an emerging development that
repeat appointments by a party are, in and of themselves, unlikely to result in
disqualification under the ICSID Convention. Rather, the overall circumstances are
to be considered, and in particular (a) the prospect of continued and regular appoint-
ment, with the attendant financial benefits, might create a relationship of dependence
or otherwise influence the arbitrator’s judgment and (b) whether there is a material
risk that the arbitrator may be influenced by factors outside the record in the case as a
result of his or her knowledge derived from other cases.
In other arbitral proceedings not conducted under the ICSID Convention, the
outcomes are similar, and it is also not likely that an arbitrator would be easily
challenged in similar circumstances, provided that the arbitrator’s prior involvement
is duly disclosed to the parties before the arbitration begins. In Qatar v. Creighton,
165
Id., } 101
166
Id.,
167
Tshiamo K. Issue conflicts in investment treaty arbitration: a move towards stricter application of
impartiality standards? (Part 2 of 3-Part Series), Young ICCA Blog. http://www.youngicca-blog.
com/issue-conflicts-in-investment-treaty-arbitration-a-move-towards-stricter-application-of-impar
tiality-standards-part-2-of-3-part-series/
168
Opic Karimun Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/14,
Decision on the Proposal to Disqualify Professor Philippe Sands, 5 May 2011, } 53
169
Elitech B.V and Razvoj Golf D.O.O. v. Republic of Croatia, ICSID Case No. ARB/17/32,
Decision on the Proposal to Disqualify Professor Brigitte Stern, 23 April 2018, } 50
Creighton appointed the same arbitrator in numerous arbitrations arising out of the
same contract with Qatar. Prior to the proceeding in question, the arbitrator had sat in
an arbitration between the prime contractor, Creighton, and its subcontractors. It was
held that no grounds were present to question the arbitrator’s impartiality. The
challenge to disqualify the arbitrator was rejected as the previous arbitration was
not sufficiently connected to the proceeding at issue.170
Similarly, in Frémarc v. ITM Enterprises,171 ITM Enterprises appointed the same
arbitrator for different arbitrations. It was not disclosed at the time the tribunal is
formed. On that basis, the challenge for the appointment of the arbitrator was
successful not because the arbitrator had been nominated on previous occasions by
the ITM Enterprises, but rather because the arbitrator had failed to disclose his
previous appointments as an arbitrator.
Although the question, “how many appointments is too many?” remains, the key
takeaway is that the number of appointments by the same party or counsel will not be
sufficient to establish an evidentiary burden that there is a “manifest” lack of
independence. The ICSID Convention’s requirement that the lack of independence
be “manifest” is a relatively high burden to overcome for parties in pursuit of
challenging arbitrators.
To determine whether the repeated appointment of an arbitrator impairs the
arbitrator’s duty to be impartial and independent, it must look at the specific facts
of each case. In particular, the issue of repeated appointments of an arbitrator is a
subjective assessment and focuses on whether the arbitrator has disclosed the
circumstances that may or may not raise justifiable doubts to his or her ability to
be independent and impartial before the present arbitral tribunal is formed.172
Issue Conflicts
Given the relative similarity of the core legal protections among the thousands of
bilateral and multilateral investment treaties currently in force, it is inevitable that the
disposition of investment treaty claims usually turns on a handful of recurring and
often unsettled legal issues that can determine outcomes: umbrella clauses, effects of
MFN clauses, definition of investment, elements of fair and equitable treatment,
questions of necessity and essential security interests, and the like.173
170
Response to Challenge of Prof. Brigitte Stern in Murphy Exploration & Production Company –
International v. Republic of Ecuador, UNCITRAL Arbitration Pursuant to the Ecuador-United
States BIT, 11 January 2012. https://www.italaw.com/sites/default/files/case-documents/ita0917.pdf
171
Frémarc v. ITM Enterprises. Cour de Cassation (2e Chambre Civile), 6 décembre 2001, 4 Revue
de l’arbitrage, 1231–1233 (2003)
172
Giraldo-Carrillo N (2011) The ‘repeat arbitrators’ issue: a subjective concept. Intl Law Rev
Colomb Derecho Inter 19:75–106
173
International Council for Commercial Arbitration, Report of the ASIL-ICCA Task Force on
Issue Conflicts in Investor-State Arbitration, ICCA Reports No. 3, 17 March 2016 (“ICCA
Report”) } 12, p. 6
The term “issue conflict” has come to be widely used in international arbitration
literature and, increasingly, in arbitrator challenges, but the term has no settled
definition.174 Roughly speaking, therefore, the focus with respect to “issue conflicts”
is on whether the arbitrator in question is not impartial or independent based on prior
rulings about the same (usually legal) issues.
In a recent decision upholding a challenge to an arbitrator on this basis, Judge
Peter Tomka, then-President of the International Court of Justice, set out his under-
standing of the matter:
[T]he basis for . . . a challenge invoking an “issue conflict” is a narrow one as it does not
involve a typical situation of bias directly for or against one of the parties. The conflict is
based on a concern that an arbitrator will not approach an issue impartially, but rather with a
desire to conform to his or her own view. In this respect . . . some challenge decisions and
commentators have concluded that knowledge of the law or views expressed about the law
are not per se sources of conflict that require removal of an arbitrator; likewise, a prior
decision in a common area of law does not automatically support a view that an arbitrator
may lack impartiality. Thus, to sustain any challenge brought on such a basis requires more
than simply having expressed any prior view; rather, I must find, on the basis of the prior
view and any other relevant circumstances, that there is an appearance of prejudgment of an
issue likely to be relevant to the dispute on which the parties have a reasonable expectation
of an open mind.175
While the IBA Guidelines do not address or define the term “issue conflict,” they
do contemplate the notion of issue-based conflict in connection with repeat appoint-
ments in Article 3.1.5 of the so-called Orange List,176 which provides that an
arbitrator has a duty to disclose the following circumstance:
The arbitrator currently serves, or has served within the past three years, as arbitrator in
another arbitration on a related issue involving one of the parties or an affiliate of one of the
parties.
The International Council for Commercial Arbitration (“ICCA”) in its report on

issue conflicts in investor-State arbitration rightly captures the troubling wording of
the IBA Guidelines:
How does an arbitrator know if he or she has been appointed in a case involving a “related
issue” prior to reading the pleadings and listening to the parties’ arguments in a case? The
fact that an arbitrator is required to know and disclose this information may put undue
pressure on arbitrators and counsel to engage in a substantive “interview” concerning the
174
ICCA Report, } 14, p. 7
175
CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telcom Devas
Mauritius Limited v. Republic of India, UNCITRAL, Decision on the Respondent’s Challenge to the
Hon. Mark Lalonde as Presiding Arbitrator and Prof. Francisco Orrego Vicuña as Co-Arbitrator
(“CC/Devas v. India”) 30 September 2013, } 58
176
The Orange List’s title in Article 3.1 is “Previous services for one of the parties or other
involvement in the case.”
issues in a case. Some consider that this type of vetting or issue-based interviewing of
arbitrators is in and of itself unethical and taints the practice of international arbitration.177
There exists a limited body of publicly available decisions concerning challenges

alleging some form of inappropriate predisposition by an arbitrator. The decisions
reflect three areas that are perceived to undermine an arbitrator’s impartiality: (1)
scholarly or professional writing and speech and (2) prior service as counsel or
advocate addressing similar issues.178
Scholarly Materials
In Urbaser SA v. Argentine Republic,179 the two unchallenged arbitrators rejected a
challenge by claimants based on two of Professor Campbell McLachlan’s scholarly
writings claimed to favor the respondent’s positions on important issues in the
pending case, the application of most-favored nation (MFN) clauses, and the defense
of necessity. In a 2007 treatise, Professor McLachlan had strongly criticized what he
characterized as the “heretical” earlier decision in Maffezini v. Spain, holding that the
MFN provision in the bilateral investment treaty between Argentina and Spain
served to import the more liberal dispute settlement provisions of the corresponding
treaty between Chile and Spain.180
The second challenged writing, an article in the International and Comparative
Law Quarterly,181 involved the necessity defense. Professor McLachlan there
applauded the CMS Annulment Committee’s discussion of the necessity defense,182
writing that “the eminent experience in public international law of the [Annulment]
Committee, suggest that great weight should be given to the Committee’s categorical
views on the central issues confronted in these cases.”183
The unchallenged arbitrators rejected the contention that their colleague “lacks
the freedom to give his opinion and to make a decision with respect to the facts and
circumstances of this case because he already had prejudged those facts and circum-
stances, issued his opinion, and made it known.”184 Instead, the unchallenged
arbitrators held:
What matters is whether the opinions expressed by Prof. McLachlan on the two issues
qualified as crucial by Claimants are specific and clear enough that a reasonable and
informed third party would find that the arbitrator will rely on such opinions without giving
177
ICCA Report, } 55
178
ICCA Report, } 107
179
Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The
Argentine Republic, ICSID Case No. ARB/07/26 (“Urbaser SA v. Argentine Republic”)
180
Id.
181
McLachlan C. Investment treaties and general international law. Int Law Comp Law Q 57:361,
385–91
182
Urbaser SA v. Argentine Republic, } 53
183
Urbaser SA v. Argentine Republic, } 24
184
Id., } 14
proper consideration to the facts, circumstances, and arguments presented by the Parties in
this proceeding
. . . [T]he mere showing of an opinion, even if relevant in a particular arbitration, is not
sufficient to sustain a challenge for lack of independence or impartiality of an arbitrator. For
such a challenge to succeed there must be a showing that such opinion or position is
supported by factors related to and supporting a party to the arbitration (or a party closely
related to such party), by a direct or indirect interest of the arbitrator in the outcome of the
dispute, or by a relationship with any other individual involved, such as a witness or
arbitrator.185
The disqualification of Prof. McLachlan was not successful as his previous

academic publications did not violate Article 14(1) of the ICSID Convention.
However, Prof. McLachlan was required to provide a statement to assure that he
would not be biased or constrained in his judgment in the arbitration and that his
previous academic publications will not affect the outcome of the case.186
In Repsol v. Argentina,187 the respondent challenged Professor Orrego Vicuña on
the ground that he had published an article defending the CMS v. Argentina award
following its annulment and that in the article Prof. Orrego Vicuña had “adopted” the
views of a second author who expressed negative views of Argentin, and had
suggested that Argentina should not be entitled to invoke the necessity defense.188
However, the President of the ICSID Administrative Council rejected this challenge:
Regarding Professor Orrego Vicuña’s 2010 publication, the President notes that this publi-
cation considers an opinion on a legal provision that is not present in the legal instrument
relied on in this case. Similarly, references by Professor Orrego Vicuña to a publication by a
third party do not constitute evidence of the manifest lack of impartiality against Argentina,
as required by Article 57 of the Convention.189
In CC/Devas (Mauritius) Ltd. Et al. V. India,190 India challenged both the

presiding arbitrator, Hon. Marc Lalonde, and the arbitrator appointed by the claim-
ants, Professor Orrego Vicuña, because they had served together on two tribunals
(CMS and Sempra) that took a position on a legal issue (“essential security inter-
ests”) expected to arise in the current proceedings. The respondent also cited
Professor Orrego Vicuña’s participation in a third award addressing the same issue
and in a later article defending his views on the issue. The respondent emphasized
that all three arbitral decisions were later annulled or annulled in part.191
185
Tidewater v. Venezuela, Id., } 79
186
Id., } 144
187
Repsol v. Argentine Republic, ICSID Case No. ARB/12/38, Decision on the Request for
Disqualification of the Majority of the Tribunal, 13 December 2013
188
Id., }} 27, 28, 30, 31
189
Id., } 103
190
CC/Devas v. India
191
Id., } 3
Judge Tomka accepted the challenge Prof. Orrego Vicuña, but rejected the
challenge to Mr. Lalonde, although he had joined with Orrego Vicuña on two of
the three Argentine cases involving the “necessity” issue cited in the challenge.
In my view, being confronted with the same legal concept in this case arising from the same
language on which he has already pronounced on the four aforementioned occasions could
raise doubts for an objective observer as to Professor Orrego Vicuña’s ability to approach the
question with an open mind. The later article in particular suggests that, despite having
reviewed the analyses of three different annulment committees, his view remained
unchanged. Would a reasonable observer believe that the Respondent has a chance to
convince him to change his mind on the same legal concept? Professor Orrego Vicuña is
certainly entitled to his views, including to his academic freedom. But equally the Respon-
dent is entitled to have its arguments heard and ruled upon by arbitrators with an open mind.
Here, the right of the latter has to prevail.192
In Caratube International Oil Company LLP & Mr. Devincci Salah Hourani v.
Republic of Kazakhstan, the claimants sought to disqualify an arbitrator, Mr. Boesch,
because of his previous arbitrator appointment by the law firm Curtis, Mallet-
Prevost, Colt & Mosle LLP for Kazakhstan in Ruby Roz Agricol v. The Republic
of Kazakhstan. The claimants argued that Mr. Boesch would not be able to exercise
his duties independently and impartially as the two cases contained very obvious
similarities. The second factor that the claimant argued is that several witnesses –
who had also submitted witness statements in the Ruby Roz case – were likely to give
evidence in the current proceeding. Furthermore, Mr. Boesch also failed to disclose
his knowledge of facts in the Ruby Roz case to the current tribunal members.
Additionally, the claimant argued that Mr. Boesch’s objectiveness to give an inde-
pendent and impartial decision would be affected because he was appointed numer-
ous times by the same law firm.
The tribunal disqualified Mr. Boesch. The tribunal explained that “a reasonable
and informed third party would find it highly likely that, due to his serving as
arbitrator in the Ruby Roz case and his exposure to the facts and legal arguments
in that case, Mr. Boesch’s objectivity and open-mindedness with regard to the facts
and issues to be decided in the present arbitration are tainted.”193
Past or Present Service as Counsel or Advocate

Concurrent or consecutive service by an individual as both advocate and arbitrator
on different investment arbitral proceedings has also been found to be
problematic.194
In the NAFTA arbitration case of Vito Gallo v. Canada,195 the claimant chal-
lenged Canada’s appointee, Mr. J. Christopher Thomas, on the basis that he was
192
Id., } 84
193
Id., } 144
194
Hranitzky DH, Romero ES (2010) The “double hat” debate in international arbitration. New
York Law J 14
195
Vito Gallo v. Canada, UNCITRAL, Challenge Decision, 14 October 2009
providing legal advice to Mexico, another NAFTA State Party, in his capacity as an
independent consultant with a Canadian law firm. The Deputy Secretary-General of
ICSID, Nassib Ziadé, observed that “[a]s things stand today, and irrespective of the
advisability of such a situation, one may, as a general matter, be simultaneously an
arbitrator in one case and a counsel in another.”196 However, Mr. Ziadé instructed the
arbitrator to choose between his representation of Mexico and his service as
arbitrator.
By serving on a tribunal in a NAFTA arbitration involving a NAFTA State Party,
while simultaneously acting as an advisor to another NAFTA State Party which has a
legal right to participate in the proceedings, an arbitrator inevitably risks creating
justifiable doubts as to his impartiality and independence.197
Outside the NAFTA context, such connections are also problematic. In the case of
Blue Bank v. Venezuela,198 the claimants appointed as arbitrator a partner in Baker &
McKenzie’s Madrid office who also was a member of the firm’s international dispute
resolution steering committee. Other partners from Baker & McKenzie offices in
New York and Caracas concurrently represented parties in claims against Venezuela
said to be similar to those to be considered by the Madrid lawyer. The President of
the ICSID Administrative Council upheld the respondent’s challenge and observed
“a degree of connection or overall coordination between the different firms com-
prising Baker & McKenzie international.”199
In addition, given the similarity of issues likely to be discussed in Longreef v. Venezuela and
the present case and the fact that both cases are ongoing, it is highly probable that Mr. Alonso
would be in a position to decide issues that are relevant in Longreef v. Venezuela if he
remained an arbitrator in this case.
In view of the above, the Chairman concludes that it has been demonstrated that a third
party would find an evident or obvious appearance of lack of impartiality200
Arguably, the circumstance of concurrent service as arbitrator and counsel can

potentially raise doubts as to the impartiality and independence of the concerned
individual in his or her role as arbitrator. The arbitrator could feel compelled to take a
certain position on a certain issue, not based on the merits, but in consideration of the
circumstance that if he or she took a different position as arbitrator, it may undermine
his or her credibility as counsel with respect to an argument on the same or similar
issue.201
196
Id., } 30
197
Id., } 32
198
Blue Bank International & Trust (Barbados) v. Bolivarian Republic of Venezuela, ICSID Case
No. ARB/12/20, Decision on the Challenge to José Maria Alonso, 12 November 2013
199
Id., } 83
200
Id., }} 84, 87
201
Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case
No. ARB/12/13, Decision on Claimant’s Proposal to Disqualify Mr. Bottini from the Tribunal under
Article 57 of the Convention, } 84
In both of the cases of Azurix v. Argentina and Siemens v. Argentina, Argentina

sought to disqualify the appointment of Andres Rigo Sureda, the chairman of the
tribunal in both proceedings. Argentina argued that Mr. Sureda’s law firm, Fulbright
& Jaworski, concurrently represented the claimant in another investment arbitration
against Peru. Furthermore, the person who Fulbright & Jaworski had appointed as an
arbitrator in the case against Peru also represented the claimants before Mr. Sureda in
the present cases. In Azurix v. Argentina, in an unpublished decision, the tribunal
rejected Argentina’s challenge to disqualify Mr. Sureda’s appointment. In Siemens v.
Argentina, the PCA also rejected Argentina’s challenge.202
In ICS v. Argentina,203 Argentina sought to disqualify the appointment of an
arbitrator appointed by the claimant. Mr. Alexandrov. Argentina argued that Mr.
Alexandrov and his law firm, Sidley Austin’s concurrent representation of Compañia
de Aguas del Aconquija S.A. and Vivendi Universal S.A. in a separate case against
Argentina cast justifiable doubts on the ability of Mr. Alexandrov to be independent
and impartial. The appointing authority disqualified Mr. Alexandrov’s appointment
in the UNCITRAL proceeding. The appointing authority stated that the Mr.
Alexandrov and his law firm were in an adverse position toward the claimant
which should “be avoided, except where circumstances exist that eliminate any
justifiable doubts as to the arbitrator’s impartiality or independence.”
In Eureko v. Poland,204 Poland challenged Judge Schwebel as an arbitrator in the
UNCITRAL dispute. Poland argued that Judge Schwebel had a close working
relationship with Sidley Austin, even though he was not a lawyer of the law firm.
Sidley Austin was representing for the claimant Cargill Corporation in another
investment arbitration against Poland. Even though Judge Schwebel was not
involved in the case of Cargill v. Poland, he worked as a co-counsel for Sidley
Austin in numerous investment arbitration disputes.
Judge Schwebel’s office was also in the same building as the law firm. Poland
argued that Judge Schwebel’s relationship with the law firm resulted in objectively
justifiable doubts as to the arbitrator’s ability to be independent and impartial. The
Belgian Court of First Instance rejected Poland’s challenge. The court found that
since Judge Schwebel was not involved in the Cargill case and simply because the
arbitrator’s office was in the same building as the law firm was “not sufficient to
maintain a suspicion with regard to [the arbitrator’s] independence and
impartiality.”205
202
Id., } 97
203
ICS Inspection and Control Services Limited v. Argentine Republic (UNCITRAL), Decision on
Challenge to Mr. Stanimir A. Alexandrov, 17 December 2009
204
Republic of Poland v. Eureko, RG 2006/1542/A, 22 December 2006; Sheppard A (2009)
Arbitrator independence in ICSID arbitration. In: Binder C, Kriebaum U, Reinisch A, Wittich S
(eds) International investment law for the 21st century: essays in honour of Christoph Schreuer.
205
Id., } 97
Conclusion
The selection of arbitrators in investment arbitration requires a delicate balance

between upholding the system’s overriding objective to ensure the independence
and impartiality of the decision-makers responsible for the growth of case law in this
area and the need for qualified arbitrators, on the one hand, and the need to not
unnecessarily constrain a party’s fundamental right to appoint arbitrators of its
choosing, on the other. The freedom and control that parties have in appointing an
arbitrator who is best placed to decide their dispute remains one of the overriding
reasons that investment arbitration continues to grow in popularity as a dispute
resolution mechanism.206
However, the interpretation of standards of impartiality and independence is still
burdened with a considerable degree of uncertainty, particularly in the ICSID
context, in which the standard is qualified by the requirement that it be “manifest,”
and the decision is made by the challenged arbitrator’s colleagues on his or her
tribunal, who may well have more than just the merits of the challenge before them
in mind when making a decision.
This is a problem without an obvious solution since investment arbitral tribunals
are not bound to follow findings in other, even similar, cases. Left unchecked, this
might affect parties’ confidence in the fairness of the appointment of arbitrators in
investment arbitration.207 However, recent initiatives in FTAs and IPAs, together
with the efforts of the UNCITRAL Working Group III, indicate a change in the right
direction, as calls for codes of conduct for arbitrators, and their actual adoption in
recent instruments, go some – but not all of the – way in creating more measurable
standards against which actions and allegations of bias can be assessed.
Cross-References

▶ Drafting a Twenty-First-Century Code of Conduct for International Investment
Adjudicators
▶ Enforcement of Investment Arbitration Awards
Settlement
Id., } 24
206
Id., } 83
207
Managing Conflict of Interest in
International Arbitration: The Role of the 47
IBA Guidelines
Ricardo Dalmaso Marques and Fernanda Marques Dal Mas
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1190
The IBA Guidelines on Conflicts of Interest in International Arbitration and Its
2014 Revision Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1192
Extended Period on the Duties of Impartiality, Independence and Disclosure of
Arbitrators – GS (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1192
Advance Declarations or Advance Waivers by the Parties – GS (3) . . . . . . . . . . . . . . . . . . . . . . . . . . 1193
Independence and Impartiality of Arbitral or Administrative Secretaries and
Assistants – GS (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1193
Partners and Associates of Law Firms Acting as Arbitrators – GS (6) . . . . . . . . . . . . . . . . . . . . . . . 1193
Third-Party Funders and Insurers – GS (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1194
Parties’ Duty to Disclose Situations that May Give Rise to a Potential Conflict of
Interest – GS (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1194
The Red, Orange, and Green Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1194
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1195
Abstract
This chapter provides an overview of the 2014 revisions to the IBA Guidelines on
Conflicts of Interest in International Arbitration, which have become a very
important tool and are regularly referred to in decisions on challenges to arbitra-
tors as indicative for assessing whether a conflict of interest may exist. The
majority of the ad hoc Committee in Total v Argentina considered that the IBA
Guidelines were “a very useful tool, insofar as they reflect a transnational
consensus on their subject matter, and therefore have been used as reference for
R. Dalmaso Marques (*)

University of São Paulo (USP), São Paulo, Brazil
e-mail: ricardodalmaso5@gmail.com
F. Marques Dal Mas
Pinheiro Neto Advogados, São Paulo, Brazil
e-mail: fmarques@pn.com.br

https://doi.org/10.1007/978-981-13-3615-7_114
1190 R. Dalmaso Marques and F. Marques Dal Mas
handling issues related to conflicts of interest in international arbitration.” The

IBA Guidelines are also called to play a greater role in the future of investment
dispute resolution as there are some new investment treaties, for example,
the Comprehensive Economic and Trade Agreement between Canada and the
European Union (CETA), where the contracting parties provide that the arbitra-
tors should comply with the IBA Guidelines. Although the original version of the
rules remains essentially intact in terms of purpose and approach, the 2014
changes brought new directives to practitioners as to the proper application and
interpretation of the Guidelines’ existing provisions which are discussed.
Keywords
IBA Guidelines · Conflict of Interest · International Arbitration · General
Standards · Red List · Orange List · Green List · Impartiality · Independence
Introduction
Much has been written and said in recent years about perceived problems in interna-
tional arbitration. The very theme of this important conference is the reassessment of,
and introspection about, basal conceptions and structures of the process of arbitration.
Concerns about investor-State dispute settlement (ISDS) provisions in international
investment treaties have been an area of particular focus, and the debate about invest-
ment arbitration has become prominent both within the arbitration community, and in
government, the academy and the press. These issues, by and large, are focused on
national sovereignty and public accountability issues and are arising at a time of
increased fragmentation of, and skepticism toward, globalized trade.
There have been several developments toward greater transparency in investment
arbitrations. They include the publication by UNCITRAL in 2014 of the
UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration that
apply to investment treaties concluded after 1 April 2014 and where arbitrations are
conducted under UNCITRAL rules. UNCITRAL has subsequently developed its
Rules on Transparency into the United Nations Convention on Transparency in
Treaty-based Investor-State Arbitration (the Mauritius Convention), which was
opened for signature on 17 March 2015 and entered into force on 18 October
2017.1 The Mauritius Convention applies the UNCITRAL Rules on Transparency
to investment treaties concluded before 1 April 2014.2
1
See UNCITRAL (2014) Status – United Nations convention on transparency in treaty-based
investor-state arbitration. New York. http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/
2014Transparency_Convention_status.html. While the treaty has entered into force, as at 6 April
2018 there are only three State parties that have ratified it: Mauritius, Canada and Switzerland. 22
State parties have signed the Mauritius Convention, including Australia, the USA, the UK, France,
Germany, and Italy.
2
Mauritius Convention, Arts 1(1), 2.
47 Managing Conflict of Interest in International Arbitration: The Role of. . . 1191
This chapter focuses on the International Bar Association (“IBA”) Guidelines on

Conflicts of Interest in International Arbitration (“Guidelines”), which have become
a very important tool and are regularly referred to in decisions on challenges to
arbitrators as indicative for assessing whether a conflict of interest may exist. For
instance, the majority of the ad hoc Committee in Total v Argentina considered that
the IBA Guidelines were “a very useful tool, insofar as they reflect a transnational
consensus on their subject matter, and therefore have been used as reference for
handling issues related to conflicts of interest in international arbitration.”3 The IBA
Guidelines are also called to play a greater role in the future of investment dispute
resolution as there are some new investment treaties (like Comprehensive Economic
and Trade Agreement between Canada and the European Union (CETA)4), where
the contracting parties provide that the arbitrators should comply with the IBA
Guidelines.
This chapter first introduces the IBA Guidelines and the 2014 revision process
(section “Introduction”). The chapter further explains how the general standard
establishes that the duties of impartiality, independence, and disclosure of arbitrators
(section “The IBA Guidelines on Conflicts of Interest in International Arbitration
and its 2014 Revision Process”) and provides that disclosure by an arbitrator must
take place regardless of an “advance declaration” or “advance waiver” made by the
parties (section “Extended Period on the Duties of Impartiality, Independence and
Disclosure of Arbitrators – GS (1)”). The 2014 changes to the Guidelines also
broaden the scope of their application (section “Advance Declarations or Advance
Waivers by the Parties – GS (3)”), while the changes implemented in General
Standard (6) are of special relevance to law firms (section “Independence and
Impartiality of Arbitral or Administrative Secretaries and Assistants – GS (5)”).
Moreover, legal and natural persons with a direct economic interest in the outcome
of the arbitration are equated to (i.e., are regarded as the same as) the parties for
purposes of conflict of interest check (section “Partners and Associates of Law firms
Acting as Arbitrators – GS (6)”), and the General Standard (7) indicates that the
parties have the duty to disclose any relevant relationship existing among parties,
arbitrators, lawyers, and interested third parties (section “Third-Party Funders and
Insurers – GS (6)”). Part II of the Guidelines addresses the practical application of
the general principles by establishing descriptive lists intended to define the
3
TOTAL S.A. V. ARGENTINE REPUBLIC (ICSID CASE NO. ARB/04/01). DECISION ON
ANNULMENT. In the decision rendered on February 1, 2016, the ad hoc Committee decided to
dismiss Argentina’s Application for Annulment of the Award and of the Decisions on Jurisdiction
and Liability, which form integral part of the Award, rendered on November 27, 2013, paragraph 98.
Argentina based its request in three grounds: (i) the Tribunal manifestly exceeded its powers; (ii)
there were serious departures from fundamental rules of procedure; and (iii) the Award failed to
state the reasons on which the decision was based. The mentioned grounds were applied to five
particular issues.
4
See CETA art. 8.30(1). The CETA is a new trade agreement between the EU and Canada which
entered into force provisionally on 21 September 2017. The CETA consolidated text is available at
https://ec.europa.eu/trade/policy/in-focus/ceta/. The text is the outcome of the legal review
conducted by the Canadian Government and the European Commission.
arbitrators’ duties in concrete situations (section “Parties’ Duty to Disclose Situa-

tions that May Give Rise to a Potential Conflict of Interest – GS (7)”). Finally, the
conclusion draws some policy lessons for the future.
The IBA Guidelines on Conflicts of Interest in International

Arbitration and Its 2014 Revision Process
In general terms, the IBA Guidelines are a set of nonbinding rules that have gained
much attention and recognition in the international arbitration community over the
16 years of their existence. The most recent version of the Guidelines was approved
by the IBA Council on October 23, 2014, and suffered minor updates on August 10,
2015.
As explained by the IBA itself, one of the Guidelines’ main purposes is to “assist
parties, practitioners, arbitrators, institutions and courts in dealing with [the]
important questions of impartiality and independence [of arbitrators].”5 In this
context, the appointment of arbitrators, possible grounds for their challenge, and
information disclosure are some of the issues that the Guidelines have tackled aiming
to strengthen legal certainty in the international arbitration field.
With this same goal in mind, the IBA Arbitration Committee was charged in 2012
with reviewing the Guidelines in light of the worldwide experience acquired under
its 2004 version, which became the subject of several studies carried out by the
Committee. In this context, and although the Guidelines remain essentially intact in
terms of purpose and approach (“If it ain’t broke, don’t fix it” was one of the core
principles for the revisions), the 2014 changes brought new directives and clarifica-
tions as to the proper application and interpretation of the existing provisions.
Extended Period on the Duties of Impartiality, Independence and

Disclosure of Arbitrators – GS (1)
General Standard (1) establishes that the duties of impartiality, independence, and
disclosure of arbitrators must remain unaffected throughout the whole arbitral pro-
ceedings. The 2014 revision clarifies that these duties must be observed until the
correction or interpretation of the final award by the arbitrators; they do not extend to
the period during which the award may be challenged before the courts, on the other
hand.
5
Cf. International Bar Association Guidelines on Conflicts of Interest in International Arbitration.
Retrieved from https://www.ibanet.org/Document/Default.aspx?DocumentUid¼e2fe5e72-eb14-
4bba-b10d-d33dafee8918. See Chaisse J, Donde R (2018) The state of investor-state arbitration –
a reality check of the issues, trends, and directions in Asia-Pacific. Int Lawyer 51(1):47–67
Advance Declarations or Advance Waivers by the Parties – GS (3)
General Standard (3) was also modified to provide that disclosure by an arbitrator
must take place regardless of an “advance declaration” or “advance waiver” made
by the parties. Although the Guidelines remain silent as to the validity and effec-
tiveness of such declarations and waivers – an issue that must be analyzed under
each specific applicable law – they expressly state that arbitrators are not released
from their ongoing duty of disclosure to any extent.
Independence and Impartiality of Arbitral or Administrative

Secretaries and Assistants – GS (5)
The 2014 changes to the Guidelines also broaden the scope of their application, as
General Standard (5) expressly extends the duties of independence, impartiality, and
disclosure to administrative secretaries and arbitrators’ assistants. General Standard
(5) further states that the Arbitral Tribunal is responsible for ensuring that all those
professionals involved in the proceedings also abide by such duties at all times.
The growing number of administrative secretaries over the years and the resulting
discussions regarding the scope of their involvement highlight the importance of
such provision. In 2014, for instance, Russia resorted to the Dutch courts in an
attempt to set aside the US$ 50 billion award rendered in Yukos Universal Limited
(Isle of Man) v. The Russian Federation,6 arguing, among other grounds, that the
assistant to the arbitral tribunal acted beyond his role, performing as an actual “fourth
arbitrator” in the case.7
Partners and Associates of Law Firms Acting as Arbitrators –

GS (6)
The changes implemented in General Standard (6) are of special relevance to law
firms. Although this standard states that arbitrators must identify the law firm they
work at or for, the 2014 Guidelines recommend that a potential conflict of interest
must be examined vis-à-vis several relevant aspects of the case, such as the actual
relationship between the arbitrator and the law firm, or the level, nature, and scope of
his or her activities therein.
This revision conciliates, on the one hand, the parties’ interest in appointing
experienced law firm partners as arbitrators, and, on the other hand, the need for
6
Cf. UNCITRAL, PCA Case No. AA 227.
7
Cf. Ross A (2015) Was the tribunal’s assistant the fourth Yukos arbitrator? Global Arbitr Rev.
Retrieved from https://globalarbitrationreview.com/article/1034016/was-the-tribunal%E2%80%
99s-assistant-the-fourth-yukos-arbitrator
strict observance of the duties of independence, impartiality, and disclosure by those

arbitrators.
Third-Party Funders and Insurers – GS (6)
Under General Standard 6(b), legal and natural persons with a direct economic
interest in the outcome of the arbitration are equated to (i.e., are regarded as the same
as) the parties for purposes of conflict of interest check. This is the case, for instance,
of third-party funders and insurers.8
Parties’ Duty to Disclose Situations that May Give Rise to a

Potential Conflict of Interest – GS (7)
General Standard (7) indicates that the parties – and not only arbitrators – have the
duty to disclose any relevant relationship existing among parties, arbitrators, law-
yers, and interested third parties. Thus, the parties are encouraged to inform the other
parties, the arbitrators, and the arbitral institution of any known fact or circumstance
that could create a potential conflict of interest between them (parties) and one or
more arbitrators.
General Standard (7)’s explanatory note clarifies that both the parties and the
arbitrators have an ongoing duty to investigate and check relevant information that is
reasonably accessible to them with the purpose of identifying potential conflicts of
interest. These are parallel and cooperative obligations upon the parties and arbitra-
tors, and not a burden imposed solely on the arbitrators, for instance.
The Red, Orange, and Green Lists
Part II of the Guidelines addresses the practical application of the general principles
by establishing descriptive lists intended to define the arbitrators’ duties in concrete
situations. Although the lists are nonexhaustive, they harmonize the specificities of
each situation with the general principles and aim at preventing challenges or
disqualifications of arbitrators for futile and frivolous reasons.
In this respect, in view of the IBA Committee’s experience over the years, the new
hypotheses included in the Lists are particularly in line, for instance, with the growth
of law firms and the increased interest of groups of companies in international
arbitration. Just to illustrate that, the following hypotheses were added to the Non-
8
See Chaisse J, Eken C (2020) The monetization of investment claims: promises and pitfalls of
third-party funding in investor-state arbitration. Del J Corp Law 44(2):463–509
Waivable Red List9: (i) “the arbitrator is a legal representative or employee of an

entity that is a party in the arbitration” (item 1.1); and (ii) “the arbitrator or his or
her firm regularly advises the party, or an affiliate of the party, and the arbitrator or
his or her firm derives significant financial income therefrom” (item 1.4).
Conclusion
As stated in their preamble, the 2014 revisions sought to keep the Guidelines’ abreast
of the experience acquired by the arbitration community over the years – such as the
relevant growth of law firms and of groups of companies – with special attention to
the increasing number of worldwide challenges filed against arbitrators or arbitral
awards in the past years.
The 2014 IBA Guidelines have thus contributed to the achievement of three
important and pressing goals in international arbitration: (i) to prevent futile and
frivolous challenges; (ii) to harmonize the standards and criteria for disclosure,
objections, and challenges applicable worldwide (as much as possible); and (iii) to
avoid the appointment of practitioners who cannot comply with duties and obliga-
tions that are inherent to the arbitrators’ or secretaries’ function.
The Guidelines’ main purpose remain to promote clear and fair standards for
arbitrators, lawyers, and parties involved in international arbitration; but, on an
equally important note, they can also contribute to safeguarding arbitral awards
against frivolous challenges that may be filed based on nonexistent violations of
the duties of impartiality, independence and disclosure (without ever affecting the
parties’ legitimate right to reasoned challenges, when they are indeed necessary, of
course).
9
Cf. International Bar Association Guidelines on Conflicts of Interest in International Arbitration.
Retrieved from https://www.ibanet.org/Document/Default.aspx?DocumentUid¼e2fe5e72-eb14-
4bba-b10d-d33dafee8918
Drafting a Twenty-First-Century Code of
Conduct for International Investment 48
Adjudicators
Katia Fach Gómez
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1198
The Growing Recognition of the Importance of Ethics for Investment Adjudicators . . . . . . . . 1199
CETA as a Paradigmatic Example of EU Policy Regarding Investment Adjudicator Ethics . . . 1203
The Global Need to Cast Light on Investment Adjudicators’ Duties: The
ICSID-UNCITRAL 2020 Draft Code of Conduct for Adjudicators in Investor-State
Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1208
The Opening Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1210
An Overview of Adjudicators’ Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1214
Detailed Provisions on Principles and Requirements Regarding Investment
Adjudicator’s Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1214
The Enforcement of Adjudicators’ Ethical Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1219
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1221
Abstract
An “ethics explosion” is emerging in the international investment arena in many
different ways. Along with the EU’s strong desire to regulate the ethical aspects of
adjudicators’ duties in its latest generation of IIAs, whether already in force or
still under negotiation, a growing number of non-European IIAs and Model
Agreements also contain provisions that include references to ethics and some-
times additionally provide a code of conduct for investment adjudicators. As a
logical consequence of this, ICSID, hitherto the heavyweight par excellence in
the investment resolution field, has also underlined the growing importance of
ethical issues in the course of its on-going rule amendment process. In the same
vein, since 2017, the UNCITRAL Working Group III has been reflecting on the
need for and potential content of an Investor-State Dispute Settlement Reform
and has devoted special attention to ISDS court members. As the winds of change
are pointing towards the creation of a Multilateral Investment Tribunal, the need
K. Fach Gómez (*)
Zaragoza University, Zaragoza, Spain

https://doi.org/10.1007/978-981-13-3615-7_23
1198 K. Fach Gómez
to count on an all-embracing code of conduct with a vocation for universality is

becoming more evident. ICSID has responded to these global perspectives by
partnering with UNCITRAL to present a 2020 Draft Code of Conduct for
Adjudicators in Investor-State Dispute Settlement. In spite of the fact that the
Code of Conduct is still at draft stage, it is worth devoting this chapter to
analyzing its content and paying attention to the justifications and clarifications
provided by its institutional authors. This also entails indirectly analyzing other
recent codes of conduct, which are compared with the new ICSID-UNCITRAL
proposal.
Keywords
Ethics · Code of conduct · Investment arbitrators · Independence · Impartiality ·
Disclosure · Confidentiality · Personal diligence and integrity · Multilateral
Investment Court (MIC) · ICSID
Introduction
It is well known that a significant proportion of disputes arising from international

investments are resolved outside national justice systems. In other words, the judges
working within a State’s judicial organization, to which a predetermined system of
rules of conduct and sanctions is applicable, are not those in charge of resolving
these conflicts, as both the plaintiff investor and the defendant State have an interest
in relying on party-appointed arbitrators to resolve their differences. Although
ICSID is the main institution in the management of investment arbitrations, its
provisions on the arbitrators’ actual ethical duties have been so far both brief and
generic. Article 14 of the ICSID Convention illustrates it: “Persons designated to
serve on the Panels shall be persons of high moral character and recognized
competence in the fields of law, commerce, industry or finance, who may be relied
upon to exercise independent judgment. Competence in the field of law shall be of
particular importance in the case of persons on the Panel of Arbitrators.” The
outcome has been a gap in practice with regard to the specifications for and
assessment of the crucial role played by investment arbitrators in the process of
settling investment disputes. Given that conflicts derived from international invest-
ments are of unquestionable importance at legal as well as economic and social
levels, this chapter aims to take a decisive step into the future by making a case for
the drafting of a twenty-first century code of conduct for international investment
adjudicators.
Focusing on the structure of this chapter, section “The Growing Recognition of
the Importance of Ethics for Investment Adjudicators” reflects on the growing
importance of ethics vis-à-vis the figure of investment adjudicators within the
international investment milieu. Section “CETA as a Paradigmatic Example of EU
Policy Regarding Investment Adjudicator Ethics” is devoted to CETA (Article 8.30,
as well as the code of conduct, which is still a work in progress) and presents the
48 Drafting a Twenty-First-Century Code of Conduct for International. . . 1199
Agreement as a paradigmatic example of EU policy regarding investment adjudica-

tor ethics. Section “The Global Need to Cast Light on Investment Adjudicators’
Duties: the CIADI-UNCITRAL 2020 Draft Code of Conduct for Adjudicators in
Investor-State Dispute Settlement” contains a detailed examination of the CIADI-
UNCITRAL 2020 Draft Code of Conduct for Adjudicators in Investor-State Dispute
Settlement, a very recent proposal that is willing to cast light on investment adjudica-
tors’ duties from a global perspective. Section “Conclusion” concludes the chapter
with some reflections on the possible future of this area of international economic law.
The Growing Recognition of the Importance of Ethics for

Investment Adjudicators
This section describes how the evolution and consolidation of the legal area known
as international investment law is bringing about increased key stakeholder interest
in the figure of the investment adjudicator. Recent decades have witnessed ever-more
insistent demands for the development of transversal criteria in the adjudicators’
exercise of their professional activity, and as a consequence, greater efforts have
been made to pin down their duties. It is clear from a historical-chronological
analysis of the evolution of investment adjudicators’ responsibilities that this field
is becoming more and more relevant and will continue to do so over the coming
years.
“First generation” BITs do not contain express references to the ethical duties of
investment adjudicators.1 The fact is that these BITs are quite short texts aimed at
presenting a series of substantive and procedural guarantees for investors from both
States, and thus contain only a single general article dealing with the settlement of
investment disputes between an investor of a contracting party and the other
contracting party. This kind of provision establishes the possibility of investors
being able to choose from among a series of dispute resolution mechanisms. In the
vast majority of cases, they offer the option of referring the dispute to the Interna-
tional Centre for the Settlement of Investment Disputes (ICSID). If this course of
action is chosen, ICSID rules contain some precepts that address aspects concerning
its arbitrators that may be classified as ethical (Article 14 Convention, Articles 56–58
Convention, Rules 6 and 9 of the Arbitration Rules, etc.). This indirect route
1
Despite the lack of express references to the ethical duties of investment adjudicators in these BITs,
IIAs of this type are not completely removed from the characteristics that authorities resolving
investment controversies need to have. Thus, when dealing specifically with expropriation, texts
like the Philippines – United Kingdom BIT (1980), the Egypt – Korea, Dem. People’s Rep. of BIT
(1997), and the Botswana – Ghana BIT (2003) stipulate that: “A national or company so affected
shall have a right, under the law of the Contracting Party making the expropriation, to prompt
review, by a judicial or other independent authority of that Party, of his or its investment in
accordance with the principles set out in paragraph (1) of this Article” (text from the latter BIT).
It must be borne in mind, however, that this reference to adjudicator independence is limited by its
material scope (expropriation) and only refers to national authorities. The texts of these IIAs are
available at the UNCTAD Investment Policy Hub. https://investmentpolicy.unctad.org/
therefore guarantees ethical minimums for adjudicators,2 although, as is also known,

the practical application of these precepts is extremely controversial in the invest-
ment arbitration milieu.3 The lack of ethical requirements for adjudicators in the
texts’ main bodies shows that BIT signatory States have tended to take an approach
that prioritized financial issues (investment promotion and protection) without
considering whether the adjudicators’ profiles should have been specified in detail
in texts of this nature.
Nonetheless, some Economic Partnership Agreements (EPAs), such as the
ASEAN-Japan EPA (2008),4 the CARIFORUM – EC EPA (2008),5 and the EU –
Colombia – Peru Trade Agreement (2012)6 do allude to essential ethical require-
ments for arbitrators. It should not be forgotten, however, that these Agreements
actually refer to dispute settlement between States and not to Investor-State Dispute
Settlement (ISDS). Statements in these texts, such as “An arbitrator shall be chosen
strictly on the basis of objectivity, reliability, sound judgment and independence and
shall conduct himself or herself on the same basis throughout the course of the
arbitral tribunal proceedings” (Article 65.6 of the ASEAN-Japan EPA)7 and “They
shall be independent, serve in their individual capacities and not take instructions
from any organisation or government, or be affiliated with the government of any of
the Parties, and shall comply with the Code of Conduct annexed to the Rules of
Procedures” (Article 221 of the CARIFORUM – EC EPA),8 have to be understood in
an inter-State context. The same applies to the Code of Conduct for Arbitrators to be
2
A 2015 report commissioned by the European Parliament’s Committee on International Trade
stated: “Currently, only few treaties explicitly provide for such standards. In lieu thereof, the codes
of conduct of the respective arbitration institution may provide guidance.” Hindelang S, Sassenrath
CP (2015) The Investment Chapters of the EU’s International Trade and Investment Agreements in
a Comparative Perspective. EP/EXPO/B/INTA/2015/01, September 2015, PE534.998, p. 64.
3
Fach Gómez K (2019) Key duties of international investment arbitrators. A transnational study of
legal and ethical dilemmas. Springer, Switzerland.
4
ASEAN-Japan Comprehensive Economic Partnership Agreement. https://www.mofa.go.jp/policy/
economy/fta/asean.html
5
CARIFORUM-EU Economic Partnership Agreement (EPA). https://ec.europa.eu/chafea/agri/en/
content/cariforum-eu-economic-partnership-agreement-epa
6
Trade Agreement between the European Union and its Member States, of the one part, and
Colombia and Peru, of the other part. https://eur-lex.europa.eu/legal-content/EN/TXT/?
uri¼CELEX%3A22012A1221%2801%29
7
This is accompanied by the following statement: “If a party to the dispute believes that an arbitrator
is not adhering to the basis stated above, the parties to the dispute shall consult and if they agree, the
arbitrator shall be removed and a new arbitrator shall be appointed in accordance with this Article.”
https://www.mofa.go.jp/policy/economy/fta/asean.html
8
Very similar wording appears in Article 304.3 of the Trade Agreement between the European
Union and its Member States, of the one part, and Colombia and Peru, of the other part: “They shall
be independent, impartial, shall have neither a direct nor indirect relationship with any of the Parties,
and shall not receive instructions from any Party or from any organisation. The arbitrators shall
comply with the code of conduct established in accordance with this Title (hereinafter referred to as
“Code of Conduct”).” https://eur-lex.europa.eu/legal-content/EN/TXT/?uri¼CELEX%
3A22012A1221%2801%29
adopted by Trade Committees, to which the two latter EPAs both make express
reference. The existence of ethical requirements for adjudicators in the inter-State
trade framework, as well as the fact that codes of conduct are a more common
phenomenon in the context of commercial arbitration and ADR mechanisms such as
mediation,9 may nevertheless have influenced the “export” of these ethical duties to
the ISDS framework provided for in the IIAs.
Some more recent texts such as the Australia – China FTA (2015)10 and the
Trans-Pacific Partnership (TTP) (2016)11 have taken a step forward in specifying the
ethical duties of investment adjudicators. The chapters dedicated to investments in
these texts include an article on the constitution of the tribunal or on arbitrator
selection which expressly refers to the ethical requirements applicable to the adju-
dicators. For instance, article 9.15.8 of the Australia – China FTA (2015) states that:
“All arbitrators appointed pursuant to this Section (. . .) shall be independent, serve in
their individual capacities and not take instructions from any organisation or gov-
ernment with regard to matters related to the dispute, or be affiliated with the
government of either Party or any disputing party (. . .) Arbitrators who serve on
the list established pursuant to paragraph 5 shall not, for that reason alone, be
deemed to be affiliated with the government of either Party.”
In addition, these new generation texts do not refer the specifying of adjudicator
ethical standards to external organizations and texts, but make express provision for
the need for investment adjudicators to have their own codes of conduct within the
framework of the IIAs themselves. By way of an example, the TPP proposes to
“customise” the existing Code of Conduct for Dispute Settlement Proceedings
regarding disputes between Contracting Parties (Chapter 28-Dispute Settlement),
providing guidance on its application to arbitrators that have been selected to serve
on investor-State dispute settlement tribunals, as well as including any necessary
modifications to the Code so that it conforms to the specific investor-State dispute
settlement context.12 This is complemented by the provision that: “The Parties shall
also provide guidance on the application of other relevant rules or guidelines on
conflicts of interest in international arbitration. Arbitrators shall comply with that
9
Holtzmann HM (1977) The first code of ethics for arbitrators in commercial disputes. Bus Law
33:309; Byrne OK (2002) A new code of ethics for commercial arbitrators: the neutrality of party-
appointed arbitrators on a tripartite panel. Fordham Urb Law J 30:1815; Feerick JD (1997) Toward
uniform standards of conduct for mediators. S Tex L Rev. 38:455; Exon SN (2006) How can a
mediator be both impartial and fair: Why ethical standards of conduct create chaos for mediators. J
Disp Resol p 387.
10
Free Trade Agreement between the Government of Australia and the Government of the People’s
Republic of China. https://www.dfat.gov.au/sites/default/files/chafta-agreement-text.pdf
11
Trans-Pacific Partnership. https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-
partnership
12
Article 9.22.6 TPP: “The Parties shall, prior to the entry into force of this Agreement, provide
guidance on the application of the Code of Conduct for Dispute Settlement Proceedings under
Chapter 28 (Dispute Settlement) to arbitrators selected to serve on investor-State dispute settlement
tribunals pursuant to this Article, including any necessary modifications to the Code of Conduct to
conform to the context of investor-State dispute settlement.”
guidance in addition to the applicable arbitral rules regarding independence and

impartiality of arbitrators.” For its part, the Australia – China FTA has chosen to
create a code of conduct specifically for investment arbitrators. This text (Annex 9-A)
consists of seven sections that address the following questions: key definitions13;
responsibilities to the process; disclosure obligations; performance of duties by
arbitrators; independence and impartiality of arbitrators; duties in certain situations;
and maintenance of confidentiality.
Texts such as these, which represent an advance with respect to specifying
investment adjudicators’ duties, have been developed in parallel to the European
Union’s (EU) process of modifying the classic ISDS system. It is well known that on
the basis of the 2015 European Commission Report on the online public consultation
on investment protection and investor-to-State dispute settlement in TTIP,14 in May
2015, the EU issued its concept paper “Investment in TTIP and beyond – the path for
reform,” proposing a brand new model of dispute resolution that revolved around a
permanent two-tier investment court.15 Trade Commissioner Malmstöm justified this
significant EU policy shift by declaring that: “What has clearly come out of the
debate is that the old, traditional form of dispute resolution suffers from a funda-
mental lack of trust. However, EU investors are the most frequent users of the
existing model, which individual EU countries have developed over time. This
means that Europe must take the responsibility to reform and modernise it. We
must take the global lead on the path to reform”.16 In the wake of such explicit
statements, the EU has ensured that its new investment policy is reflected in a good
number of IIA negotiations. Some of them simply ground to a halt (TTIP), others
came to fruition (e.g., CETA, the EU-Singapore IPA and the EU-Vietnam IPA), and
others are still open today (e.g., the EU-Mexico Trade Agreement). Texts such as
these share two characteristics with regard to the ethical profile of adjudicators: their
13
These definitions are placed, rather surprisingly, at the end of Annex 9A of the Australia – China
FTA.
14
Commission Staff Working Document, Online public consultation on investment protection and
investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership
Agreement (TTIP), Brussels, 13 January 2015, SWD (2015) 3 final.
15
European Commission Concept Paper, Investment in TTIP and beyond – the path for reform.
Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment
Court, 5 May 2015.
16
European Commission News Archive, Commission proposes new Investment Court System for
TTIP and other EU trade and investment negotiations, 16 September 2015. Canada had also harshly
criticized the classical ISDS system. Thus, in 2012, the Standing Committee on International Trade
of the Canadian House of Commons reported that the New Democratic Party opposed including
investor-State arbitration in CETA and recommended that Canada follow the lead of Australia in
rejecting investor-State arbitration in future trade and investment agreements. House of Commons
of Canada, Negotiations Toward a Comprehensive Economic and Trade Agreement (CETA)
between Canada and the European Union. Report of the Standing Committee on International
Trade, March 2012, 49.
provisions contain references to adjudicator ethics17 and also provide for the appli-
cation of a code of conduct on the matter, either one that already exists or is in the
process of being drawn up.18 It is worth analyzing this type of IIA in more detail,
taking Article 8.30 (“Ethics”) of the EU-Canada Comprehensive Economic and
Trade Agreement (CETA) as an example.
CETA as a Paradigmatic Example of EU Policy Regarding

Investment Adjudicator Ethics
The EU’s incursion into the field of foreign direct investment has brought with it an
awareness of the need to ensure that investment adjudicators’ duties are visible.19 An
examination of the drafting history of Article 8.30 CETA shows that during the
extensive negotiations between Canada and the European Union, the content and
length of this provision on ethics increased in direct proportion to the controversy
that it generated among stakeholders. The Parties’ growing interest in adjudicator
ethics must be understood within a much broader framework of deep structural
reforms which attempt to judicialize the role of former arbitrators, who are now
designated in CETA as Tribunal Members.20 That is, international agreements such
as CETA incorporate a new system of resolving investment disputes between
17
Article 8.30, Section F (Resolution of investment disputes between investors and States), Chapter
8 (Investment) of the EU-Canada Comprehensive Economic and Trade Agreement (hereinafter,
Article 8.30 CETA) (CETA provisionally entered into force on 21 September 2017, but the articles
on investment dispute resolution were excluded from the provisional application’s scope); Article
3.40, Sub-Section 4 (Investment Tribunal System), Section B (Resolution of Disputes between
Investors and Parties), Chapter 3 (Dispute Settlement) of the EU-Vietnam IPA (hereinafter, Article
3.40 EU-Vietnam IPA) (IPA signed on 30 June 2019); Article 3.11 Section A (Resolution of
Disputes Between Investors and Parties), Chapter 3 (Dispute Settlement) of the EU-Singapore
IPA (hereinafter, Article 3.11 EU-Singapore IPA) (IPA needs to be ratified by all EU Member States
according to their own national procedures before it can enter into force and FTA entered into force
on 21 November 2019); Article 13 of the Section [X]: Resolution of Investment Disputes of the EU-
Mexico Agreement (the legal scrubbing of the whole agreement is being finalised); Article 11,
Section 3 (Resolution of Investment Disputes and Investment Court System), Chapter II (Invest-
ment) Transatlantic Trade and Investment Partnership (TTIP) (hereinafter, Article 11 TTIP).
18
Article 8.44 CETA, Annex 11 EU-Vietnam IPA; Annex 7 EU-Singapore IPA; Annex 1. Section
19 EU-Mexico Trade Agreement and Annex II Chapter 2 TTIP.
19
What is stated in this section is directly based on an extensive analysis of Article 8.30 CETA,
published by the author in: Fach Gómez K (2020) Article 8.30 CETA. In: Bungenberg M, Reinisch A
(eds) CETA Investment Law. Article-by-Article Commentary, Nomos/Beck/Hart, Germany. See also
Lavranos N (2020) The ICS and MIC projects: a critical review of the issues of arbitrator selection,
control mechanisms, and recognition and enforcement. In Chaisse J, Choukroune L, Jusoh S (eds)
Handbook of international investment law and policy. Springer, Switzerland, pp. 10–13.
20
As far as this chapter is concerned, references to Members of the Tribunal must be considered to
include “the Members of the Appeal Tribunal.”
investors and states that presents “features associated with the rule of law with
respect to the administration of justice.”21
The current version of Article 8.30 of CETA is made up of four paragraphs.22
Paragraph 1, which brings to the fore some of the most controversial issues sur-
rounding adjudicators in international investment disputes, opens with a requirement
for independence on the part of Members of the Tribunal. It also bans them from any
governmental affiliation and from taking instructions from others with regard to
matters related to disputes. CETA adjudicators are also instructed on avoiding
conflicts of interest and are required to comply with certain ethical rules (the IBA
Guidelines on Conflicts of Interest or supplemental rules such as a CETA Code of
Conduct). This opening section ends by taking a stand against the phenomenon
known as “double hatting.” Paragraphs 2 and 3 of Article 8.30 CETA affirm the right
of any of the disputing parties to demand the replacement of a Member of the
21
Schill S, Vidigal G (2018) Cutting the Gordian knot: investment dispute settlement à la Carte,
RTA exchange. International Centre for Trade and Sustainable Development, Geneva, p 9.
Jemielniak stresses the importance of this “judicialization of the role of adjudicators in ICS.”
Jemielniak J (2018) How much of a court? The EU Investment Court as a hybrid mechanism. In:
Chaisse J (ed) China-European Union Investment Relationships: towards a new leadership in global
investment governance? Edward Elgar Publishing, UK, p 240.
22
Article 8.30 establishes that: “1. The Members of the Tribunal shall be independent. They shall
not be affiliated with any government (*). They shall not take instructions from any organisation, or
government with regard to matters related to the dispute. They shall not participate in the consid-
eration of any disputes that would create a direct or indirect conflict of interest. They shall comply
with the International Bar Association Guidelines on Conflicts of Interest in International Arbitra-
tion or any supplemental rules adopted pursuant to Article 8.44. 2. In addition, upon appointment,
they shall refrain from acting as counsel or as party-appointed expert or witness in any pending or
new investment dispute under this or any other international agreement.”
2. If a disputing party considers that a Member of the Tribunal has a conflict of interest, it may
invite the President of the International Court of Justice to issue a decision on the challenge to the
appointment of such Member. Any notice of challenge shall be sent to the President of the
International Court of Justice within 15 days of the date on which the composition of the division
of the Tribunal has been communicated to the disputing party, or within 15 days of the date on
which the relevant facts came to its knowledge, if they could not have reasonably been known at the
time of composition of the division. The notice of challenge shall state the grounds for the
challenge.
3. If, within 15 days from the date of the notice of challenge, the challenged Member of the
Tribunal has elected not to resign from the division, the President of the International Court of
Justice may, after receiving submissions from the disputing parties and after providing the Member
of the Tribunal an opportunity to submit any observations, issue a decision on the challenge. The
President of the International Court of Justice shall endeavour to issue the decision and to notify the
disputing parties and the other Members of the division within 45 days of receipt of the notice of
challenge. A vacancy resulting from the disqualification or resignation of a Member of the Tribunal
shall be filled promptly.
4. Upon a reasoned recommendation from the President of the Tribunal, or on their joint
initiative, the Parties, by decision of the CETA Joint Committee, may remove a Member from the
Tribunal where his or her behaviour is inconsistent with the obligations set out in paragraph 1 and
incompatible with his or her continued membership of the Tribunal.
*
For greater certainty, the fact that a person receives remuneration from a government does not in
itself make that person ineligible.”
Tribunal if he or she is considered to incur in a conflict of interest. These two

paragraphs therefore lay the foundation for disqualifying adjudicators for ethical
reasons, giving teeth to a series of ethical duties that should no longer be deemed
merely soft law.23 Paragraph 4 of Article 8.30 CETA closes this provision by
establishing a mechanism for removing CETA adjudicators.
The conciseness of Article 8.30 CETA’s four paragraphs should not be mis-
interpreted. The Article should in fact be approached as a box with a false bottom;
that is, these paragraphs incorporate two lengthy and highly relevant texts by
reference: the 2014 IBA Guidelines on Conflicts of Interest and the prospective
CETA Code of Conduct, both of which deserve to be analyzed in a little more depth.
A feature of CETA is its mention of the International Bar Association Guidelines
on Conflicts of Interest in International Arbitration.24 This effectively entails making
a 27-page text,25 initially drafted as a soft law document, mandatory in the CETA
context.26 This incorporation by reference of the IBA Guidelines in the CETA
context – which has not yet been implemented in practice – is unquestionably
innovative and courageous, but the question arises as to whether it is also the most
practical and advisable option nowadays. Some scholars have criticized certain
aspects of the Guidelines, including their lack of sensitivity regarding various
peculiarities of the investment arbitration regime that are nonexistent in the
23
For example, a recently issued UNCITRAL Working Group III document regarding the drafting
of a code of conduct emphasized that “it was generally felt that it would not be prudent to rely on
voluntary compliance and that the consequences for non-compliance (sanctions) would need to be
clearly set forth.” UNCITRAL Working Group III. Report on the work of its thirty-eighth session,
Vienna, 14–18 October 2019, A/CN.9/1004, para. 62. This approach is likely to prevail globally.
24
EU IIAs such as the EU-Vietnam IPA, EU-Singapore IPA, EU-Mexico Trade Agreement, and
TTIP do not include this reference to the IBA Guidelines; instead there is a stipulation that
adjudicators shall comply with their code of conduct, already included in the respective IIA
Annex (Annex 11 EU-Vietnam IPA; Annex 7 EU-Singapore IPA; Annex 1. Section 19 EU-Mexico
Trade Agreement and Annex II Chapter 2 TTIP). On the contrary, this obligation to comply with the
IBA Guidelines has also recently been included in Annex 14-D (Mexico-United States Investment
Disputes) of the United States Mexico Canada Agreement (USMCA).
25
For a more detailed study of the text, Dalmaso Marques R, Marques Dal Mas F (2020) Managing
conflict of interest in international arbitration: the role of the IBA guidelines. In: Chaisse J,
Switzerland, p 1.
26
Although they have been praised in a good number of cases (described as “useful references,”
“instructive,” “the preeminent set of guidelines for assessing arbitrator conflicts,” “having persua-
sive authority,” “furnishing a useful indication,” and constituting “a most valuable source of
inspiration,”) in most cases, the conclusion is that ICSID adjudicators are solely bound by the
standard set out in the ICSID Convention. (“The IBA Guidelines are not binding in an ICSID
challenge”; they “are not law for ICSID tribunals” but “merely indicative”). Fach Gómez K (2019)
Key duties of international investment arbitrators. A transnational study of legal and ethical
dilemmas. Springer, Switzerland, pp. 81–87.
commercial context.27 Besides that, it cannot be denied that CETA’s reference to an

external text such as the IBA Guidelines is not without complications. Clearly
specifying the CETA adjudicators’ ethical duties requires not only detailed knowl-
edge of two texts that have been issued at different times by different authors, but
also interpreting and trying to align them. In some cases, a harmonious connection
between the content of Article 8.30 CETA, the CETA Code of Conduct, and the IBA
Guidelines might be hard to come by, as well as creating insecurities. This may
explain why any reference to the IBA Guidelines has been omitted from the 2020
ICSID-UNCITRAL Draft Code of Conduct, an issue that will be dealt with later.
To focus on the second reference, the prospective CETA Code of Conduct, on 11
October 2019, the European Commission issued a Proposal for a Council Decision
on the position to be taken on behalf of the European Union as regards the adoption
of a Code of Conduct for Members of the Tribunal, the Appellate Tribunal and
mediators.28 The Proposal contains an Annex with an 11-article draft code of
conduct, which would supplement Article 8.30 CETA (hereinafter, 2019 CETA
draft Code of Conduct).29 The proposed Code has the following structure: Defini-
tions (Article 1); Responsibilities to the Process (Article 2); Disclosure Obligations
27
Joelson MR (2015) A critique of the 2014 international bar association guidelines of conflicts of
interest in international arbitration. Am Rev. Int Arbitr 26(3):483; Cinelli Moreira NF (2014) The
arbitrator’s duty of disclosure analyzed through case-law: are the IBA guidelines on conflict of
interest in international arbitration enough to create consistency? Revista de Arbitragem e Mediaçao
40:115 (142); Krajewski M (2014) Modalities for investment protection and ISDS in TTIP from a
trade union perspective. Friedrich Ebert Stiftung, Bonn, p 17; Rubins N, Lauterburg B (2010)
Independence, impartiality and duty of disclosure in investment arbitration. In: Knahr C, Koller C,
Rechberger W Reinisch A (eds) Investment and commercial arbitration. Similarities and diver-
gences, p. 179. The ECJ recently underlined the differences between the arbitration referred to
primarily in the Guidelines and the judicial nature of the CETA court: “Article 8.30 of the CETA
makes reference to the power of the Committee on Services and Investment, the subject of Article
8.44 of that agreement, to adopt ‘supplemental rules’ in that regard, the use of the term ‘supple-
mental’ ensuring that that committee does not possess any power to diminish the effect of the
prohibition on conflict of interest already contained in that agreement, but will have to confine itself,
while maintaining the high standard of independence that stems from that prohibition, to adapting
the rules stated in the IBA Guidelines to the realities of an investment tribunal that is primarily
judicial in nature.” Opinion of the CJEU, 1/17, submitted by the Kingdom of Belgium, 30 April
2019, ECLI:EU:C:2019:341, para. 243.
28
European Commission, Proposal for a Council Decision on the position to be taken on behalf of
the European Union in the Committee on Services and Investment established under the Compre-
hensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the
European Union and its Member States, of the other part of the other part as regards the adoption
of a code of conduct for Members of the Tribunal, the Appellate Tribunal and mediators, 11 October
2019, COM/2019/459 final.
29
European Council, Draft Decision of the Committee on Services and Investment adopting a code
of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, ST
6966 2020 INIT, 7 May 2020. It is therefore not appropriate to consider Annex 29 – B CETA (Code
of conduct for arbitrators and mediators) applicable to Chapter 8 on investments, since the former is
connected only to Chapter 29 (dispute settlement between the EU and Canada regarding the way in
which they apply or interpret CETA).
(Article 3); Independence, Impartiality and Other Obligations of Members (Article

4); Obligations of Former Members (Article 5); Confidentiality (Article 6); Expenses
(Article 7); Sanctions (Article 8); Mediators (Article 9); Consultative Committees
(Article 10); and Entry into force (Article 11).30 At the time of writing, the formal
adoption of a Code of Conduct for CETA Members of the Tribunal, Appellate
Tribunal and mediators is still pending,31 although given the schedule referred to
above this is expected to occur in the near future.
In a nutshell, this Code of Conduct – and its counterparts in other EU IIAs –
“stretches” and details some core ideas regarding adjudicators’ duties that are only
briefly outlined in the body of the Agreement. In this sense, the Codes of Conduct
annexed to the Agreements both represent an acknowledgment of the importance of
ethical aspects and constitute an advance that deserves to be applauded. They
represent progress in terms of systematization, visibility, transparency, and account-
ability. As already indicated, taking as a reference the existence of codes of conduct
in the field of commercial arbitration and other ADR mechanisms, incorporating
codes of conduct into the international investment law field seemed both a necessity
and an unstoppable advance.32 Without detracting from this progress, it must,
however, be noted that the optimal content of this type of code of conduct never-
theless remains controversial. Similarly, there are fears that these codes may suffer
from ambiguity and lack of completeness. With the aim of dispelling such doubts,
the following section analyzes a recent proposal for a code of conduct, which is a
30
In light of the list of working papers distributed by the RELEX.1.A Unit of the General Secretariat
of the Council to the Trade Policy Committee (Services & Investments) in the January–June 2019
period, it appears that the EU document already included Canada’s comments on this draft code of
conduct. European Council, List of working papers distributed by the RELEX.1.A Unit of the
General Secretariat of the Council to delegations in the period January–June 2019, 23 July 2020,
9841/20.
31
On 7 May 2020, the European Council released a Draft Decision of the Committee on Services
and Investment adopting a code of conduct for Members of the Tribunal, Members of the Appellate
Tribunal and mediators. Consequently, Council Decision (EU) 2020/680 of 18 May 2020 stated
that: “The position to be taken on behalf of the European Union in the Committee on Services and
Investment as regards the adoption of a code of conduct for Members of the Tribunal, Members of
the Appellate Tribunal and mediators shall be based on the draft decision of the Committee on
Services and Investment.” European Council, Council Decision on the position to be taken on
behalf of the European Union in the Committee on Services and Investment established under the
Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the
European Union and its Member States, of the other part, as regards the adoption of a code of
conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, Council
Decision (EU) 2020/680, 18 May 2020, L 161/5, 25 May 2020.
32
Reputed scholarly voices have defended the importance of regulating these ethical issues:
“Likewise, tighter and more concrete ethical standards for dispute resolvers will help ensure a
more coherent habitus and adjudicatory posture, which will arguably translate into more coherent
interpretations.” Schill S (2017) Authority, legitimacy, and fragmentation in the (envisaged) dispute
settlement disciplines in mega-regionals. In: Griller S, Obwexer W, Vranes E (eds), Mega-regional
agreements: TTIP, CETA, TiSA. New orientations for eu external economic relations. Oxford
University Press, Oxford, p 139.
work in progress imbued with a global spirit: the CIADI-UNCITRAL 2020 Draft
Code of Conduct for Adjudicators in Investor-State Dispute Settlement.33
The Global Need to Cast Light on Investment Adjudicators’

Duties: The ICSID-UNCITRAL 2020 Draft Code of Conduct for
Adjudicators in Investor-State Dispute Settlement
Article 8.30 CETA is a significant manifestation of the “ethics explosion” that is

emerging globally in many different ways.34 Along with the EU’s strong desire to
regulate the ethical aspects of adjudicators’ duties in the various IIAs currently under
negotiation,35 a growing number of non-European IIAs36 and Model Agreements37
contain articles that include references to ethics and sometimes also provide a code
of conduct for investment adjudicators. In the same vein, since 2017 UNCITRAL
Working Group III has been reflecting on the need for and potential content of an
Investor-State Dispute Settlement Reform and has devoted special attention to ISDS
court members. As a logical consequence, ICSID, hitherto the heavyweight par
excellence in the investment resolution field, has also underlined the growing
importance of ethical issues in the course of its on-going rule amendment process.38
In short, everything leads to the ratification of a statement recently made within the
UNCITRAL Working Group III framework: “there is broad agreement on the
importance of codes of conduct and other ethical requirements for arbitrators.”39
33
ICSID and UNCITRAL, Draft Code of Conduct for Adjudicators in Investor-State Dispute
Settlement, 2020, https://uncitral.un.org/en/codeofconduct
34
The “pull effect” of adjudicator ethics has also reached other areas such as commercial arbitration.
See, for example, the August 2020 ICCA Public Consultation Draft in regarding its Guidelines on
Standards of Practice in International Arbitration.
35
Dimsey M, Pramod S (2020) Selection, bias, and ethics of arbitrators in investor-state arbitration.
In: Chaisse J, Choukroune L, Jusoh, S (eds) Handbook of international investment law and policy,
Springer, Switzerland, pp. 25–27.
36
See, for instance, Annex 14-A (Code of Conduct of Arbitrators) in the Indonesia-Australia
Comprehensive Economic Partnership Agreement (IA-CEPA), which entered into force on 5 July
2020. https://www.dfat.gov.au/trade/agreements/in-force/iacepa/iacepa-text/Pages/default
37
See, for example, Article 20 of the 2019 Netherlands Model Investment Agreement, Article 35 of
the 2019 Morocco Model BIT, Articles 18 and 19 of the 2016 India Model BIT, and Article 15 of the
2015 Norway Model Agreement. All these texts can be found at: https://investmentpolicy.unctad.
org/international-investment-agreements/model-agreements
38
ICSID, Working Paper 4. Proposals for amendment of the ICSID rules, Volume 1, February 2020.
https://icsid.worldbank.org/resources/rules-and-regulations/icsid-rules-and-regulations-amend
ment-working-papers
39
Working Group III UNCITRAL. Possible reform of investor-state dispute settlement (ISDS).
Ensuring independence and impartiality on the part of arbitrators and decision makers in ISDS, A/
CN.9/WG.III/WP.151, 30 August 2018, par. 10.
To take a step further, the winds of change are pointing towards the creation of a
Multilateral Investment Tribunal40 and, within this projected global context, the need
to be able to count on an all-embracing code of conduct with a vocation for
universality is becoming more evident.41 ICSID responded by partnering with
UNCITRAL to present a 2020 Draft Code of Conduct for Adjudicators in Inves-
tor-State Dispute Settlement,42 and it is this document that is examined here. In spite
of the fact that this Code of Conduct is still at draft stage, it is worth analyzing its
content and paying attention to the justifications and clarifications provided by its
institutional authors. Studying the ICSID-UNCITRAL 2020 Draft Code of Conduct
for Adjudicators will entail indirectly analyzing some of the aforementioned Codes
of Conduct, which will be compared with the new ICSID-UNCITRAL proposal.
The ICSID-UNCITRAL 2020 Draft Code of Conduct for Adjudicators in Inves-
tor-State Dispute Settlement contains 12 articles entitled: Definitions (Article 1);
Application of the Code (Article 2); Duties and Responsibilities (Article 3); Inde-
pendence and Impartiality (Article 4); Conflicts of Interest: Disclosure Obligations
(Article 5); Limit on Multiple Roles (Article 6); Integrity, Fairness, and Competence
(Article 7); Availability, Diligence, Civility, and Efficiency (Article 8); Confidenti-
ality (Article 9); Pre-appointment Interviews (Article 10); Article 11 (Fees and
Expenses); and Enforcement of the Code of Conduct (Article 12). The document
is complemented by a general introduction and each article is accompanied by a
commentary.43 To make this section more systematic, the content of the Draft Code
of Conduct is studied according to the following internal subdivision: (a) Opening
section; (b) Overview of adjudicators’ obligations; (c) Detailed provisions on prin-
ciples and requirements regarding investment adjudicator’s conduct; and (d) The
enforcement of adjudicators´ ethical obligations.44
40
Bungenberg M, Reinisch A (2020) From bilateral arbitral tribunals and investment courts to a
multilateral investment court: options regarding the institutionalization of investor-state dispute
settlement. Springer Nature, Switzerland; Howse R (2017) Designing a multilateral investment
court: issues and options. Yearbook Eur Law 36:209–236.
41
In the same vein, Anderson A (2018) Saving private ISDS: the case for hardening ethical
guidelines and systematizing conflicts checks. Georgetown J Int Law 1143(1173).
42
ICSID and UNCITRAL, Draft Code of Conduct for Adjudicators in Investor-State Dispute
Settlement, 2020, https://uncitral.un.org/en/codeofconduct
43
Giorgetti C (2020) “The Draft Code of Conduct for Adjudicators in Investor-State Dispute
Settlement: An Important Step Forward in the Reform Process?” EJIL: Talk! 13 August 2020,
https://www.ejiltalk.org/the-draft-code-of-conduct-for-adjudicators-in-investor-state-dispute-settle
ment-an-important-step-forward-in-the-reform-process/
44
This structure starts from the systematization carried out by the UNCITRAL and ICSID Secre-
tariats, but omits the section referring to the “appointment system” for the reasons that will be
explained later.
The Opening Section
The introduction to the 2020 Draft Code explains how and why UNCITRAL and
ICSID joined forces to prepare the document, which underlines from the beginning
that it “should be binding and contain concrete rules rather than guidelines.”45
Article 1 provides four key definitions for the purpose of the Draft Code: adjudica-
tors, assistants, candidates, and ISDS. The broad term “adjudicators” has been
chosen for both the title and body of the proposal so that various professional
profiles that may intervene in different phases of ISDS cases can be subsumed in
this notion: arbitrators, members of international ad hoc, annulment and appeal
committees, and judges in a permanent investor-State dispute settlement mecha-
nism.46 This implies, sensu contrario, that the Code of Conduct does not apply to
conciliators-mediators who may also participate in resolving disputes that arise from
international investments.47 The omission may be justified by the fact that the
Proposals for Amendment of the ICSID Rules have developed new mediation
rules “allowing parties to pursue a mediated resolution of all or part of a dispute
with the assistance of a mediator,”48 and that they already include Rule 17, which is
devoted to the “Role and Duties of the Mediator.”49 Likewise, the notion of
investment adjudicators does not cover professionals such as counsel or experts,
who tend to rely on the international soft law parameters or national ethics rules
referring to their respective professions.50
45
ICSID and UNCITRAL, Draft Code of Conduct, paragraph 5.
46
With this broad definition, the Draft Code does not wish to anticipate whether in the future the
ISDS will opt to keep ICSID arbitration as the main option or whether, on the contrary, permanent
courts with a bilateral approach or a permanent court with a multilateral approach will be created.
This is consistent with the current lack of definition regarding the way or ways in which the final
version of the Code of Conduct will be implemented (as a model for new treaties, as an addendum to
existing treaties, incorporated into procedural rules or incorporated into a multilateral instrument for
ISDS reform). UNCITRAL and ICSID Secretariats, Overview of Draft Code of Conduct, https://
icsid.worldbank.org/news-and-events/news-releases/icsid-and-uncitral-release-draft-code-conduct-
adjudicators
47
Professional profiles of this type, strictu sensu, do not adjudicate (in the sense that they do not “act
as a judge”).
48
Backgrounder on Working Paper #4, https://icsid.worldbank.org/resources/rules-and-regulations/
icsid-rules-and-regulations-amendment-working-papers
49
Other codes of conduct, however, do provide for the text to be applied to mediators. This is the
case in the most recent codes of conduct that have been created under the aegis of the EU. See, for
instance, the title and Article 1 of the CETA Draft Code. European Council, Draft Decision of the
Committee on Services and Investment adopting a code of conduct for Members of the Tribunal,
Members of the Appellate Tribunal and mediators, ST 6966 2020 INIT, 7 May 2020. https://
webcache.googleusercontent.com/search?q¼cache:itdOstQajH4J:https://data.consilium.europa.eu/
doc/document/ST-6966-2020-INIT/en/pdf+&cd¼1&hl¼es&ct¼clnk&gl¼es
50
See, for instance, Cummins T (2014) The IBA guidelines on party representation in international
arbitration – levelling the playing field? Arbitr Int 30(3):429–456; Kantor M (2010) A code of
conduct for party-appointed experts in international arbitration – can one be found? Arbitr Int 26
(3):323–380 (also with references to commercial arbitration).
Article 1 also defines candidates as “persons who have been proposed or

contacted for selection and potential appointment as adjudicator but have not yet
been confirmed in this role” and the Draft Code makes several references to them
(e.g., Articles 5, 7, 10, 12), beginning by stating that “candidates must comply with
the relevant provisions of the Code as soon as they are contacted in relation to a
possible appointment” (Article 2.2). In principle, the wording of the definition of
“candidate” refers to the broad notion of “adjudicator” in Article 1 and therefore
covers “arbitrators, members of international ad hoc, annulment or appeal commit-
tees, and judges on a permanent mechanism for the settlement of investor-State
disputes.” That is, it covers the whole “consensus” definition of adjudicator, which
does not prioritize between the ICSID system of party-appointed arbitrators (the
ISDS system past and present) and that of the members of a permanent investment
court (the ISDS system’s foreseeable future). Nevertheless, the recent document
entitled “Overview of Draft Code of Conduct” drawn up by the UNCITRAL and
ICSID Secretariats makes a rather upsetting statement when it expressly affirms that
Article 10 of the Draft Code of Conduct (pre-appointment interviews) deals with
“interviews in a party-appointment system”.51 If this institutional statement is taken
literally, Article 10 would not be applicable to structures such as those already
outlined by the CETA Court and a Multilateral Investment Tribunal like that
projected by CETA itself. To take the CETA system of the resolution of investment
disputes between investors and States as an example, the system referred to cannot
be considered a party-appointment system because the members of the tribunal are
not appointed by the parties in a specific dispute but selected by the CETA Joint
Committee itself (Article 8.27 CETA) with the aim of creating a long-term mandate
and hearing all the randomly assigned cases. If this narrow interpretation of Article
10 were imposed it would raise the question of whether the model presented by the
Secretariats prioritizes maintaining the ISDS status quo over efforts to establish a
multilateral investment court (MIC).52
Article 10 of the Draft Code of Conduct is devoted to pre-appointment interviews.
This draft article, which is a novelty with respect to preexisting codes of conduct for
investment adjudicators, is supposed to be a wake-up call for investment stake-
holders with regard to a long-debated issue in the commercial arbitration context.53
The first paragraph carries logical and generally accepted content that reflects what
has already been discussed in the legal context of commercial arbitration and
51
In the same sense, the introduction to this document states: “Articles 10 and 11 on interviews and
on fees apply where adjudicators are appointed by the parties, and their fees are paid by party
advances, either directly or through an arbitral institution”, and the commentary on Article 10 refers
to pre-appointment interview as a tool used by arbitration counsel.
52
From this author perspective, this Draft Code of Conduct should maintain neutrality on these
types of issues, without prioritizing an institutional structure over other possible ones.
53
Elopsson N (2013) Ex parte interviews of party-appointed arbitrator candidates: a study based on
the views of counsel and arbitrators in Sweden and the United States. J Int Arb 30:381; Friedman
MW (2008) Regulating judgment: a comment on the chartered institute of arbitrators’ guidelines on
the interviewing of prospective arbitrators. Disp Resol Int 2:288.
providing protection against future adjudicator challenges: “Any pre-appointment

interview shall be limited to discussion concerning availability of the adjudicator and
absence of conflict. Candidates shall not discuss any issues pertaining to jurisdic-
tional, procedural or substantive matters potentially arising in the proceedings.”
Paragraph 2, which is in brackets in the Draft Code of Conduct, seems less likely
to achieve consensus among investment stakeholders or to be incorporated into
sector practice. The statement “If any pre-appointment interview occurs, it shall be
fully disclosed to all parties upon appointment of the candidate” would entail
obliging the parties to “record or make notes of the pre-appointment interview
which could be shared upon acceptance of the appointment. Such a practice would
ensure that the interview stays within the proper scope and would reinforce confidence
of all parties that no inappropriate information was shared with a candidate.” Although
the positive effects that this new obligation may bring with it are not questioned here,
one could wonder whether this full disclosure were not a desideratum that is unlikely
to be fulfilled in the current scenario, which is still governed by classical ISDS. It
should not be forgotten that the debate over what some commentators allege are the
pernicious effects of excessive disclosure with regard to existing adjudicators is still
very much alive.54 Likewise, the fact that the recent Rules on Transparency in Treaty-
based Investor-State Arbitration say nothing on this issue is also symptomatic regard-
ing the feasibility and adequacy of Article 10.2 of the Draft Code of Conduct.
This would all appear to question the appropriateness of retaining Article 10 in
the Draft Code of Conduct. The same may be said with respect to Article 11, on fees
and expenses, whose Paragraph 1 would not be suitable for a permanent investment
court system either55 (“Any discussion pertaining to fees shall be concluded imme-
diately upon constitution of the adjudicatory body and, when possible, shall be
communicated to the parties through the entity administering the proceeding”).
Paragraph 2 refers to the highly reasonable duty of adjudicators to: “keep an accurate
and documented record of the time devoted to the procedure and of their expenses as
well as the time and expenses of their assistant” which, nevertheless, does not really
need to be individually located in a separate article.56 This requirement is only one of
54
legal and ethical dilemmas. Springer, Switzerland, pp. 25–121.
55
Once again the comment to Article 11 seems only to envisage a system like the current one of
party-appointed arbitrators, in which the adjudicators also seem to have a say in their own fees: “(it)
allows the parties to replace adjudicators if they cannot agree with the rate requested.” The
commentary itself recognizes the difficulty of applying the referred drafting in other contexts:
“This provision would not likely apply in the context of a standing body or mechanism, assuming
adjudicators would have a predetermined salary.”
56
Some EU-promoted texts such as EU-Vietnam IPA, EU Singapore IPA, and EU-Mexico Trade
Agreement do dedicate a specific article to expenses, but their wording is more limited than that
chosen for the Draft Code of Conduct: “Each Member shall keep a record and render a final account
of the time devoted to the procedure and of the expenses incurred” (Article 8 of the EU-Vietnam
IPA).
the many manifestations of the broader duty of personal diligence and integrity57 and
could therefore simply be relocated within the Draft Code of Conduct (for instance,
in Article 8, which in turn is a development of Article 3).
Article 1 also defines the notion of “assistants,” excluding “institutional assistants”,
that is, “members of arbitral institutions, including secretariats that provide adminis-
trative and registrar functions and assist in the proceedings as part of their regular work
for the institution,” therefore making the Code of Conduct only applicable to the “non-
institutional” assistant, that is “persons working under the direction and control of the
adjudicators.” This distinction reflects the reality of arbitration institutions such as
ICSID: investment disputes have an official secretary appointed by the ICSID Secre-
tary-General (Article 25 of the ICSID Administrative and Financial Regulations) and
sometimes also have a “(legal) assistant to the court,” appointed at the request of one or
more members of the ICSID arbitration panel. Excluding “institutional assistants” in
charge of providing “administrative or logistical help as part of their daily tasks” from
the regime established by the Draft Code of Conduct is again justified because there is
already a set of ethical rules that is applicable to these professionals’ performance. The
commentary to Article 1 justifies the inclusion of “non-institutional assistants” within
the personal scope of the 2020 Draft Code of Conduct because they are “research and
legal assistants over whom the adjudicators have direct control, such as associates in
an arbitrator’s law firm or clerks in relation to judges on a permanent standing body.”
This argument involving hierarchical control explains why the Draft Code of Conduct
imposes the following obligation on adjudicators: “Adjudicators shall take appropriate
steps to ensure that their assistants are aware of, and comply with, the relevant
provisions of this Code.” (Article 2.1). It should be noted here that the list of the
assistants’ tasks in Article 1 of the Draft Code of Conduct (“case-specific tasks,
including research, review of documents, drafting and other relevant assignments as
agreed in the proceeding”) is non-exhaustive and thus does not imply that any position
is taken vis-à-vis a particularly controversial open question regarding the assistants’
tasks58: where does the notion of organizational and administrative issues end, and
where do decision-making functions begin?59
Finally, Article 1 defines the term “investor-State dispute settlement” (ISDS). The
definition is a broad one, both in terms of the defendants’ characteristics (“a State or
a Regional Economic Integration Organization (REIO), or any constituent subdivi-
sion of the State or an agency of the State or the REIO”) and with regard to the basis
57
legal and ethical dilemmas. Springer, Switzerland, pp. 123–159.
58
legal and ethical dilemmas. Springer, Switzerland, pp 131–140.
59
However, the open-ended “drafting and other relevant assignments as agreed in the proceeding”
could create controversy. Other Codes of Conduct have limited assistants’ tasks: “assists the
member in his research or support him in his duties” (TTIP), “conducts research or provides
assistance to the Member” (EU-Singapore IPA).
for consent to dispute resolution60 (“whether arising under an investment treaty,

domestic law or an agreement by the parties to the dispute”).
An Overview of Adjudicators’ Obligations
Article 3 establishes a 4-point list of the “duties and responsibilities”61 attributed to

adjudicators. Point A includes a string of key notions, the practical precision of
which is extremely controversial, as the sector’s arbitration practice has shown (“At
all times, adjudicators shall be independent and impartial, and shall avoid any direct
or indirect conflicts of interest, impropriety, bias and appearance of bias”). These
duties are detailed in Articles 4, 5, and 6 of the Draft Code of Conduct. Point B, for
its part, (“At all times, adjudicators shall display the highest standards of integrity,
fairness and competence”) is addressed in Article 7; Point C (“At all times, adjudi-
cators shall be available and act with diligence, civility and efficiency”) is detailed in
Article 8; and Point D (“At all times, adjudicators shall comply with any confiden-
tiality and non-disclosure obligations”) is developed in Article 9. The use of
informative articles such as this, which merely give details of the core of the Code
of Conduct that are developed in the provisions that follow, is common in the sector
and has been used by various recent investment texts negotiated both within and
outside the EU context.62 It is therefore appropriate to analyze the articles that
describe the duties and responsibilities of investment adjudicators in greater detail.
Detailed Provisions on Principles and Requirements Regarding

Investment Adjudicator’s Conduct
Article 4 of 2020 ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in

Investor-State Dispute Settlement stipulates that adjudicators “shall at all times be
independent and impartial.”63 This initial statement is then clarified thus in the
60
The Secretariat’s commentary to Article 1 refers to “consent to arbitration” (Point 21), which
might be considered as an unconscious positioning on how the future ISDS is to be shaped.
61
The question arises as to whether there is any real difference between the two terms, especially
when dictionaries give them as synonyms. Taking into account that most preexisting Codes use only
the term duty, it would have been appropriate for the ICSID-UNCITRAL Draft Code of Conduct to
have expressly clarified this terminological issue.
62
For instance, Article 4 of the EU-Vietnam EPA Code of Conduct and Article 4 of the EU-Mexico
Trade Agreement Code of Conduct refer to “Duties of the Members”; Article 4 of the 2019 CETA
draft code of conduct is devoted to the “Independence, Impartiality and Other Obligations of
Members,” and Article 3 of the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP) Code of Conduct provides a list of “Governing Principles.”
63
This reference to “at all times,” also used in Article 3 of the Draft Code of Conduct, underlines an
issue that no longer raises doubts in the academic sphere: investment adjudicators’ duties are
continuous. This is expressly emphasized in Article 5.3 of the Draft Code of Conduct referring to
the disclosure obligations of investment adjudicators, for example.
provision: “In particular, adjudicators shall not: (a) Be influenced by self-interest,

outside pressure, political considerations, public clamour, loyalty to a party to the
proceedings or fear to criticism; (b) Allow any past or on-going financial, business,
professional, family or social relationships to influence their conduct or judgment;
(c) Take action that creates the impression that others are in a position to influence
their conduct or judgment; (d) Use their position to advance any personal or private
interests; or (e) Directly or indirectly, incur an obligation or accept a benefit that
would interfere, or appear to interfere, with the performance of their duties’.” As the
author has specified in previous works,64 investment adjudicators’ duties of inde-
pendence and impartiality are closely interrelated and their practical realization
continues to be the subject of intense debate among stakeholders in the ISDS milieu.
Both the text proposed for the 2020 Draft Code and the accompanying commentary
strive to reflect the basic issues in this matter on which there seems to be a more or
less general stakeholder consensus. Viewed against the fact that the 2019 CETA draft
code of conduct chose to address not only independence and impartiality but also
“other obligations of Members” in a single article,65 this 2020 Draft Code of
Conduct’s exclusive devotion of a provision to investment adjudicators’ indepen-
dence and impartiality is a positive development.
Article 5 of this Draft Code of Conduct, which is divided into four paragraphs,
and the accompanying commentary, are the longest texts in the document. The issue
at hand – conflicts of interest and disclosure obligations – clearly deserves this level
of attention. On this basis, it would perhaps not have been inappropriate to place this
provision before that referring to adjudicator independence and impartiality, just as
texts such as the 2019 CETA Draft Code of Conduct and the EU-Singapore Code of
Conduct chose to do. Like Article 4 of the 2020 Draft Code, Article 5 does not seem
to be aiming to create ground-breaking standards, nor to present innovative pro-
posals that clearly go beyond the current state of the art. Both the article and
commentary evidently draw on many different sources – other codes of conduct,
ICSID decisions, scholarly contributions, etc. – and it has the benefit of convincing
readers that disclosure and conflicts of interest experienced by adjudicators in
investment disputes are issues that can be regulated in a reasonable manner through
a single provision. It is surprising, however, that the extensive comment on Article 5
contains no express reference to the 2014 IBA Guidelines on Conflicts of Interest in
International Arbitration. As the comments on Article 8.30 CETA have already
pointed out, incorporating by reference the IBA Guidelines for the ethical duties of
investment adjudicators is a legislative policy decision that is not entirely problem-
free. However, it is fair to recognize that the IBA Guidelines have played a non-
64
Fach Gómez K (2020) Article 8.30 CETA. In: Bungenberg M, Reinisch A (eds) CETA Investment
Law. Article-by-Article Commentary, Nomos/Beck/Hart, Germany.
65
In the author’s opinion, it is not appropriate to leave this catch-all section (“and Other Obligations
of Members”) to the end of the article. Duties like fairness, diligence, and non-delegation of
responsibilities more than merit a separate article, as was the case in the 2018 CETA Draft Code
of Conduct (Article 4 – “Duties of Members,” followed by an Article 5 – “Independence and
Impartiality of Members”).
negligible role in the context of the abundant challenges raised in investment cases.
Although they are not strictu sensu the basis for resolving potential disqualifications,
the Guidelines have nevertheless been the touchstone for significant reflections and
subsequent advances in this legal field.
To summarize the main issues addressed by Article 5, Paragraph 1 states:
“Candidates and adjudicators shall avoid any direct or indirect conflict of interest.
They shall disclose any interest, relationship or matter that could reasonably be
considered to affect their independence or impartiality. To this end, candidates and
adjudicators shall make all reasonable efforts to become aware of such interests,
relationships and matters”.66 Following on from this firm declaration of intent,
Paragraph 2 illustrates the type of information that should be disclosed by means
of a 4-point list, which is less detailed as a whole than the IBA Guidelines’ content.
A noteworthy aspect of this paragraph is the obligation to disclose that is stipulated
in Point a): “Any professional, business and other significant relationships, within
the past [five] years with: (i) The parties [and any subsidiaries, parent-companies or
agencies related to the parties]; (ii) The parties’ counsel; (iii) Any present or past
adjudicators or experts in the proceeding; (iv) [Any third party with a direct or
indirect financial interest in the outcome of the proceeding].” This wording, with
doubts in square brackets, is based on Article 3 of the 2019 CETA Draft Code of
Conduct, which states that: “the disclosure of past interests, relationships or matters
shall cover at least the last five years prior to a candidate submitting an application or
otherwise becoming aware that he or she is under consideration for selection as a
Member.”67
The kinds of disclosure referred to in Points c) and d) are partially enclosed in
square brackets, showing that these are issues that are still pending specification in
the on-going debate regarding the UNCITRAL-ICSID Draft Code of Conduct:
“Disclosures shall include (c) All ISDS [and other [international] arbitration] cases
in which the candidate or adjudicator has been or is currently involved as counsel,
arbitrator, annulment committee member, expert, [conciliator and mediator]; and A
list of all publications by the adjudicator or candidate [and their relevant public
speeches].” The commentary on Article 5 deems these requirements to be innovative
while also enabling the thorny issues of repeat appointments and issue conflict to be
tackled. However, although some of the proposals, such as the duty of adjudicators
66
The provision does not distinguish between candidates and Members, which is also typical of
recent EU-IIAs. Probably because of this, the 2020 ICSID-UNCITRAL Draft Code of Conduct has
no provision referring exclusively to former Members, as other codes of conduct do.
67
This CETA provision, which imposes a duty of disclosure covering a specific time period
(5 years) is less radical than the 5-year ban (ex-ante quarantine period) in the 2019 Netherlands
Model Investment Agreement (Article 20.5: “Members of the Tribunal shall not act as legal counsel
or shall not have acted as legal counsel for the last 5 years in investment disputes under this or any
other international agreement.” https://investmentpolicy.unctad.org/international-investment-agree
ments/model-agreements), but if it is breached by CETA candidates – who are already Members –
sanctions may apply (Article 8 of the 2019 CETA draft Code), resulting in disqualification,
resignation, or removal of the CETA Member from the Tribunal (Articles 8.30.2, 8.30.3, and
8.30.4 CETA).
to disclose “their relevant public speeches,” are clearly well-intentioned, doubts can
be raised about their feasibility (e.g., does every public speech have to be kept in an
unalterable storage medium?).68 More generally, the applicability of Paragraph 2 in
its entirety also raises questions regarding adjudicators with long-term mandates in
an international body such as a possible Multilateral Investment Court.
Paragraphs 3 and 4 close Article 5 by underlining the breadth of the disclosure
duty, sometimes using very similar terminology to the IBA Guidelines69: “Adjudi-
cators shall have a continuing duty to promptly make disclosures pursuant to this
article. Candidates and adjudicators should err in favor of disclosure if they have any
doubt as to whether a disclosure should be made. Candidates and adjudicators are
not required to disclose interests, relationships or matters whose bearing on their role
in the proceedings would be trivial.”
Article 6 of the 2020 Draft Code of Conduct is entitled “Limit on Multiple Roles”
and addresses a highly controversial phenomenon known as “double hatting” –
referred to as “multiple hatting” in previous publications by this author. The wording
of this provision is somewhat embryonic, leaving various key questions that are
essential for determining the extent of the opposition to multiple hatting unresolved:
“Adjudicators shall [refrain from acting]/[disclose that they act] as counsel, expert
witness, judge or in any other relevant role at the same time as they are [within X
years of] acting on matters that involve the same parties, [the same facts] [and/or]
[the same treaty].” These moot issues include dichotomies such as prohibition
(“refrain from acting”) versus disclosure (“disclose that they act”),70 as well as
doubts over clearly identifying the roles that cannot be exercised simultaneously71
and the possible time limitations applicable in the area multiple hatting. The open
questions highlighted here do not only appear in this 2020 Draft Code of Conduct;
there are other texts that have been finalized and whose wording on the matter is still
68
Additionally, as the commentary itself acknowledges, it “may also create a significant burden for
prospective adjudicators” (paragraph 62).
69
For instance, General Standard 3 (d) of the IBA Guidelines on Conflicts of Interest in International
Arbitration states that: “any doubt as to whether an arbitrator should disclose certain facts or
circumstances should be resolved in favour of disclosure.” Resolution of the International Bar
Association Council of 23.10.2014.
70
As the commentary to Article 6 points out, there is a big difference vis-à-vis both focus and
consequences between creating “an outright ban on double-hatting” and “an obligation to disclose
the overlapping roles and allow the parties to challenge the adjudicator” (Point 67). If the “outright
ban” approach were chosen, this would create a clear difficulty with respect to arbitrators who are
the current designees of contracting States to the ICSID Panels of Arbitrators and may require the
establishment of a transitory regime (a phased approach) for this group (Point 69).
71
It is interpreted that this wording would make it possible to prevent the simultaneous exercise of
the roles of counsel and adjudicator, for instance (in ICSID, on the CETA Tribunal, as well as in a
prospective Multilateral Investment Court).
open to debate.72 It simply reflects the fact there is still a lack of consensus among
international investment law stakeholders about how to deal with multiple hatting.73
Article 7 of the 2020 Draft Code of Conduct is entitled “Integrity, Fairness and
Competence” and its four paragraphs list a series of duties; while these are consid-
ered a priori very reasonable and even unquestionable duties, doubts have neverthe-
less been raised about their specific delimitation in investment arbitration practice.
The duty outlined in Paragraph 4 is a good example: “adjudicators shall not delegate
their decision-making function to any other person,” as it was debated at length in
connection for instance with the Yukos case.74 The provision encompasses three
additional references within the broad notions of “Integrity, Fairness and Compe-
tence”: “Adjudicators shall have the highest standards of integrity and fairness. They
shall ensure that parties are treated with equality and that each party is given a
reasonable opportunity of presenting its case. 2. An adjudicator shall not engage in
ex parte contacts concerning the proceeding. 3. Adjudicators shall act with compe-
tence and shall take reasonable steps to maintain and enhance the knowledge, skills
and qualities necessary to fulfil their duties. Candidates should only accept appoint-
ments for which they are competent.”
Article 8 is also a sort of hotchpotch of ideas through which the 2020 Draft Code
of Conduct wishes to identify behavior to be subsumed under the catchall notions of
“Availability, Diligence, Civility and Efficiency.”75 As with the preceding article, it
is frankly difficult to question the reasonableness of these investment adjudicator
duties in general terms. However, the provision’s wording, which manages to be
both brief and very broad, does not seem to fully guarantee the absence of interpre-
tative doubts in future cases. The provision states: “1. Before accepting any appoint-
ment, adjudicators shall ensure their availability to hear the case and render all
decisions in a timely manner. Upon selection, adjudicators shall be available to
perform and shall perform their duties diligently and expeditiously throughout the
proceeding. Adjudicators shall ensure that they dedicate the necessary time and
effort to the proceedings and refuse competing obligations. They shall conduct the
proceedings so as to avoid unnecessary delays. 2. [Adjudicators shall refrain from
serving in more than [X] pending ISDS proceedings at the same time so as to issue
timely decisions.] 3. Adjudicators shall be punctual in the exercise of their functions.
72
See, for instance, Article 8.30 CETA. Fach Gómez K (2020) Article 8.30 CETA. In: Bungenberg
M, Reinisch A (eds.) CETA Investment Law. Article-by-Article Commentary, Nomos/Beck/Hart,
Germany.
73
Dias Simoes F (2018) Hold on to your Hat! Issue conflicts in the TTIP Proposal for an Investment
Court The Law and Practice of International Courts and Tribunals 17(1):98; Crook JR (2019) Dual
hats and arbitrator diversity: goals in tension. AJIL Unbound 113:284; Perry S (2012) Stockholm:
Arbitrator and counsel: the double-hat syndrome. Glob Arbitr Rev 7(2):43.
74
legal and ethical dilemmas. Springer, Switzerland, pp 131–140.
75
If the titles of Articles 7 and 8 are analyzed, the question arises as to whether there is an overlap of
sorts between some of their notions: Integrity, Fairness, Competence, Availability, Diligence,
Civility and Efficiency.
4. Adjudicators shall act with civility, respect and collegiality towards the parties and
one another, and shall consider the best interests of the parties.”
As its commentary states, “Article 9 codifies generally accepted rules of confiden-
tiality for adjudicators.” In that sense, the statements in Paragraph 1 are irrefutable:
“Adjudicators shall not (a) Disclose or use any non-public information concerning, or
acquired from, a proceeding except for the purposes of that proceeding; (b) Disclose or
use any such information to gain personal advantage or advantage for others or to
adversely affect the interests of others; and (c) Disclose deliberations of an ISDS
tribunal, or any view expressed by an adjudicator during the deliberations.” Paragraph
2, which also reflects a reasonable approach, might perhaps have been drafted in a
more synthetic way: “Adjudicators shall not disclose any decision, ruling or award to
the parties prior to delivering it to them. They shall not publicly disclose any decision,
ruling or award until it is in the public domain [and they shall not comment on any
decision, ruling or award in which they participated].”
The Enforcement of Adjudicators’ Ethical Obligations
Last but not least, Article 12 closes the Draft Code of Conduct by addressing a
fundamental issue for the Code’s future: its enforceability. Paragraph 1 states that:
“Every adjudicator and candidate has an obligation to comply with the applicable
provisions of this code.” That is, the article has chosen to prioritize what is known as
“voluntary compliance,” sending a gentle reminder to candidates and adjudicators
regarding their duty to comply with the code of conduct. Paragraph 2 of Article 12 also
incorporates another type of reminder, emphasizing that the code’s application in no
way denatures or blocks the preexisting regime regarding the disqualification and
removal of investment adjudicators76: “The disqualification and removal procedures in
the applicable rules shall continue to apply.” The classic investment arbitration system
and also texts such as CETA that include the figure of a permanent investment court
both expressly regulate figures such as disqualification and removal.77 In this
76
Article 8.1 of the 2019 CETA draft of code of conduct underlines the interconnection between
these two contexts, by stating that: “the provisions of this code of conduct shall be applied together
with the obligations set out in Article 8.30.1 of the Agreement and the procedures provided for in
Articles 8.30.2, 8.30.3 and 8.30.4 of the Agreement shall apply to violations of this code of
conduct.” It is worth noting that the article on sanctions of the CETA draft code of conduct has
no counterpart in the codes of conduct of the other EU IIAs analyzed throughout this chapter. That
is, there are no articles on sanctions in the codes of conduct in: Annex 11 EU-Vietnam IPA, Annex 7
EU-Singapore IPA, Annex 1. Section 19 EU-Mexico Trade Agreement or Annex II Chapter 2 TTIP.
77
Fach Gómez K (2021) Recusación de árbitros: algunas reflexiones en torno a los tribunales de
inversiones internacionales. In Álvarez Zárate JM, Zenkiewicz M (eds) El Derecho Internacional de
las Inversiones: Desarrollo actual de normas y principios. Universidad Externado de Colombia,
Bogotá, in press.
enforcement context, it indeed seems appropriate to remember that violating the code
of conduct may entail sanctions such as those mentioned above.78
However, an opinion has recently begun to emerge that considers these measures
to be insufficient to give teeth to this type of code of conduct for investment
adjudicators. A recently issued UNCITRAL Working Group III document managed
to overcoming the idea that talking about the sanctions applicable to investment
adjudicators is a kind of taboo,79 pointing out that “it was generally felt that it would
not be prudent to rely on voluntary compliance and that the consequences for non-
compliance (sanctions) would need to be clearly set forth”.80 The very brief wording
of Article 12.3 of the 2020 Draft Code of Conduct (“3. [Other options based on
means of implementation of the code]”) leaves the way open to a future phase
involving enhanced systematization of the sanctions that can be imposed on invest-
ment adjudicators. During its on-going deliberations within the framework of a
possible ISDS reform, UNCITRAL Working Group III has already verbalized the
form that possible sanctions could take: “sanctions linked with remuneration
scheme, disciplinary measures, reputational sanctions and notifications to profes-
sional associations (. . .) a centralized system or body for monitoring compliance as
well as a database on challenges and sanctioned arbitrators”.81 The commentary on
78
Note that the text of Article 12 chooses not to use the notion “sanction.” This notion is used, on the
contrary, in EU IIAs such as Article 8 of the 2019 CETA draft of code of conduct, which is entitled
“Sanctions.” UNCITRAL Working Group III uses the term “sanction” along with lighter terms such
as “consequence for noncompliance,” “enforcement mechanism,” or “measure.”
79
Until recently, only a few NGOs had raised their voices to criticize the lack of a set of sanctions in
this area. Alluding specifically to cases where the adjudicator had committed double hatting,
ICTUR and Greenpeace, had stated: “Moreover the consequences of any breach of these obligations
are insufficient. Parties to a dispute may challenge the appointment of a Member of a Tribunal in a
specific case on ‘conflict of interest’ grounds. This may lead to a disqualification of the Member
from hearing that particular case, but CETA does not appear to impose any other sanctions on the
Member for failing to have declared the conflict. The provisions also fail to ensure that – if the
conflict of interest is confirmed and the Member disqualified – that decisions already taken by the
Tribunal in that case would be annulled or even reviewed. It is also not guaranteed that such a
finding will automatically lead to the removal of the Member from the Tribunal and no guarantee is
provided that they might not adjudicate in further cases, even if their conduct breaches the
International Bar Association Guidelines. The Ethics provisions state that the CETA Joint Com-
mittee ‘may’ remove a Member of the Tribunal, but they are not obliged to do so. Nor do these
provisions bar Members who have been disqualified from reappointment. Given the gravity of
concerns about ISDS to date, these provisions would not appear to deepen the integrity of the
judicial system created under CETA’s investment chapter. While some ‘revolving door’ issues –
concerning the ability of lawyers to work simultaneously as both counsel and adjudicator in
multiple investment disputes – in the ISDS system appear to have been addressed, this has been
done very lightly and the results are unconvincing.” ICTUR and Greenpeace, “Investor protection
in CETA: Gold standard or missed opportunity?” 2016, https://www.greenpeace.org/eu-unit/issues/
democracy-europe/1229/investor-protection-in-ceta/, p. 12.
80
UNCITRAL Working Group III. Report on the work of its 38th session, Vienna, 14–18 October
2019, A/CN.9/1004, para. 62.
81
UNCITRAL Working Group III. Report on the work of its 38th session, Vienna, 14–18 October
2019, A/CN.9/1004, paras. 63–64 and 77.
the ICSID-UNCITRAL 2020 Draft Code of Conduct nevertheless seems quite

cautious vis-à-vis the matter, stating that several of the possible sanctions may be
“difficult to implement.” Perhaps it would have been beneficial if the document had
argued as to the optimal characteristics of these sanctions in greater detail, so as to
move forward the stakeholders’ debate that is expected to take place within the scope
of UNCITRAL. The same background reflection applies to the different ways in
which the 2020 Draft Code of Conduct could be implemented.
Conclusion
This chapter has described how the ethical challenges faced by investment adjudi-
cators and the means of successfully overcoming them are becoming increasingly
systematized in various types of mechanisms and initiatives (IIAs, Model Agree-
ments, UNCITRAL, ICSID, etc.). Viewed from a twenty-first century perspective,
the expansion of international investment arbitration was bound to result in increased
interest in the ethical issues linked to the figure of the investment adjudicator sooner
or later. The chapter has shown that the present reality, which can be described as
encouraging, would have been difficult to imagine just a few decades ago.
The term “adjudicator ethics” is no longer a mere desideratum or guiding
principle, but a notion whose material existence is steadily being reaffirmed. Inter-
national investment stakeholders now have texts such as the codes of conduct linked
to the EU IIAs and the 2020 ICSID-UNCITRAL Draft Code of Conduct for
Adjudicators in Investor-State Dispute Settlement in their hands, documents that
are promising contributions to the development of a type of “adjudicator ethics”
characteristic of the international investment law field.
If this legal sector is to develop in an inspiring direction, possibly towards the
creation of a Multilateral Investment Court, a tailor-made text focusing on invest-
ment adjudicator ethics is required. By means of a well-thought out and systematized
set of ethical rules, this text should guarantee – even to the most demanding interna-
tional investment’s stakeholders – that investment adjudicators are always
firmly positioned on the side of the rule of law. As this chapter has argued through-
out, although the 2020 ICSID-UNCITRAL Draft Code requires some fine-tuning, it
might prove to be the germ of a long-awaited twenty-first century global code of
conduct for international investment adjudicators.
Cross-References
▶ Managing Conflict of Interest in International Arbitration: The Role of the IBA

Guidelines
▶ Selection, Bias, and Ethics of Arbitrators in Investor-State Arbitration
▶ The ICS and MIC Projects: A Critical Review of the Issues of Arbitrator
Selection, Control Mechanisms, and Recognition and Enforcement
Acknowledgment The author is member of Spanish research project DER2017-85585-P and of

the Aragonese research group LegMIBIO.
Arbitration Clauses Limited to
Compensation due to Expropriation: 49
Relevant Case Law, Interpretive Trends,
and the Case of China’s Treaty Policy
and Practice
G. Matteo Vaccaro-Incisa
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1224
Investor-State Dispute Settlement Clauses Limited to Compensation due to Expropriation . . . 1225
China’s Treaty Policy and Practice with Regard to ISA’s Scope Limited to
Compensation in Case of Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1226
Relevant Case Law and Interpretive Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1230
Case Law Based on BITs Others than Chinese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1230
Case Law Based on Chinese BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1249
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1258
Abstract
Variations in the texts of investment treaties aside, arbitral tribunals (as well as
domestic courts and ICSID annulment committees subsequently seized) continue
to offer views and interpretations from diverse conceptual standpoints regarding
the rationale of investor-State dispute settlement clauses limited to compensation
of foreign investors in the event of expropriation. Such clauses, reflecting a clear
political rationale (certainly existing at the time of the conclusion of the relevant
agreements), were employed by China as well until 1999 and are present today in
58 Chinese investment agreements that are still in force. The interpretive uncer-
tainty is a cause for concern, not only per se but also because it reverberates on
other treaty provisions (e.g., MFN, FET) that may be relied upon in connection
with the extent of the arbitral tribunals’ jurisdiction.
Jean Monnet Fellow (European University Institute); Of Counsel (Carnelutti Law Firm – Milan, and
Vaccaro Law Bureau – Florence). Ph.D. (Geneva and Bocconi); LL.M. (MIDS)
G. M. Vaccaro-Incisa (*)
European University Institute (EUI), Florence, Italy
e-mail: academic@gmvi.eu

https://doi.org/10.1007/978-981-13-3615-7_14
1224 G. M. Vaccaro-Incisa
This chapter begins with an analysis of China’s treaty policy and practice on
this type of clauses and then synthesizes the relevant arbitral findings in cases that
have arisen both out of Chinese and non-Chinese investment treaties. With
specific regard to China, the conclusion is that interpretive inconsistencies on
the point are a double-edged sword: while they may well contribute to foreign
investors in China resorting to alternative methods to settle disputes with the
Chinese government, Chinese investors abroad (particularly, in the West) see their
legal weaponry blunted.
Keywords
International investment law · Investment arbitration · International arbitration ·
Bilateral investment treaties · Expropriation · Compensation · China
Introduction
In Bilateral Investment Treaties (BITs), consent to investor-State arbitration (ISA)

limited to the evaluation of compensation received by foreign investors in case of
expropriation (or any similar wording) is commonly perceived as a past typical
feature chiefly of former (or current) socialist States. Over the past decade, due to
significant investment flows both to and from States, e.g., China and Russia, several
arbitrations have been initiated out of BITs containing such a significant limitation of
scope. Depending on the exact wording employed in the relevant BIT, investors have
argued that these clauses, albeit limited, cover not only mere computational ques-
tions of compensation in cases of direct expropriation but also the very existence of
the underlying expropriatory act – thus including indirect expropriation. Such an
approach has been sustained in a variety of fashions, from the dictionary meaning of
the treaty terms to their interpretation based on the Vienna Convention on the Law of
Treaties (VCLT), from the presence (or lack thereof) of a fork in the road to the most-
favored nation (MFN) clause, and from the fair and equitable treatment standards
(FET) to the Respondent State treaty practice. These arguments have been received
with mixed fortunes by arbitral tribunals as well as domestic courts (which in the
meantime have pronounced on the validity of certain jurisdictional decisions in this
respect).
The position on the matter of the People’s Republic of China (China, PRC, or the
Mainland) has significantly evolved over the time. The standard policy limitation,
allowing ISA only in cases of disputes relating to compensation due to expropria-
tion, has been amended with the 1997 model – and the actual treaty practice from
year 2000 onward – with China offering unrestricted access to investment arbitra-
tion. This, however, leaves a considerable number of investment treaties still in force
in which ISA’s scope is subject to this significant limitation.
After an introduction to the clause typical (and critical) elements (section “Inves-
tor-State Dispute Settlement Clauses Limited to Compensation due to Expropria-
tion”), the chapter reviews China’s treaty policy and practice on the matter (section
49 Arbitration Clauses Limited to Compensation due to Expropriation:. . . 1225
“China’s Treaty Policy and Practice with Regard to ISA’s Scope Limited to Com-
pensation in Case of Expropriation”). The analysis then turns to the relevant case
law, arising both out of Chinese and non-Chinese BITs (section “Relevant Case Law
and Interpretive Trends”).
Investor-State Dispute Settlement Clauses Limited to

Compensation due to Expropriation
Direct or indirect expropriation of investment is, perhaps unsurprisingly, one of the

most frequent grounds foreign investors rely upon when alleging the breach of an
International Investment Agreement (IIA).1 Indeed, protection against
uncompensated expropriation is, conceptually, one of the very foundational clauses
of an investment protection regime.2 Conversely, today, and in particular since
Maffezini,3 the procedural protection afforded with investment arbitration is per-
ceived as the necessary premise to an effective protection of the substantive stan-
dards promised in IIAs – hence, its key protection. While this may well have become
the case today, it was quite certainly not so yesterday. In fact, it was not uncommon
in the past either to not include ISA in BITs or to limit its scope to disputes relating to
the amount of compensation granted to the foreign investor in case of expropriation
by the host State. This latter was the practice, in particular, of States governed by
socialist regimes. While the notion of socialism is conceptually at odds with that of
foreign investments (in particular, from nonsocialist States),4 China and the Soviet
Union (as well as States gravitating around the latter) inaugurated their international
1
State conduct that was most frequently challenged by investors in 2015 included. . .alleged direct
expropriations of investments – UNCTAD IIA Issues Note 8.6.2016
2
See Art. 3.2 of the 1958 Germany-Pakistan BIT (the 1st BIT).
3
Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, para 54: “. . .the
Tribunal considers that there are good reasons to conclude that today dispute settlement arrange-
ments are inextricably related to the protection of foreign investors. . .” [emphasis added].
4
As synthesized by Andrea Leiter in “The Silent Impact of the 1917 Revolutions on International
Investment Law – And What It Tells Us about Reforming the System,” 6:10 ESIL Reflection (2017):
“. . .the socialist pressure had an effect in the liberal world as well and can be traced through the
introduction of the notion of investment. The idea of investment connects foreign property to an
expected social performance and can hold the idea of a societal good. After the turmoil of WW II,
international legal thought caught up with the interwar events and it is thus not by chance that the
introduction of investment coincides with the inauguration of the modern development discourse
promulgated by Truman in his first address on 20 January 1949. As argued by Escobar, it was the
moment of the discovery of poverty of large parts in the world and combatting this poverty is then
cause and legitimation for intervention in the name of development. The kind of development
imagined by Truman was deliberately set in opposition to the socialist model. Investment is the
liberal answer to the demands for a more social world that allowed to secure Western influence vis-à-
vis the Soviet Union. Development, accordingly, was to be achieved not through foreign property, but
through foreign investment.”
investment protection programmes (respectively, at the beginning and at the end of

the 1980s)5 with the goal to attract Western capital into their long-underperforming
economies. For quite some time, however, maintaining a conceptual distrust for both
international arbitration and foreign investment, the BITs concluded by these States
would not contemplate unrestricted access to ISA.6 Hence, those older BITs that are still
in force still constitute the basis to regulate investment disputes. Having in the meantime
foreign investment flown into these States and having China itself become a major
source of foreign investment, it was only a matter of time before clauses expressing only
limited consent to ISA would come under the scrutiny of investment tribunals.
Critical interpretive issues of these clauses pivot around the following: (i) the verb
employed to limit ISA scope in relation to expropriation (e.g., “relating,”
“concerning,” “involving”); (ii) whether disputes are limited to “expropriation,”
“amount of expropriation,” or other wording; (iii) the presence, or lack thereof, of
a fork in the road; and (iv) their interaction with the MFN clause (hence depending
on the formulation of the latter as well as the dispute settlement clause). The review
of the relevant case law, in section “Relevant Case Law and Interpretive Trends,”
will also highlight other aspects.
China’s Treaty Policy and Practice with Regard to ISA’s Scope

Limited to Compensation in Case of Expropriation
In both its 1984 and 1989 BIT models, China’s consent to ad hoc ISA was limited to
disputes “involving the amount of compensation for expropriation.”7 The Chinese
policy officially changed with the adoption of the 1997 model BIT and the conclu-
sion of the first two agreements which contained no limitation to ISA’s scope (South
Africa 1997 and Barbados 1998).8 The policy change, however, was only
5
A notable exception is Romania, which has been the most active socialist State in concluding BITs
(the first, in 1976, with the UK) and has continued to be particularly active also in the post-socialist
era (today, Romania enjoys a network of 84 BITs (almost the size of Italy’s network, constituted of
93 agreements)).
6
As noted inter alia by the High Court of the Republic of Singapore in Government of the Lao
People’s Democratic Republic v Sanum Investments Ltd, [2015] SGHC 15, High Court-Originating
Summons No 24 of 2014, Edmund Leow JC, Judgment of 20 January 2015, p. 44, at para 123
7
See Gallagher N, Shan W (2009) Chinese investment treaties: policies and practice. Oxford
University Press; contra, Q Kong, which affirms that China never used a model for its BIT
negotiations; see Kong Q (1998/99) Bilateral investment treaties: the Chinese approach and
practice. Asian Yearb Int Law 8:105, 114. However, in light of the more recent, conspicuous and
uncontested work of Gallagher and Shan, it is here assumed that, at the time of Kong’s writing, this
piece of information was not publicly available. See also Chaisse J (2015) The shifting tectonics of
international investment law – structure and dynamics of rules and arbitration on foreign investment
in the Asia-Pacific region. George Wash Int Law Rev 47(3):563–638
8
See, e.g., Willems J (2019) Investment disputes under China’s bits: jurisdiction with Chinese
characteristics? In: Chaisse J (ed) China’s international investment strategy: bilateral, regional, and
global law and policy. Oxford University Press, London, p 560
implemented coherently from year 2000 onward, as in two BITs concluded in 1999
(Qatar and Bahrain) consent to ISA is still limited.9
In light of the following case law review, it is appropriate to preliminarily
highlight the relevant text in the two earlier Chinese models (identically worded
on the point):
Article 9
1. Any dispute between an investor of one Contracting Party and the other Contracting
Party in connection with an investment in the territory of the other Contracting Party
shall, as far as possible, be settled amicably through negotiations between the parties to
the dispute.
2. If the dispute cannot be settled through negotiations within six months, either party to the
dispute shall be entitled to submit the dispute to the competent court of the Contracting
Party accepting the investment.
3. If a dispute involving the amount of compensation for expropriation cannot be settled
within six months after resort to negotiation specified in Paragraph 1 of this Article, it
may be submitted at the request of either party to an ad hoc arbitral tribunal. The
provisions of this Paragraph shall not apply if the investor concerned has resorted to
the procedure specified in the Paragraph 2 of this Article.
...
It shall be noted that the model wording:
– Grants the right (“either party . . . shall be entitled”) “. . .to submit [any] dispute to
the competent court of the Contracting Party accepting the investment” (para 2).
– Offers arbitration (“may be submitted”) for “. . .a dispute involving the amount of
compensation for expropriation” (para 3, first sentence).
– Arbitration, however, cannot be initiated if the investor concerned has resorted to
the competent court of the host State (para 3, second sentence: so-called “fork in
the road” clause).
With regard to China’s treaty practice, according to the comprehensive survey

carried out of 120 IIAs in force to which China is a party (i.e., including bilateral,
trilateral,10 multilateral,11 and supplementary12 investment agreements, plus invest-
ment chapters of comprehensive FTAs),13 in 58 the scope of ISA is limited to the
evaluation of compensation received by the investor in case of expropriation.14 This
is noteworthy, taking into account the amount of investment flowing into and from
9
For an overall review on the point, see Vaccaro-Incisa GM (forthcoming) China’s treaty policy and
practice in international investment law and arbitration. Brill/Nijhoff international investment law
series
10
That is, the Trilateral Investment Agreement with Japan and South Korea (2012)
11
For example, the China-ASEAN Agreement on Investment (2009)
12
For example, the China-Chile Supplementary Agreement on Investments (2012)
13
For example, the China-New Zealand FTA (2008)
14
See fn. 9.
China,15 as well as that such a limitation still applies to significant investment

partners, e.g., the UK, Italy, Australia, and Turkey.
These BITs, which all fall into China’s so-called first-generation BITs,16 have
been concluded between 1984 (Norway) and 1999 (Bahrain and Qatar). The table
below highlights China’s treaty practice with respect to some critical aspects that
have emerged in the case law on the point.
In Dispute. . .amount of Domestic Fork in

Counterpart Signed force compensation courts the road17
PRC model 1984 Involving V B
1. Norway 1984 1985 Over [disagreement] V D
2. Kuwait 1985 1986 Relating to V –
3. Austria 1985 1986 To review – –
4. Denmark 1985 1985 Involving V B
5. Italy 1985 1987 Over V D
6. UK 1986 1986 Concerning – –
7. Sri Lanka 1986 1987 Involving V B
8. Australia 1988 1988 Relates to V –
9. Poland 1988 1989 Challenge V D
10. Ghana 1989 1990 Concerning [Art. 10 – –
labeled: quantum of
compensation]
11. Bulgaria 1989 1994 Concerning – –
PRC model 1989 Involving V B
12. Turkey 1990 1994 Involving V B
13. Hungary 1991 1993 Concerning – –
14. Papua NG 1991 1993 Concerning V B
15. Mongolia 1991 1993 Involving V B
16. Argentina 1992 1994 Involving V A
17. Ukraine 1992 1993 Concerning – –
18. Kazakhstan 1992 1994 Concerning – –
19. Armenia 1992 1995 Concerning – –
20. Philippines 1992 1995 On the matter of – –
21. Bolivia 1992 1996 Involving V B
(continued)
15
UNCTAD. World investment report 2019, pp. 3–7
16
Chinese BITs have been divided into various “generations” in slightly different fashions (e.g.,
Gallagher & Shan, Li, Vaccaro-Incisa); scholars agree, however, on the typical traits of the 1st
generation, e.g., Gallagher N, Shan W (2009) Chinese investment treaties: policies and practice.
Oxford University Press, p 4
17
Key: (A) Express wording on any choice being “final”; (B) Express wording on finality of
domestic court choice (including “provided that the investor has not submitted the dispute to a
domestic court of that Contracting Party” or equivalent); (C) ISDS mechanisms expressly listed as
“alternative”; (D) ISDS mechanisms implicitly alternative (“choice” or “request” of the investor
between items separated by “or”); (E) Arbitration subject to withdrawing from domestic courts; (F)
The investor is required to waive its right to initiate court proceedings.
In Dispute. . .amount of Domestic Fork in

Counterpart Signed force compensation courts the road
22. Greece 1992 1993 Concerns V D
23. Kyrgyzstan 1992 1995 Relating to – –
24. UAE 1993 1994 Relating to V –
25. Tajikistan 1993 1994 Concerning – –
26. Belarus 1993 1995 Concerning – –
27. Uruguay 1993 1997 Involving V A
28. Croatia 1993 1994 Involving V B
29. Estonia 1993 1994 Involving V B
30. Albania 1993 1995 Involving V B
31. Georgia 1993 1995 Involving V B
32. Slovenia 1993 1995 Involving V B
33. Lithuania 1993 1994 Relating to V D
34. Azerbaijan 1994 1995 Involving V B
35. Egypt 1994 1996 Involving V B
36. Jamaica 1994 1996 Involving V B
37. Iceland 1994 1997 Involving V B
38. Ecuador 1994 1997 Relating to V B
39. Israel 1995 2009 With respect to – –
40. Oman 1995 1995 Involving V B
41. Serbia 1995 1996 Involving V B
42. Morocco 1995 1999 Related to V D
43. Saudi Arabia 1996 1997 On V –
44. Lebanon 1996 1997 Involving V B
45. Macedonia 1996 1997 Involving V B
46. Mauritius 1996 1997 Involving V B
47. Bangladesh 1996 1997 Involving V B
48. Zimbabwe 1996 1998 Involving V B
49. Syria 1996 2001 Involving V B
50. Algeria 1996 2003 Related to V B
51. Zambia 1996 – Involving V B
52. Sudan 1997 1998 Involving V B
53. Gabon 1997 2009 With respect to V D
54. Ethiopia 1998 2000 Involving V B
55. Cape Verde 1998 2001 Involving V B
56. Yemen 1998 2002 Concerning V D
57. Bahrain 1999 2000 On V B
58. Qatar 1999 2000 Tied up with [legal V B
dispute]
*IIA currently in force.
Inter alia, the table shows that, out of 58 BITs:
(i) In line with the old Chinese template choice (even though with structure and
wording of the provision not always followed ad litteram), domestic courts are
expressly referred to among the investor-State dispute settlement mechanisms

for any dispute in 45 cases (77.5%) – hence, including those on the amount of
compensation due to expropriation, which may be otherwise deferred to
arbitration.
(ii) Thirteen BITs (22.5%) do not mention, instead, domestic courts; however, ISA
is expressly considered, at least prima facie, only with respect to the quantum of
expropriation.
(iii) With regard to the fork in the road, considering the 45 BITs identified under (i):
• Thirty-one BITs (69%) follow the Chinese templates by indicating that the
choice of domestic courts, once made, is final (e.g., the dispute may be
submitted to arbitration “. . .provided that the investor has not submitted the
dispute to a domestic court. . .”).
• In eight BITs, listed investor-State dispute settlement mechanisms seem
understood as alternative (e.g., the clause makes use of terms such as
“choice” or “request” of the investor between items separated by “or”).
• Four BITs (1985 Kuwait, 1988 Australia, 1993 United Arab Emirates, 1996
Saudi Arabia) do not feature any fork in the road.
• Two BITs (Argentina and Uruguay) expressly indicate that the investor
choice is “final.”
(iv) With regard to the verb associated with the locution referring to disputes on the
amount of compensation:
• In 28 cases (48%), this is the same as that employed in the Chinese model
BITs (“involving”).
• In 12 cases (21%) – 8 of which, with former socialist States – is “concern”
(11 as “concerning” and 1 as “concerns”).
• In eight cases (14%) is “relate” (in the forms “related to,” “relates to,” or
“relating to”).
• The remaining ten clauses (17%) make use of less consistent choices (twice,
respectively, “on,” “over,” “with respect to;” once, respectively, “on the
matter of,” “tied up to,” “to review,” “challenge”).
Having presented China’s policy and practice on BIT investor-State dispute

settlement clauses granting only limited consent to ISA on the matter of expropri-
ation, the following section focuses on how clauses identically, equivalently, or
similarly phrased have been interpreted by arbitral tribunals as well as domestic
courts (seized to set aside certain arbitral decisions on jurisdiction).
Relevant Case Law and Interpretive Trends
Case Law Based on BITs Others than Chinese
As shown, investor-State dispute settlement clauses that limit consent to ISA to

disputes relating to compensation due to expropriation have been part of the treaty
models and practice of certain States – chiefly, former socialist regimes – since the
1980s and up to the first half of the 1990s. Several of these treaties, as illustrated in
the case of China, are still in force. In light of the conspicuous foreign investment
made over the last three decades in States, e.g., China, Vietnam, Laos, and the CIS
area, it was only a matter of time before limited ISA clauses emerged as an additional
matter of contention between already disputing investors and host States.
One of the first – if not the very first – publicly available pronouncement that
touched upon the point seems the jurisdictional award rendered in September 2003
by a SCC tribunal constituted under Article 8 of the 1990 UK-Czechoslovakia BIT
and composed of Danielius (chair), Hunter (claimant’s nominee), and Kronke
(respondent’s nominee) in the Nagel case.18 However, here consent to ISA included
other aspects in addition to expropriation, and the tribunal analysis is rather brief on
the point (less than a page), especially in light of the fact that the claimant did not
argue for importing more favorable ISA terms from another BIT via MFN.19
The tribunal preliminarily noted that:
The provision of the Investment Treaty from which the Arbitral Tribunal derives its
competence is Article 8 which gives an investor the right to refer a dispute under the Treaty
to arbitration. However, Article 8(1) does not refer to all disputes under the Treaty but
provides that disputes concerning an obligation of a Contracting Party under Articles 2(3), 4,
5 and 6 of the Treaty which have not been amicably settled shall be submitted to arbitration if
either party to the dispute so wishes.20
The conclusion hence was that:
The Arbitral Tribunal finds no support in the text of Article 8(1) of the Treaty for Mr Nagel’s
interpretation. Indeed, Article 8(1) only states that disputes under Articles 2(3), 4, 5 and 6
may be submitted to arbitration and there is nothing in the text to indicate that the arbitration
may also include other questions arising under the Treaty. The Arbitral Tribunal therefore
concludes that Mr Nagel’s [other] claims are not admissible. . ..21
Another relevant pronouncement is the 2005 ICSID decision on jurisdiction in

the Plama case.22 Here, however, the claimant’s reliance on the 1987 Bulgaria-
18
William Nagel v. The Czech Republic, SCC Case No. 049/2002, award on jurisdiction, 9
September 2003
19
Paras 269–271
20
Para 269
21
Para 271
22
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on
Jurisdiction, 8 February 2005
Cyprus BIT was only in the alternative, in case the tribunal (Salans as chair, Van den
Berg appointed by the claimant, Veeder by the respondent) found not to have
jurisdiction on the ECT. In said BIT, ISA was materially contained in the expropri-
ation provision, and its scope expressly limited to disputes “. . .with regard to the
amount of compensation.”
Without trying to contend that an ISA clause as such could be interpreted as
covering indirect expropriation as well, the claimant directly argued instead that the
“treatment” protection offered in the BIT’s MFN clause covered dispute settlement
as well (hence the attempt to rely on the Bulgaria-Finland BIT, which featured
unrestricted consent to ISA). While the tribunal ultimately found jurisdiction on
the ECT, it also considered its jurisdiction under the Bulgaria-Cyprus BIT.23 Wary of
giving in to teleological methods of interpretation and lacking clear and unambig-
uous elements to conclude otherwise, the tribunal, focusing inter alia on the Parties’
failure in 1998 to upgrade their BIT regime, as well as the reaction by States
witnessed in new investment agreements following arbitral decisions extending the
MFN scope to dispute settlement,24 chiefly found that:
. . .dispute resolution provisions in a specific treaty have been negotiated with a view to
resolving disputes under that treaty. Contracting States cannot be presumed to have agreed
that those provisions can be enlarged by incorporating dispute resolution provisions from
other treaties negotiated in an entirely different context.25
It hence concluded that:
. . .the MFN provision of the Bulgaria-Cyprus BIT cannot be interpreted as providing

consent to submit a dispute under the Bulgaria-Cyprus BIT to ICSID arbitration and that
the Claimant cannot rely on dispute settlement provisions in other BITs to which Bulgaria is
a Contracting Party in the present case.26
The first decision where ISA limited to compensation due to expropriation is at

the center of the jurisdictional question seems to be the Berschader case. This is a
SCC jurisdictional award based on the 1989 Belgium-Luxembourg-Russia BIT and
rendered in April 2006 by a tribunal composed of Sjövall (chair), Weiler (claimant’s
nominee), and Lebedev (respondent’s nominee).27 Preliminarily, it shall be noted
23
Paras 183–227
24
Most notably, since Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7,
Decision on Jurisdiction, 25 January 2000
25
Para 207
26
Para 227
27
Vladimir Berschader and Moïse Berschader v. The Russian Federation, SCC Case No. 080/2004,
award on jurisdiction, 21 April 2006
that while English was ultimately chosen as working language for the arbitral
proceedings, the authoritative languages of the BIT were French and Russian. The
dispute settlement clause there allowed for arbitration only “. . .relative au montant
ou au mode de paiement des indemnités dues en vertu de [expropriation],” which the
tribunal translated as “. . .disputes concerning the amount or mode of compensa-
tion.”28 The majority (Sjövall and Lebedev) found that this wording, in accordance
with its ordinary meaning (in particular, the specification “amount or mode”), did not
afford the tribunal with the jurisdiction to entertain the claimant’s case of indirect
expropriation, also taken into account Russia’s treaty practice at the time.29 In the
words of the majority:
It is only a dispute which arises regarding the amount or mode of compensation to be paid
subsequent to an act of expropriation already having been established, either by acknowl-
edgment of the responsible Contracting Party or by a court or arbitral tribunal, which may be
subject to arbitration under the Treaty.30
The majority also refused the claimant suggestion to widen ISA scope via the
MFN clause, as it found in casu that the latter, while admittedly referred to “all
matters covered by the present Treaty,” operated expressly in connection with the
territory of the contracting parties, hence referred only to substantive protection and
not also matters of procedure.31
Conversely, in a separate opinion, professor Weiler, focusing on the treaty
preamble as well as on the locution “any dispute” in the ISA clause, opined that
the tribunal’s jurisdiction included any claims relating to expropriation, including
indirect.32 It also considered that an MFN clause, because framed as expressly
covering “all matters,” ipso facto extends to procedural aspects of the dispute.33
The two approaches just recalled outline the kernel of the arbitral and scholarly
debate on the point that followed.
A few months later, in Sept. 2006, an ICSID tribunal composed of Goode (chair),
Allard (claimant’s nominee), and Marriott (respondent’s nominee) rendered its final
award in the Telenor case.34 The arbitration was based on the 1991 Hungary-Norway
BIT, whose dispute settlement clause allows for ISA in “. . .any legal disputes . . . in
relation to an investment . . . either concerning the amount or payment of
28
Art. 10
29
Paras 151–158
30
Para 153
31
Para 185
32
Weiler’s separate opinion, paras 1 et seq.
33
Idem, paras 15 et seq.
34
Telenor Mobile Communications A.S. v. The Republic of Hungary, ICSID Case No. ARB/04/15,
award on jurisdiction, 13 September 2006
compensation under Article . . . VI [expropriation] . . . or concerning any other matter

consequential upon an act of expropriation in accordance with Article VI. . ..”35
The tribunal however never got to examine the issue of jurisdiction in relation to
the limited scope of the ISA clause, as it found beforehand that the claimant failed to
prove a prima facie case of indirect expropriation.36
The award hence looks at the MFN clause in the perspective of accepting claims
other than expropriation under its jurisdiction. Preliminarily, the tribunal, which in
its decision does not mention Berschader (possibly because yet not known to it),
repeatedly expressed discomfort with the claimant’s defense, which seemingly failed
to properly argue and substantiate its case of indirect expropriation as well as identify
the comparator treaty for the potential application of MFN to the dispute settlement
clause.37 On this latter point, however, the tribunal “. . .wholeheartedly endors[ed]
the analysis and statement of principle furnished by the Plama tribunal,”38 noting
that “In the absence of language or context to suggest the contrary,” “treatment” was
to be referred to the investor’s substantive rights:
. . .and there is no warrant for construing the [clause] as importing procedural rights as well.
It is one thing to stipulate that the investor is to have the benefit of MFN investment
treatment but quite another to use an MFN clause in a BIT to bypass a limitation in the
very same BIT when the parties have not chosen language in the MFN clause showing an
intention to do this, as has been done in some BITs.39
Hence, differentiating this case from those that found for the application of MFN to
dispute settlement with regard to certain preliminary mandatory periods in domestic
court (such as Maffezini, Siemens, or Aguas de Barcelona), it noted that here the
question:
“. . .is not simply remove a preliminary condition of invoking the dispute resolution mech-
anism but to extend the scope of the Tribunal’s jurisdiction to questions entirely outside. . .”
the BIT dispute settlement regime.
Thus, with analytical reference to the treaty practice of both Norway and Hungary, it
concluded that:
. . .in the present case the MFN clause cannot be used to extend the Tribunal’s jurisdiction to
categories of claim other than expropriation, for this would subvert the common intention of
Hungary and Norway in entering into the BIT in question.40
35
Article XI Hungary-Norway BIT
36
Paras 69–80
37
See, e.g., para 83.
38
Para 90
39
Para 92
40
Para 100
In the subsequent May 2007 UNCITRAL/London jurisdictional decision in the

EMV case,41 a tribunal composed by Mustill (chair), Lew (claimant’s nominee), and
Greenwood (respondent’s nominee) had to interpret a similar clause in the BIT
concluded in 1989 between Belgium-Luxembourg and the Czech Republic.
The relevant part of the clause reads “Disputes . . . concerning compensation due
by virtue of Article 3 Paragraphs (1) and (3). . .” (Art. 3 dealing with expropriation
and “other measures of direct or indirect dispossession, total or partial”). The
tribunal preliminarily acknowledged that “The phrase ‘concerning compensation’
is clearly intended to limit the jurisdiction. . ..”42 It found, however, that on the
intertwine between dispute settlement and expropriation, “. . .the treaty is not easy to
interpret. . ..”43 Thus, moving from a repeatedly stated “practical” and “realistic”
approach (hence, expressly discarding domestic courts and State-State arbitration),
focusing on the locution “due by virtue of,” and with a view not to render “wholly
ineffective” the procedural protection offered in the treaty,44 the tribunal concluded
that:
. . .it is logical and natural to assume, in the absence of a provision to the contrary, that
[jurisdiction] extends to determining whether there has been an expropriation or disposses-
sion justifying compensation.45
In December 2007, the High Court of London, seized by the Czech Republic,
declined to set aside the decision. Preliminarily, it found that at the time of the
drafting of the treaty, the contracting parties “. . .have adopted opposing negotiating
positions, and there was a degree of compromise . . . the arbitration clause was left
unclear: possibly to the satisfaction of both sides.”46 Hence, focusing on the verb
employed in the dispute settlement clause, “concerning,” it considered that:
. . .is similar to other common expressions in arbitration clauses, for example ‘relating to’
and ‘arising out of’. Its ordinary meaning is to include every aspect of its subject . . . As a
matter of ordinary meaning this covers issues of entitlement as well as quantification.47
It then echoed the findings of the arbitral tribunal with regard to “due by virtue of”
as “connecting element” between dispute settlement and its limited subject matter
41
European Media Ventures SA v. The Czech Republic, UNCITRAL, decision on jurisdiction, 15
May 2007
42
Para 52
43
Para 56
44
Paras 56–66
45
Para 67
46
2007 EWHC 2851 (Comm), 5 December 2007, para 32
47
Para 44
(expropriation).48 Interestingly, by referring to the preambular intent of “create[ing]

conditions favourable to the making of investments by investors,” the High Court
noted:
‘. . .the promise of redress in local courts for the actions of a government which had
expropriated its property does not lie easily with one of the objects of the BIT: the conferring
of valuable rights to arbitrate’, and that the aversion in Communist ideology for foreign
ownership ‘. . .provides good reason for the suspicions of investors who might be offered
local redress’.49
Another procedurally articulated case is Rosinvest,50 which arose out of the 1989
UK-USSR BIT’s consent to ISA for:
. . .any legal disputes . . . either concerning the amount or payment of compensation under
Articles 4 or 5 [expropriation] of this Agreement, or concerning any other matter conse-
quential upon an act of expropriation in accordance with Article 5 of this Agreement, or
concerning the consequences of the non-implementation, or of the incorrect implementation,
of Article 6 [transfers] of this Agreement.
In its 2007 decision on jurisdiction, the SCC arbitral tribunal, composed of

Böckstiegel (chair), Steyn (claimant’s nominee), and Berman (respondent’s nomi-
nee), preliminarily conceded that the “rather complicated” treaty wording on the
point:
. . .presented a compromise between the UK’s intention to have a wide arbitration clause and
the Soviet intention to have a limited one. If that is so, it is hard to arrive at an interpretation
all the same that the clause is so wide as to include all aspects of an expropriation.51
Then, with regard to the three jurisdictional grounds worded out in the clause
quoted above (a situation found – erroneously – “unique” in both treaty practice and
case law),52 it ruled out the third because in casu materially irrelevant. More
importantly, with regard to the first, after having looked at instances of treaty practice
of both Russia and the UK where consent on every aspect of expropriation is
expressed in clear and unambiguous terms, the tribunal concluded that here
48
Para 45
49
Para 52
50
RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. V079/2005; decision on
jurisdiction, 1 October 2007
51
Para 110
52
Para 122; an identical ISA clause was debated in Telenor (see supra)
“. . .the wording . . . does not include jurisdiction over the questions whether an
expropriation occurred and was legal.”53 On the second ground, it chiefly noted that:
the ordinary meaning in the sense of Article 31 VCLT of the word “consequential” cannot
be interpreted to include, in addition to the consequences of an expropriation according to
Article 5, also the preconditions laid down in Article 5 . . . If these preconditions were to be
considered as also included, the qualification would be meaningless . . . because not only the
issues mentioned in these qualifications, but all other aspects of expropriation would be
included.54 (emphasis added)
The illustrated reading of the clause – which, grounded on a solid understanding

of consent in public international law as well as the interpretive criteria enshrined in
Art. 31 VCLT, rejected the “dynamic interpretation” the claimant sought for55 –
seems somehow conceptually at odds with the subsequent reasoning regarding the
effects of the MFN clause on the tribunal jurisdiction. Here, after having firstly
established that “treatment” of “investments” may exclude arbitration, the tribunal
noted that expropriation directly affects the procedural rights of the investor.56
Hence, with a conceptual – if unexpressed – link to the arguments raised by the
claimants in Plama,57 relying on the protection the treaty specifically offered to
“investors” with regard to the “use” and “enjoyment” of their investments, the
tribunal saw “no reason not to accept” granting what is “. . .generally accepted in
the context of substantive protection. . .” also “. . .in the context of procedural
clauses. . ..”58 With a quite lax analogy, the tribunal additionally considered that if
the UK and the USSR took the time to carefully carve out the (substantive) matter of
“taxation” from operation of MFN, “. . .it can certainly not be presumed that [they]
‘forgot’ arbitration when drafting and agreeing. . ..”59 Ultimately, in the merit award
of September 2010, the tribunal found Russia to have performed an indirect expro-
priation in breach of Art. 5.
However, in November 2011, Stockholm District Court, seized by Russia, by way
of a default declaratory judgment accepted that Russia’s claim (i.e., that the ISA
treaty clause does not grant jurisdiction to settle whether expropriation occurred) was
not obviously lacking a factual or legal basis.60 Russia hence requested the Swedish
53
Para 114
54
Paras 116–117
55
Para 120
56
Para 130
57
It is worth noting that Veeder (Essex Court Chambers, like Steyn and Berman, arbitrators in this
case) appointed as arbitrator by Bulgaria in Plama, in this case acted as counsel for the claimant.
58
Para 132
59
Para 135
60
Stockholm District Court Default, Judgment, Case No. T24891-07, 9 November 2011; Rosinvest
denied the challenge but failed to appear in Court for the preparatory hearing.
Court of Appeal to annul the award – annulment which it obtained in September

2013.61
In early 2009, another SCC tribunal, this time composed of Paulsson (chair),
Brower (claimant’s nominee), and Landau (respondent’s nominee), issued a decision
on preliminary objections in the case Renta4.62 In the 1990 Spain-Russia BIT
(whose authentic languages are Russian and Spanish, but the parties accepted to
rely in the proceedings on the UN Treaty Series English translation), consent to ISA
is limited in Article 10 to “Any dispute between one Party and an investor of the
other Party relating to the amount or method of payment of the compensation due
under Article 6 of this Agreement. . .” (Article 6 being labeled “nationalization and
expropriation”). Preliminarily, the decision repeatedly (and colorfully) criticizes
Berschader (of which it reviews even elements not at issue in Renta4)63; conversely,
it partakes the reading offered of the term “due” in EMV64; it hence finds that the
recalled ISA provision “. . .defines the bounds of the State-parties’ consent. The
tribunal is both empowered and obligated to construe the scope of authority thereby
created.”65 In the opinion of the tribunal:
An investor seeking an award of compensation under Article 10 . . . may face a disagreement

as to quantification. But it may also (or only) face a challenge as to whether an obligation has
arisen under Article 6. Such an obligation is the evident predicate to any amount being “due”
and thus the object of the type of debate allowed under Article 10. The existence of the basic
predicate of a remedy under Article 10 cannot be deemed outside the purview of a tribunal
constituted under that very Article.66
Moreover, the tribunal affirmed, somewhat baldly, that “The notion of actions
before the courts of the host country are problematic in principle”67; hence, in casu,
that to leave the determination of the existence of expropriation to national courts
implies that:
61
Svea Court of Appeal, Judgment, Case No. T 10060-10, 5 September 2013
62
Renta 4 S.V.S.A, Ahorro Corporación Emergentes F.I., Ahorro Corporación Eurofondo F.I.,
Rovime Inversiones SICAV S.A., Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A.,
GBI 9000 SICAV S.A. v. The Russian Federation, SCC No. 24/2007, decision on preliminary
objections, 20 March 2009
63
For example, paras 53–54, with regard to the analysis of the relevance of statements of the Belgian
Ministry of Foreign Affairs in Berschader
64
Para 34; it cannot go unnoticed that Mr. Paulsson’s firm at the time, Freshfields Bruckhaus
Deringer, counselled the claimants in Berschader, while Russia’s nominee, Mr. Landau, represented
EMV in the UK courts against the Czech Republic.
65
Para 31
66
Idem.
67
Para 58
Either signatory State could thus by its fiat (including that of its courts given the State’s
responsibility for their acts under international law) ensure that there would never be an
arbitration under Article 10.68
Such understanding of the ISA clause represents “. . .an illusion which the
Tribunal cannot accept as consonant with Article 31 of the Vienna Convention if
ever that Article is to be given full weight”69 (it has been noted that it is not clear
whether the tribunal’s reasoning on this point is colored by its perception of the
Russian courts in particular).70
With regard to the tribunal’s findings on the relationship between MFN and
dispute settlement, it shall be noted that the 1990 Spain-Russia BIT, differently
than what was the case in Rosinvest, does not contemplate two distinct paragraphs
dealing, respectively, with “investments” and “investors” (on the second of which
the latter decision hinged, as illustrated). Hence, criticizing certain passages of
Plama and Berschader, and conversely referring to Rosinvest as well as
Berschader’s separate opinion, the tribunal, preliminarily and in abstracto, made
repeatedly clear its stance: “there is nothing normative about the primary/secondary
dichotomy,”71 “There is no authority for the proposition that MFN is limited to
‘primary’ obligations,”72 and “There is no textual basis or legal rule to say that
‘treatment’ does not encompass the host state’s acceptance of international arbitra-
tion.”73 In casu, the tribunal had to establish whether the quite synthetic guarantee of
“fair and equitable treatment” of “investments,” lacking a catch-all locution (e.g., “in
all matters covered by this Agreement”) could cover dispute settlement.74 Notwith-
standing a sophisticated analysis of the terms and syntax of the BIT’s unofficial
English translation,75 the tribunal, while unanimously agreeing that “‘more
favourable’ may in principle include accessibility to international fora,” ultimately
concluded by majority (Brower dissenting) that:
. . .the terms of the Spanish BIT restrict MFN treatment to the realm of FET as understood in
international law. This in the majority view relates to normative standards and does not
extend to either (i) the availability of international as opposed to national fora or (ii) “more”
rather than “less” arbitration (as the separate opinion puts it).
68
Para 56
69
Idem.
70
IAR, Tribunal in Spanish shareholders’ Yukos claim holds that narrow arbitration clause permits
expropriation claims, 16 April 2009.
71
Para 99
72
Para 100
73
Para 101
74
The relevant parts of the clause, in the original Spanish version, read: Articulo 5 – Tratamiento –
1. Cada Parte garantizará en su territorio un tratamiento justo y equitativo las inversiones realizadas
por inversores de la otra Parte. 2. El tratamiento mencionado en el punto anterior no será menos
favorable que el otorgado por cada Parte a las inversiones realizadas en su territorio por inversores
se un tercer Estado.
75
Paras 111–119
Soon after the outlined decision on preliminary objections was rendered, Russia
sought another declaratory judgment by Stockholm District Court that the tribunal
had wrongly seized jurisdiction. The court rendered its decision in September 2014
(the Swedish judiciary had first to determine that a declaratory judgment could be
issued, while the relevant arbitration remained pending).76
Reckoning preliminarily that “. . .there is no simple and unambiguous case law on
the interpretation of arbitration clauses”77 and “. . .the arbitration clause is not entirely
clear. . .,”78 the court chiefly considered that “The words ‘relating to’ entail that an
arbitral tribunal has jurisdiction to review not only such matters as are explicitly stated
in the provision. The expropriation issue could thus be included in the words ‘relating
to,’”79 and that “The main support for this conclusion is that the clause provides that
the amount shall be ‘due under article 6.’”80 The court then echoed the tribunal’s
considerations as to the BIT’s preamble, as well as to its object and purpose.81
However, in January 2016, the Swedish Court of Appeal, seized by Russia,
reversed the District Court’s declaratory judgement.82 Preliminarily, in light of the
parties’ interpretive disagreement over the ISA clause, the court determined it had
“. . .to make its own interpretation within the frame of what the parties have maintained
in the case . . . pursuant to articles 31 and 32 [VCLT].”83 The Appeal Court framework
assumption, however, made already quite clear its stance on the issue:
International law does not stipulate any general obligation for a state to submit to the
jurisdiction of any international court or arbitral tribunal. Thus, these types of institutions
for dispute resolution are, for their jurisdiction, dependent on the relevant state having given
its approval in each respective case.84
Hence:
Even if phrases such as “any dispute” and “relating to” could give the impression that an
arbitral tribunal’s jurisdiction would cover also other matters than the amount and method of
payment, the wording of the reference to article 6 set forth in article 10 does not support the
interpretation that the jurisdiction would cover also whether an expropriation actually
occurred.85
76
Stockholm District Court, Judgment, Case No. T 15045-09, 11 September 2014, p. 32
77
P. 32
78
P. 34
79
P. 33
80
P. 34
81
PP. 34–35
82
Svea Court of Appeal, Judgment, Case No. T 9128-14, 18 January 2016
83
P. 4
84
P. 3
85
P. 6
The court also refused to overly rely on treaty recitals, noting that some BITs
include ISA in their preamble, “. . .whereas some do not. Already for this reason
can the recitals to the Treaty not be given any importance for the interpretation of
article 10.”86
And gave instead full weight to the specifically negotiated wording of the treaty:
Even if there are substantial similarities between the treaties, it nevertheless remains clear
that the dispute resolution clauses have been worded differently in the various investment
protection agreements . . . the differences in wordings between the agreements give the
impression that the clauses have to some extent been adapted to the relevant treaty.87
With regard to the operativity of the MFN clause on the procedural level, the court
confirmed, in abstracto, that there is nothing that would prevent imports as such.88
Instead, the determining factor is the wording of the MFN clause in the relevant case,
while “The standard ‘fair and equitable treatment’ cannot be deemed to include an
unconditional right for investors to have their cases decided by an international
arbitral tribunal.”89
It hence concluded that:
‘Even if it, from the perspective of a foreign investor, would be more attractive to have issues
relating to expropriation resolved by an international arbitral tribunal than by a national
court, an interpretation pursuant to the provisions of the Convention. . .’ (already found to be
‘. . .leav[ing] no room for any remaining ambiguity/obscurity. . .’)90 ‘. . .does not allow for
the Treaty to be supplemented by substantive provisions without support in the wording of
the Treaty’.91
The Appeal Court thus sustained Russia’s challenge, and, later, the Swedish
Supreme Court declined to hear a further appeal.
In October 2009, an UNCITRAL/Paris tribunal composed of Kaufmann-Kohler

(chair), Brower (claimant’s nominee), and Trapl (respondent’s nominee) rendered a
final award in the case Austrian Airlines.92 The arbitration was based on the 1990
Austria-Czechoslovakia BIT which, at Article 8, reads: “Any disputes . . . concerning
the amount or the conditions of payment of a compensation pursuant to Article 4
. . ..” This latter provision, which covers expropriation, expressly specifies that the
86
P. 6
87
P. 6
88
P. 9
89
P. 10
90
P. 9
91
P. 7
92
Austrian Airlines v. The Slovak Republic, UNCITRAL, final award, 9 October 2009
“legitimacy” of the expropriation shall be reviewed by the host State’s “competent

authorities,” while “amount of the compensation and the conditions of payment”
may be “. . .reviewed either by the competent authorities . . . or by an arbitral tribunal
according to Article 8.”
The tribunal preliminarily found that:
. . .the words used in that provision . . . are clear by themselves. They mean that only disputes
“concerning the amount or the conditions of payment of a compensation” can be submitted
to arbitration. The scope of Article 8 is therefore limited to disputes about the amount of the
compensation and does not extend to the review of the principle of expropriation.93
The tribunal also took note of the fact that the express distinction made in the
expropriation provision “. . .shows that access to arbitration was intended to be
limited to the amount and conditions of the indemnity, as opposed to the ‘legiti-
macy,’ or lawfulness, or principle of expropriation.”94
Indirectly – yet, clearly – criticizing Renta4 (where Brower sat as arbitrator), the
tribunal affirmed:
from a practical perspective, the Tribunal has no reason to believe that the review of the
legality of the expropriation by the host State’s authorities, be they Slovak or Austrian,
would be ineffective. In other words, there is no indication in the record that such review
would not support the Treaty’s object and purpose of protecting foreign investors.95
With regard to the relationship between MFN and ISA, the tribunal, criticizing on
the point inter alia Plama and Berschader, while nodding at other decisions, affirmed
that, in abstracto, it “. . .does not consider that provisions that embody a State’s
consent to arbitration must be strictly interpreted,” as “. . .there is no principle of
either restrictive or extensive interpretation of an agreement to arbitrate in interna-
tional law.”96 In casu, however, the MFN clause was framed in terms more generous
than in Renta4, but not as broad as in Rosinvest: it did expressly cover “investments”
and “investors,” but only with reference to “treatment” for both. Inter alia, the
tribunal considered that the distinction between the words “treatment” (employed
in Art. 4) and “right” (Art. 8) provided an indication that MFN was arguably not
meant for procedural “rights” but only substantive “treatment.”97 Indirectly coun-
tering Rosinvest, it also noted that since the clause featured only substantive excep-
tions to MFN, the corresponding guarantee was more coherently understood as
applying only to substantive matters.98 Having looked in addition at both
93
Para 96
94
Para 97
95
Para 104
96
Para 119
97
Para 126
98
Para 129
Respondent’s relevant treaty practice and the BIT negotiating documents, the tribu-
nal concluded that:
Faced with a manifest, specific intent to restrict arbitration to disputes over the amount of
compensation for expropriation to the exclusion of disputes over the principle of expropri-
ation, it would be paradoxical to invalidate that specific intent by virtue of the general,
unspecific intent expressed in the MFN clause.99
Thus, the tribunal decided (Brower appending a partly separate and partly
dissenting opinion) that it lacked jurisdiction to hear the claimant’s claims of indirect
expropriation.
In October 2012, an UNCITRAL/Stockholm tribunal composed by Greenwood

(chair),100 Petsche (claimant’s nominee),101 and Stern (respondent’s nominee) ren-
dered its first award on jurisdiction in the EURAM case.102 Like in Austrian Airlines,
the underlying treaty was the 1990 Austria-Czechoslovakia BIT. In this case,
however, the parties were unable to agree upon a mutually acceptable English
translation of the authoritative texts (in Czech and German). In the end, nevertheless,
the tribunal discarded the relevance of most variations in the translations proffered
by the parties, chiefly finding no material difference, with respect to limiting the
tribunal’s jurisdiction, between the terms “concerning” and “with regard to” – the
two expressions being, for practical purposes, synonymous.103 It also considered
synonymic “in accordance with” and “pursuant to” and, contrasting the clause at
hand with those in EMV and Renta4, came to the conclusion that the terms “in
accordance with” does not carry the same clear reference to entitlement than “due by
virtue of.”104
The tribunal noted that in casu, like in Austrian Airlines, the expropriation clause
expressly mentioned the possibility of reviewing the “legitimacy” or “legality” (the
parties disagreed as to the proper translation here as well) of the measure adopted by
“national authorities” – what it later defined as “the principle of expropriation.”105
Echoing Austrian Airlines, it found that “There is no reason in principle why States
should not agree that the legality of any type of expropriation measure (including a
99
Para 135
100
As noted, Greenwood had already been appointed arbitrator by the respondent in EMV.
101
Appointed After respondent manifested its intention to challenge the claimant’s first appoint-
ment (Mr. Brower).
102
European American Investment Bank AG (EURAM) v. Slovak Republic, UNCITRAL, decision
on jurisdiction, 22 October 2012
103
Para 364
104
Para 367
105
Para 372
legislative one) could be reviewed by the competent national authorities.”106 The

tribunal also considered:
The power to determine whether an expropriation or comparable measure is lawful is a far

more extensive power than is the power to determine the amount of compensation to be paid
(or the arrangement for the payment of that compensation) in respect of such a measure. It is
also one which, in any case in which legality is contested, must necessarily be exercised
first.107
Moreover, with Greenwood as chair, the tribunal could hardly avoid to make
comments and links with London High Court’s review of EMV (especially given the
different conclusions the tribunal was about to reach in casu), in particular empha-
sizing key differences between the Belgium-Luxembourg BIT and the Austria-
Czechoslovakia BIT: “concerning compensation” v “with regard to the amount or
the arrangements for payment of compensation,” and “due by virtue of” absent in the
latter agreement.108
With regard to the scope of the BIT, the tribunal significantly noted that:
. . .the protection of foreign investment is one (though not the only one) of the purposes of
the BIT and is, therefore, an important factor in interpretation of the provisions of the BIT.
That does not, however, entitle the Tribunal to disregard or ride roughshod over the pro-
visions agreed between the States Parties to the BIT. Reference to the object and purpose of a
treaty does not entitle a tribunal to rewrite the bargain between the parties to that treaty on the
ground that they could have made a better bargain which would more effectively have
secured the object and purpose of their treaty. In particular, the Tribunal cannot accept what
appears to be the premise of the Claimant’s argument, namely that treaty provisions laying
down standards of substantive treatment for an investor must be deemed ineffective if they
are not enforceable through arbitration.109
Lastly, with regard to the relationship between MFN and dispute settlement, the
tribunal preliminarily noted the lack of a “. . .clear arbitral consensus on this issue.
Indeed, so far from constituting a jurisprudence constante, they manifest a complete
lack of consistency, which is the product of a fundamental difference of views
between various arbitrators.”110 The tribunal concluded that there is no “. . .general
principle which precludes an MFN clause from being one of those provisions which
determine the extent of the consent to arbitration; if a BIT contained an MFN clause
which expressly stated that it was applicable to the disputes settlement provision of
that BIT (as is the case with some recent United Kingdom BITs),”111 however,
“Applying an MFN clause so as to alter the scope of that arbitration provision is
106
Para 370
107
Para 371
108
See para 377.
109
Para 385
110
Para 436
111
Para 443
therefore a very different matter from applying an MFN clause to the other pro-
visions of the BIT’s legal régime which do not have the same dual character.”112
Hence, focusing on the special character of the ISA clause, its wording and place in
the BIT, and the relevant travaux preparatoires, the Tribunal concluded “. . .that the
MFN provision in Article 3(1) of the BIT does not affect the scope of its jurisdiction
under Article 8.”113
Consequently, the tribunal established not to have jurisdiction to determine
whether there had been an expropriation (and retained only that over transfers of
money).
In 2012, Hungary’s decision to bring its pre-paid “social voucher” sector under
State monopoly sparked (at least) three investment arbitrations: Chèque Déjeuner,114
Edenred,115 and Sodexo Pass.116 All are based on the 1986 France-Hungary BIT,
whose dispute settlement clause (Article 9) provides that “Any dispute relating to
investments . . . shall . . . be settled . . . by recourse to domestic means . . . However,
disputes concerning dispossession measures as provided for in article 5, paragraph 2
[expropriation], particularly those relating to compensation, its amount, conditions
of payment and interest to be paid in the case of delayed payment, shall be settled
under the following conditions . . . If any such dispute cannot be settled amicably
within six months . . . it shall . . . be submitted for arbitration . . ..”
In December 2016, an arbitral panel composed of Fernandez-Armesto (chair),
Orrego Vicuna (claimant appointee), and Von Wobeser (respondent appointee)
rendered its award in Edenred. In January 2019, a tribunal composed of Park
(chair), Carlevaris (claimant’s nominee), and Thomas (respondent’s nominee) ren-
dered its award in Sodexo. The reasoning in both decisions, however, seemingly
follows, or is anyway reportedly equivalent, to that in the earlier decided Chèque
Déjeuner.117 Being this latter case (i) the only one that bifurcated proceedings; (ii)
whose decision is public; and taking into account that (iii) much of the focus in all
three decisions has been devoted to the question of intra-EU BIT compatibility with
the EU legal regime; (iv) Hungary has moved to annul all three awards; and (v) these
annulment proceedings are all still pending; the following focuses on Chèque
Déjeuner only.
112
Para 446
113
Para 455
114
UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No.
ARB/13/35, Decision on preliminary issues of jurisdiction, 3 March 2016
115
Edenred S.A. v. Hungary, ICSID Case No. ARB/13/21, award of 13 December 2016 (not public)
116
Sodexo Pass International SAS v. Hungary, ICSID Case No. ARB/14/20 (not public)
117
See IAR report, BIT tribunal rules in favor of French investor, Sodexo Pass, in latest intra-EU
award against Hungary, 29 January 2019.
The ICSID tribunal constituted for the Chèque Déjeuner case, composed of
Böckstiegel (chair),118 Fortier (claimant’s nominee),119 and Bethlehem (respon-
dent’s nominee),120 rendered its decision on jurisdiction in March 2016.
With regard to the reading of the dispute settlement clause, the tribunal, echoing
Austrian Airlines, found that (i) the wording as a whole limited ISA to claims
concerning expropriation (thus, rejecting the claimant’s argument for the inclusion of
FET) and (ii) the evidence put before the tribunal regarding the Parties’ understanding at
the time of the conclusion of the BIT proved “. . .the clear and unavoidable conclusion is
that the parties to the Treaty intended to exclude arbitration in respect of FET claims.”121
With regard to the applicability of the MFN clause (Article 3) to dispute settle-
ment, the tribunal went beyond Rosinvest (whose chair was the same as in this case).
Preliminarily, it considered that “There is no reason of principle, or of construction,
that would restrict the operation of an MFN clause to treatment of a particular kind or
form.”122 Hence, it chiefly added:
Had the parties intended the MFN clause to be so limited, it would have been straightforward
to set out a restriction to this effect in express terms either in the MFN clause itself or
elsewhere in the Treaty. They did not do so. To be capable of overturning the fundamental,
non-discriminatory object and purpose of an MFN clause, the language of any limitation
must have clearly and unambiguously in contemplation a restriction on the operation of the
MFN clause itself. It is not sufficient that a clause elsewhere in the Treaty provides for a
limitation in respect of some matter while leaving the MFN clause entirely intact. Any
different approach would effectively denude the MFN clause of its essential purpose,
namely, to ensure that investors afforded the benefit of the Treaty are not discriminated
against by comparison to investors afforded the benefit of some other BIT.123
The tribunal then turned to analyze whether the expressly limited consent to ISA
(Art. 9.2) “. . .is controlling going forward in the face of an MFN clause that contains
no limitation or exclusion of its own in respect of its scope of application.”124 In
carrying out such an analysis, it placed considerable reliance on the 2015 ILC Report
on the interpretation of MFN clauses in investment arbitration – which is somewhat
unconvincing, as the document simply reviews prior decisions (possibly criticizing
some of them such as Siemens, whose approach is explicitly defined as “overly
118
Whom already chaired Rosinvest; the parties had previously agreed on Kaufmann-Kohler, which
however did not accept the appointment.
119
Chair of the concurrent arbitral panel in A11Y which, by majority, touching upon the same issue,
declined to extend its jurisdiction over FET claims by way of a MFN clause (see below).
120
Involved in 2014 in the Sanum case as expert for the claimant, although on a specific aspect (see
below)
121
Para 157
122
Para 163
123
Para 159
124
Para 160
broad,” or nodding at those that ultimately rejected the evolutionary interpretation

with reference to MFN clauses, such as ICS v Argentina).125
The Tribunal opined that the MFN clause:
. . .must, however, be interpreted in a holistic manner, with regard to its context and its object
and purpose. Individual words cannot be given a meaning, however merited this might be
when viewed in isolation, that would be at odds with the object and purpose of the clause as a
whole.126
It hence focused on the BIT preamble and, with two consecutive and somewhat
apodictic statements, found that:
The ability . . . to protect . . . investment, including by resort to dispute settlement pro-

ceedings, is an integral component of the conditions of investment and will often be material
to the decision to invest in the first place. The importance of this element is illustrated by the
fact of investor – State dispute settlement provisions in BITs, as well as by the raison d’être
of ICSID itself.127
Later, the tribunal will equate its own term, “component,” to the clause word
“treatment.”128
With regard to the additional – and possibly problematic – treaty wording
expressly linking MFN “treatment” to “territory,” the tribunal found that:
. . .the term “territory” in the MFN clause cannot be construed as imposing a limitation on the
operation of the MFN clause to exclude reference to arbitration that takes place internation-
ally. The issue is the treatment accorded by a Contracting State to investments and connected
activities by qualifying investors. If the object and purpose of the clause is not to be defeated
by devices that impose extraterritorial conduct requirements, the term “territory” must be
construed as a reference to the jurisdiction of the Contracting Party, including as regards such
rights as may be afforded the investor, as part of the conditions of investment, to safeguard
his/her/its investment through arbitration proceedings which are independent of the
Contracting Party in question. Delocalised dispute settlement is at the heart of the Treaty
edifice concerning conditions of investment. To construe the word “territory” as imposing a
limitation on the scope of an MFN clause would risk eroding such a clause in a fundamental
way.129
On the matter, the tribunal ultimately found that:
125
ICS Inspection and Control Services Limited (United Kingdom) v. The Republic of Argentina,
UNCITRAL, PCA Case No. 2010-9, award on jurisdiction, 10 February 2012
126
Para 188
127
Para 190
128
Para 193
129
Para 191
Whether or not arbitration is in fact more advantageous than domestic processes in any
particular case is beside the point. The MFN clause is engaged by the fact that qualifying
investors are denied treatment afforded to comparable investors under another BIT.130
The tribunal, hence:
. . .agrees that the Respondent’s consent to international arbitration of “any dispute” with
Lithuanian investors constituted (and constitutes) more favorable treatment, and this treat-
ment was automatically accorded to the Claimants by virtue of the MFN . . . the Tribunal’s
jurisdiction includes disputes concerning the Respondent’s breach of its obligation to accord
the Claimants’ investments fair and equitable treatment under Article 3 of the Treaty, and is
not limited to the Respondent’s breach of its obligations concerning expropriation under
Article 5(2).131
The last case non-involving Chinese BITs here reviewed is A11Y.132 An

UNCITRAL tribunal composed of Fortier (chair), Alexandrov (claimant’s appoin-
tee), and Joubin-Bret (respondent’s nominee), constituted pursuant to Article 8 of the
1990 UK-Czechoslovakia BIT, rendered its decision on jurisdiction in June 2018. In
casu, treaty consent to ISA was wider than that seen in most cases earlier, as
including, in addition to expropriation, the umbrella clause, compensation for losses
from certain extraordinary events, and transfer of payments.
In this case, the parties agreed over the tribunal’s jurisdiction on expropriation
claims. The claimant, however, argued that the BIT umbrella clause could, in
abstracto and in the absence of a specific agreement, be read as providing jurisdiction
also over BIT protections not included in the dispute settlement provision (the
claimant also alleged breaches of FET, FPS, and NT).133 The tribunal discarded
this contention, noting that the “specific and limited consent to arbitration” would be
rendered meaningless, contrary inter alia to the effet utile principle, were it to be
overridden sic et simpliciter as such.
With regard to the effect of MFN over dispute settlement, this tribunal as well
acknowledged that “. . .an MFN clause can, a priori, apply to dispute settlement.”134
It is noteworthy that, while the MFN clause in casu was (unsurprisingly) structured
130
Para 194
131
Para 222
132
A11Y LTD. v. Czech Republic, ICSID Case No. UNCT/15/1, award, 29 June 2018
133
Paras 70–92
134
Para 95
as that in Rosinvest’s UK-USSR BIT, this latter decision is not mentioned once. The
tribunal’s majority (Alexandrov dissenting),135 focusing instead on the specific
consent expressed toward ISA in the BIT, affirmed:
. . .it is clear that the Contracting Parties’ consent to arbitrate expressed in Article 8 of the
Treaty is limited. The Contracting Parties explicitly agreed in this provision that they would
consent to arbitrate disputes arising out of a certain and limited number of articles of the
Treaty. The Tribunal is therefore of the view that, under the Treaty, the Contracting Parties
have not provided their consent to arbitrate disputes arising out of any provisions of the
Treaty not explicitly mentioned in Article 8. . . . where there is no consent to arbitrate certain
disputes under the basic Treaty, an MFN clause cannot be relied upon to create that consent
unless the Contracting Parties clearly and explicitly agreed thereto.136
In reaching this conclusion, the tribunal noted as well that the MFN clause did not
feature the third paragraph of the UK model BIT (which expressly lists the pro-
visions covered by MFN – including, notably, dispute settlement).
Case Law Based on Chinese BITs
The first case where an old-styled Chinese BIT was relied upon by an investor has
been Mr. Tza Yap Shum.137 An ICSID tribunal constituted under Article 8 of the
1994 China-Peru BIT and composed by Kessler (chair), Otero (claimant’s nominee),
and Fernandez-Armesto (respondent’s nominee) rendered its decision on jurisdiction
in June 2009. As the treaty contemplates three equally authentic texts in Spanish,
Chinese, and English, and although proceedings have been conducted in Spanish, for
practical reasons reference is here made to the English text. The treaty allowed ISA
only as ICSID arbitration, and only for “. . .a dispute involving the amount of
compensation for expropriation. . ..”138 It additionally provided that “Any disputes
concerning other matters . . . may be submitted to [ICSID] if the parties to the dispute
so agree.” The norm was then closed by a fork in the road, by which ISA may not be
initiated “. . .if the investor concerned has resorted to the [competent courts of the
host State].”
135
The dissent is expressed in para 108 and is based on (i) a different approach to textual
interpretation (he would have moved from “treatment,” and addressed whether this included
ISA), (ii) the analysis of State consent to arbitration, and (iii) the majority analysis of the UK BIT
practice. With regard to the latter two, while signaling the need for more investigation on the part of
the tribunal to reach the conclusions it had, he seemingly offers none in addition himself.
136
Paras 103–104
137
Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, decision on
jurisdiction, 19 June 2009
138
In the Spanish version: “. . .una controversia que involucra el monto de compensación por la
expropiación. . .”
The tribunal preliminarily found, perhaps a bit creatively, that in casu the wording
employed to limit ISA “. . .may be interpreted in a variety of ways.”139 It then
focused on the verb “involving,” which, through the term used in the Spanish text
(“involucra”), was then understood as “including.” Such reading was strengthened,
in the eyes of the tribunal, by the fact that the treaty parties refrained from using,
instead, other terms such as “limited to” or “exclusively.”140 Thus, considering that
the expropriation clause (Article 4) was an articulated affair (in reality, it merely
reproduced the Chinese model wording), which in turn “. . .clearly envisions more
than one potential area of dispute arising from a expropriation,” and looking at the
preamble (albeit expressing “. . .a certain level of skepticism as to whether [ISA]
could actually help attract foreign investors”), it concluded that limiting ISA only to
disputes of expropriation quantum would produce an absurd interpretive outcome
right because of the fork in the road.141 In fact, weighing in casu the claim of indirect
expropriation against the wording of the BIT, the tribunal succinctly established that
the requirement to go to local courts to dispute occurrence or modality of an
expropriation would bar the investor from resorting to arbitration on quantum.142
The tribunal also found that consent to ICSID jurisdiction (hence, to ISA in the BIT)
was unaffected by China’s notification, rendered upon accession to ICSID, of
acceptance limited to disputes over expropriation quantum.143 Moreover, it consid-
ered equally not determinant (i) the statements by BIT negotiators of both parties as
to the “restrictive approach” to be given to ISA’s scope; (ii) Peru’s negotiator plain
admission that “. . .negotiations basically started and ended on the basis of the
language used in the Chinese proposal”; and (iii) the fact that Peru’s initial position,
to include inter alia “legality of expropriation,” had been ultimately discarded.144
China’s treaty practice of the time on the point, despite acknowledged to be generally
limiting ISA, was also deemed undecisive.145 In addition, next to reviewing some
relevant case law, the tribunal considered unsubstantiated the claim about the distrust
communist regimes expressed for ISA in BITs throughout the 1980s and early 1990s (a
distrust instead acknowledged in other decisions); it seemed instead nodding at those
other prior pronouncements that did not mention, or anyway delve, on the point.146 Like
Renta4, here as well the tribunal criticizes at length the majority in Berschader.147
139
Para 150
140
Para 151
141
Paras 152–157. The skepticism is expressed again at para 187.
142
Paras 159–161; the apparent haste with which the matter was handled by the tribunal (also in
procedural terms), while not sufficient to cause annulment, was openly criticized by the ad hoc
committee (see below).
143
The reasoning centered on Art. 25.4 ICSID; see paras 163–166.
144
Paras 168–169
145
Para 172
146
Paras 174–176
147
Paras 177–183
With regard to the interpretation of the wording of the ISA clause, the tribunal
considered that:
. . .in order to give meaning to all the elements of the article, it is necessary to interpret the
words “involving the amount of compensation for the expropriation” includes not only the
mere determination of the amount but also the other issues normally inherent in an expro-
priation, including whether the property was actually expropriated . . .In the Tribunal’s view
. . . recourse to the courts of the investment-receiving State would definitively preclude the
possibility of access to arbitration under the ICSID Convention.148
Delving into the historical ontology of the MFN clause, the tribunal then held:
Due to its long history and extensive use, there can be no doubt in the as to the legitimacy of
the MFN mechanism. It is presumed that when a nation includes a or more MFN provisions
in a treaty, it does so intentionally and in order to recognize that is offering investors from the
other treaty signatory country in question (as well as other countries in the region) nations
whose treaties contain MFN clauses) more favourable treatment and protection agreed under
future treaties. Accordingly, . . . States that negotiate MFN clauses should do so consciously
and in a timely manner, and express as clearly as possible the scope and limitations that are to
be respected of the MFN commitment.149
Moreover, “A general aspect of interpretation is that the specific enumeration of

particular exceptions, by implication suggests that there are other matters which have
not been specifically excluded.”150
Quite significant is also the following passage:
[Respondent BIT negotiator] further stated that she considered that it would be illogical to
have a debate in this sense with the representatives of China because of: (1) the efforts made
by Peru and China in the negotiations on the dispute settlement clause; and (2) the
categorical position of the Chinese Government regarding the types of disputes that could
be submitted to arbitration . . . While the Tribunal understands the logic of [Respondent BIT
negotiator]’s opinion on the case, the Tribunal does not consider that this testimony is a
convincing manifestation of an agreement on the subject, or of the intention of the
Contracting Parties with respect to the scope of this MFN clause.151
The tribunal also established that the text of the MFN clause, in light of its
“current meaning,” “in context,” and “in light of the object and purpose” of the BIT;
. . .do not seem to restrict the scope of the word “treatment” to matters such as the
exploitation and management of the investment. In addition, the Tribunal has not found in
the record any evidence that the Contracting Parties intended the term “treatment” to have a
“special meaning” . . . the MFN clause itself appears to be open to a broader interpretation
which may include giving access to more favourable procedural protections (which would
148
Para 188
149
Para 196
150
Para 207
151
Para 212
potentially include to ICSID arbitration) for alleged violations of the standard of fair and
equitable treatment.152
The intertwine between ISA and MFN resurfaced in the conclusion. The tribunal
found that:
Since the Contracting Parties specifically provided for the possibility of submitting “other
matters” to arbitration before the ICSID, and since they have specifically provided for such
an eventuality in the language of the [BIT], the Tribunal concludes that it is bound, to make
sense of the language of the [BIT] as it was actually conceived. Thus, the Tribunal
determines that the specific language of Article 8(3) must prevail over the general language
of the MFN clause of Article 3.153
Subsequently, in the merit award, rendered in July 2011, the tribunal found Peru’s
conduct to tantamount expropriation, hence the State liable for breach of Article 5 of
the BIT. Peru decided to move to request the annulment of both decision on
jurisdiction and merit award.154 The ICSID ad hoc annulment committee, composed
of Hascher (chair), McRae, and Hober, rendered its decision in February 2015 and,
while ultimately rejecting in its entirety the annulment request, with regard to the
interpretation of the BIT dispute settlement clause, laconically noted:
A body that had appellate jurisdiction might well find fault as a matter of law with some
aspects of the Arbitral Tribunal’s application of the VCLT, but an ad hoc committee does not
have such powers.155
In August 2012, a Macanese investor – here simply shortened as Sanum –

initiated two sets of proceedings against Laos (with both tribunal members and
claims largely overlapping). The first was an UNCITRAL/Singapore arbitration
based on the 1993 China-Laos BIT, whose tribunal – composed of Rigo-Sureda
(chair), Hanotiau (claimant’s appointee), and Stern (respondent’s appointee) – ren-
152
Para 213
153
Para 216
154
ICSID Case No. ARB/07/6, Decision on Annulment, 12 February 2015; it shall be mentioned
that the claimant was here assisted inter alia by Mr. Alexandrov (later arbitrator in A11Y)
155
Para 99; at para 133, the committee expressed criticism also with respect of how the tribunal
handled (procedurally, if not as a matter of interpretation) the fork in the road provision: “. . .did the
Arbitral Tribunal have an obligation to go back to the Parties to ask about the last sentence of Article
8(3) on which the Parties had not focused? Given the importance of the analysis to the Arbitral
Tribunal’s overall reasoning, one may be inclined to say that it should have. It is however possible to
take the view that it did not have such an obligation, although the matter could have been handled
better by the Arbitral Tribunal”; on this, see also para 141.
dered its decision on jurisdiction in December 2013.156 The second was an ICSID
AF arbitration established pursuant to the 2003 Netherlands-Laos BIT, with a
tribunal where only the chair was different (Binnie).157 As the parties reached a
settlement, both proceedings were ultimately suspended in 2014. In 2017, both were
revived and consolidated due to Laos’ alleged breach of the agreed terms.158 In the
meantime, further parallel and/or partly overlapping proceedings were initiated at
SIAC (concluded) and ICSID (pending).159
Out of this tortured procedural history, only the first decision on jurisdiction is
here of interest, in light of the limited consent to ISA featured in the underlying BIT
and the following rulings of the Courts of Singapore on the matter. Indeed, the
dispute settlement provision in the China-Laos BIT merely reproduces the Chinese
model BIT, hence limiting consent to ISA to “. . .dispute[s] involving the amount of
compensation for expropriation. . ..”
Preliminarily, referring to “settled case law” (but then relying on little more than
Tza Yap Shum), the tribunal considered China’s 1993 notification of acceptance of
ICSID jurisdiction limited to “disputes over compensation resulting from expropri-
ation” to be understood as “. . .for informative purposes only and cannot be consid-
ered as a legal obligation to narrow or broaden an otherwise accepted consent to
jurisdiction.”160
With regard to the text of the provision, the tribunal considered that:
. . . the terms of Article 8(3) indicate that the jurisdiction of the Tribunal is more limited than
the dispute clauses found in many BITs. Article 8(3) refers to “disputes involving the amount
of compensation for expropriation” and it does not simply refer to disputes involving an
expropriation. As a first impression the text of this provision would seem to restrict the
jurisdiction of the Tribunal to matters related to the amount of compensation due in instances
of expropriation. However, other readings are possible. The term “involving” has a wider
meaning than other possible terms such as “limited to” which could have been used if the
intention of the State Parties had been to limit the jurisdiction of the Tribunal exclusively to
disputes on the amount of compensation. “To involve” means “to wrap”, “to include”, terms
that are inclusive rather than exclusive. This wider reading of Article 8(3) would seem more
consistent with the other provisions of the Treaty . . . It is also consistent with how a similar
provision was interpreted by the Tza Yap Shum tribunal.161
Moving to the context, the tribunal, found:
156
Sanum Investments Limited v. Lao People’s Democratic Republic, UNCITRAL, PCA Case No.
2013-13, decision on jurisdiction, 13 December 2013
157
Lao Holdings N.V. v. Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6
158
A first effort by the claimant to prove such breaches by Laos of the settlement deed failed in 2015
159
Sanum Investments Limited v. Lao People’s Democratic Republic, ICSID Case No. ADHOC/17/1;
ICSID AF/New York, tribunal: Kalicki (chair), Reichert (claimant’s appointee), Boisson de
Chazournes (Respondent’s appointee)
160
Para 328
161
Para 329
. . .if Articles 8 and Article 4(1) are read together, an investor who would have recourse to a
competent court to determine whether an expropriation has occurred would be precluded
from submitting the dispute on the amount of compensation to international arbitration
because the competent court would have already determined the compensation.162
Hence, hinging on the effet utile principle, the tribunal rejected Respondent’s
interpretation that “jurisdiction may be split between the local courts and an arbitral
tribunal” because this would render the ISA clause “without effect.”163
With regard to the “extended protection” sought by the investor via MFN, the
tribunal, however, answered in the negative, acknowledging that in casu the clause:
. . .is limited in its scope and does not include the traditional formula of full protection and
security, as the Claimant itself recognizes. In addition, to read into that clause a dispute
settlement provision to cover all protections under the Treaty when the Treaty itself provides
for very limited access to international arbitration would result in a substantial re-write of the
Treaty and an extension of the States Parties’ consent to arbitration beyond what may be
assumed to have been their intention, given the limited reach of the Treaty protection and
dispute settlement clauses. Therefore, the Tribunal finds that it has no jurisdiction for claims
submitted under Article 3(2) of the Treaty.164
The tribunal therefore accepted jurisdiction on all expropriation claims, on the

basis of the text of the ISA clause, rejecting all other grounds.
In January 2015, Singapore High Court accepted Laos’ request to have the
arbitral jurisdictional ruling set aside.165 While the principal ground of the setting
aside was ultimately another one, the court also noted that the proper understanding
of the dispute settlement clause in the China-Laos BIT, which belong to the older
generation of Chinese BIT, should have moved from the relationship expressed in
the treaty between the local courts’ jurisdiction over “any dispute” as opposed to
that, expressly limited, of ISA. The reading of the dispute settlement clause as a
whole thus induced a restrictive reading of the terms relating to ISA – chiefly,
“involving.”166 In this respect, as well as in relation with the BITs’ preambular
statements, the High Court criticized Tza Yap Shum’s “undue reliance”:
It is a truism to say that the purpose of any BIT is to promote investments. But it does not follow
from this general proposition that every ambiguity found in such treaties should invariably be
resolved in favour of the investor. Every BIT represents a negotiated bargain between two
contracting states and the provisions therein reflect the extent to which the sovereignty of each
contracting state has been curtailed. The bargains struck in BITs should therefore not be lightly
displaced without due consideration of the context in which they were made.167
162
Para 332
163
Para 333
164
Para 358
165
Government of the Lao People’s Democratic Republic v Sanum Investments Ltd [2015] SGHC 15
166
Para 121
167
Para 124
The court noted that these approaches ultimately expand ISA’s scope over any
disputes – “. . .a result that two communist states were unlikely to have contemplated
or intended at that time.”168
In September 2016, however, Singapore Court of Appeal, with a de novo review
of the case, reversed the High Court’s ruling, thus restoring the tribunal jurisdictional
decision.169 Again, the principal grounds for the decision rested elsewhere; however,
the Appeal Court touched upon the issue at hand as well. Preliminarily, it found that
the High Court “narrow interpretation” “. . .ignore[d] several difficulties” which
“. . .might denude the arbitration clause of force.”170 Moving then to a review of
the arbitral case law on the point, including that which “. . .might appear to support
the narrow interpretation. . .” (including Plama, Austrian Airlines, Berschader, and
Rosinvest), the court concluded, echoing Tza Yap Shum, for the critical role played
in the case at hand by the fork in the road provision. Lastly, the court supported the
broad interpretation of preambular statements as well when “. . .in addition to the
ordinary meaning of the words used in [the dispute settlement clause] and the context
surrounding . . . is also consistent with the BIT’s objective of protecting
investments.”171
In May 2017, an ICSID tribunal constituted under the 1998 China-Yemen BIT
and composed of Binnie (chair),172 Townsend (claimant’s appointee),173 and Doug-
las (respondent’s appointee)174 rendered its decision on jurisdiction in BUCG.175 As
in Berschader and Renta4, English was not an authoritative language of the BIT
(here being Chinese and Arabic). The tribunal, while colorfully noting “. . .some
irony in having English speaking lawyers making detailed and nuanced arguments
dissecting an English text when the text itself has no official status whatsoever,”
ultimately relied on the unofficial English translation provided by the claimant
(apparently considered by Yemen “not relevant at all”).176 The BIT dispute settle-
ment provision (Article 10) seems to belong to a “transition” category between the
first and second generation of Chinese BITs, as both structure and language are
partly new: the investor can choose between “competent courts” and ICSID arbitra-
tion; however, “. . .either Contracting Party shall give its irrevocable consent to the
168
Para 125
169
Government of the Lao People’s Democratic Republic v Sanum Investments Ltd [2016] SGCA 57
170
Paras 132–133
171
Para 149
172
Chair also of the ICSID AF Sanum case
173
Counsel for the claimant in Rosinvest
174
Counsel for the Czech Republic in EMV
175
Beijing Urban Construction Group Co. Ltd. v. Republic of Yemen, ICSID Case No. ARB/14/30,
decision on jurisdiction, 31 May 2017
176
Paras 64–65
submission of any dispute relating to the amount of compensation for expropriation

for resolution under such arbitration procedure. Other disputes submitted under such
procedure shall be mutually agreed upon between both Contracting parties.”177
Preliminarily, the tribunal considered that the “or” in the clause between domestic
courts and ICSID arbitration tantamount a fork in the road (whose otherwise usual
locution is, instead, not featured).178 Hence, it concurred with Singapore Court of
Appeal in Sanum that the ordinary meaning of “amount of compensation” is per se
not suggesting broad or narrow interpretations. The tribunal thus moved to analyze
the provision’s context, as well as the BIT’s object and purpose.179 Here, citing as
well the reasoning in Tza Yap Shum and Renta4, it:
. . .concluded that the Contracting Parties intended to confer a real choice, not an illusory
choice . . . and that the words “relating to the amount of compensation for expropriation”
must, in context, be read to include disputes relating to whether or not an expropriation has
occurred.180
The tribunal went on to find that “The lack of investor protection would discour-
age investment. The BIT would be seen as a trap for unwary investors instead of an
incentive for them to invest. . ..”181 Curiously, the tribunal did not even acknowledge
the different conclusion reached by the Swedish Court of Appeal in Renta4, nor that
in Austrian Airlines. Moreover, it expressly discarded “. . .the history of the PRC’s
position in various BITs over the years [as] not relevant to the disposition in this case
of the jurisdictional objections.”182
With regard to the effects of MFN on dispute settlement, the tribunal here agreed
with the analysis in Plama, as, in casu as well, the territorial scope of “treatment”
restricted the clause operation to substantive protection.183 Here as well, the tribunal
operated a quite selective case law review, as Chèque Déjeuner is not mentioned.
The tribunal therefore found to have jurisdiction to hear claim of both direct and
indirect expropriation, but no others.
Lastly, in June 2017, an UNCITRAL/New York arbitral tribunal, composed of

Tomka (chair),184 Banifatemi (claimant’s nominee), and Clodfelter (respondent’s
177
According to the translation employed by the tribunal; see paras 50 and 74.
178
Para 71
179
Para 77
180
Para 87
181
Para 92
182
Para 97
183
Para 116
184
Following the resignation of Donovan, the law firm of which he is partner at, Debevoise &
Plimpton, took up the claimant’s case in Sanum.
nominee),185 constituted according to the ad hoc procedure featured in the dispute

settlement clause (Article 8) of the 1991 China-Mongolia BIT (which merely
reproduces the Chinese 1984 model, hence is identical to that in Sanum), rendered
the award on jurisdiction in the Heilongjiang case.186
After some 140-page recollection of the parties’ arguments, the tribunal prelim-
inarily noted that the treaty expressly limited ISA jurisdiction ratione materiae to
“amount of compensation” (which is different from the more generic “compensa-
tion” found in other BITs and, especially, from the jurisdiction granted to domestic
courts on “any” dispute).187 It then rebuffed Tza Yap Shum’s study of the verb “to
involve,” considering it “. . .a neutral one. It does not by itself enlarge nor restrict the
category of disputes falling within the Tribunal’s jurisdiction.”188 With regard to the
fork in the road, the tribunal seemed unconvinced by Tza Yap Shum analysis and
found, rather, that the norm does not “. . .deprive an ad hoc arbitral tribunal of
jurisdiction where an investor, in the course of prior judicial proceedings, had
expressly sought to reserve the question of compensation for a decision in arbitra-
tion.”189 Significantly, the tribunal rejected the approach adopted in other cases (as
well as by Singapore Court of Appeal in Sanum) that expanded the scope of ISA
clauses through effet utile:
. . .not see[ing] grounds, in particular in the context of a treaty in which arbitration was
framed as an exception, for considering arbitration to be preferable to [negotiations and
domestic courts]. Nor can the Tribunal see that the absence of broader arbitration provisions
leaves investors without legal recourse.190
The tribunal also discarded expansive reading based on the BIT preamble:
Nothing in the Preamble suggests that the two Contracting States intended to confer upon an
arbitral tribunal to be constituted under Article 8 a broad jurisdiction over all issues arising in
connection with a claimed expropriation.191
It is worth noting that the decision does not touch upon the MFN effect of dispute
settlement, as it seems the claimants chose to drop the argument after a request of
clarification from the tribunal.192
185
Counsel for the Slovak Republic in EURAM
186
China Heilongjiang International Economic & Technical Cooperative Corp., Beijing Shougang
Mining Investment Company Ltd., and Qinhuangdaoshi Qinlong International Industrial Co. Ltd. v.
Mongolia, UNCITRAL, PCA case no. 2010-20, award on jurisdiction, 30 June 2017
187
See, in particular, para 445.
188
Para 446
189
Para 449
190
Para 450
191
Para 451
192
IAR, In-depth: a first look inside the now-surfaced award in the case of China Heilongjiang v.
Mongolia award; claimants now pursuing set-aside, 1 October 2017
Therefore, the tribunal concluded that it lacked jurisdiction ratione materiae with
respect to the claim of expropriation. The claimants are currently trying to set aside
the award in New York.
Conclusion
It is arguably fair to assume that BIT negotiators in the 1980s and 1990s could not
foresee the depth and extent of the debate spurring three decades later out of ISA
clauses limiting consent to arbitration, prima facie at least, to claims of compensation
due to expropriation. The review of the case law carried out in this Handbook’s chapter
highlighted, with the words of the EURAM tribunal, the “. . .fundamental difference of
views between various arbitrators. . .” in the understanding of these clauses (as it is the
case on other topics in investment law and arbitration). It may be argued that these
differences rest beyond the textual element and chiefly pivot on the fundamental
perspective that each arbitrator adopts in investment cases. On the one side, the
approach moving from public international law, which preliminarily focuses on
retrieving unambiguous State consent to the delegation of power that the exercise of
jurisdiction by international courts and tribunals rests upon. Here, excesses of pru-
dence – or formalism – may result into an investor being ultimately deprived of any
means to bring its claim forth (e.g., Ping An award, declining jurisdiction in the face of
two overlapping BITs in force between the Parties).193 On the other side, the private
international law perspective (especially, that of international commercial arbitration
practitioners), which is premised on the notion that “amibiguous” consent expressed
by the (private) parties may be “fixed” through effet utile interpretations, in order to
retrieve, and give full effect to, their original intention. Such a methodology, however,
should be handled carefully in investment arbitration, given that the contracting parties
to the BIT are not the disputing parties of the arbitral proceedings. Indeed, as illustrated
with the case law review, the line between retrieving and fabricating consent has
proved to be perilously blurred more than once.
With reference to the interpretation of the text of ISA clauses subject to this
specific type of limitation of scope, the pool of arbitral and court decisions reviewed
tend to diverge in particular with regard to the weight to attribute to the clause
context and the BIT’s object and purpose. Decisions declining jurisdiction focused
primarily on the textual element (e.g., Austrian Airlines, EURAM, Heilongjiang).
Conversely, those upholding it often privileged a teleological approach and focused
on the provision’s scope, by linking it to the BIT object and purpose (e.g., Sanum).
Certain decisions, however, by conceptually shifting the application of the teleolog-
ical approach (i.e., informing the interpretation of the text moving a priori from a
perceived “mission” of investor-State arbitration, as opposed to supporting a neutral
interpretive exercise over a possibly unclear text), seem having exceeded in
193
Ping An Life Insurance Company, Limited and Ping An Insurance (Group) Company, Limited v.
The Government of Belgium, ICSID Case No. ARB/12/29, award on jurisdiction, 30 April 2015
discarding the (cumulative) relevance of the BIT negotiating history, the statements
by officials of the contracting parties (especially when concurrent from both sides),
and the State BIT practice and models – in particular, where the text of the clause
clearly does not express unrestricted consent to ISA (e.g., Renta4, Tza Yap Shum,
BUCG).
On the alternative path upholding jurisdiction via MFN, there seems to be
consensus that the clause can in principle cover dispute settlement as well. However,
tribunals diverge on how they reach this conclusion. For some, there needs to be a
clear inclusion for dispute settlement to be covered. For others, MFN applies to
dispute settlement unless expressly excepted.
Curiously, with only one exception, no tribunal found that it could retain juris-
diction on both textual and MFN grounds. When the claimant effectively pursued
both, the textual argument alone succeeded in EMV, Renta4, Sanum, and BUCG;
while the MFN argument only was accepted in Rosinvest and Chèque Déjeuner. On
the other hand, Tza Yap Shum is the one case to date that accepted both grounds.
This, however, is a mere computational finding, which does not take into account
differences in the treaty texts.
This variety of approaches – and results – is intimately connected to the parties’
choice of arbitrators. In the horizontal system of investor-State arbitration, certain
“radicalizations” of interpretive positions (including the proliferation of dissenting
opinions) are both a blessing and a curse: on the one side, it testifies the field’s
freedom and vitality; on the other, it justifies the calls for its reform. For instance, the
practice of “double-hatting” over virtually identical subject matters, beside its
legitimacy and/or usefulness (and the undisputed professionality and reputation of
most members of the arbitral community), seems a hardly appropriate choice – one
that anyway casts at least equally legitimate questions over the way business is run in
this field as a whole.
As illustrated, China’s BIT network still counts next to 60 BITs where ISA is
limited to compensation due to expropriation, including with States with which it
entertains significant investment flows. While no ISA brought against China has to
date reached its natural conclusion, limited ISA clauses have been relied upon by
Chinese investors abroad repeatedly already – as seen, with mixed fortunes. These
clauses, however, along the inconsistent response the investor-State arbitration
system is producing on the point, are a double-edged sword: while they quite
possibly contribute for foreign investors in China to resort to alternative methods
to settle disputes with the Chinese government, Chinese investors abroad (in partic-
ular, in Western States) see their legal weaponry blunted. This is, for instance,
proving quite the case in relation to Huawei’s potential claims against the second
thoughts certain Western governments seem to have over 5G network concessions.
Cross-References

Bilcon v. Canada: A New Paradigm for
Causation in Investor-State Arbitration? 50
George J. Somi
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1262
How the Bilcon Decision Situates the Causation Analysis Between the Inquiries
of Breach and Quantum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1266
The Bilcon Tribunal’s Utilization of Factual Causation to Determine Damages . . . . . . . . . . . . . 1268
Bilcon’s Heightened Burden of Causation Undermines Lost Profit Claims . . . . . . . . . . . . . . . . . . 1271
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1275
Abstract
Generally, investment tribunals have historically treated the issue of causation
superficially and without “clarity as to the steps of the reasoning that are being
employed in order to establish causation.” The international legal landscape,
however, has been ripe for a consensus as the increasing complexity of interstate
and State-investor relationships and the rising damages claims present even higher
stakes as to determining how the harm originates. Recently, some international
investment tribunals and litigants have started to focus on the issue of causation,
J.D., Brooklyn Law School (2019); M.A., Harvard University (2012); B.A., Boston College (2010).
I would like to dedicate this article to my lovely fiancée, Caroline; my wonderful parents, Rita and
Joseph; and my supportive brothers, Thomas and Peter. I also would like to thank Mr. Simon
Batifort, a Partner in Curtis, Mallet-Prevost, Colt & Mosle LLP’s International Arbitration Group
and Adjunct Professor of Law at Brooklyn Law School, for his constructive comments and
encouragement on an earlier draft. This article is reprinted from Volume 35, Issue 3, of the Ohio
State Journal on Dispute Resolution. See George J. Somi, Bilcon v. Canada: A New Paradigm for
Causation in Investor-State Arbitration?, 35 OHIO ST. J. ON DISP. RESOL. (forthcoming 2020).
G. J. Somi (*)
Worcester, MA, USA
e-mail: somi@post.harvard.edu

https://doi.org/10.1007/978-981-13-3615-7_118
1262 G. J. Somi
treating causation as its own separate “step” and as separate from the determina-
tion of “liability” and the calculation of “quantum.” On January 10, 2019, when
the arbitral tribunal in Bilcon v. Canada rendered its Award on Damages, it
established a high burden for a claimant to meet in order to establish a causal
link that demonstrating that a respondent’s liability primarily led to the claimant’s
injuries. The Bilcon decision not only clarifies for future international arbitral
panels how causation is to be situated between the breach and quantum inquiries,
but it also demonstrates how this high threshold test, grounded in the Chorzów
and Genocide cases, situates the issue of lost profits within the causation inquiry.
Consequently, Bilcon may provide a primer on causation analysis for future North
American Free Trade Agreement (NAFTA) Chapter Eleven tribunals. Part I of
this chapter will explore how Bilcon clarifies and situates the causation analysis –
an emerging subject that has befuddled some arbitral tribunals – between the
issues of breach and quantum. Next, Part II will demonstrate how Bilcon places
upon claimants a high burden of causality, based on the Chorzów and Genocide
cases, while utilizing the doctrine of factual causation to determine quantum.
Finally, Part III will proceed to contextualize the issue of lost profits within this
causality analysis by comparing the Bilcon majority’s decision with that of the
concurrence. This Part will assess the strengths and weaknesses of the arbitrators’
approach to lost profits.
Keywords
Bilcon v. Canada · Bilcon · International law · Arbitration · International
arbitration · ISDS · Investor-State arbitration · Investor-State dispute settlement ·
Canada · Causation · Breach · Quantum · NAFTA · Chapter Eleven · Chorzów ·
Genocide · Lemire · Biwater Gauff · Tribunal · BIT · Investment treaties ·
Investment
Introduction
Generally, investment tribunals have historically treated the issue of causation1 super-
ficially and without “clarity as to the steps of the reasoning that are being employed in
order to establish causation.”2 The international legal landscape, however, has been
1
Simply defined, “causation (and the terms causality, causal analysis and causal inquiry, which will
be used interchangeably with the general term) is understood as the process of connecting an act (or
omission) with an outcome as cause and effect.” Plakokefalos I (2015) Causation in the Law of
State Responsibility and the Problem of Overdetermination. Eur J Int Law 26(2):471, 472. More
specifically, overdetermination “is the existence of multiple causes (multiple wrongdoers, external
natural causes, contribution to the injury by the victim and so on) contributing towards a harmful
outcome.” Id.
2
Id. at 486. See also id. at 472 (holding that “the concept of causation in international law is unclear,
especially in relation to overdetermination” and requiring clarification).
50 Bilcon v. Canada: A New Paradigm for Causation in Investor-State. . . 1263
ripe for a consensus as the increasing complexity of interstate and State-investor

relationships and the rising damage claims3 present even higher stakes as to determin-
ing how the harm originates.4 Recently, some international investment tribunals and
litigants have started to focus on the issue of causation, treating causation as its own
separate “step” and as separate from the determination of “liability” and the calculation
of “quantum.”5 Nevertheless, parties and arbitrators occasionally struggle to apply the
3
A follow-up study by Global Arbitration Review that was published in December 2017 assesses
the state of damages awarded in investment treaty arbitration:
The mean amount claimed in investment treaty arbitrations from 2013 onwards has
increased significantly to US $2,376 million (compared to US $491.7 million as of the
end of 2012). Even excluding Yukos, the mean amount claimed is now US $1,133 million.
Again, however, these mean figures are distorted by the larger claims, and the median
amount claimed from 2013 onwards was a more modest US $196.4 million (as compared
to US $66.1 million at the end of 2012).
Hodgson M, Campbell A (2017) Damages and costs in investment treaty arbitration. Glob Arbit
Rev (December 14, 2017). http://www.allenovery.com/SiteCollectionDocuments/14-12-17_Dam
ages_and_costs_in_investment_treaty_arbitration_revisited_.pdf. See also Beharry CL, Méndez
Bräutigam E (2020) Damages and valuation in international investment arbitration. In: Chaisse J,
Singapore.
4
Plakokefalos, supra note 1, at 472. Moreover, some cognitive biases on the part of arbitrators,
known as “anchoring,” impact arbitral decision-making with respect to making decisions on the
quantum of damages. Reed L (2013) The 2013 Hong Kong International Arbitration Centre Kaplan
lecture – arbitral decision-making: art, science or sport? J Int Arbit 30:85, 89. According to
Professor Christopher Drahozal at the University of Kansas Law School:
In estimating a numerical amount, people tend to start with some initial value—an
‘anchor’—and then come up with a final estimate by making adjustments to the anchor. If
the anchor provides useful information about the underlying value (such as the list price),
and if people make reasonable adjustments, this ‘anchor and adjustment’ heuristic can be a
useful decision-making [sic] approach. But anchoring can be problematic if people start with
an irrelevant anchor or fail to make adjustments to the initial value.
Id.
5
See Pearsall PW and Heath JB (2018) Causation and injury in investor-state arbitration in Beharry
CL (ed) Contemporary and Emerging Issues on the Law of Damages and Valuation in International
Investment Arbitration, 2. Nijhoff International Investment Law Series 11.
In Victor Pey Casado and Foundation “Presidente Allende” v. Republic of Chile, the tribunal ordered
the claimants to reimburse $159,509.43 USD to Chile, but in analyzing the claimants’ allegations,
assessed reparations as follows:
To recapitulate therefore: the assessment of the reparation due under international law for the
breach of an international obligation consists of three steps – the establishment of the breach,
followed by the ascertainment of the injury caused by the breach, followed by the determina-
tion of the appropriate compensation for that injury.
Victor Pey Casado and Foundation “Presidente Allende” v. Republic of Chile, ICSID Case No. ARB/
98/2 (Resubmission Proceeding), Award, } 217 (Sept. 13, 2016), 6 ICSID Rep. 375 (2004)
1264 G. J. Somi
aforementioned “three-step” framework6 and to define the causation inquiry’s bound-

aries,7 partly because of the absence of guidance from treaties.8
On January 10, 2019, when the arbitral tribunal in Bilcon v. Canada9 rendered its
Award on Damages, it established a high burden for a claimant to meet in order to
establish a causal link demonstrating that a respondent’s liability primarily led to the
claimant’s injuries. The Bilcon decision not only clarifies for future international
arbitral panels how causation is to be situated between the breach and quantum
inquiries but also demonstrates how this high threshold test, grounded in the
Chorzów and Genocide cases, situates the issue of lost profits within the causation
6
The three-step framework was originally articulated by the general international law of State
responsibility. Pearsall & Heath, supra note 5, at 3. The question of causation has been analyzed
separately from the question of whether a breach occurred because “international law as a general
matter accepts the [vexing] possibility that, depending on the applicable rule, conduct may be
internationally wrongful even in the absence of any damage to the wronged party” – a major departure
from the common law treatment of causation as one of the several elements, including negligence and
harm, in a liability claim. Id. at 4. While the law of State responsibility affords little treatment to
causation, Article 31 of the Draft Articles on Responsibility of States for Internationally Wrongful
Acts (“Draft Articles”) demonstrates that the concept crucially connects the determination of liability
to the calculation of quantum:
1. The responsible State is under obligation to make full reparation for the injury caused by the
internationally wrongful act.
2. Injury includes any damage, whether material or moral, caused by the internationally wrongful
act of a State.
Draft Articles on Responsibility of States for Internationally Wrongful Acts, Art. 31, Int’l Law
Comm’n, Rep. on the Work of Its Fifty-Third Session, U.N. Doc. A/56/10, at 91 (2001) [hereinafter
ILC Draft Articles]. Here, Article 31(1) presupposes a “reasonable State” when discussing the need
to make full reparation for the harm caused, separating the question of breach from the issue of
causation. See Pearsall and Heath, supra note 5, at 5. In addition, Article 31(2) indicates that that
causation “will play a determinative role” on a finding of material or moral injury. Id.
7
Pearsall & Heath, supra note 5, at 3. See, for example, Biwater Gauff (Tanzania) Ltd. v. United
Republic of Tanzania, ICSID Case No. ARB/05/22, Award (July 24, 2008), https://www.italaw.
com/sites/default/files/case-documents/ita0095.pdf; Biwater Gauff (Tanzania) Ltd. v. United
Republic of Tanzania, ICSID Case No. ARB/05/22, Concurring and Dissenting Opinion of Gary
Born (July 18, 2008), https://www.italaw.com/sites/default/files/case-documents/ita0093_0.pdf.
8
Pearsall & Heath, supra note 5, at 7. Pearsall and Heath do note that the 2004 and 2012 US Model
Bilateral Investment Treaties (“BITs”) and recent US free trade agreements (“FTAs”) require
claimants to demonstrate “loss or damage by reason of, or arising out of” a breach of the treaty.
Id. That said, absent treaties’ explicit statements on causation, some tribunals have looked to the
Draft Articles for guidance, even though they “make no attempt to regulate questions of breach
between a state and a private party such as a foreign investor.” Crawford J (2010) Investment
arbitration and the ILC articles on state responsibility. ICSID Rev 25:127, 130
9
See Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Award on
Damages (Jan. 10, 2019) [hereinafter Bilcon v. Canada (Award)], and Bilcon of Delaware et al. v.
Government of Canada, PCA Case No. 2009-04, Concurring Opinion of Professor Bryan Schwartz
(Jan. 10, 2019) [hereinafter Bilcon v. Canada (Concurrence)].
inquiry. Consequently, Bilcon may provide a primer on causation analysis for future
North American Free Trade Agreement (NAFTA) Chapter Eleven tribunals.
In Bilcon v. Canada, the majority of a tribunal held, on March 17, 2005, that the
Government of Canada breached NAFTA’s Articles 1102 (“National Treatment”)
and 1105 (“Minimum Standard of Treatment”) and violated Section A of NAFTA
Chapter Eleven when reviewing the claimants’ proposed construction of a quarry
terminal.10 The claimants who brought this action were “William Richard Clayton,
Douglas Clayton, and Daniel Clayton, all nationals of the United States of America,
as well as Bilcon of Delaware, Inc., a limited liability company incorporated under
the laws of the State of Delaware” in the United States.11 The Tribunal’s Award on
Jurisdiction and Liability reads, in part:
‘In light of the foregoing, and having considered carefully the Parties’ arguments and the
evidence before it, the Tribunal, In respect of Mr. William Richard Clayton, Mr. Douglas
Clayton, Mr. Daniel Clayton and Bilcon of Delaware, Inc., . . . By majority vote decides that
the Respondent has failed to accord to investments of these Investors treatment in accor-
dance with international law, including fair and equitable treatment and full protection and
security, in breach of Article 1105 (Minimum Standard of Treatment);
By majority vote decides that the Respondent has failed to accord to investments of these
Investors treatment no less favorable than that it has accorded, in like circumstances, to
investments of its own investors, in breach of Article 1102 (National Treatment). . . .12
On January 10, having deemed that Canada’s environmental review breached its
obligations to the investors, the Bilcon tribunal “considers the content of the
Respondent’s obligation to make full reparation for the injury caused by its interna-
tionally wrongful acts.”13
The claimants in Bilcon contend that “the content of the duty of reparations, namely
that ‘reparations must undo the harm caused by the breach and make the wronged party
whole to the extent possible,’” ultimately requesting approximately $440 million USD
in damages for losses.14 By contrast, Canada argues that “any liability is limited to
injury resulting from the NAFTA breaches identified by the Tribunal. . ...”15 A chief
contention is whether the claimants’ proposed construction – the Whites Point Projects –
would have “obtained all relevant regulatory approvals” and receive approval from the
Canadian government.16 The claimants argues that they “lost a fair opportunity to have
the environmental impact of the Whites Point Project assessed in a fair and non-arbitrary
manner”17 because “but for Canada’s breaches of the NAFTA, the Whites Points [q]
10
Bilcon v. Canada (Concurrence), PCA Case No. 2009-04 at } 19
11
Id. at }} 1, 6
12
Id. at } 19
13
Id. at } 93
14
Id. at } 109
15
Id.
16
Id. at } 134
17
Id. at } 133
1266 G. J. Somi
uarry would have been approved and permitted and would have produced and shipped
stone.”18 Canada, however, contends that “there was no certainty that the Whites Point
Project would have been approved but for the breach” and that the same outcome could
have been possible absent the breach of NAFTA Chapter Eleven.19
Part I of this article will explore how Bilcon clarifies and situates the causation
analysis – an emerging subject that has befuddled some arbitral tribunals – between
the issues of breach and quantum. Next, Part II will demonstrate how Bilcon places
upon claimants a high burden of causality, based on the Chorzów and Genocide
cases, while utilizing the doctrine of factual causation to determine quantum. Finally,
Part III will proceed to contextualize the issue of lost profits within this causality
analysis by comparing the Bilcon majority’s decision with that of the concurrence.
This part will assess the strengths and weaknesses of the arbitrators’ approach to lost
profits.
How the Bilcon Decision Situates the Causation Analysis Between

the Inquiries of Breach and Quantum
In addressing the issue of damages, the Bilcon tribunal inquires first into whether the
claimants have adequately established causation between the Canadian State’s
unlawful act and the alleged injury suffered by the investors: “[a]s a threshold
question, the Tribunal must first consider whether a causal link between the Respon-
dent’s breach of international law and any injury of the investors has been
established at all.”20 The tribunal continues by establishing the operative test: “the
test is whether the Tribunal is ‘able to conclude from the case as a whole and with a
sufficient degree of certainty’ that the damage or losses of the Investors ‘would in
fact have been averted if the Respondent had acted in compliance with its legal
obligations under’ NAFTA. . ..”21
The abovementioned test that the tribunal establishes is noteworthy because it not
only crystallizes the independence of a tailored causation stage but it also situates the
causation inquiry closer to the actual injury than to the issue of breach. To illustrate
what and how significant this is, consider the conceptual dichotomy in the majority
and dissenting opinions in Biwater Gauff v. Tanzania case.22 In Biwater, the claimant
held the contractual rights to provide water and sewer services in Tanzania, but while
18
Id. at } 134
19
Id.
20
Id. at } 114
21
Id.
22
See Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22,
Award (July 24, 2008) [hereinafter Biwater v. Tanzania (Award)], and Biwater Gauff (Tanzania)
Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Concurring and Dissenting
Opinion of Gary Born (July 18, 2008) [hereinafter Biwater v. Tanzania (Dissenting Opinion)]. For a
commentary, see Qian X (2018) Challenges of water governance (and privatization) in China: traps,
gaps, and law. GA J Int Comp Law (1):49–91.
Tanzania breached the bilateral investment treaty (BIT), different actions, which
could be attributable to the claimant, resulted in the investment’s loss of value.23
Thus, the claimant’s investment “was the subject of an expropriation [Tanzania].
However, . . . by the time that this expropriation took place, the termination of the
Lease Contract was inevitable in any event, and the losses and damage for which [the
claimant] claims in these proceedings had already been (separately) caused.”24
Despite Tanzania’s breach of the BIT, the Biwater majority awarded no damages
to the claimant because “all the circumstances that the actual, proximate or direct
causes of the loss and damage for which [the claimant] now seeks compensation
were acts and omissions that had already occurred . . . [N]one of the Republic’s [BIT]
violations . . . caused the loss and damage in question.”25 Therefore, the injury
needing to be remedied by the tribunal was not simply the breach of conduct but
rather a “head of claims” for which the claimant must establish a causal link with the
breach.26 Thus, for the majority, a claimant has the burden of proving that there is a
causal link between the defendant’s breach of the BIT with the damages or losses
faced by the claimant – the very approach argued by the Government of Canada and
adopted by the Bilcon tribunal.27
However, as intuitive as the Bilcon tribunal’s construction of causation might
seem to be now, the causation analysis framework adopted in cases like Biwater and
Nordzucker AG v. Republic of Poland28 has faced contentious opposition. In his
dissenting opinion in Biwater, the arbitrator, Gary Born, “considered an injury to
encompass any impairment of a legal right.”29 His dissent is as follows:
[Tanzania’s] expropriatory, unfair and inequitable and other wrongful acts caused injury to
[the claimant]. Specifically, it is beyond debate that the Republic wrongfully seized City
Water’s business, premises and assets at a point in time (1 June 2005) at which the Republic
had no right – under either international law or the Lease Contract – to do so. That wrongful
seizure clearly caused injury to City Water by depriving it prematurely of the use and
enjoyment of its property: whether measured in weeks (to 24 June 2005, as the Tribunal
concludes) or months (some longer period which would have obtained in reasonable
dealings between contracting parties conducting themselves in good faith) or years (the
23
See Biwater v. Tanzania (Award), ICSID Case No. ARB/05/22 at } 485.
24
Id.
25
Id. at } 798
26
See Pearsall and Heath, supra note 5, at 9.
27
See Bilcon v. Canada (Award), PCA Case No. 2009-04 at } 102 (“The Respondent argues that an
approach that is consistent with the ILC Articles Commentary was adopted in Biwater . . . ,” where
the tribunal noted that “causing injury must mean more than simply the wrongful act itself [. . .],
otherwise the elements of causation would have to be taken as present in every case.”) (internal
quotation marks omitted).
28
See Nordzucker AG v. The Republic of Poland, UNCITRAL, Third Partial and Final Award,
November 23, 2009, } 64 (dismissing claimant’s claim for loss profits because “[t]he damages
demonstrated . . . have no causal link with the breach which the Arbitral Tribunal decided in its
second Partial Award to have been committed by Poland.”).
29
Pearsall & Heath, supra note 5, at 9 (emphasis added)
1268 G. J. Somi
remaining lease term under the Lease Contract), City Water was wrongfully evicted from its
leased premises, and wrongfully denied the use of its assets, its management and its staff, for
some ascertainable period of time.30
Thus, Born’s dissent situates the causation analysis closer to the issue of breach,
holding that any breach of a legal right as being, in and of itself, an injury. His dissent
is exemplative of the analytical difficulties that arbitral tribunals have had in defining
how causation sits between breach and quantum.31 It also highlights how the Bilcon
tribunal’s articulation could crystallize the proper roadmap for analyzing causation
pursuant to the International Law Commission’s (ILC) intentions in Article 31 of the
Draft Articles.32
The Bilcon Tribunal’s Utilization of Factual Causation to

Determine Damages
In its determination of whether damages to investors were caused by Canada’s

violations of its obligations under Section A of NAFTA Chapter Eleven, the Bilcon
tribunal has adopted a high threshold of causality. The tribunal has held:
Authorities in public international law require a high standard of factual certainty to prove a
causal link between breach and injury: the alleged injury must “in all probability” have been
caused by the breach (as in Chorzów), or a conclusion with a “sufficient degree of certainty”
is required that, absent a breach, the injury would have been avoided (as in Genocide). While
the facts of the Genocide case were of course markedly different from those underlying the
present arbitration, there is an important similarity: the ICJ, as the Tribunal in the present
case, was confronted with a situation of factual uncertainty, where in the view of one of the
parties, the same injury would have occurred even in the absence of unlawful conduct.33
First, a claimant must demonstrate that the damage was, “in all probability,”
caused by the respondent’s liability. Here, the tribunal remains true to the near-
canonical authority of Chorzów on States’ reparations for breaches of their legal
duties under international law: “that reparation must, as far as possible, wipe out all
the consequences of the illegal act and reestablish the situation which would, in all
probability, have existed if that act had not been committed.”34 Therefore, a State
must compensate an investor to make the him or her whole again if the breach very
likely is responsible for the injury. Second, a claimant must prove that without the
respondent’s harmful action, there is a “sufficient degree of certainty” that the injury
30
Biwater v. Tanzania (Dissenting Opinion), ICSID Case No. ARB/05/22 at } 17
31
32
See ILC Draft Articles, supra note 6, at 91.
33
Bilcon v. Canada (Award), PCA Case No. 2009-04 at } 110 (emphasis added)
34
Germany v Poland (Judgment) (Case concerning the Factory at Chorzów), 1928 P.C.I.J. (ser. A)
No. 17 (Judgment No. 13, Merits), September 13, 1928 [hereinafter Chorzów]; Bilcon v. Canada
(Award), PCA Case No. 2009-04 at } 95
would have been avoided; that is, only the breach and no alternative phenomenon
would have caused the claimant’s damage. Here, the Bilcon tribunal adopts Geno-
cide’s “sufficiently direct and certain nexus” standard between extraneous occur-
rences and the claimant’s suffered losses, essentially adopting a but-for test to make
it an uphill struggle to prove that the injury occurred only because of the breach.35
While the Bilcon tribunal insists that the Nordzucker tribunal had enacted a more
stringent standard – “whether the State’s conduct ‘necessarily’ led the investor to act
in ways that harmed its profitability”36 – the burden of “in all probability,” semantics
aside, still appears to be a difficult one for any claimant.
Moreover, the Bilcon tribunal clearly articulates that a claimant must prove that
the alleged injury was sustained through the doctrine of “factual” causation when it
asserts that there must be a “high standard of factual certainty to prove a causal link
between breach and injury.”37 Factual causation employs a but-for test to ascertain
whether the claimant would have incurred an injury without the respondent’s
breach.38 By contrast, the “legal” causation doctrine, which the tribunal refused in
favor of the aforementioned approach, “operates to filter out harms that were ‘too
remote’ from the alleged breach, were ‘not proximate’ to the wrongful act, or, in the
formulations of some tribunals, were not ‘foreseeable.’”39
The two doctrines have been explained well by Professor Michael Moore, who
states:
The conventional wisdom about the causation requirement in both criminal law and torts is
that in reality it consists of two very different requirements. The first requirement is that of
‘cause-in-fact’. This is said to be the truly causal component of the law’s two requirements
framed in causal terms, because this doctrine adopts what is thought of as the ‘scientific’
notion of causation. Whether cigarette smoking causes cancer, or whether the presence of
hydrogen or helium caused an explosion, are factual questions to be resolved by the best
science the courts can muster. By contrast, the second requirement, that of ‘proximate’ or
‘legal’ cause, is said to be an evaluative issue, to be resolved by arguments of policy and not
arguments of scientific fact. Suppose a defendant knifes his victim who then dies because her
religious convictions are such that she refuses medical treatment. Has such a defendant
35
See Bosnia and Herzegovina v. Serbia and Montenegro, (Judgment) (Application of the Conven-
tion on the Prevention and Punishment of the Crime of Genocide), I.C.J. Reports 2007, at } 462
[hereinafter Genocide case] (“Such a nexus could be considered established only if the Court were
able to conclude from the case as a whole and with a sufficient degree of certainty that the genocide
at Srebrenica would in fact have been averted if the Respondent had acted in compliance with its
legal obligations.”).
36
Bilcon v. Canada (Award), PCA Case No. 2009-04 at } 111 (emphasis added)
37
Id. at } 110 (emphasis added)
38
39
Id. (“There is significant dispute as to which of these competing formulations should apply under
investment treaties, and whether there is any material difference between them.”)
1270 G. J. Somi
(legally) caused her death? The answer to such questions, it is said, depends on the policies
behind liability, not on any factual issues; factually, it is thought, the knifing surely caused
her death.40
Factual causation, which underlies the Bilcon tribunal’s approach, is more scien-
tific and relies on issues of fact. By contrast, legal causation invokes legal policy and
argumentation.
To highlight the significance of the Bilcon tribunal’s factual causation approach,
consider the opposite approach previously taken by the majority in Lemire v.
Ukraine in 2011.41 The Lemire case derived from allegations that the claimant, an
investor in the radio broadcasting industry, was repeatedly denied bids for broad-
casting frequencies by Ukraine in violation of fair and equitable treatment in a US-
Ukraine BIT.42 The claimant, requesting lucrum cessans (“ceased profits”),
contended that the failure to attain radio broadcasting bids resulted in the following:
the investment’s “business plans could not be achieved, . . . its planned development
was curtailed, its market position eroded, its capacity to generate profits impaired
and its potential market value was never achieved.”43 It was not clear, however,
“how specific tenders would have been awarded if the National Council had not
violated the FET standard;” so, had the irregularities in this process been eliminated,
the claimant may or may not have obtained the licenses it needed.44 The majority
held that “[i]f it can be proven that in the normal cause of events a certain cause will
produce a certain effect, it can be safely assumed that a (rebuttable) presumption of
causality between both events exists, and that the first is the proximate cause of the
other.”45 Furthermore, “offenders must be deemed to have foreseen the natural
consequences of their wrongful acts, and to stand responsible for the damage
caused.”46 Here, the majority appeared to inject foreseeability – a feature of the
legal causation doctrine – into its causal analysis.47 By contrast, the Lemire dissent
criticized the majority for its inability to substantiate whether a radio frequency
would have, in actuality, been allotted to the claimant.48 Indeed, the dissent argued
40
Moore MS (2009) Causation and Responsibility: An Essay in Law, Morals, and Metaphysics
83–84.
41
Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (Mar. 28, 2011), https://
www.italaw.com/cases/614 [hereinafter Lemire v. Ukraine]. For a commentary, see Chaisse J
(2016) Renewables re-energized? The internationalization of green energy investment rules and
disputes. J World Energy Law Bus 10(1):269–281.
42
Id at. }} 31, 158
43
Id. at } 161
44
Id. at } 169
45
Id.
46
Id. at } 170
47
48
Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Dissenting Opinion of Jürgen
Voss, }} 296–98 (Mar. 28, 2011), https://www.italaw.com/cases/614 [hereinafter Lemire v. Ukraine
(Dissent)]
that allowing the claimant, or any other tender participant, to recover damages for
lost profits when there is less than a near certainty that the flawed process led to such
lost profits “may accumulate to incalculable ‘liability avalanches.’”49
The Bilcon tribunal’s call for a high standard of factual certainty in its causality
analysis operates to prevent an incalculable number of liability avalanches. Among
the questions that the tribunal asks are:
Assuming a different (hypothetical) JRP process for the Whites Point project that was
conducted on a basis which was compliant with NAFTA, what is the degree of certainty
that such a JRP would have recommended the approval of the project? What hypothetical
JRP recommendations, or government licensing conditions, should the Tribunal assume with
respect to the mitigation of potential adverse effects of the project on the environment? Does
this analysis lead to a conclusion that is different from the Investors’ approach of focusing on
the existing JRP Report with a deemed deletion of findings on community core values?50
By objectively tailoring causation to the breach and the specific damages incurred
by the investors with the standards articulated in Chorzów and Genocide and
refraining from unscientific guesses of uncertain scenarios pertaining to whether
the Whites Point Project would have been approved in a hypothetically NAFTA-
compliant Joint Review Panel (JRP) process, the tribunal ascertained that $seven
million USD plus interest represented appropriate damages, rather than approxi-
mately $440 million USD.51 Consequently, the tribunal “conclude[d] that the causal
link between the NAFTA breach and the injury alleged by the Investors has not been
established.”52 While “there is a realistic possibility that the Whites Point Project
would have been approved as a result of a hypothetical NAFTA-compliant JRP
Process, it cannot be said that this outcome would have occurred ‘in all probability’
or with ‘a sufficient degree of certainty.’”53
Bilcon’s Heightened Burden of Causation Undermines Lost Profit

Claims
The Bilcon majority’s determination that a high standard of factual certainty is

needed to prove a causal link between breach and injury, in concert with its reliance
on Chorzów and Genocide, not only heightens a claimant’s burden to prove actual
damages but also complicates the investors’ efforts to successfully prove lost profits.
49
Id. at } 284
50
Bilcon v. Canada (Award), PCA Case No. 2009-04 at } 8
51
Id. at } 303. See Cameron Mowatt J and Radford J (2019) Close, but no cigar: Bilcon tribunal
rejects claim on grounds of failure to establish causation, Tereposky & DeRose (March 13, 2019).
https://tradeisds.com/index.php/close-but-no-cigar-bilcon-tribunal-rejects-claim-on-grounds-of-fail
ure-to-establish-causation/
52
Bilcon v. Canada (Award), PCA Case No. 2009-04 at } 168
53
Id.
1272 G. J. Somi
The tribunal held that its “analysis of the Investors’ lost profits claim ends here, as,
without a high degree of certainty as to regulatory approval [of the Whites Point
Project], it goes without saying that no damages based on the profitable operation of
the quarry can be awarded.”54 The tribunal explicitly held the awarding of lost profit
damages “to the [same] standard applicable under international law” that it has
resorted to in other parts of the opinion.55
The Bilcon majority justified this holding, reasoning first that “even in the event
of an approval [of the business plan for the Whites Point Project’s operation], the
long-term future profitability of the Whites Point Project must be regarded as
uncertain.”56 After all, the ecology of the region could change, the project could
be subject to new environmental laws and regulations affecting quarry business
operations, market changes could affect the supply and demand for basalt, and
extraneous, unexpected economic changes are not to be discounted.57 Second,
even though there are probably algorithms that could factor in uncertainty in
valuations, “many tribunals have declined to resort to DCF [Discounted Cash
Flow] valuations of future profits where the investment is not yet a going concern,
which has not generated any historic cash flows.”58 Thus, the tribunal could not
conclusively determine in a fair and nonarbitrary manner whether the Whites Point
Project would have generated long-term profits.59
The Bilcon tribunal’s position pertaining to lost profits is unsurprising, as it is
indicative of the problems that can arise when the but-for test is employed under the
doctrine of factual causation, which the tribunal utilized.60 The but-for test simply
heightens the burden needed to establish lost profit damages and other future
damages.61 Incidentally, some tribunals have recognized this predicament and
have articulated a degree of certainty with which establishing lost profits can be
possible.62 Even the ILC has conceded that “[c]laims for lost profits are . . . subject to
54
Id. at } 276
55
Id.
56
Id. at } 277
57
Id.
58
Id. at } 278
59
Id.
60
See Pearsall and Heath, supra 5, at 13 (“A second set of problems may arise when the ‘but for’
scenario is marked by a substantial degree of uncertainty. For example, a claimant alleging lost
profits or other future damages generally has the burden to establish such damages.”).
61
Id.
62
Id. See, for example, S.D. Myers, Inc. v. Canada, UNCITRAL Arbitration Proceeding, Second
Partial Award, } 173 (Oct. 21, 2002). As the tribunal recognized:
The quantification of loss of future profits claims can present special challenges. On the one
hand, a claimant who has succeeded on liability must establish the quantum of his claims to
the relevant standard of proof; and, to be awarded, the sums in question must be neither
speculative nor too remote. On the other hand, fairness to the claimant requires that the court
or tribunal should approach the task both realistically and rationally.
the usual range of limitations on the recovery of damages, such as causation,

remoteness, evidentiary requirements and accounting principles, which seek to
discount speculative elements from projected figures.”63
In his concurrence to the Bilcon majority decision, Professor Bryan P. Schwartz
leaves open the door to a deliberation of lost profits that is more separate from a
general inquiry into causation. Schwartz’s concurring opinion seeks to “consider an
approach to valuing the Investors’ compensation based on viewing its losses as a lost
chance – not a certainty – of obtaining regulatory approval and then operating the
project profitably.”64 Such a “value of the chance” would be determined by “the
expert evidence of jurists on the likelihood of success at a judicial review and a
regulatory do-over,” as well as business experts’ financial projections of future
profitability.65 Schwartz believes that, conceptually, the majority misguidedly
“places a value on a lost opportunity, rather than confining compensation strictly
to the investment costs in this case.”66
Despite his stance, Schwartz still manages to reach the same compensation figure
as the tribunal, albeit in a different manner. First, however, he elaborates on how an
investor may recover for lost profits:
[I]n my understanding, in an appropriate case, an investor might be able to recover

compensation where it is able to demonstrate a substantial probability that an investment
would have received regulatory approval to proceed had itbeen considered in a manner
consistent with the applicable international law on investor protection. In appropriate factual
circumstances, in my view, the just measure of compensation will be for a lost opportunity.
The best measure of compensation in some circumstances might take into account an
estimate of the probability of obtaining a permit and an estimate of the likely profits if a
permit was granted.67
Of course, here, first, one questions what constitutes “an appropriate case”
involving lost profits, as appropriateness is a vague condition. For instance, one
may question whether a new, unestablished investor who claims lost profits presents
an appropriate case compared to an experienced investor who claims similar
Id. Likewise, the tribunal in another case stated:
The Majority of this Tribunal accepts that . . . no strict proof of the amount of future damages
is required and that ‘a sufficient degree’ of certainty or probability is sufficient. However, the
amount claimed ‘must be probable and not merely possible.’ Future damages . . . must only
be proved with reasonable certainty.
Mobil Inv. v. Canada, ICSID Case No. ARB(AF)/07/4, Decision on Liability and on Principles of
Quantum, }} 437–38 (May 22, 2012).
63
ILC Draft Articles, supra note 6, at 105 (emphasis added)
64
Bilcon v. Canada (Concurrence), PCA Case No. 2009-04, at } 3
65
Id.
66
Id. at } 38
67
Id. } 4 (emphasis added)
1274 G. J. Somi
damages, but also can demonstrate historical data concerning past profitability for
similar projects in that country. Second, while Schwartz’s notion of “substantial
probability” is rooted in an investment’s receival of regulatory behavior, it
completely disregards other legitimate, aforementioned factors raised by the major-
ity, such as ecological changes, and presumes a static economic market with no
changes in supply and demand. Third, one may question what may constitute “a lost
opportunity” for investors, as most micro and macro business decisions generally
result in a new or missed opportunity since many decisions by multiple players are
constantly made on a daily basis, impacting the business’s apportionment of energy,
time, resources, and money. Finally, this may usher in “incalculable ‘liability
avalanches.’”68
Nevertheless, in spite of this lack of nuance, Schwartz does correctly point to
academic commentary and international investment case law precedent. For
instance, he cites Article 7.4.3(2) of the UNIDROIT Principles of International
Commercial Contracts, “which draws upon domestic legal systems” and articulates
that compensation is due for future harm if “established with a reasonable degree of
certainty.”69 Schwartz especially emphasizes the portion of Article 7.4.3(2) that
states, “[c]ompensation may be due for the loss of a chance in proportion to the
probability of its occurrence.”70 Furthermore, he points to case law applying the
“lost opportunity” approach: Sapphire v. National Iranian Oil Company and
Gemplus S.A., SLP S.A., Gemplus Industrial S.A. de C.V. and Talsud S.A. v. The
United Mexican States.71 The latter case, which concerns “modern investment treaty
arbitration practice,” establishes a case-specific approach to lost opportunity: “[t]he
concept of certainty is both relative and reasonable in its application, to be adjusted
to the circumstances of the particular case.”72
Schwartz opines that as it pertains to proving the likelihood that the investors
would have obtained a permit absent the Canadian government’s breach of NAFTA,
[T]he evidence shows, in my respectful view, that the Investors actually had a high
probability of obtaining a permit on economically viable terms had the environmental
assessment been carried out in a NAFTA-compliant manner in the first place. It would
similarly have had a high probability of eventual success had a judicial review been pursued
of the initial regulatory determinations and a “do-over” of the permitting process had been
ordered and carried out.73
Thus, Schwartz’s rationale for supporting the tribunal’s determination of quantum

of damages stems not from any disbelief that the claimants would have likely
obtained a permit. Instead, he reaches agreement with the majority of the tribunal
68
Lemire v. Ukraine (Dissent), ICSID Case No. ARB/06/18 at } 284
69
Bilcon v. Canada (Concurrence), PCA Case No. 2009-04 at } 12
70
Id.
71
Id. at } 13
72
Id.
73
Id. at } 4
by factoring in the Investors’ inability to mitigate their damages. As a result, the

experts in this case have not produced similar valuations of damages, undermining
the claimants’ case:
[A]s a primary reason, the Investors had a duty to mitigate their damages. Assuming a high
likelihood of success in eventually obtaining a permit, the Investors cannot reasonably claim
all of its lost profits after abandoning the investment rather than pursuing it. The more
powerful the case is that the Investors could have succeeded on a judicial review in the courts
of Canada and a “do-over” of the regulatory approval process, the more powerful the case is
that they reasonably should have sought to mitigate their damages by pursuing those
avenues.74
[A]s a secondary and supporting reason, there is a substantial measure of uncertainty about
what the profits would have been had Canadian authorities granted the permit. The Tribunal
heard from two experts who impressed me as doing their best to be impartial, and who
exhibited a sophisticated understanding of the general principles of estimating damages, and
of the facts of this particular case. Yet their estimates were radically different. The approach
adopted by the Tribunal by contrast, has the advantage of fixing damages based largely,
although not exclusively, on evidence of actual past expenditures. This consideration about
the uncertainty of lost profits is not by itself decisive for me. If justice otherwise clearly
required, I might have been prepared to make a reasonable estimate of lost profits, multiply it
by a reasonable estimate of the likelihood of obtaining a permit on a NAFTA-compliant
basis, and award compensation on that basis.75
Schwartz opines that had the Investors eliminated much of the uncertainty
pertaining to their suffered losses by mitigating their damages, they might still
have recovered losses under NAFTA, and the tribunal would not have needed “to
weigh drastically different expert reports on future long-term profits.”76
Therefore, the dilemma that the Bilcon majority and concurring opinions present
with regard to the question of causation and lost profits is the struggle between the
more stringent and factually dependent factual causation doctrine and the more
inclusive legal causation doctrine, which threatens to open the door to a flurry of
lawsuits against States and will need a more nuanced articulation.
Conclusion
The recent Bilcon v. Canada opinion establishes the independence of a tailored

causation stage and situates the causation inquiry closer to the actual injury than to
the issue of breach. It provides a useful roadmap for future NAFTA Chapter Eleven
tribunals by intuitively analyzing causation pursuant to the ILC’s intentions in
Article 31 of the Draft Articles. Second, the Bilcon Tribunal has placed on claimants
a high burden of proving causality, based on the Chorzów and Genocide cases, while
74
Id. at } 5
75
Id. (emphasis added)
76
Id. at } 6
1276 G. J. Somi
utilizing the doctrine of factual causation to determine quantum. The tribunal has
extended this causation analysis not only to direct damages flowing directly and
necessarily from a breach of a BIT but also to consequential damages, including lost
profits. While this prevents excessive suits from being raised against States, it also
dramatically inhibits claimants’ ability to prove damages in the form of lost profits.
While the Bilcon concurrence aptly establishes the importance of recognizing such
consequential damages, it also does not provide a conclusive primer for future
tribunals, as it lacks the nuance to prevent “incalculable liability avalanches.”77
Lemire v. Ukraine (Dissent), ICSID Case No. ARB/06/18 at } 284

77
Counterclaims Admissibility in Investment
Arbitration 51
The Case of Environmental Disputes
Molly Anning
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1278
The Ecuadorian Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1280
The Host State as Claimant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1281
Classic Paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1281
A Role for Arbitration in Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1285
Reversing the Paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1287
Admissibility Versus Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1289
The Distinction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1289
Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1290
Admissibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1294
Burlington and Perenco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1297
Ecuador’s Cause of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1297
Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1299
Tribunal’s Reasoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1300
International Jurisprudence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1302
International Court of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1302
Iran-United States Claims Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1304
Investment Arbitration: ICSID/UNCITRAL Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1306
International Commercial Arbitration and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1311
A New Approach to Admissibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1313
The Admissibility of Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1315
Legal Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1315
Policy Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1319
Arbitration as the Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1323
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1324
M. Anning (*)
Victoria University of Wellington, Wellington, New Zealand
e-mail: molly.anning@hotmail.co.nz

https://doi.org/10.1007/978-981-13-3615-7_121
1278 M. Anning
Abstract
The admissibility of environmental counterclaims in investment arbitration is
untouched academic territory. The Ecuadorian counterclaims of Perenco and Bur-
lington were the impetus of this analysis. As the first successful environmental
counterclaims in investment arbitration, the tribunals’ failure to inquire into admis-
sibility warrants further attention. This paper provides an in-depth examination of
the gap in this area of investment arbitration. It draws upon international jurispru-
dence in an attempt to redefine the admissibility inquiry. It concludes that traditional
approaches to admissibility will not exclude environmental counterclaims. Requir-
ing a legal connection is an unreasonable and restrictive approach which denies the
reality of investment treaties. The asymmetry of such instruments lends host States
to rely upon alternative sources of environmental obligations. This should not be
fatal to a host State’s environmental claim. The nature of environmental claims,
including the implication of public policy should not be an impediment for a
tribunal to exercise its jurisdiction. So long as an environmental counterclaim has
a temporal and geographical connection to the principal claim or arises directly
from the investment, there- is no reason for it to be inadmissible. In reaching this
conclusion, this chapter also yields some insight into how host States can increase
the receptivity of investment arbitration to environmental matters.
Keywords
Investment arbitration · Environmental obligations · Investor obligations ·
Admissibility · Counterclaims · Environmental
Introduction
The recent decisions of Burlington Resources Incorporated v. Republic of Ecuador

(Burlington) and Perenco Ecuador Limited v. Republic of Ecuador (Perenco) pro-
voke an interesting inquiry. The decisions are unique given they involve the suc-
cessful pursuit of an environmental counterclaim against an investor. Despite being
regarded as a welcomed development in investment arbitration, both decisions failed
to consider whether the counterclaims were admissible.1 This leads us to our central
inquiry. To what extent are environmental counterclaims admissible in investment
arbitration?
Whether a particular environmental counterclaim, or aspect of a counterclaim, is
admissible is a distinct inquiry to that of jurisdiction. The troubled and unpredictable
assessment of admissibility is particularly concerning given the increasing breadth of
1
Sundararajan A. Environmental counterclaims: enforcing international environmental law through
investor-state arbitration. Salzburg Global Seminar. http://www.salzburgglobal.org. at 25
51 Counterclaims Admissibility in Investment Arbitration 1279
noncommercial matters infiltrating investment disputes. Environmental claims are

interesting, given that they are often based on a host State’s domestic law and have a
character of being regulatory, constitutional, and tortious.2
This chapter will argue that a binary approach to admissibility based on factual
and/or connectivity is oversimplified. A holistic, case-by-case approach better caters
for the reality that environmental obligations are very rarely included in international
investment agreements (IIAs). Accordingly, environmental counterclaims will be
admissible when:
(a) They are based on identical legal instruments.

(b) They are geographically and temporally connected to the principal claim.
(c) The counterclaim arises directly out of the investment.
Finding the answer to this admissibility question could not be reached by an

abstract analysis, a fine-grained approach was required. To this end, this chapter
will advance in seven substantive parts. Part II will begin by outlining the back-
ground to the related Burlington and Perenco disputes. Part III will introduce the
classic paradigm of investment arbitration and why a convincing case for the
reverse of this paradigm exists in the context of environmental disputes. This
chapter is primarily concerned with host State counterclaims. Part IV will explore
the concepts of jurisdiction and admissibility. Both are distinct but equally impor-
tant hurdles a host State must clear for its claim to be heard before a tribunal. Part V
will extrapolate the key features of Burlington and Perenco environmental coun-
terclaims and how these interacted with the investors’ principal claims. Given their
unique features, it is unlikely these cases will be game changers in the field of
investment arbitration. However, they provide insight as to how tribunals may
approach environmental claims brought by host States in the future. Part VI will
survey international jurisprudence for guidance on the admissibility question. Part
VII will make the case for a new approach to admissibility by outlining six key
considerations. Part VIII will consider what kinds of environmental claims are
likely to be admissible applying the six considerations. Three recommendations
will be made as to how host States can promote the arbitration of environmental
counterclaims.
This inquiry is of practical importance as it determines the extent to which a host
State may resort to arbitration to enforce environmental obligations against inves-
tors. This chapter proposes a set of guidelines which tribunals can draw upon when
considering the admissibility question. While these guidelines are tailored towards
environmental claims, they may also be applicable to other areas including the
enforcement of human rights and labor rights in investment claims.
2
Iversen K-J (2013) Foreign direct liability in Europe for environmental damage. Master’s thesis,
University of Oslo, at 1
1280 M. Anning
The Ecuadorian Counterclaims
The disputes of Burlington and Perenco were a response to Ecuador’s decision to

introduce a 99% “extraordinary profits” tax upon oil companies operating within its
jurisdiction in October 2007.3 Consortium partners, Burlington and Perenco com-
plied with these tax obligations, derived from the production sharing contracts, until
June 2008.4 Thereafter, the consortium refused to meet the payments due and the
Ecuadorian government seized the blocks.5 In April 2008, each brought arbitration
claims against Ecuador under the International Centre for Settlement of Investment
Disputes (ICSID), relying on the applicable bilateral investment treaty (BIT) and
production sharing contract.6 In 2011, Ecuador brought counterclaims against both
investors. Ecuador sought to hold each jointly and severally liable for environmental
damage in two oil blocks, Block 7 and Block 21, that had been worked on by the
consortium in the Amazon Rainforest.7 Despite being parallel proceedings, the
Burlington Tribunal made clear that the arbitrations were separate and would be
decided solely on their own record and merits.8
In August 2015, the Perenco Tribunal issued an interim decision where a final
award could only be made following a new expert’s examination of the environmental
harm.9 The Perenco Tribunal rendered a decision on damages on 27 September 2019.
It awarded Ecuador US$ 54 million for its environmental claim.10 In February 2017,
the Burlington Tribunal awarded damages of US$ 41.7 million to Ecuador as the cost
of restoring the environment, far less than the US$ 2.5 billion requested.11 Burlington
and Perenco are two of the first cases in which an investment tribunal awarded
compensation on the basis of a host State’s counterclaim. They are also notable for
the tribunals’ willingness to acknowledge that Ecuador was entitled to seek compen-
sation under its domestic law.12
3
Perenco Ecuador Ltd v. Republic of Ecuador (Interim Decision on the Environmental Counter-
claim) ICSID ARB/08/6, 11 August 2015 at [10]; Burlington Resources Inc. v. Republic of Ecuador
(Procedural Order No 1 on Burlington Oriente’s Request for Provisional Measures) ICSID ARB/
08/5, 29 June 2009 at [8]. [Burlington PO 1].
4
Burlington PO 1, above n 3, at [9].
5
At [10].
6
Perenco, above n 3, at [11]; Burlington Resources Inc. v. Republic of Ecuador (Decision on
Ecuador’s Counterclaims) ICSID ARB/08/5, 7 February 2016 at [6]. [Burlington].
7
Wood C, Castelan G, King & Spalding (2018) Environmental and human rights considerations for
international energy companies. Paper presented to the Energy Industry Environmental Law
Conference, May 2018, at 2
8
At [69].
9
Perenco, above n 3, at [611].
10
Perenco Ecuador Ltd v. Republic of Ecuador (Award) ICSID ARB/08/6, 27 September 2019 at
[1023].
11
Burlington, above n 6, at [1199].
12
Sundararajan, above n 1, at 25.
This chapter is particularly concerned with the following aspects of the Tribunals’
decisions:
(a) The tribunals’ jurisdiction over Ecuador’s counterclaim

(b) The juridical nature of Ecuador’s environmental counterclaim
(c) The source of environmental obligation relied upon by Ecuador
(d) The type of damage alleged to have been caused by the investors
(e) The language of the relevant IIA
Burlington and Perenco tribunals demonstrated a willingness to consider cases

that are concerned with issues beyond purely investment and commercial matters. It
is interesting that neither tribunal used the language of “admissibility” to assess
whether the nature of Ecuador’s counterclaims were of the kind which could and
should be heard before an investment tribunal.
The Host State as Claimant
To determine whether environmental disputes brought by a host State should be

admissible, one must first understand the context in which such disputes arise. This
chapter is concerned with the admissibility of environmental disputes in investment
arbitration: a dispute between a host State and an investor. This is distinct from
disputes between two States or two private individuals.
Classic Paradigm
Investment arbitration is commonly perceived as a one-sided game, where it is rare

to see a host State file a claim against an investor.13 In the vast majority of
arbitrations, environmental law has been used by host States as a defense to a
treaty-based expropriation claim.14 The typical scenario is where an arbitration is
initiated by an investor following the implementation of a new environmental policy
by the host State which is thought to have negative ramifications upon the investor’s
activities.15 Environmental principles are used to support a host State’s right to
13
Rivas JA (2014) ICSID treaty counterclaims: case law and treaty evolution. TDM 11:1, at 2
14
Slater T (2015) Investor-state arbitration and domestic environmental protection. Wash Univ
Global Stud Law Rev 14:131, at 147; Wang V (2007) Investor protection or environmental
protection? “Green” development under CAFTA Colum J Environ L 32:251, at 259
15
Metaclad Corporation v. The United Mexican States (Award) ICSID ARB(AF)/97/1, 30 August
2000; Tecnicas Medioabientales Tecmed v. United Mexican States (Award) ICSID ARB(AF)/00/2,
19 May 2003; LG&E Energy Corp, LG&E Capital Corp and IG&E International Inc v. Argentine
Republic (Award) ICSID ARB/02/1, 3 October 2006. Methanex Corporation v. United States (Final
Award of the Tribunal on Jurisdiction and Merits) J William, F Rowley, W Reisman, V.V. Veeder 3
August 2005. S. D. Myers Inc. v. Government of Canada (Second Partial Award) Bryan Schwartz,
Edward Chiasson and J Hunter 21 October 2002.
1282 M. Anning
regulate its environment. This chapter is not concerned with how environmental law
can be used as a shield by host States. Rather, it is interested in how a host State can
enforce environmental law against an investor through arbitration.
The Ecuadorian counterclaims are the only two known arbitrations which involve
a successful environmental counterclaim brought by a host State. This section is
intended to outline why this gap exists. It will begin by explaining the classic
paradigm of investor-State arbitration which is attributed to the availability alterna-
tive avenues of dispute resolution and the architecture of IIAs. This asymmetry has
attracted considerable criticism. There may be instances where alternative avenues
are not available or desirable to a host State, particularly in the context of environ-
mental law infamous for lacking adequate enforcement mechanisms. Arbitration
should be a feasible alternative for States.
Alternative Dispute Resolution

A primary reason for this classic paradigm is that host States have alternative dispute
resolution avenues at their disposal. These alternatives may be more advantageous
than investment arbitration.16 They include settling the claim through national courts
and having recourse to inter-State dispute resolution. Host States tend to bring
environmental claims against investors before their own courts.17 For example, in
2013 Ecuador brought a claim against Perenco in the Provincial Court of Justice of
Orellana for soil contamination in Block 7 in breach of the 2008 Constitution.18
Sometimes legislation will designate exclusive jurisdiction to national courts.19
Where this is the case, it must be respected at the transnational level.
The ICJ has played a pivotal role in resolving environmental disputes between
States. The Nicaragua v. Costa Rica case is an example of a State-State dispute. In
2015, Nicaragua initiated proceedings in the International Court of Justice (ICJ)
against Costa Rica alleging it had caused “major environmental damages on its
territory.”20 The Court ultimately found in favor of Nicaragua as Costa Rica failed to
carry out the required environmental impact assessment.21 This case demonstrates
how States can be held liable for harm caused by private actors, despite the
16
Laborde G (2010) The case for host state claims in investment arbitration. JIDS 1:97, at 98
17
Viñuales J (2012) The environment breaks into investment disputes. In: Bungenberg M, Griebel J,
Hobe S, Reinish A (eds) International investment law. C.H. Beck/Hart/Nomos, Munich, at 8;
Sarenmalm I (2015) Investment treaty arbitration and environmental sustainability: are ex officio
considerations needed, possible or desirable? Master’s thesis in International Investment Law,
Uppsala University, at 28
18
Irma A. Imbaquingo v. Perenco Ecuador Limited Exh. CA-CC-57, 17 September 2013.
19
Douglas Z (2013) The enforcement of environmental norms in investment treaty arbitration. In:
Dupuy P-M, Viñales JE (eds) Harnessing foreign investment to promote environmental protection.
Cambridge University Press, Cambridge, at 434.
20
Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua) and
Construction of a Road in Costa Rica along the San Juan River (Nicaragua v. Costa Rica)
(Judgment) [2015] ICJ Rep 665 at [9].
21
At [168].
obligation not being incorporated into a domestic regime. The limits of pursuing
these avenues against an investor will be discussed below.
Architecture of IIAs/BITs
The asymmetry of investor-State arbitration is also attributable to the present lan-
guage and alignment of many IIAs. The failure of IIAs to impose reciprocal
obligations upon investors, particularly for sustainable development, is at the center
of critiques of foreign investment law.22 Typically, BITs focus on protecting inves-
tors from the exercise of untrammeled sovereign power.23 Investors are more willing
to assume risk when disputes are resolved in an impartial forum.24 A tribunal’s
power to adjudicate is usually grounded within the instrument upon which the claim
is raised.25 It is rare for treaties to contain specific obligations owed by investors,
especially environmental ones.26 The very structure of IIAs are asymmetric.27 This is
primarily because host States wish to be seen as “investor friendly.”28 As a result, it
is unusual for host States to bring a treaty-based claim.29 A review of current case
law reveals that there have been no disputes initiated by a host State based on an
IIA.30 Throughout the entire history of ICSID arbitration, only four known arbitra-
tions have been initiated by host States.31
Criticism
Criticism has been levelled at this phenomenon, where host States have adopted the
role of “perpetual respondent.”32 Investors are accused of using arbitration as a
sword against States, when it was intended to be used as a shield. Investors are
22
Hunter D, Salzman J, Zaelke D (2009) International environmental law and policy, 2nd edn.
Foundation Press, at 1145. See also Chaisse J, Bellak C (2015) Navigating the expanding universe
of investment treaties – creation and use of critical index. J Int Econ Law 18(1):79–115
23
Laborde, above n 15, at 98.
24
Stephenson A, Carroll L (2017) The trans-pacific partnership: lessons learned for ISDS. In:
Legum B (ed) The investment treaty arbitration review, 2nd edn. Gideon Roberton, London, at 301
25
Asteriti A (2015) Environmental law in investment arbitration: procedural means of incorpora-
tion. JWIT 15:248, at 252
26
Gordon K, Poal J (2011) Environmental concerns in international investment agreements: a
survey. OECD Working Papers on International Investment 2011/01
27
Kryvoi Y (2012) Counterclaims in investor-state arbitration. Minn J Int Law 21:216, at 218
28
Beharry C, Kuritzky M (2015) Going green: managing the environment through international
investment arbitration. Am Univ Int Law Rev 30:384, at 407
29
30
“States as Claimants in Investment Arbitration” (23 May 2018) Aceris Law: International
Arbitration Law Firm https://www.acerislaw.com
31
32
Toral M, Schultz T (2010) The state, a perpetural respondent in investment arbitration? Some
unorthodox considerations. In: Waibel M, Kaushal A, Chung K-HL, Balchin C (eds) The backlash
against investment arbitration: perceptions and reality. Wolter Kulwer, at 278
1284 M. Anning
aggressively using the tool to “attack,” rather than for protection.33 The total
cumulative number of known treaty-based cases as at 31 July 2019 surpassed 983,
up from 560 in 2013.34 This proliferation of cases has given rise to a concern that
IIAs immunize investors from complying with social and environmental laws by
challenging newly implemented policy measures.35 As a result, host States may feel
threatened to adopt policy measures designed to protect the environment or public
welfare.
It also appears as though the majority of respondents are developing host States
and the majority of claimants are developed-country investors. In 2018, new inves-
tor-State dispute settlement (ISDS) cases were initiated against 41 countries. Colom-
bia was the most frequent respondent, with six known cases, closely followed by
Spain with five.36 The majority of known cases in 2018 were brought by developed-
country investors. The United States brought 15 cases and the Russian Federation
brought six cases.37 This asymmetry and inequality undermines the legitimacy of
investor-State arbitration as a dispute settlement mechanism.
Many host States have begun to exclude ISDS provisions from treaties or have
withdrawn their consent to ICSID jurisdiction over particular matters, such as the
environment. In 2007, Ecuador notified the Centre that it would not submit to
ICSID’s jurisdiction for disputes that arise in matters concerning the exploitation
of natural resources.38 Developed countries have also expressed a degree of hostility
towards investment arbitration. Since the election of the Labor-led coalition, New
Zealand, has opposed the inclusion of ISDS in future free trade agreements.39 The
ISDS provision in the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership is qualified by a number of carve-outs and side letters.40
33
Bernasconi-Osterwalker N (2003) International legal framework on foreign investment. Center
for International Environmental Law, Background Paper, May 2003, at 6
34
Levy C (2015) Drafting and interpreting international investment agreements from a sustainable
development perspective. GroJIL 3:59, at 60; United Nations Conference on Trade and Develop-
ment. Investment dispute settlement navigator. Investment Policy Hub https://www.
investmentpolicy.unctad.org
35
Levy, above n 33, at 60.
36
World Investment Report (2019) United Nations Conference on Trade and Development,
UNCTAD/WIR/2019, June 2019, at 103. See also Chaisse J, Donde R (2018) The state of
investor-state arbitration – a reality check of the issues, trends, and directions in Asia-Pacific. Int
Lawyer 51(1):47–67.
37
At 103.
38
Cadena X, Montanes M (2008) Introductory note to Ecuador’s notice under ICSID Article 25(4).
ILM 47:154, at 154
39
Ardern J (2017) Foreign speculators house ban. Press Release
40
Parker D (2018) New Zealand signs side letters curbing investor-state dispute settlement. Press
Release
The availability of alternative avenues as well as the asymmetry of IIAs provides

an explanation for why environmental claims brought by host States are anomalies.
However, alternative avenues are not always available to host States and recourse to
arbitration may be desirable.
A Role for Arbitration in Environmental Claims
Limits of National Courts

Recourse to a national court or interstate dispute settlement mechanism is not always
feasible or desirable.41 For example, it may not be feasible where the claim is based
on a legal instrument whose choice of forum clause precludes adjudication by the
host State’s domestic courts.42 A similar situation was observed in Burlington, where
parties entered into a separate agreement whereby Ecuadorian counterclaims could
only be filed before the particular arbitration.43 Recourse to national courts may not
be desirable if the host State wishes to avoid its own defective court system or to
instill the proceedings with a strong sense of impartiality.44 Where this is the case, a
host State may seek recourse through arbitration.
Judgments of national courts also have enforcement limits in comparison to an
award obtained through arbitration.45 ICSID awards are subject to automatic recog-
nition and receive the same value as a final judgment of a court of any Contracting
State.46 Similarly, the New York Convention provides a safeguard against enforce-
ment, except on seven limited grounds.47 A host State may elect to pursue arbitration
rather than have recourse to its national court purely for the superior international
enforcement prospects. The enforcement of awards concerning environmental con-
cerns may be particularly pertinent due to public health and sustainability implica-
tions. Arbitration provides a significant advantage in this regard.
41
Asteriti, above n 24, 271.
42
43
44
Brower C, Schill S (2009) Is arbitration a threat or a boon to the legitimacy of international
investment law? Chin J Int Law 9:471, at 476
45
El-Hakim J (1990) Enforcement of foreign judgments and arbitral awards in Syria. ALQ 5:138, at
139
46
Convention on the Settlement of Investment Disputes between States and Nationals of other
States (signed 18 March 1965, entered into force 14 October 1966) 575 UNTS 159, art 54(1).
[ICSID Convention]. See Marisi F (2020) Environmental interests in investment arbitration:
challenges and directions. Kluwer, International Arbitration Law Library, The Hague, 252 p
47
Oelmann J (2006) The barriers to enforcement of foreign judgments as opposed to those of foreign
arbitral awards. Bond LR 18:77, at 94
1286 M. Anning
Enforcement Limits of MEAs

Many multilateral environmental agreements (MEAs) have attracted criticism for
articulating “aspirational declarations” and soft goals, rather than explicitly binding
States to obligations. Enforcement mechanisms for breach of environmental treaties
tend to be vague or lacking entirely.48 The United Nations Framework Convention
on Climate Change in 1992 provided that parties seek “a settlement of [a dispute]
through negotiation or any other peaceful means of their own choice.”49 The 2016
Paris Agreement also fails to contain an enforcement mechanism.50 Failure to
explicitly grant jurisdiction to a Court or tribunal creates difficulties for States
wishing to enforce obligations.51
While private actors have obligations under domestic law, there is no general
rule that they are responsible for internationally wrongful acts.52 Private parties,
including investors, are not thought to be bound by obligations in international
law.53 MEAs typically assign obligations to States, not private actors.54 Only a
small number of treaties contain liability of States for environmental harm in
relation to particular activities.55 Furthermore, where the International Court of
Justice (ICJ) is stipulated as the enforcement mechanism for a particular MEA, its
jurisdiction only extends to States. It does not include applications from or against
private entities.56 The enforcement prospects of international environmental law
are limited.
The classic paradigm is a traditional and misguided belief. It should not blind host
States to the ways in which they can rely upon legal instruments to bring a claim
against investors in arbitration. It is time to seriously consider the possibility of
proceedings that go both ways.
48
Sands P (2007) Litigating environmental disputes: courts, tribunals and the progressive develop-
ment of international environmental law. Environ Pol Law 37:66, at 69
49
United Nations Framework Convention on Climate Change 1771 UNTS 107 (signed 9 May 1992,
entered into force 21 March 1994), art 14.
50
Corr A (2016) Expect climate catastrophe: Paris agreement lack enforcement. Forbes. https://
www.forbes.com
51
Rinceanu J (2000) Enforcement mechanisms in international environmental law: Quo Vadunt? J
Environ Law Litig 15:147, at 155
52
Kamminga M (2004) Corporate obligations under international law. International Law Associa-
tion, Report of the 71st Conference of the International Law Association, at 424
53
Kelsen H (1966) Principles of international law. Rinehart & Company, New York, at 194. See a c
tritique in Nollkaemper A (2006) Responsibility of transnational corporations in international
environmental law: three perspectives. In: Winter G (ed) Multilevel governance of global environ-
mental change: perspectives from science, sociology and the law. Cambridge University Press, New
York
54
Kryvoi, above n 26, at 246.
55
Sands P (2003) Principles of international environmental law, 2nd edn. Cambridge University
Press, Cambridge, at 896
56
“Frequently Asked Questions” International Court of Justice. http://www.icj-cij.org
Reversing the Paradigm
The Rationale
The rationale for allowing claims by host States lies in procedural economy and the
better administration of justice.57 Prior to bringing a counterclaim or on rejection of a
counterclaim, a host State may seek relief in its own courts or in an alternative
dispute resolution forum. This is likely to be inefficient,58 expensive, and could
result in a contradictory decision.59 Ben Hamida states60:
The exclusion of counterclaims results in a higher number of proceedings and creates

difficult problems of lis pendens and connexity. On the other hand, the acceptance of these
counterclaims provides both a better administration of justice and judicial economy and it
allows arbitrators to have an overview of the respective claims of the parties and to decide
disputes in a more consistent fashion.
It may be in the best interests of both parties to consolidate a claim. However,

counterclaims are rather limited in their usefulness as ex post facto remedies.61 The
investor must bring a claim for some type of harmful conduct on the part of the host
State. The ready availability of counterclaims may encourage host States to seek
conflict with investors. Counterclaims are only one route through which a host State
could pursue an environmental claim against an investor. A host State may be able to
submit a principal claim as an alternative. Although this option may be less common
due to jurisdictional and procedural limitations.62
Bilateral Application of ICSID

Equality of access was envisaged by the very institution which has brought arbitra-
tion much of its success as a dispute resolution forum. The ICSID Convention
recognizes the ability of host States to enforce investor obligations directly by
bringing a principal claim as claimant or indirectly through a counterclaim as
respondent.63
57
Bjorklund AK (2013) The role of counterclaims in rebalancing investment law. LCRL 17:461, at
475
58
Kjos H (2013) Applicable law in investor-state arbitration: the interplay between national and
international law. Oxford University Press, New York, at 26
59
At 131.
60
Hamida W (2005) L’arbitrage Etat-investisseur cherche son équilibre perdu: Dans quelle mesure
l’Etat peut introduire des demandes reconventionnelles contre l’investisseur prive? Int Law Forum
du droit international 7:261, at 270–271
61
Amado JD, Kern JS, Rodriguex MD (2018) Arbitrating the conduct of international investors.
Cambridge University Press, Cambridge, at 118
62
63
ICSID Convention, art 13.
1288 M. Anning
[T]he Convention permits the institution of proceedings by host States as well as by

investors and the Executive Directors have constantly had in mind that the provisions of
the Convention should be equally adapted to the requirements of both cases.
Unfortunately, this idea of equal access has failed to come to fruition for the
reasons above.64 The ICSID Convention and UNCITRAL Rules also outline a
process for counterclaims. Despite the traditional understanding of investor-State
arbitration, the institutional framework envisages greater reciprocity.
A New Generation of BITs

A decade ago Judge Stephen Schwebel argued that the concept of the classic
paradigm is “as colourful as misconceived.”65 Schwebel recognized that some
treaties did provide for substantive obligations owed by investors enabling a host
State to bring a claim as claimant.66 This is especially the case in recent years which
has observed a wave of new generation IIAs.67
Article 14 of the 2005 International Institute of Sustainable Development Model
Agreement requires an investor to abide by domestic law and parts of international
law, including the precautionary principle in the preinvestment environmental
impact assessment.68 This model treaty also includes procedural clauses permitting
counterclaims and expressly allows for host States to initiate proceedings against an
investor for breaches of the particular articles of the agreement included in the
section on investor’s duties.69 In 2015, UNCTAD released the Investment Policy
Framework for Sustainable Development. This resource is intended to facilitate the
development of a new generation of IIAs which emphasize the importance of
including reciprocal obligations which promote responsible investment.70
Aside from treaty-based obligations, it is also common to find investors obliga-
tions contained in the investment contract,71 the domestic law of the host State,72 and
occasionally in international law.73 As Burlington and Perenco demonstrated, it is
possible to rely upon alternative bases to enforce these obligations in arbitration.
64
65
Schwebel S (2008) A BIT about ICSID. Foreign Invest LJ 23:1, at 5
66
Alschner W, Tuerk E (2016) The role of international investment agreements in fostering
sustainable development. In: Baetens F (ed) Investment law within international law. Cambridge
University Press, New York, at 220
67
68
Mann H, von Moltke K, Peterson L, Cosbey A (2005) International institute for sustainable
development model international agreement on investment for sustainable development. Interna-
tional Institute for Sustainable Development, at 9–11
69
At 11.
70
United Nations Conference on Trade and Development (2015) Investment policy framework for
sustainable development. UNCTAD/DIAE/PCB/2015/5, at 77
71
Douglas, above n 18, at 434.
72
Model Text for the Indian Bilateral Investment Treaty 2016, art 12.
73
Mann, von Moltke, Peterson and Cosbey, above n 69, at 14.
Academic literature has failed to discuss the admissibility of a host State’s claim
found upon alternative sources, such as tort, constitutional law, or domestic regula-
tions. This was the case in Burlington and Perenco. Reliance upon these sources may
invite an investment tribunal to adjudicate upon subject matters which raise public
interest concerns and may interfere with the regulatory power of States.74 In the
context of environmental protection, it is this gap this chapter seeks to fill.
For a host State that wishes to raise a direct claim or a counterclaim against an
investor for breach of an environmental obligation, there are two distinct challenges:
first, establishing the tribunal’s jurisdiction to hear the claim; second, establishing
the admissibility of a claim to be heard in arbitration. Often used interchangeably,
these barriers are conceptually distinct which warrant independent analysis.
Admissibility Versus Jurisdiction
The Distinction
A host State that wishes to bring an environmental counterclaim will encounter

preliminary hurdles of jurisdiction and admissibility. Commentators have conveyed
frustration that the issues have been too eagerly conflated.75 There continues to be
inconsistent uses of the terms across various fields of international dispute resolu-
tion.76 For instance, what may be an admissibility issue in international litigation
may be categorized as a jurisdictional issue in investment arbitration.77 In invest-
ment arbitration, the boundaries between jurisdiction and admissibility are a “twi-
light zone.”78 Attributing concise definitions to such “elusive” concepts is
challenging at best, but an attempt should be made.79
Jurisdiction refers to the capacity of a tribunal to hear a dispute brought before it
by the parties.80 Comparatively, the concept of admissibility is an objection to the
74
75
Zeiler G (2009) Jurisdiction, competence, and admissibility of claims in ICSID arbitration pro-
ceedings. In: Binder C, Kriebaum U, Reinisch A, Wittich S (eds) International investment law for
the 21st century: essays in honour of Christoph Schreuer. Oxford University Press, at 82; Miles C
(2012) Corruption, jurisdiction and admissibility in international investment claims. J Int Dispute
Settlement 3:329, at 338
76
See Newcombe A (2010) The question of admissibility of claims in investment treaty arbitration.
Kluwer Arbitration Blog. http://arbitrationblog.kluwerarbitration.com; Qian X (2020) Rethinking
judicial discretion in international adjudication. Conn J Int Law 35(2):251–310
77
Waibel M (2013) Investment arbitration: jurisdiction and admissibility. University of Cambridge
Paper No. 9/2014, at 8
78
Paulsson J (2005) Jurisdiction and admissibility. In: Aksen G, Böckstiegel K-H, Patocchi PM,
Whitesell AM (eds) Global reflections on international law, commerce and dispute resolution: liber
amicorum in honour of Robert Briner. ICC Publishing, Paris, at 601–617
79
Zeiler, above n 74, at 81.
80
Miles, above n 74, at 334.
1290 M. Anning
particular kind of claim being brought to a tribunal.81 In his dissenting opinion in

Waste Management Inc v. United Mexican States, Keith Highet put the distinction
quite simply that “jurisdiction is the power of the tribunal to hear the case; admis-
sibility is whether the case itself is defective – whether it is appropriate for the
tribunal to hear it.”82 While the distinction is easily comprehendible in theory, its
application is problematic.
The significance of the distinction cannot be understated. As Paulsson observed,
decisions on jurisdiction can be overturned on review; however, determinations on
admissibility are final.83 Where an issue of admissibility is incorrectly categorized as
a jurisdictional issue, this may result in an unwarranted extension of the scope for
challenging an award. This procedural distinction is also important given that
admissibility questions are considered as part of the merits, albeit preliminary and
procedural in character.84 Unlike an analysis of admissibility, an examination of
jurisdiction can occur without assessing the merits. A culpable respondent may use
this to its advantage: jurisdictional challenges can be a clever distraction.85
It is also worth noting the concept of arbitrability. Arbitrability is thought to
concern whether a “specific class of disputes are exempt or suitable to be settled by
arbitration.”86 This chapter avoids using arbitrability as a measure of whether a host
State’s claim can be properly brought before an investment tribunal. This is primarily
because the concept is not fixed and attempts to define its parameters have been
largely in the context of defenses to particular investor claims.87
This analysis is concerned with admissibility. Demarcating between questions of
jurisdiction and admissibility is necessary before any attempt can be made to identify
a nonexhaustive set of admissibility factors.
Jurisdiction
A host State that wishes to bring a counterclaim will encounter a jurisdictional

barrier. Although not the fulcrum of this chapter, it is still necessary to address this
hurdle which States must clear to successfully bring a claim against investors.
81
Wehland H (2017) Jurisdiction and admissibility in proceedings under the ICSID convention and
the ICSID additional facility rules. In: Baltag C (ed) ICSID convention after 50 years: unsettled
issues. Wolters Kluwer, at 232
82
Waste Management Inc v. United Mexican States (Dissenting Opinion (of Keith Highet)) ICSID
ARB(AF)/98/2, 8 May 2000 at [58].
83
Gouiffes L, Ordonez M (2015) Jurisdiction and admissibility: are we any closer to a line in the
sand? Arb Int 31:107, at 108
84
85
At 338.
86
Billiet J (2016) International investment arbitration: a practical handbook. Maklu Publishing,
Portland, at 195
87
Freimane N (2012) Arbitrability: problematic issues of the legal term. Master’s thesis, Riga
Graduate School of Law, at 14
Hence, this section is to provide a brief descriptive outline and preface the main areas
of contention which are not necessary to address further.
The authority of a tribunal to hear a dispute is derived from the parties’ consent.88
It is obtained by interpreting the arbitration clause and the arbitration rules governing
the proceedings.89 Some treaties explicitly allow for either disputing party to bring a
claim or provides for counterclaims.
There is a general consensus that tribunals have jurisdiction over counterclaims,
unless explicitly excluded in the applicable instrument.90 Where parties couch their
consent to arbitration in broad terms, there is nothing in principle standing in the way
of a tribunal exercising its jurisdiction over counterclaims.91 Most treaties have
purposely broad language, giving a tribunal jurisdiction over “any legal dispute”
arising from the investment.92 The Argentina-Spain BIT in Urbaser v. Argentina
expressly provided that a dispute could be submitted to arbitration “at the request of
either party.” The BIT was neutral as to the identity of the claimant or respondent.93
Conversely, other treaties may restrict jurisdiction to particular substantive protec-
tions.94 The Cyprus-Hungary BIT limits disputes to expropriation claims.95 In this
instance, a tribunal would not have jurisdiction over a host State’s environmental
counterclaim.
Whether a tribunal can exercise its jurisdiction over a host State counterclaim also
depends upon the arbitration rules that govern the procedure. The applicable rules
are art 46 of the ICSID Convention and art 21 of the UNCITRAL Arbitration Rules.
Both rules explicitly confirm the availability of counterclaims subject to particular
jurisdictional and admissibility requirements. According to art 46 of the ICSID
Convention:
Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine
any incidental or additional claims or counterclaims arising directly out of the subject-matter
of the dispute provided that they are within the scope of the consent of the parties and are
otherwise within the jurisdiction of the Centre.
88
89
Lalive P, Halonen L (2011) On the availability of counterclaims in investment treaty arbitration.
Czech YB Int Law 2:141, at 144; Asteriti, above n 24, at 257.
90
Harrison J (2016) Environmental counterclaims in investor-state arbitration. JWIT 17:479, at 486.
91
Douglas Z (2012) The international law of investment claims. Cambridge University Press, New
York, at 256
92
Agreement between the Government of the Republic of France and the Government of the
Republic of Ecuador ensuring the Reciprocal Encouragement and Protection of Investments (signed
7 September 1994, entered into force 10 June 1996). [France-Ecuador BIT].
93
Urbaser S.A.and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The
Argentine Republic (Award) ICSID ARB/07/26 8 December 2016 at [1143].
94
Asteriti, above n 24, at 252.
95
Agreement between the Government of the Republic of Cyprus and the Government of the
Hungarian People’s Republic of Mutual Promotion and Protection of Investments (Cyprus-Hun-
gary) (signed on 25 May 1989, entered into force 25 May 1990) art 7.
1292 M. Anning
Article 21(3) of the UNCITRAL Rules 2010 states:
In its statement of defence, or at a later stage in the arbitral proceedings if the arbitral tribunal
decides that the delay was justified under the circumstances, the respondent may make a
counterclaim or rely on a claim for the purpose of a set-off provided that the arbitral tribunal
has jurisdiction over it.
While consent and connectivity are concurrent requirements for a tribunal to

exercise its jurisdiction over counterclaims, they can be categorized differently.
Consent is a jurisdictional issue as the tribunal’s jurisdiction rests upon agreement
of the parties.96 The connectivity requirement exists in addition to jurisdictional
requirements. This suggests that the inquiries are distinct. Connectivity is not
required to establish jurisdiction. Any inquiry concerning factual or legal connec-
tivity is a question of admissibility.97 Furthermore, Art 80 of the ICJ Rules clearly
delineates between jurisdiction and connectivity.98 This categorization is supported
by the Tribunal in Metal-Tech v. Ubekistan which observed99:
[T]he second [connectedness] requirement supposes a connection between the claims and
the counterclaims. It is generally deemed an admissibility and not a jurisdictional
requirement.
Satisfying the consent requirement is relatively straightforward where a host

State’s counterclaim is based upon contract.100 An issue arises where the claim is
based upon a treaty.101 The scope of consent has not been mutually agreed upon by
the parties.102 The offer to arbitrate is made by the host State when the agreement
comes into force.103 The offer is only perfected when an investor files a notice to
96
Musayev K (2017) Counterclaims in treaty-based investment arbitration: an analysis of two main
requirements for their admission. Master’s thesis, University of Oslo, Faculty of Law, at 7
97
Smith R (2018) The Green Retort: the limitation of the procedural basis for counter-claims and its
effect on environmental counter-claims. LinkedIn. http://www.linkedin.com
98
Rules of the International Court of Justice (adopted 14 April 1978, entered into force 1 July 1978),
art 80. [ICJ Rules].
99
Metal-Tech Ltd v. Republic of Uzbekistan (Award) ICSID ARB/10/3, 4 October 2013 at [407].
100
Beharry and Kuritzky, above n 27, at 408.
101
Lalive and Halonen, above n 88, at 150.
102
At 12.
103
Veenstra-Kjos H (2007) Counterclaims by host states in investment treaty arbitration. In: Kahn P,
Walde T (eds) Les aspects nouveaux du droit des investissements internationaux: les livres de droit
de l’Academie (New aspects of international investment law: the law books of the academy).
Nijhoff, Leiden, at 600.
arbitrate.104 This is referred to as “arbitration without privity.”105 A restrictive

interpretation would exclude the possibility of direct claims and counterclaims raised
by a host State.106 If a host State wished to allow the possibility of counterclaims, it
should have explicitly done so in the IIA.107 This is an unreasonably narrow
interpretation. A wider and fairer interpretation should require an express agreement
between parties should they wish to exclude the possibility of counterclaims.108
In Burlington, the Tribunal’s jurisdiction in relation to Ecuador’s counterclaim
was not challenged.109 This case is unusual as Burlington consented to the Tribunal’s
jurisdiction over Ecuador’s counterclaims.110 This was to “ensure maximum judicial
consistency”.111 The Parties also agreed that Ecuador waived its right to file the
counterclaims against Burlington before “any jurisdiction. . . except this Arbitra-
tion.”112 The Tribunal had no issues in satisfying consent.
In Perenco, Ecuador presented its counterclaims pursuant to Rule 40 of the ICSID
Rules, which is identical to art 46 of the ICSID Convention.113 The Tribunal did not
provide any discussion justifying it exercising jurisdiction over the counterclaims.
This may be because the France–Ecuador BIT identified the Tribunal’s jurisdiction
to hear “any legal dispute. . . concerning the investment.”114 This clause is particu-
larly wide. If it were the basis for the Tribunal’s jurisdiction, this may have opened
the floodgates for host State counterclaims. A more likely explanation is that the BIT
was taken in conjunction with Rule 40 of the ICSID Rules allowing counter-
claims.115 If this is so, Perenco offers limited grounds for host States that attempt
to bring counterclaims, particularly due to the broad language of the France–Ecuador
BIT.
Consent to counterclaims remains a controversial issue, especially in treaty-based
arbitration. Given the novel situation in Burlington and lack of reasoning in Perenco,
the jurisdictional hurdle of bringing an environmental counterclaim remains unclear.
104
105
Paulsson J (1995) Arbitration without privity. ICSID Rev Foreign Invest Law 10:232
106
Schreuer C, Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID convention – a commentary,
2nd edn. Cambridge University Press, at 751
107
Spyridon Roussalis v. Romania (Award) ICSID ARB/06/1, 7 December 2011 at [759].
108
Bravin M, Kaplan A (2012) Arbitrating closely related counterclaims at ICSID in the wake of
Spyridon Roussalis v. Romania. TML 9:1, at 6
109
110
At [61]; Burova E (2017) Jurisdiction of investment tribunals over host states’ counterclaims:
wind of change? Kluwer Arbitration Blog. https://arbitrationblog.kluwerarbitration.com
111
112
At [61].
113
ICSID Convention, r 40.
114
France-Ecuador BIT, art 9.
115
Harrison, above n 91, at 486.
1294 M. Anning
Admissibility
Admissibility is not mentioned in the ICSID Convention, the ICSID Rules or the
UNCITRAL Arbitration Rules. There is no sight of it in NAFTA, the Energy Charter
Treaty, nor in the majority of IIAs.116 Those that do mention it, fail to define it.117
The lack of definition is concerning as the concept is frequently referred to in the
jurisprudence constant in international litigation, particularly in the ICJ relating to
claims of diplomatic protection.118 Having assumed jurisdiction, inadmissibility
enables international courts to refuse to exercise that jurisdiction and consequently
preclude any decision on a claim’s merits.119
Parry and Grants Encyclopedic Dictionary of International Law describe the
concept as120:
[t]he requirements laid down by customary international law or by treaty (eg as to nationality
of claims or exhaustion of local remedies) which an applicant before an international tribunal
must fulfil if the tribunal, although it has jurisdiction to hear the case, is able to determine the
merits.
Newcombe argues that investment arbitral tribunals can rely on rules of admis-
sibility when deciding whether a claim can be heard.121 Enabling a tribunal to do this
is not so clear cut. Given that ICSID and UNCITRAL do not mention the concept, it
could be argued that unless the IIA explicitly endorses admissibility, the tribunal can
consider the merits as soon as jurisdiction is established.122 The tribunal in Methanex
v. United States adopted this view, “[t]his Tribunal has no express or implied power
to reject claims based on inadmissibility. Accordingly, we reject the US’s admissi-
bility challenges generally.”123
Despite the weight of the proposition above, it is respectfully submitted that for
both practical and legal reasons, a tribunal should be able to consider questions of
admissibility. There are two key reasons for this. First, the considerable cross-over
between treaty arbitration and public international law mandates a tribunal to apply
other sources of law beyond the treaty itself. These include fundamental customary
international law rules and generally accepted principles of law.124 Second, consid-
ering questions of admissibility provides for greater flexibility and a more balanced
116
Wehland, above n 82, at 232.
117
Pauker S (2018) Admissibility of claims in investment treaty arbitration. Arbitr Int 34:1, at 2
118
119
Pauker, above n 116, at 2.
120
Parry C, Grant J, Barker C (2003) Parry and grant encyclopaedic dictionary of international law,
2nd edn. Oceana Publications, at 423
121
Newcombe, above n 77, at 1.
122
At 1.
123
Methanex Corporation v. United States of America (Partial Award (Preliminary Award on
Jurisdiction and Admissibility)) PCA 7 August 2002 at [126].
124
approached. The current reluctance to assess admissibility risks “drawing a formal-

istic line of demarcation, which may in practice give rise to random results.”125
This chapter accepts that admissibility considerations are relevant. The question
becomes what are the features of an inadmissible claim?126 To some extent, we can
only categorize a dispute as inadmissible on the occasions they arise.127 Defining the
scope of admissibility has not appeared to be particularly significant to early tri-
bunals faced with the inquiry. This has only exacerbated the vacuum of scholarship
in this area. There is clear consensus that admissibility covers a wide range of matters
including128:
(a) Connectivity with the principal claim129

(b) Issues in relation to standing130
(c) Issues relating to the judicial/arbitral function
(d) Mootness of the claim131
(e) Fork in the road clause132
(f) Exclusion jurisdiction
(g) Failure to exhaust local remedies133
Article 46 of the ICSID Convention prescribes a connectivity requirement. It

requires the dispute to “arise out of the same subject matter.”. Whether this requires a
factual or legal connection has caused considerable debate.134 The interpretation of
art 46 has significant practical implications.
The Tribunal in Burlington satisfied Art 46 of ICSID, therefore the following
conditions were met: the counterclaims arose directly out of the subject matter of the
dispute; they were within the scope of the Parties consent; and, they fell within the
Tribunal’s jurisdiction circumscribed by Art 25.135 It is interesting that the Tribunal
did not inquire into whether the counterclaim was based on the same legal
125
At 67.
126
Reinisch A (2017) Jurisdiction and admissibility in international investment law. Law Pract Int
Courts Tribunals 16:21, at 43
127
Walker J (2004) Arbitrability: are there limits. Paper presented at the LCIA Symposium,
Montreal, October 2004, at 2
128
Waibel, above n 76, at 8.
129
Kjos, above n 57, at 147; Lalive and Halonen, above n 88, at 145.
130
Kolb R (2013) The international court of justice. Hart Publishing, Oxford, at 203
131
Zimmerman A, Tomuschat C, Oellers-Frahm K, Tams C (2012) The statute of the international
court of justice: a commentary, 2nd edn. Oxford University Press, Oxford, at 12
132
133
Reinisch, above n 125, at 30.
134
Smith, above n 96.
135
1296 M. Anning
instrument. This is contrary to the decision in Saluka and suggests that the Tribunal
construed the “connection” prerequisite to require a factual nexus, as opposed to a
legal nexus.136 If the Tribunal pursued a juridical connectivity requirement, the
environmental counterclaim would have failed. This is because Ecuador’s claims
were based upon domestic law, as opposed to the treaty and production sharing
contracts which were the foundations of Burlington’s principal claim.137 The Tribu-
nal in Burlington appeared to require a factual connection. This is supported by the
official “Notes” that supplemented the original version of the ICSID Arbitration
Rules138:
The test to satisfy this condition is whether the factual connection between the original and
the ancillary claim is so close as to require the adjudication of the latter in order to achieve
the final settlement of the dispute . . .
The Burlington Tribunal’s observation may have significant implications for

establishing whether an environmental claim is admissible to arbitration in the
future.
Article 21 of the UNCITRAL Rules does not mention a connectivity requirement.
Prior to the 2010 amendment art 19(3) of the original UNCITRAL Rules 1976
read139:
. . .the respondent may make a counter-claim arising out of the same contract or rely on a
claim arising out of the same contract for the purpose of a set-off (emphasis added).
This previous reference to “contract” was incompatible with investment treaty

arbitration.140 Where there was no investment contract, a host State forfeited its right
to bring a counterclaim under UNCITRAL. A wider reading was preferred to
interpret “contract” as really meaning “investment.”141 The Drafting Committee
for the UNCITRAL Rules proposed that “arising out of the same contract” be
replaced with “arising out of the same dispute, transaction or subject matter.”142
This suggests the Committee intended to significantly widen the scope of counter-
claims. This proposal was rejected. Instead, the 2010 amendment elected not to
include a connectivity requirement at all. This omission solves the quandaries
136
Saluka v. Czech Republic (Decision on Jurisdiction over the Czech Republic’s Counterclaim)
PCA 7 May 2004 at [76]; Smith, above n 96.
137
Smith, above n 96.
138
International Centre for Settlement of Investment Disputes (1968) ICSID/4/Rev 1 at 105.
139
United Nations Commission on International Trade Law Arbitration Rules 15 ILM 701 (1976)
(entered into force 15 December 1976).
140
Musayev, above n 95, at 25.
141
142
Report of the United Nations Commission on International Trade Law: Summary of Discussion
of the Preliminary Draft (1975) 6 Yearbook of UNCITRAL at 38.
associated with arbitrations which arose under international treaties.143 It also

suggests that connectivity should not be determinative of admissibility.
The question of admissibility is important, especially as investment tribunals are
required to adjudicate upon matters transcending purely commercial disputes more
often. It is not merely a semantic or theoretical exercise. This chapter will critically
analyze whether the question of admissibility can include other considerations
including when a host State counterclaim is based upon:
(a) Tort, regulatory, or constitutional law

(b) Public law, for instance, tax or penal codes
(c) International law norms, for instance environmental norms
(d) Engages significant public policy concerns
Identifying these features is a crucial step in addressing the fundamental question

posed in this chapter: what kind of environmental claims are admissible before an
arbitral tribunal?
Burlington and Perenco
The Ecuadorian counterclaims provide unique insight into how an investment

tribunal may treat future environmental claims brought by a host State against an
investor. The background to the disputes was discussed in Part II. The jurisdictional
question was discussed in Part IV. This section is dedicated to a proper analysis of
the juridical character of Ecuador’s cause of action, its connection with the investors’
principal claim, the sources of law applied, as well as how the tribunal went about
making its decision. Despite being separate ICSID arbitrations, Ecuador’s counter-
claims against Burlington and Perenco rest upon the same facts and legal arguments.
Ecuador’s Cause of Action
Ecuador’s counterclaim rested upon the investors’ strict liability for environmental
damage, including significant soil and groundwater pollution, found in Blocks 7 and
21.144 Ecuador sought US$2.8 billion in damages for soil and groundwater remediation,
groundwater studies, and the abandonment of wells.145 The claim was based solely upon
Ecuadorian tort law, as opposed to contract law.146 Ecuador made this clear: “. . .our case
is not based upon any contractual liability, but rather of a tort liability.”147
143
144
145
At [52]; Perenco, above n 3, at [36].
146
147
At [259].
1298 M. Anning
Ecuador explained its approach:
“[b]ecause Ecuadorian law recognizes the principle of strict liability for environmental
damages caused by hydrocarbons operations, there is no need to consider separately
whether, in addition, Burlington could be contractually liable to Ecuador for that same
environmental damage under the Participation Contracts [. . .]”
Despite the clear statement that cause of action was based entirely upon tort law,
Ecuador attempted to rely upon the production sharing contracts (PSCs) to supple-
ment its claim to extend the temporal scope of the strict liability regime.148 The
Tribunal refused to resort to the PSCs as the 2008 Constitution and Ecuadorian case
law provided the applicable tort liability principles.149
Ecuador relied upon the 2008 Constitution which establishes strict liability for
environmental harm and full reparation.150 It is clear from Ecuador’s approach that it
was trying to pursue its constitutional obligation to vindicate any environmental
harm caused by Burlington and Perenco.151 Ecuador’s main claims included that:
(a) Burlington is strictly liable for all environmental harm found in Blocks 7 and
21.152
(b) The 2008 Constitution applies to damage discovered after its entry into force.153
(c) Environmental claims are imprescriptible.154
(d) Burlington must fully restore damaged environment to background values or to
sensitive ecosystems standard.155
Despite arising from the Consortiums’ investments, Ecuador’s counterclaims

have no legal connection with Burlington and Perenco’s principal claims. The
principal claims were based upon Ecuador’s alleged breach of art II and III of the
Treaty [between the United States and the Republic of Ecuador concerning the
Encouragement and Reciprocal Protection of Investment].156 Firstly, that Ecuador
unlawfully expropriated Burlington’s investment in Ecuador.157 Secondly, that
Ecuador failed to accord Burlington’s investment with fair and equitable treatment,
full protection, and security and treatment no less favorable than that required by
148
At [258].
149
At [262].
150
Republic of Ecuador Constitution 2008 (Ecuador), art 11.3 and 395. [Constitution of Ecuador].
151
152
At [81].
153
At [83].
154
At [85].
155
At [99].
156
Burlington PO 1, above n 3, at [16].
157
At [16].
international law.158 It was also alleged that Ecuador breached each of PSCs.159 As
referred to in the previous discussion on admissibility, there is no legal connection
present. It is possible to ascertain a factual connection between the claims. The
environmental damages caused by the investors were temporally and geographically
related to the investment and the investors’ principal claims. Both occurred with
respect to the investors’ oil drilling in the Amazonian forests between 2003 and
2009. The Tribunal may have oversimplified the inquiry. It took Burlington’s
consent to counterclaims as satisfying both the jurisdictional consent requirement
and the admissibility requirement of connectivity. In the alternative, the Tribunal
may have applied a factual connectivity test but failed to discuss its reasoning.
Applicable Law
It was undisputed that Ecuadorian law applied to the substance of both disputes.
Article 42(1) of the ICSID Convention states that the Tribunal shall decide the
dispute “in accordance with such rules of law as may be agreed by the parties,”
absent which “the Tribunal shall apply the law of the [host State]. . . and such
rules of international law may be applicable.”160 Block 7 and 21 PSCs stipulated
that the Contractor agreed to comply with “all laws, regulations and other pro-
visions” of Ecuador that are applicable to the contracts.161 Neither party argued
that the choice of Ecuadorian law encompassed torts. However, the tribunal
applied Ecuadorian tort law as the law of the host State under the second limb
of art 42(1). This meant that international law may have also applied at the
discretion of the Tribunal.
Ecuador’s reliance upon the 2008 Constitution is a unique feature of these
decisions. As recognized by the Burlington Tribunal, environmental protection is a
“fundamental pillar” of the 2008 Constitution.162 Environmental stewardship
appears to have taken on a new meaning in Ecuadorian society.163 Nature itself
receives rights and constitutional protections – in Andean terms, Pacha Mama.164
Environmental sustainability and protection are declared as matters of public inter-
est.165 Article 72 encapsulates this special treatment166:
158
At [16].
159
At [16].
160
ICSID Convention, art 42(1).
161
162
At [216].
163
At [216].
164
At [216].
165
At [233].
166
Constitution of Ecuador, art 72.
1300 M. Anning
Nature has the right to be restored. This restoration shall be apart from the obligation of the
State and natural persons or legal entities to compensate individuals and communities that
depend on affected natural systems.
These special rights have also been manifested in the PSCs which Ecuador relied
upon as supplementary legal instruments, albeit not forming the basis of the claim.
Clause 5.1.20 of the Block 7 PSC stipulates that the Contractor agreed to “preserve
the existing ecological equilibrium in the Contract Area” in accordance with all
pertinent standards and the environmental impact studies.167 The Contractor also
accepted to “[t]hroughout the term of this Contract, take all necessary measures to
conserve and safeguard life and property and to protect the environment.”168 There
is no doubt that Burlington and Perenco owed these environmental obligations to
Ecuador.
Tribunal’s Reasoning
The Perenco Tribunal’s Interim Decision outlines the two most important issues it
was faced with. First, the relationship between the Constitution’s full restoration
standard and the regulatory permissible limits standard. Second, whether the Con-
stitution’s strict liability standard could be applied to the investors’ activities prior to
the Constitution’s entry into force in October 2008.169 Identical issues were dealt
with by the Burlington Tribunal. The Burlington Tribunal’s decisions on these
matters echo that of the Perenco Interim Decision.
Both tribunals sided with the investors on the first issue. The tribunals concluded
that the correct measure of restoration was that according to the detailed statutory
and regulatory provisions in Ecuadorian law.170 The full restoration or “background
values” approach was rejected despite providing a greater environmental protection
standard.171 Even if the domestic regime came into force after the investors’ initial
investment, they were still bound by it.172 Regulations aided in establishing where
impacts became significant and thereby constituted harm.
The Constitution remained relevant to the dispute. The Tribunal held173:
“. . .that Constitution’s focus on environmental protection means that when choosing

between certain disputed (but reasonable) interpretations of the Ecuadorian regulatory
regime, the interpretation which most favours the protection of the environment is to be
preferred”.
167
168
At [219].
169
170
At [321].
171
At [321].
172
173
This was reflected in practice in relation to the applicable fault-based standard of

proof. The Tribunal considered that “regulatory exceedances were indicative of
operational failures and therefore should be taken as falling below the standard of
care.”174 In this way, the applicable standard of liability was closer to the post-2008
strict liability scheme.
The tribunals also sided with the investors on the second issue. It held that the
strict liability scheme established by the 2008 constitution did not have retrospec-
tive effect.175 Any liability for harm alleged to have been caused by Perenco or
Burlington prior to the entry into force of the Constitution had to be assessed in
accordance with the prior fault-based regime.176 Where Ecuador could demon-
strate environmental harm post-2008 which was plausibly connected to the invest-
ment activities, the investors carried the burden of demonstrating that no such harm
existed.177
The Burlington tribunal made significant technical findings. The Tribunal
identified correct guidelines for calculating impacted areas and volumes of
impacted soils.178 They also undertook their own site analysis to review the
environmental impact the investors’ activities had on mudpits, soil, and ground-
water.179 This is an encouraging observation, especially given investment tribunals
are primarily tasked with adjudicating commercial disputes. Comparatively, the
Perenco Tribunal engaged an independent expert to estimate the extent of
contamination.180
The decisions are notable for the tribunals’ willingness to acknowledge that
Ecuador was entitled to seek compensation under domestic tort law.181 It also upheld
a State’s right to enforce a regulatory regime against investors to ensure compliance
with its environmental obligations under international law. Both tribunals were
confident to provide their own interpretation of Ecuador’s constitution. This is
especially so given it rejected many of Ecuador’s submissions. The latter finding
will be of interest to host States who wish to prioritize the protection of its
environment. Broad standards contained in overarching constitutional documents
may be overridden by narrower and lower standards contained in domestic laws and
regulations. Overall, the Ecuadorian counterclaims are a welcomed development in
the field of investment arbitration.
174
At [374] and [379].
175
Burlington, above n 6, at [223]
176
At [234].
177
At [227].
178
At [372].
179
At [429]–[748].
180
181
Sundararajan, above n 1, at 25.
1302 M. Anning
International Jurisprudence
Part VI surveys a range of international jurisprudence from the existing framework

of international dispute resolution. While there is no strict doctrine of precedent in
international investment arbitration, this exercise is useful in identifying the types of
claims which have been inadmissible and the rationale behind this classification.182
This section will first examine the approach of the ICJ to the question of
admissibility. Second, the treatment of counterclaims by the Iran-US Claims Tribu-
nal will be explored. Third, how investment tribunals have interpreted counterclaim
provisions will be critically assessed. Fourth and finally, a brief examination of the
treatment of counterclaims and admissibility in international commercial arbitration
and litigation will be considered.
In Part VII, a summary of the main conclusions drawn from this exercise will be
clearly articulated to formulate a new approach to admissibility.
International Court of Justice
Since arbitrators have tended to avoid addressing issues of admissibility directly, one
may seek additional guidance from the jurisprudence of the ICJ. General principles
of law from ICJ jurisprudence can shape the arbitral process and where appropriate,
may fill its gaps.183 Arbitral tribunals have extensively referred to the decisions of
the ICJ due to its perceived authority and persuasiveness.184
The ICJ is a useful point of comparison given its rule on counterclaims. Article 80
of the ICJ Rules of Court (the Rules) is very similar to art 46 of the ICSID
Convention. The ICJ is permitted to “entertain a counterclaim only if it comes within
the jurisdiction of the Court and is directly connected with the subject-matter of the
claim of the other party.”185 The jurisdiction of the ICJ is also founded upon party
consent.186
It is unclear whether a connection in both fact and law is required for an
admissible counterclaim.187 A series of judges and commentators have argued that
unless a connection of both fact and law is present, counterclaims have the potential
to become a “formless cross-claim” with a scope far too wide.188 This echoes the
observations of Zimmerman and other’s that invocation of an entirely new
182
Sarenmalm, above n 16, at 24.
183
Tanzi A, Fontanelli F (2017) The law and practice of international courts and tribunals. Nijhoff
International Investment Law Series, at 3
184
Vadi V (2015) Analogies in international investment law and arbitration. Cambridge University
Press, Cambridge, at 98
185
ICJ Rules, art 80.
186
Musayev, above n 95, at 7.
187
Kolb, above n 129, at 665
188
At 663.
instrument in the counter-claim may be the basis for denying a sufficient connec-
tion.189 Instead, the claim should be brought in a new case or explicit consent should
be required from the principal claimant to permit the enlargement of the dispute.190
The ICJ in Oil Platforms found a middle ground and required a factual and legal
connection, although the legal instrument did not have to be identical.191 The Court
exercised its jurisdiction to hear the United States’ counterclaims despite Iran’s
argument that there could be no direct connection due to the vague and general
nature of the claims.192 The Court said that due to the lack of definition of “direct
connection” in the Rules, the matter should be decided on a case-by-case basis.193
The counterclaims satisfied the connectivity requirement as they “occurred at the
same time and within the same area and pursued the same legal claim.”194
A relationship between the time period and geographical location is usually
present in admissible counterclaims. This was the case in Land and Maritime
Boundary between Cameroon’s claim that Nigeria had unlawfully occupied Camer-
oon’s territory in the Bakassi Peninsula and with Nigeria’s counterclaim that Cam-
eroon had engaged in unlawful incursions into Nigerian territory along the same land
border.195 Similarly, in the Bosnian Genocide case, the Court rejected Bosnia’s
inadmissibility argument on the basis that the facts occurred within the same time
frame (the 1990s) and geographical location (Bosnia and Herzegovina).196
In Oil Platforms, Judge Higgins criticized the ruling of the Court and noted on the
legal connection requirement, that197:
. . .it is not essential that the basis of jurisdiction in the claim and in the counterclaim be
identical. It is sufficient that there is jurisdiction. (Indeed, were it otherwise, counter-claims
in, for example, tort could never be brought, as they routinely are, to actions initiated in
contract.)
Kolb observes that the parties’ arguments must fall within a single underlying
“corpus of law” or in such a relationship that one set of arguments is the necessary
189
Zimmerman, Tomuschat, Oellers-Frahm and Tams, above n 130, at 1009.
190
Kolb, above n 129, at 665.
191
Oil Platforms (Islamic Republic of Iran v. United States of America) (Counterclaim Order of 10
March 1998) [1998] ICJ Rep 190 at [38].
192
Constantine Antonopoulos (2011) Counterclaims before the international court of justice.
Springer Publishing, at 86
193
Oil Platforms, above n 185, at [39].
194
At [37].
195
Zimmerman, Tomuschat, Oellers-Frahm and Tams, above n 130, at 1010.
196
Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Bosnia and Herzegovina v. Serbia and Montenegro) (Order) ICJ 17 December 1997 at 254.
197
Oil Platforms (Islamic Republic of Iran v. United States of America) (Separate Opinion of Judge
Higgins) [1998] ICJ Rep 190 at 218.
1304 M. Anning
precondition for the Court to form such an appreciation of the opposing party’s
arguments.198 It is widely accepted that the legal source does not need to be
identical.199 The ICJ has also not required counterclaims to “diminish, offset or
neutralize” the principal claim.200 Lack of this element is not fatal to a counter-
claim.201 This interpretation significantly broadens the scope of admissible
counterclaims.
It is notable that the Court in Oil Platforms recognized any analysis should be a
holistic one. Establishing a connection should not be about strictly demarcating
between factual and legal. The avoidance of precise criteria is beneficial to ade-
quately cater for the range of factual and legal situations which may arise. Oil
Platforms demonstrates the “relative liberalism” of the ICJ’s approach to connectiv-
ity. By enlarging the scope of permissible facts, the Court is able to view the totality
of the overall dispute.202 This feature of modern procedural law and practice has
been criticized as blurring the line between a counterclaim and principal claim.203
As it stands, questions of admissibility have been confined to questions connec-
tivity under art 80.204 Although, there is nothing in the way of a State wishing to
bring other challenges to admissibility, so long as they are based on the subject-
matter of the particular counterclaim.205
Iran-United States Claims Tribunal
The Iran-US Claims Tribunal was established under the Algiers Accords to resolve
the Iran-US relationship crisis. Article II (1) of the Algiers Accords permits juris-
diction over counterclaims “which arise out of the same contract, transaction or
occurrence that constitutes the subject matter of the principal claim.” The Tribunal’s
jurisprudence provides assistance in relation to host-State counterclaims based upon
general domestic law rather than in contract.
The Iran-US Claims Tribunal has denied counterclaims by interpreting the Claims
Settlement Declaration to exclude counterclaims that arise by operation of law rather
198
199
At 672.
200
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda)
(Order of 29 November 2001) (2001) ICJ Rep 660 at 667.
201
At 679.
202
203
At 667.
204
At 670.
205
At 670.
than from breach of the contract or transaction that constitutes the basis for the
principal claim.206 This encompasses domestic law, including revenue, social secu-
rity, and may have the scope to include environmental law.207 A counterclaim is
admissible where the contract includes specific obligations, which do not exist in
general law, for example, provisions which outline the payment of royalties.208
In Harris International Telecommunications, Inc v. Iran, the respondent brought a
counterclaim regarding the nonpayment of social security contributions and related
fines. The tribunal declined to exercise jurisdiction209:
[t]he Tribunal has no jurisdiction over counterclaims for social security premiums that are
based on municipal laws rather than on the contract which forms the basis of the claims.
The Contract does not provide for any obligation of the Claimant to pay social security
premiums in Iran. Any such obligation can therefore only stem from an application of
Iranian law, which is also the legal basis on which the Respondent itself bases this
Counterclaim. Thus, the Counterclaim for social security premiums and related penalties
must be dismissed.
Similarly the Tribunal in Computer Sciences Corporation v. The Government of

Iran refused to exercise its jurisdiction over a claim involving the enforcement of
Iranian tax law. The Tribunal distinguished between contractual and noncontractual
claims, where the latter are inadmissible.210 It observed that tax obligations stemmed
from Iranian domestic law, as opposed to contract, and therefore the Tribunal had no
jurisdiction over the claim.211 It also recognized212:
. . .revenue laws are typically enormously complex, so much so that their enforcement is
frequently assigned to specialized courts or administrative agencies. For these reasons,
actions to enforce tax laws are universally limited to their domestic forum.
John Crook identified the proposition articulated in Computer Sciences Corpo-

ration as being a general principle of law applied in individual cases.213 He states:
“tax liabilities are created by the public law of a state and cannot be extraterritorially
206
Brower C, Brueschke J (1998) The Iran–United States claims tribunal. Nijhoff, The Hague, at
100
207
Caron D, Caplan L, Pellonpaa M (2006) The UNCITRAL arbitration rules: a commentary.
Oxford University Press, New York, at 415
208
At 415.
209
Harris International Telecommunications, Inc. v. Iran (Partial Award) (1987) 17 Iran–U.S. CTR
31 at [176].
210
Computer Sciences Corporation v. The Government of Iran (1987) 10 Iran-U.S. CTR 269 at 312.
211
At 287.
212
At 312.
213
Crook J (1989) Applicable law in international arbitration: the Iran-U.S. claims tribunal expe-
rience. Am J Int Law 83:278, at 298
1306 M. Anning
enforced.”214 Despite, this observation being made over two decades ago, it suggests
that the inadmissibility of tax and social security claims can be attributed to some-
thing beyond the fact the obligation is not specified in a contract. It lends to
something specific about the nature of tax and social security claims, such as both
being inherently complex public law matters.
In several cases, the Iran-US Tribunal indicated that some claims could not be
admissible as they raised political and nonjusticiable questions.215 The tribunal
observed that to decide these claims would in effect require it to substitute its
judgment for that of governmental agencies or officials.216
The jurisprudence from the Iran-US Claims Tribunal on the matter of admis-
sibility of counterclaims is relatively clear. A legal symmetry of the counterclaim
and principal claim must be present. Whether the rationale behind excluding
claims which have their roots in domestic law can be equally applied to invest-
ment arbitration in the context of environmental claims will be explored further
below.
Investment Arbitration: ICSID/UNCITRAL Tribunals
Investment tribunals have grappled with the connectivity requirement. Scholars

and tribunals have disagreed about the type of connection required between a host
State’s counterclaim and an investor’s principal claim.217 Where both claims
arise out of the same contract, establishing the connectivity requirement is
unproblematic. However, issues arise when the investor’s claim concerns a treaty
violation. Where both a legal and factual nexus is required, a claim based on the
contract or domestic law would always be inadmissible since it would be based
upon a different legal instrument.218
The Tribunal in Saluka v. Czech Republic insisted upon the “interdependence and
essential unity of instruments on which the original claim and counter claim are
based.”219 As a result, the tribunal rejected jurisdiction over the counterclaim which
was based upon Czech Republic’s national law. This approach attracted considerable
criticism and has since been departed from.220
214
At 298.
215
Aldrich G (1996) The jurisprudence of the Iran-United States claims tribunal. Oxford University
Press, Oxford, at 130
216
At.130.
217
Musayev, above n 95.
218
Kjos, above n 57, at 149.
219
Saluka, above n 137, at [78]–[79].
220
In Burlington, the tribunal did not inquire into whether the counterclaim was
based on the same legal instrument, suggesting that only a factual nexus is
required.221 The tribunal accepted jurisdiction over Ecuador’s environmental coun-
terclaim based upon national law.222 A similar approach was taken in Urbaser which
held there was a sufficient factual connection between the principal claim and
Argentina’s counterclaim. The investor’s principal claim was related to the revoca-
tion of a contract to build infrastructure to provide water and remove contamina-
tion.223 Argentina’s counterclaim was based on violations of Argentine law and
international law, including the right for access to water.224 The Tribunal noted the
claims were “based upon the same investment. . . in relation to the same conces-
sion.”225 Interestingly, the Urbaser Tribunal noted that “the legal connection was
also established to the extent the counterclaim is not alleged as a matter based on
domestic law only.”226 The right for access to water was “the very purpose of the
investment” and was encompassed by the protection scheme of the BIT.227 The
Court said:
It would be wholly inconsistent to rule on Claimants’ claim in relation to their investment in

one sense and to have a separate proceeding where compliance with the commitment for
funding may be ruled upon in a different way. Reasonable administration of justice cannot
tolerate such a potential inconsistent outcome.
The respective counterclaims in Burlington and Urbaser are distinguishable. In

Burlington, Ecuador’s counterclaim was entirely based upon Ecuadorian domestic
law and environmental protection did not feature in the BIT. Environmental protec-
tion also was not “the very purpose of the investment.”228 If we apply the reasoning
of the Urbaser tribunal to the Ecuadorian counterclaims, it is unlikely they would
have been considered admissible. Tribunals enjoy significant flexibility to find a
claim admissible where consolidation of the claim and counterclaim would better
administer justice.
221
Smith, above n 96.
222
223
Urbaser, above n 92, at [34] and [1156]. On this case, see Qian X (2018) Challenges of water
governance (and privatization) in China-Traps, gaps, and law. Georgia J Int Comp Law (1):49–91.
See also Chaisse J (2017) The regulation of global water services market. Cambridge University
Press, London, 502 p
224
At [1128].
225
At [1151].
226
At [1151].
227
At [1151]. See also Chaisse J, Polo M (2015) Globalization of water privatization – ramifications
of investor-state disputes in the ‘blue gold’ economy. Boston Coll Int Comp Law Rev 38(1):1–64;
Qian X (2018) Challenges of water governance (and privatization) in China-Traps, gaps, and law.
Georgia J Int Comp Law (1):49–91
228
At [1151].
1308 M. Anning
Why was the tribunal in Burlington and Urbaser happy to exercise its jurisdiction
over the host State counterclaim, whereas the Saluka tribunal refused to do the same?
Can these alternative approaches be differentiated by something other than the
application of legal and/or factual connectivity? Is there something about the nature
of these claims which led the Saluka tribunal to require a legal connection, but the
Burlington tribunal to merely require a factual connection? Did the tribunals take the
correct approach? In attempting to answer these questions Judge Oda’s comment in
the Oil Platforms case should be kept in mind229:
We should not simply put what may have originally been somewhat distinct matters into one
melting-pot without making a careful examination of the essential character of that claim.
This raises the possibility that perhaps the inquiry should focus on the “essential
character of the claim” as opposed to a connection. The connectivity requirement in
itself has not been universally accepted as a prerequisite. The UNCITRAL Rules
2010 no longer require connectivity. National and international practice suggests that
juridical connectivity ought to be considered as a factor, but should not determine
whether a tribunal exercises its jurisdiction or not.230 A legal connectivity require-
ment was not recognized by Douglas in his Rule 26231:
In accordance with the terms of the contracting state parties’ consent to arbitration in the
investment treaty, the tribunal’s jurisdiction ratione materiae may extend to counterclaims by
the host contacting state party founded upon a contractual obligation, a tort, unjust enrich-
ment, or a public act of the host contracting state party, in respect of matters directly related
to the investment.
Douglas’ wide formulation of the character of an admissible claim cannot be

taken at face value. If counterclaims are accepted purely on the factual basis that they
relate to the investment, has the net not been cast too wide? Theoretically, Douglas’
Rule 26 could capture obligations founded in a host States criminal law which would
not be desirable.
Saluka, Paushok v. Mongolia and Amco Asia v. Indonesia demonstrate the limits
of Douglas’ Rule 26. The tribunals have refused to exercise jurisdiction for reasons
which appear to be associated with the core character of the counterclaims them-
selves, rather than lack of legal connection. A counterclaim will almost always be
inadmissible when the principal claim is based upon an IIA and a legal connection is
required. This is because the host State’s counterclaim will very rarely be based upon
the same instrument. This frustrates a broadly formulated consent to arbitration
which is found in most IIAs – “all disputes”– and cannot have been intended. As a
result, alternative factors must be at play.
229
Oil Platforms (Islamic Republic of Iran v. United States of America) (Separate Opinion of Judge
Oda) [1998] ICJ Rep 190 at 218.
230
Kjos, above n 57, at 150.
231
In Saluka, the Czech Republic brought counterclaims for various breaches of

Czech banking, competition, and tax laws. The Tribunal in Saluka observed that the
legal basis of the counterclaim232:
. . .is to be found in the application of Czech law, and involves rights and obligations which
are applicable, as a matter of the general law of the Czech Republic, to persons subject to the
Czech Republic’s jurisdiction. Consequently, the disputes underlying those heads of coun-
terclaim in principle fall to be decided through the appropriate procedures of Czech law and
not through the particular investment protection procedures of the Treaty.
The Tribunal in Paushok followed the approach in Saluka by linking the connec-
tivity requirement with the domestic law of the host State.233 The respondent
brought seven counterclaims, among which included: alleging the claimant breached
(1) tax, (2) fees, (3) levy obligations, (4) violated their license agreements to extract
gold efficiently and effectively, (5) violated environmental restoration obligations,
and (6) owed damages for gold smuggling.234
As for counterclaims 1, 2, and 3, the Tribunal refused to exercise its jurisdiction
and found235:
All these issues squarely fall within the scope of the exclusive jurisdiction of Mongolian
courts, and are governed by Mongolian public law, and cannot be considered as constituting
an indivisible part of the Claimant’s claims based on the BIT and international law.
According to the tribunal, a decision on the merits in favor of Mongolia’s

counterclaims, would have the236:
. . .likely effect of advancing the enforcement of Mongolian tax laws by non-Mongolian

courts in respect of non-Mongolian nationals beyond limitations on the extraterritorial
application of Mongolian tax laws rooted in public international law.
In addition237:
. . .the generally accepted principle is the non-extraterritorial enforceability of national public

laws and, specifically, of national tax laws.
Counterclaims 4, 5, and 6 were found to relate to subjects being the object of

Mongolian legislation and regulations; and moreover, the Tribunal held they “cannot
232
Saluka, above n 137, [82].
233
Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The
Government of Mongolia (Award on Jurisdiction and Liability) Marc Lalonde, Horacio A. Grigera
Naón, Brigitte Stern 28 April 2011 at [693].
234
At [678].
235
At [694].
236
At [695]; Kjos, above n 57, at 153.
237
At [695]; Kjos, above n 57, at 153.
1310 M. Anning
be seen as having a “close connection with the primary claim to which they are a
response.”238 The Tribunal’s treatment of Mongolia’s counterclaims suggests that
those which are covered by domestic law will never be admissible.
The Tribunal in Amco Asia dealt with Indonesia’s tax fraud counterclaim in a
similar way and was heavily relied upon by the Tribunal in Saluka. As noted by the
second ICSID Tribunal, the counterclaim on tax fraud arose out of the application of
“general law” to “persons who are within the reach of the host State’s jurisdiction”
and not “directly out of [the] investment” as required by art 25(1) of the ICSID
Convention.239 Accordingly, the counterclaim was held to be beyond its competence
ratione materiae.240 The Tribunal held241:
. . .tax claims may be within ICSID’s jurisdiction and that claims in relation thereto would be
available to both parties to an investment dispute.
The obligation not to engage in tax fraud is clearly a general obligation of law in Indonesia. It
was not specially contracted for in the investment agreement and does not arise directly out
of the investment. For these reasons the Tribunal finds the claim of tax fraud beyond its
competence ratione materiae.
The Tribunal in Amco Asia emphasized the importance of explicitly including the
general obligation of law owed by the investor in the applicable investment contract.
Where this is the case, tax counterclaims may be admissible. Antonopoulos also
suggests that counterclaims concerning tax obligations owed by an investor may be
admissible where the dispute arises directly out of the investment being expressly
contracted for.242 This position is inconsistent with the Iran-US approach, accepted
by Aldrich.243 The Iran-US approach is that despite a general law obligation being
included in a contract, the source of the obligation is still in general law and is
inadmissible.
The approach to admissibility by investment tribunals has been inconsistent. The
requirement that a counterclaim be based upon an identical legal instrument to the
principal claim seems unduly narrow. It ignores the reality that investor obligations
are very rarely contained in an IIA. The more recent approaches of Urbaser and
Burlington, which require a factual connection to the principal claim or that the
counterclaim arise out of the investment, set a more desirable standard.
238
At [695].
239
Amco Asia Corporation and others v. Republic of Indonesia (Decision of Jurisdiction in
Resubmitted Proceeding) ICSID ARB/81/1, 10 May 1988 at [122]–[127]; Kjos, above n 57, at 152.
240
At [124].
241
At [124] and [126].
242
Antonopoulos, above n 196, at 32.
243
Aldrich, above n 213, at 130.
International Commercial Arbitration and Litigation
International commercial arbitration plays a central role in dispute resolution regard-

ing international business.244 Unless the institutional rules governing the dispute
permit counterclaims, a counterclaim can only be raised if it falls within the scope of
the arbitration agreement.245Article 5(5) of the International Chamber of Commerce
(ICC) Arbitration Rules does not include specific requirements for the admissibility
of counterclaims. There is no prerequisite concerning the tribunal’s subject-matter
jurisdiction or any connectivity requirement.
International courts have provided useful jurisprudence on whether a non-
contractual counterclaim is still arbitrable. It has been generally accepted that a
party may not defeat an arbitration clause by casting its claims in tort, rather than in
contract.246 The Court in Ford v. Nylcare Health Plans of the Gulf Coast Inc
observed: “Basing arbitrability merely on the legal label attached to it would allow
artful pleasing to dodge arbitration of a dispute otherwise ‘arising out of or relating
to’ the underlying contract.”247 However, tort claims which do fall outside the
arbitration clause cannot be submitted to arbitration.248
A recent French case provides valuable insight as to the nature of admissible
claims. A French distributor argued that a tort claim under a mandatory provision of
French law could only be brought before French Court, despite the parties consent to
ICC arbitration to settle “all disputes arising out of or in connection with the present
contract.”249 This argument was rejected and the Court compelled the parties to
submit its claim to arbitration. The appeal court noted that the claim presented a
sufficient connection with the contract since it arose from the circumstances that
surrounded the termination of the contract and from the consequences that resulted
from it.250 The public policy considerations attached to the dispute, as well as the
provision being mandatory in French law, did not invalidate the parties’ consent to
arbitration.251 This appears to be the generally accepted position, except in cases
where the subject-matter makes the agreement void (family law and intellectual
property disputes).252 This case is a reminder that parties will be held to the dispute
resolution mechanisms they agree to.
244
Saito A (2016) International commercial arbitration and international commercial courts:
towards a competitive and cooperative relationship. Hors Serie 20:33, at 35
245
Pavić V (2006) Counterclaim and set-off in international commercial arbitration. Ann Int Ed 101,
at 104
246
Born G (2001) International commercial arbitration: international and USA, 2nd edn. Kluwer
Law International, at 322
247
Ford v. Nylcare Health Plans of the Gulf Coast 141 F 4d 243 (5th Cir 1998) at 250–251.
248
Born, above n 237, at 323.
249
“Court confirms application of standard ICC arbitration clause to tort claims” (16 September
2010) International Law Office. http://www.internationallawoffice.com. at 1.
250
At 1.
251
At 1.
252
At 1.
1312 M. Anning
Russell on Arbitration suggests that not all disputes are admissible, despite
connectivity253:
As a matter of English law certain matters are reserved for the court alone and if a tribunal
purports to deal with them the resulting award will be unenforceable. These include matters
where the type of remedy required is not one which an arbitral tribunal is empowered to give.
The point was illustrated in Bilourne v. Ghand. The Tribunal refused to exercise
its jurisdiction over human rights violations resulting from the arbitrary detention of
an investor. The Tribunal noted254:
[t]he Government agreed to arbitrate only disputes ‘in respect of the foreign investment.’
Thus, other matters – however compelling the claim or wrongful the alleged act – are outside
this Tribunal’s jurisdiction.
Mustill and Boyd note255:
English law has never arrived at a general theory for distinguishing those disputes which
may be settled by arbitration from those which may not.
This corroborates the lack of attempt to identify the principles or characteristics of

a claim which may or may not be admissible. Investment tribunals have greater
scope to impose penalties than that of commercial arbitrators. They adjudicate
disputes in an accessible public forum, unlike commercial arbitration which usually
occurs behind closed doors. Due to these differences, the rationale behind excluding
particular disputes from the reach of arbitration may not apply equally.
Tribunals have not shied away from assessing environmental matters in the past.
Prima facie, there is no reason to suggest that the nature of environmental claims
should preclude a tribunal from exercising jurisdiction over them.
Article 8(3) of the Brussels I Regulation outlines that a person domiciled in an EU
Member State may be sued256:
(3) on a counter-claim arising from the same contract or facts on which the original claim
was based, in the court in which the original claim is pending.
253
Sutton D, Gill J (2002) Russell on arbitration, 22nd edn. Sweet & Maxwell, London, at 28
254
Biloune and Marine Drive Compex Ltd v. Ghana Investments Centre and the Government of
Ghana (Award on Jurisdiction and Liability) (1989) ILR 95:194, at 203
255
Mustill L, Boyd S (1989) The law and practice of commercial arbitration in England, 2nd edn.
LexisNexis, at 149
256
European Council Regulation No. 44/2001 on Jurisdiction and the Recognition of Enforcement
of Judgements in Civil and Commercial Matters (signed, 22 December 2000, entered into force 1
March 2001), art 8(3). (Brussels I Regulation).
This restrictive approach goes beyond a requirement of close connection.257

Courts have encountered difficulties primarily where the counterclaim is not based
upon the same contract but from a series of closely connected contracts.258 It is
notable that the language used in art 8(3) does not provide clear guidance about when
a counterclaim may arise from the same facts. Article 28(3) of the Brussels I Regu-
lation defines the term “related actions” to be when “claims are so closely connected
that it is expedient to hear and determine them together to avoid the risk of
irreconcilable judgments.” It is tempting to interpret art 8(3) in the same way.
A New Approach to Admissibility
An assessment of the admissibility of counterclaims purely with reference to factual

and legal connectivity is misleading. This is not to suggest that courts and tribunals
have erred in reaching outcomes based on admissibility. Rather, they have over-
simplified the inquiry. Such an inquiry is pertinent during a time where purely
commercial disputes are being replaced by a hybrid of commercial and non-
commercial matters. International jurisprudence suggests other factors are at play
when courts and tribunals decide to exercise their jurisdiction over counterclaims.
This section is intended to provide a summary of the main conclusions drawn from
this exercise in an attempt to formulate a new approach to admissibility. It is worth
reiterating the definition of admissibility. Admissibility is whether the case itself is
defective – whether it is appropriate for the tribunal to hear it.
Any inquiry into the admissibility of a counterclaim should be approached on a
case-by-case basis. This approach was endorsed by the ICJ in Oil Platforms.259 The
lack of guidance provided by institutional rules and conventions offers considerable
flexibility to tribunals. A holistic approach is necessary to appropriately decide
which kinds of disputes should be admissible before an investment tribunal.
Investment tribunals should be reluctant to dismiss a claim for lack of admissi-
bility once jurisdiction has been established. The tribunal in SGS v. Paraguay makes
the point that “having found jurisdiction, we would have to have very strong cause to
decline to exercise it’ and it would be ‘incongruous’ to find consent and therefore
jurisdiction yet to dismiss the claim on admissibility grounds.”260 Six key observa-
tions, relevant to the admissibility inquiry, have been identified below.
First, an admissible counterclaim must have an identical temporal and geograph-
ical connection to the principal claim. Factual connectivity remains an important pre-
requisite, especially since the ICSID Convention and prior investment tribunals have
257
Magnus U, Mankowski P (eds) (2007) European commentaries on private international law:
Brussels I regulation. European Law Publishers, at 264
258
At 265.
259
Oil Platforms, above n 185.
260
SGS Societe Generale de Surveillance SA v. Republic of Paraguay (Decision of Jurisdiction)
ICSID ARB/07/29, 12 February 2010, at [176].
1314 M. Anning
explicitly recognized such requirement. This prerequisite avoids placing “distinct

matters into one melting-pot.”261 These kinds of counterclaims will enable a tribunal
to achieve a view of the totality of the overall dispute. Furthermore, combining these
claims will usually be necessary in the best interests of justice, the avoidance of
inconsistent awards, and procedural economy.
Second, an admissible counterclaim does not need to be based on an identical
legal instrument to that of the investor’s principal claim. This narrow requirement,
endorsed by the Iran-US Claims Tribunal, unreasonably restricts an investment
tribunal’s ability to exercise its jurisdiction over counterclaims. Treaty-based arbi-
tration would be particularly problematic. Where an investor’s principal claim is
based on the IIA, it should not be fatal to a host State’s counterclaim for it to be based
upon the investment contract or domestic law. This is a reasonable interpretation
given that investor obligations are not usually present in IIAs.262 Only until recently
have IIA’s appreciated the reciprocity of this legal instrument.263 The comment of
Justice Higgin’s in Oil Platforms supports this approach.264
Third, the centrality of the investor obligation to the investment is a pertinent
consideration. Douglas recognized in Rule 26 that any counterclaim must be
“directly related to the investment.” In Amco Asia, the respondent’s counterclaim
was rejected as it did not arise “directly out of the investment.”265 This connection
requirement is distinct from that of a legal or factual connection to the principal
claim. In Urbaser, the investor allegedly violated the right to access to water. This
right was “the very purpose of the investment.” There was a clear relationship
between Argentina’s counterclaim and the investment. Where an obligation is
entirely disconnected to the investment, making it admissible may risk burdening
an investment tribunal with a task which should properly be assigned to a domestic
court.
Fourth, a host State’s counterclaim need not be based in the “same corpus of law”
as the investor’s principal claim.266 To limit counterclaims to those in the same
category as the principal claim, as suggested by Kolb on ICJ jurisprudence, will
undermine an investment tribunal’s dynamic function. It also ignores the complexity
and variety of the kinds of disputes being brought before it. This interpretation would
make the Ecuadorian counterclaims inadmissible as they were based upon environ-
mental law as opposed to foreign investment protection. Investment tribunals do not
operate in an exclusive legal regime. As a result, counterclaims should not be limited
to the commercial aspects of the particular investment.267
261
Oil Platforms (Separate Opinion of Judge Oda), above n 223, at 218.
262
Smith, above n 96.
263
264
Oil Platforms (Separate Opinion of Judge Higgins), above n 191, at 218.
265
Amco Asia, above n 232, at [126].
266
267
Fifth, provided the counterclaim arises directly out of the investment, it is not fatal
for it to be based on tort, constitutional, or regulatory law. Unlike judges, arbitrators
are not bound to apply a particular set of procedural rules (unless the parties so
request) and consequently enjoy a comparatively greater degree of procedural
flexibility in how they resolve a dispute.
Sixth, public policy matters should not prevent counterclaims from being admis-
sible. Investment treaty arbitration, unlike international commercial arbitration does
not only affect the interests of the parties to the dispute but often a wide range of
groups and individuals.268 Public policy matters may be a relevant consideration, but
should be approached on a case-by-case basis.
These six conclusions provide a framework for analyzing the admissibility of
environmental disputes.
The Admissibility of Environmental Claims
Tribunals are increasingly adjudicating investment disputes which are characterized

by largely noncommercial features. Perenco and Burlington represent the first
environmental counterclaims to be brought by a host State against an investor.
They are welcomed developments in investment arbitration. The admissibility of
environmental counterclaims brought by a host State provides an interesting case
study. Assuming that there are no jurisdictional hurdles regarding consent, this
section applies the six considerations identified above to assess the admissibility of
environmental counterclaims.
Legal Perspective
A host State must base their claim on a legal obligation owed by the investor.269 The
parties must mutually agree upon the law that determines the source of the investor’s
obligation. If parties do not agree on the applicable law, the tribunal can apply the
law it sees fit.270 The source of the environmental obligation may affect the question
of admissibility.
IIAs and International Law

Investors may owe environmental obligations contained in the applicable IIA. The
scope and content of such protections vary from treaty to treaty; therefore, a
268
De Branbandere E (2014) Investment treaty arbitration as public international law. Cambridge
University Press, New York, at 148
269
Viñuales J (2012) Foreign investment and the environment in international law. Cambridge
University Press, Cambridge, at 94
270
United Nations Commission on International Trade Law “Arbitration Rules” (2011) UNCITRAL
https://www.unictral.org art 35(3).
1316 M. Anning
complete taxonomy of environmental provisions is impractical. To avoid unneces-

sary complexities, environmental protection can be incorporated into treaties in three
broad, yet distinct ways: First, where environmental protection is an express objec-
tive in the preamble of treaty;271 second, a treaty may oblige an investor to comply
with environmental domestic law;272 third, environmental obligations can be
imposed directly upon investors by virtue of a treaty.273 These obligations may be
positive, such as undertaking an environmental impact assessment, or negative, such
as refraining from polluting or contaminating.274
Environmental concerns are beginning to infiltrate traditional IIAs schemes.275 In
saying this, however, substantive environmental obligations are scarcely imposed
upon investors.276 An example of this minority is the Morocco-Nigeria BIT. This
BIT requires investors to maintain an environmental management system and meet
international certification standards.277 Investors also must comply with environ-
mental assessment screening procedures prior to the establishment of the investment
and conduct social impact assessments of potential investments.278 This BIT has
been heralded as a significant contribution to the reciprocity of investment
treaties.279 A counterclaim that alleges breach of a similar treaty obligation will
almost always be admissible: the investor’s principal claim shares the same legal
instrument. Additionally, if an arbitration clause allows it, a host State may also be
able to claim directly against the investor.
The general lack of environmental obligations in existing IIAs creates difficulties
in establishing connectivity. An investor’s principal claim is likely to be founded
upon the applicable treaty, whereas it is more likely that a counterclaim will be based
on other sources of international law or domestic law.280 Despite this, a counterclaim
may still be admissible. It is not essential that its foundation mirrors that of the
principal claim.
271
272
At 389.
273
Gordon and Poal, above n 15, at 23.
274
At 24.
275
Diepeveen R, Levashova Y, Lambooy T (2014) Bridging the gap between international invest-
ment law and the environment. Utrecht J Int Eur Law 30:145, at 158. See also Chaisse J (2013)
Exploring the confines of international investment and domestic health protections – general
exceptions clause as a forced perspective. Am J Law Med 39(2/3):332–361
276
Bernasconi-Osterwalder N, Cosbet A, Johnson L, Vis-Dunbar D (2012) Investment treaties &
why they matter to sustainable development: questions and answers. International Institute for
Sustainable Development, at 35
277
Reciprocal Investment Promotion and Protection Agreement between the Government of the
Kingdom of Morocco and the Government of the Federal Republic of Nigeria, Nigeria –Morocco
(signed 3 December 2016). [Nigeria-Morocco BIT].
278
Article 27.
279
Gazzini T (2017) The 2016 Morocco-Nigeria BIT: an important contribution to the reform of
investment treaties. Investment Treaty News. https://www.iisd.org
280
Smith, above n 96.
General principles of international law may also impose enforceable environ-

mental obligations upon investors.281 Despite the traditional belief that only States
owe obligations in international law, some argue that investors that operate interna-
tionally no longer enjoy immunity from international rules.282 Many environmental
principles and norms are hard to characterize as legal obligations.283 They mostly
serve as guiding principles to be elaborated upon by incorporation into domestic
legislation.284 For example, the “polluter pays” principle cannot be properly defined
without reference to the “procedural and institutional framework” within which the
principle operates.285 This is primarily an issue of the applicable law, although it may
also affect the connectivity inquiry. For instance, where a host State’s counterclaim is
primarily based on domestic law, it may also have roots in international law or be
included in an inoperative section of the IIA. This was alluded to in Urbaser in the
context of human rights.286
The Urbaser Tribunal noted that “the legal connection was also established to the
extent the counterclaim is not alleged as a matter based on domestic law only.”287
This appears to reference the fact that the international right of access to water was
also encompassed in the protection scheme of the BIT. This suggests that despite the
absence of substantive obligations in an IIA, express reference to applicable inter-
national norms or principles may legitimately be construed to be the same as the
legal instrument. This will make their admissibility more likely. This is particularly
relevant in the context of environmental counterclaims since IIAs often contain
vague environmental objectives which do not impose substantive obligations upon
investors, yet reference to them is still valued.
Contractual Obligations
An investment contract between the host State and investor may include environ-
mental obligations. This may be substantive obligations that either oblige an investor
to comply with the host State’s domestic law or similarly comply with international
environmental obligations. For example, a concession agreement between Liberia
and ADA Commercial stipulated that “the investor is obliged to comply with
international standards, regardless of their status in domestic law.”288 Establishing
281
282
Urbaser, above n 92, at [1195]; (2017) Investor-state dispute settlement: review of developments
in 2016. United Nations Conference on Trade and Development, UNCTAD/DIAE/PCB/2017/1,
May 2017, at 22
283
284
At 440.
285
Schwartz P (2010) The polluter pays principle. In: Fitzmaurice M, Ong D, Merkouris P (eds)
Research handbook on international environmental law. Edward Elgar Publishing, Cheltenham, at
249; Sweify M (2016) Investment-environment disputes: challenges and proposals. De Paul Bus
Comm Law J 14:133, at 141
286
Urbaser, above n 92, at [1128].
287
At [1151].
288
1318 M. Anning
admissibility will be straightforward where both the principal claim and counter-
claim are based upon the applicable contract as the legal instrument is identical.
A contractual counterclaim may still be admissible against a treaty-based claim. It
must arise directly from the investment or be temporally and geographically related
to the principal claim. An environmental counterclaim will arise directly out of an
investment where:
(a) The failure of the investor to perform its investment activities, contracted for, has
caused the environmental harm.
(b) Environmental harm is a byproduct of the investor performing its investment
activities.
(c) The investor has failed to comply with environmental obligations, such as an
environmental impact assessment, which served as a precondition for the invest-
ment activity.
(d) The environmental harm has occurred within the same geographical location and
temporal period as the investor’s activity.
It is hard to imagine a situation where an environmental counterclaim alleging a

breach of the investor’s obligation will be wholly disconnected from investment
itself.
Domestic Law
Environmental obligations can also be found in domestic law.289 Article 42(1) of the
ICSID Convention allows a tribunal to rely on these sources. IIAs and investment
contracts may also expressly confirm that investors are bound by particular domestic
obligations. For example art 12 of the Model Text for the Indian BIT 2016 states that
investors shall be subject to and comply with the law of the host State including law
relating to the conservation of natural resources. Concern for international environ-
mental sustainability is now reflected in the majority of domestic investment legis-
lation. For example, art 13 of the Qatar Investment Law no. 13 / 2000 states that the
foreign investor must preserve the safety of the environment against pollution, abide
by all laws, regulations, and instructions relating to public health and security.290
The admissibility of a counterclaim based upon this type of obligation will be
determined on whether there is a temporal and geographical connection with the
principal claim or whether it arises directly from the investment.
Environmental obligations may be contained in public, tort, regulatory, or con-
stitutional legal instruments. Where tort law provides stronger protections than a
289
Parlett K, Ewad S (2017) Protection of the environment in investment arbitration – a double-
edged sword. Kluwer Arbitration Blog. https://arbitrationblog.kluwerarbitration.com
290
Qatar Law on Organization of Foreign Capital Investment in the Economic Activity (Law No. 13
/ 2000), art 13.
contractual obligation, the host State will likely elect to base its counterclaim upon
domestic law.291 Counterclaims often reflect this choice.292 The issue of causation is
associated with the merits of a claim and should be avoided when inquiring into
admissibility. The tortious basis of a counterclaim should not preclude its admissi-
bility before an investment tribunal. Counterclaims founded on tort were recognized
as being admissible by Judge Higgins in Oil Platforms,293 Douglas’ Rule 26,294 as
well the tribunals in Perenco and Burlington.295
Similarly, a counterclaim is not excluded if it is based on a national constitution.
The extent to which the environment is protected under such public instruments will
differ from State to State. The Ecuadorian Constitution imposes strict liability for
environmental harm and affords special rights to nature. This was directly applied by
the tribunals in Perenco and Burlington. It was particularly interesting that the both
tribunals disagreed with Ecuador’s interpretation of the measure of environmental
harm that justified strict liability to attach. The tribunals’ reasoning demonstrates the
importance of a neutral forum to eliminate any perceived or actual bias which may
exist in a domestic judicial system. Furthermore, where a host State brings a
counterclaim it is signifying “resolute adherence to neutral third-party
adjudication.”296
Policy Perspective
Aside from connectivity issues, there may be alternative reasons against admitting
environmental claims or counterclaims in investment arbitration. Domestic courts
may be more appropriate fora to hear such disputes. Environmental issues are often
connected to various national interests, unique to each State.
Mitigating the adverse effects of pollution and environmentally harmful activities
is expected of both host States and investors in pursuit of their development. The
relationship between environmental concerns and public health is particularly crit-
ical here.297 Environmental harm is a vast concept: it can include the depletion of
natural resources, contribution to climate change, depletion of fish stocks, pollution,
and the transfer of waste across boundaries.298 Many of the acts that cause these
harms are perpetuated by economic entities, rather than the host State themselves.
291
Iversen, above n 2, at 1.
292
Burlington, above n 6; Perenco, above n 3.
293
Oil Platforms (Separate Opinion of Judge Higgins), above n 191, at 218.
294
295
Burlington, above n 6; Perenco, above n 3.
296
297
Al-Adba NM (2014) The limitation of state sovereignty in hosting foreign investments and the
role of investor-state arbitration to rebalance the investment relationship. Doctorate thesis in Law,
University of Manchester, at 61
298
Nollkaemper, above n 52, at 180.
1320 M. Anning
The impacts of environmental harm are felt beyond the parties; “they implicate the
rights held by individuals, classes, or collectives of host State nationals and the rights
of the host State itself.”299
As environmental law is perceived as a matter of public interest,300 it may be
argued that the adjudication of such disputes should be exclusively reserved to
national courts and State regulation.301 There are two reasons for this. First, these
kinds of disputes should be adjudicated in a public forum. Given the greater public
access to investment arbitration awards, the transparency concerns associated with
commercial arbitration are not as applicable here.302 Second, a host State should be
seen as having exclusive control over foreign activities that occur within its territory,
particularly when public policy is involved.303 Dagbanji argues that the jurisdiction
of domestic courts over issues, such as human rights and the environment, should be
treated as “peremptory norms” which States cannot contract out of or impair by the
agreements they reach with investors.304 This argument is premised on the propo-
sition that investment tribunals are ill-equipped to consider the protection of social
and community interests, while simultaneously protecting foreign investors.305
Previously, the absolute protection of foreign investments had usually, if not always,
been at the expense of communal interests.306 There is a risk that societal well-being
may be jeopardized in a large arbitration concerning environmental protection.307
Domestic adjudication of environmental disputes can have inherent conflicts of
interest. Investment arbitration is a neutral dispute resolution forum, therefore is an
attractive solution: it mitigates the risk of a compromised decision.308 Host States
have economic interests in the outcome of an environmental dispute, particularly for
developing countries whose economic development is heavily dependent upon
foreign investment.309 Furthermore, host States may be considered as partially
299
Amado, Kern and Rodriguex, above n 60, at 55.
300
Monebhurrun N (2013) Is investment arbitration an appropriate venue for environmental issues?
A Latin American perspective. Braz J Int Law 10:195, at 200
301
Morgera E (2009) Corporate accountability in international environmental law. Oxford Univer-
sity Press, New York, at 30
302
De Branbandere, above n 266, at Y.
303
Dagbanja D (2017) Constitutionalism and local remedies rule as limitations on investor-state
arbitration: perspectives from Ghana. OUCJL 17:110, at 139
304
At 134.
305
At 139.
306
Monebhurrun, above n 298, at 200.
307
Park W (2012) Arbitration of international business disputes: studies in law and practice, 2nd
edn. Oxford University Press, New York, at 697
308
Slater, above n 13, at 136.
309
Morgera, above n 29, at 28.
responsible for the damage, since they authorized the investors’ activities.310
Domestic courts may not have the capacity to adequately protect broader environ-
mental concerns and the rights of those directly impacted by disputed harmful
activities.
Environmental obligations typically involve a high level of “fudge.”311 The
obligations upon investors are likely to be vague or incomplete.312 Environmental
law protections remain unsettled on the international stage.313 Recourse to an
investment tribunal, rather than a domestic court, might lead to inconsistent inter-
pretations of domestic environmental regulations and standards. This was a concern
of the International Atomic Energy Agency Standing Committee when deciding
whether or not to establish a separate tribunal.314 This is primarily due to the lack of a
precedent system in investment arbitration. While inconsistency is a legitimate
concern in the interpretation of domestic law, the concern has lower standing in
international law. Investment arbitration may foster a common appreciation and
interpretation of environmental norms and obligations. This could be valuable to
both developed and developing host States, who are likely to have differing priorities
when it comes to environmental protection.315
Environmental claims are rarely raised in isolation.316 Investment tribunals are
regularly tasked with the application of a cluster of rules.317 This can be seen in the
greater acceptability of investment tribunal’s ability to hear disputes concerning
revenue law, competition law, corruption and bribery, illegality, and consumer
law.318 Tribunals should not avoid engaging with the wider framework within
which investment relationships take place.
In some ways, environmental protection regulations can be said to have an
administrative character. These kinds of regulations include obtaining licenses or
permits for implementing activities – as well as the sanctioning of the behavior that
does not comply with the regulations or causes environmental damage.319 When a
310
At 28.
311
Sands, above n 47, at 67.
312
313
314
315
316
Vadi V (2012) Public health in international investment law and arbitration. Routledge, at 135.
317
318
Gaillard E, Savage J (eds) (1999) Fouchard, Gaillard, Goldman on international commercial
arbitration. Kluwer Law International, The Hague, at [572]
319
Garcia-Castrillon C (2011) International litigation trends in environmental liability: a European
Union-United States comparative perspective. J Priv Int Law 7:3, at 553
1322 M. Anning
State brings a counterclaim based on a domestic regulation, it usually exercises a

right that private parties do not possess.320 They are public and regulatory in
nature.321
Environmental disputes are often highly complex. Identifying the scope of
“environmental harm” and the level that will attach liability to actions is regularly
a contentious issue.322 Evidence brought by each party is often dominated by
competing scientific claims, as in Perenco. It is a misconception to say investment
tribunals are not equipped to adjudicate these kinds of complex noninvestment-
related matters. The Tribunal’s approach in Burlington reflects this. The Tribunal
demonstrated extensive engagement with the technicalities of identifying environ-
mental harms and made commendable efforts to accustom themselves with the
practicalities of this complex area of law through site visits.323 Jorge Viñuales
praised the Tribunal for resorting to specific environmental techniques “without
anything but the right amount of justification.”324 He concluded that environmental
considerations seem “a normal, and even obvious, component of the reasoning.”325
Investment tribunals have not shied away from enforcing environmental law against
States.326 No reasons exist as to why this should be any different in the context of
counterclaims.
Arbitration enables parties to the dispute to nominate environmental law experts
as arbitrators.327 Similarly, an arbitrator with regulatory experience will be able to
assess environmental regulatory standards. This was a key area of contention in the
Burlington dispute. Specialized arbitrators provide a valuable perspective: they can
assess evidence from practical and legalistic approaches.328 This is especially
important where the quantum of damages depends upon an expert’s examination.
Despite engaging broader public policy issues, environmental disputes should
still be admissible before an investment tribunal. Investment arbitration has proven
to be a dynamic forum, capable of adjusting to the complex and unique techniques
required of environmental dispute resolution. The Perenco and Burlington decisions
demonstrate the appropriateness and desirability of investment arbitration in this
320
McLachlan C (2014) Foreign relations law. Cambridge University Press, at 447
321
Amado, Kern and Rodriguex, above n 60, at 55.
322
323
Perenco, above n 3, at [429]–[748].
324
Viñuales J (2016) Foreign investment and the environment in international law: the current state
of play (2015). In: Miles K (ed) Research handbook on environmental and investment law. Edward
Elgar, Cheltenham, at 34.
325
At 34.
326
Metaclad Corporation, above n 14; Tecmed, above n 14; Methanex, above n 14; S. D. Myers,
above n 14.
327
Le Bars B (2017) International arbitration and the protection of the environment: should the
existing legal instruments evolve? UNCITRAL Papers for Congress, Modernizing Intenrational
Trade Law to Support Innovation and Sustainable Development, July 2017, at 14
328
Casgrain FM (2012) Arbitration of environmental disputes. Mondaq Business Briefing. https://
www.mondaq.com
context. Where a host State’s environmental counterclaim is temporally and geo-

graphically tied to the principal claim or where it directly arises from the investment,
there is no reason that it should not be admissible. A more flexible approach to
admissibility will increase the appeal and success of environmental counterclaims in
the future.
Arbitration as the Way Forward
A new approach to the question of admissibility will present investment arbitration

as a feasible and appropriate forum for host States to pursue environmental claims
against investors. To avoid admissibility hurdles, there are three particular steps host
States should consider.
First, host States should modify their IIAs to ensure that environmental protection
and economic development are equal priorities.329 The inclusion of environmental
obligation within an IIA preamble is a slack tool.330 These obligations should be
clearly drafted. Many IIAs have begun to move in this direction by explicitly
including environmental investor obligations.331 Where this is the case, the legal
instrument of the principal and counterclaim may be identical, therefore determining
admissibility is a facile task. Including specific provisions in IIAs that entrust
tribunals with the ability to apply domestic law will make it easier for a tribunal to
establish connectivity. In practice, renegotiation may be difficult especially for host
States that wish to be seen as “investor-friendly.”332
Second, the scope of the arbitration clause should be sufficiently wide to permit
host States to bring counterclaims. This is an appropriate and necessary baseline in a
properly drafted arbitration clause. Treaties which impose environmental obligations
upon investors often explicitly exclude these kinds of disputes from arbitration.333
The arbitration clause in Urbaser is exemplary as it expressly provides that a dispute
could be submitted to arbitration at the request of either party. This kind of clause
may permit host States to bring a direct claim for a treaty breach.
Third, host States should consider implementing “reverse umbrella clauses.”334
These clauses elevate a breach of domestic environmental law to the status of a treaty
breach. Issues of connectedness will be removed. Furthermore, the application of
domestic law may provide for a higher level of environmental protection than is
contained in IIAs or general principles of national law.
329
330
At 384.
331
332
333
See for example Nigeria –Morocco BIT, art 27.
334
1324 M. Anning
Conclusion
This chapter set out to examine the concept of admissibility and how investment
tribunals should approach the inquiry in the context of environmental claims brought
against investors. The chapter has not attempted to provide a general overview of
how environmental matters have arisen in such arbitrations. The focus has been on
how environmental obligations can be used a sword by host States; in effect,
reversing the classic paradigm of investor-State arbitration.
The first part of this chapter provided the contextual framework for discussion. It
explained how the asymmetry of IIAs has led to a classic paradigm where host States
have adopted the role of “perpetual respondent.” Opportunities to enforce environ-
mental obligations against investors are particularly uncommon given they are rarely
included in IIAs and the narrow scope of arbitration clauses limiting the tribunals
jurisdiction. As a result, the tribunals’ approaches in Perenco and Burlington are
novel.
With commentators routinely disagreeing on the distinction between jurisdiction
and admissibility, it is no surprise that investment tribunals have had equally
differentiated approaches. Many tribunals ignore the question of admissibility
entirely. This was the case in Perenco and Burlington. This chapter argues that the
connectivity is inextricably part of the admissibility inquiry and should be examined
separately to the issue of consent. Following a fine-grained analysis of international
jurisprudence, this chapter attempts to redefine the question of admissibility. It
suggests that the inquiry should be approached on a case-by-case basis. Asking
whether a counterclaim needs a factual and/or legal connection to the principal claim
is oversimplifying the inquiry. So long as a counterclaim is temporally and geo-
graphically connected to the principal claim or arises directly out of the investment,
it should be admissible. The traditional approach of requiring a legal connection is
unreasonably narrow and ignores the multifaceted nature of contemporary disputes.
The nature of a claim, including the extent to which public policy concerns are
implicated, is another indication of whether a claim is admissible.
This chapter has demonstrated that redefining the admissibility inquiry is valuable
and integral to ensure that host State can pursue environmental claims against
investors. For many host States, domestic tort law is most likely to provide the
highest level of environmental protection. This kind of claim should not be pre-
cluded from adjudication for the reason it is not based upon the same legal instru-
ment. Despite these kinds of claims being regulatory in character, as well as the
consequences reaching individuals, this should not be a reason to exclusively reserve
it to domestic court jurisdictions.
The tribunals in Perenco and Burlington engaged extensively with the complex
technicalities associated with environmental claims. The reasoning is yet to attract
academic criticism. Concerns about investment tribunals lacking the competency to
deal with such claims are unfounded. Investment tribunals should have the ability to
adjudicate disputes which transcend purely commercial matters. A holistic approach
to the admissibility requirement will facilitate this. Increased reciprocity will also
increase investment arbitrations legitimacy as a dispute resolution forum.
Cross-References
▶ Bilcon v. Canada: A New Paradigm for Causation in Investor-State Arbitration?

▶ The Environment, Human Rights, and Investment Treaties in Africa: A Constitu-
tional Perspective
Evidence in International Investment
Arbitration 52
Mark W. Friedman and Guilherme Recena Costa
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1328
Preliminary Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1329
Admissibility of Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1329
Burden of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1336
Standards of Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1340
Adverse Inferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1344
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1347
Documents Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1347
Document Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1348
The Role of Domestic Courts in Obtaining Evidence in Support of Investment
Arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1355
Fact Witnesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1356
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1359
Reliability and Independence of the Expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1359
Types of Expert Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1361
Party- and Tribunal-Appointed Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1362
Procedure for Presenting and Challenging Expert Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1364
Other Types of Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1365
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1368
Abstract
Collecting, presenting, and assessing evidence is at the very core of investor-State
disputes. Investment tribunals have developed common practices regarding the
Mark W. Friedman is a partner and Guilherme Recena Costa is a senior associate at Debevoise &
Plimpton LLP. The views expressed in this chapter are solely those of the authors. The authors are
grateful to Juan Fandino for his contribution to this chapter.
M. W. Friedman (*) · G. Recena Costa

Debevoise & Plimpton LLP, New York, NY, USA
e-mail: mwfriedman@debevoise.com; grecenacosta@debevoise.com

https://doi.org/10.1007/978-981-13-3615-7_68
1328 M. W. Friedman and G. Recena Costa
taking of evidence that are reasonably well understood by the relevant partici-
pants in investor-State disputes. While such practices are welcome and have
developed for good reason, tribunals should embrace arbitration’s inherent flex-
ibility to strike an optimal balance between fact-finding accuracy, fairness, and
efficiency in each case. They can and should calibrate evidentiary techniques to
the specific dispute that is before them.
Keywords
International investment law · Investor-State arbitration · Evidence ·
Admissibility of evidence · Burden of proof · Standards of evidence · Adverse
inferences · Documents · Witnesses · Experts · Site visits and inspections · IBA
rules on the taking of evidence
Introduction
Blackstone remarked that “experience will abundantly show, that above a hundred of
our lawsuits arise from disputed facts, for one where the law is doubted of.”1 More
than two centuries later that observation still rings true for most litigators, including
those in the business of trying international investment disputes. While international
investment law has grown considerably richer and deeper, and usually provides the
legal framework for investment disputes, investment arbitration cases often turn on
disputed facts. “This is essentially a case on the facts,” the Tokios Tokelés tribunal
said emblematically before proceeding to make a “choice between two fundamen-
tally different narratives.”2 Collecting, presenting, and assessing evidence is thus at
the very core of investor-State arbitration.
While investment treaties are normally silent on most procedural and evidentiary
matters, a core set of principles and rules feature in most investment arbitrations.
Investor-State arbitrations are typically conducted under the International Centre for
Settlement of Investment Disputes (“ICSID”) Convention and Rules or the United
Nations Commission on International Trade Law (“UNCITRAL”)’s ad hoc Arbitra-
tion Rules (the “UNCITRAL Rules”). Moreover, parties often agree to apply, and
tribunals in many instances look for guidance to, the International Bar Association’s
Rules on the Taking of Evidence in International Arbitration (“IBA Rules”).
For the most part, the norms regarding evidence contained in these instruments,
as well as the general practice of investment tribunals, tend not to differ substantially
from those encountered in international commercial arbitration. In its 2010 revision
to the IBA Rules, the IBA Arbitration Committee even deleted the word “Commer-
cial” from the document’s title to reflect its broad adoption in investor-State disputes.
But the distinct, asymmetric nature of investor-State disputes can also pose novel
1
3 William Blackstone, Commentaries on the Laws of England 330 (1765–69), [https://avalon.law.
yale.edu/18th_century/blackstone_bk3ch22.asp].
2
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Award, 26 July 2007, } 31.
52 Evidence in International Investment Arbitration 1329
challenges in certain evidentiary matters. Norms that may function well in commer-
cial disputes may need to be evaluated differently in the investor-State context.
Against the backdrop of this general framework about evidence taking, and the
idiosyncrasies of investor-State disputes, in this chapter we attempt to give an overview
of some recurring evidentiary themes that crop up in investment arbitrations. The
chapter proceeds in five parts. Part I addresses some preliminary notions about the
law of evidence, as it has been developed and applied by international investment
tribunals – including admissibility of evidence, burden of proof, standards of evidence,
and adverse inferences. Parts II, III, IV, and V then address practical issues affecting the
different types of evidence that may be adduced in investor-State disputes. These are,
respectively, evidence in the form of: documents; fact witness testimony; expert testi-
mony; and other, less common, types of evidence, most notably inspections and site
visits. At the end, we offer some concluding thoughts.
Preliminary Notions
Admissibility of Evidence
Liberal Admissibility Is the Norm

It is widely said that international tribunals – unlike at least some national courts,
particularly those in common law jurisdictions – are not bound by strict rules that
restrict the form and admissibility of evidence.3 As one commentator notes,
contrasting this approach to that of Anglo-American law, “[i]n international practice,
as in the civil law, the burden is shifted; evidence offered within time limits
established by the tribunal will normally be admitted unless the individual challeng-
ing its acceptance can show specific grounds for nonadmissibility.”4
The common explanation for that approach focuses on the identity of the fact-
finder. Detailed rules of evidence, which aim to determine what may or may not be
taken into account by the trier of fact, were developed, by and large, for lay jury trials
3
See, e.g., Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final
Award, 27 June 2000, } 56 (“Rule (K) – International tribunals are not bound to adhere to strict judicial
rules of evidence.”) (citations omitted) [hereinafter AAPL]; Middle East Cement Shipping and
Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002, }
94 (“International tribunals are not bound to adhere to strict judicial rules of evidence. As a general
principle the probative force of the evidence presented is for the Tribunal to determine.”); The
Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award, 6 May 2013, } 181 (“[I]n
international arbitration – including investment arbitration – the rules of evidence are neither rigid nor
technical.”) [hereinafter Rompetrol Award]. See also Nigel Blackaby & Constantine Partasides,
Redfern & Hunter on International Arbitration 377 (6 ed. 2015) [hereinafter Redfern & Hunter].
4
Reisman WM, Freedman EE (1982) The plaintiff’s dilemma: illegally obtained evidence and
admissibility in international adjudication. Am J Int L 76: 737, 739 [hereinafter Reisman &
Freedman, The Plaintiff’s Dilemma].
in common-law jurisdictions.5 Because tribunals are normally composed of experi-

enced lawyers, the rationale for adhering to those rules is typically considered
inapposite in investor-State arbitration. While empirical studies on the subject are
scarce, it is largely assumed – rightly or wrongly – that arbitrators can assess the
evidence more objectively and without the passion or prejudice assumed to be a risk
with juries. International tribunals thus enjoy wide latitude to admit evidence and
determine its probative value.
Rule 34(1) of ICSID’s Rules of Procedure for Arbitration Proceedings (the
“ICSID Arbitration Rules”), which codifies this approach, provides that “[t]he
Tribunal shall be the judge of the admissibility of any evidence adduced and of its
probative value.”6 The UNCITRAL Rules and the IBA Rules contain similar pro-
visions.7 In short, “[t]he traditional practice of international tribunals is . . . to admit
virtually any evidence, subject to evaluation of its relevance, credibility, and
weight.”8 Consistent with that approach, a tribunal enjoys “full discretion in
assessing the probative value of the evidence before it.”9 As one investor-State
tribunal summed up, “an ICSID tribunal is endowed with the independent power
to determine, within the context provided by the circumstances of the dispute before
it, whether particular evidence or kinds of evidence should be admitted or excluded,
what weight (if any) should be given to particular items of evidence so admitted,
whether it would like to see further evidence of any particular kind on any issue
arising in the case, and so on and so forth.”10 Accordingly, ICSID ad hoc annulment
committees will normally not reevaluate a tribunal’s assessment of the evidence.11
5
See Langbein JH (1996) Historical foundations of the law of evidence: a view from the Ryder
sources. Colum L Rev 96: 1168, 1172 (“The essential attribute of the modern law of evidence is the
effort to exclude probative but problematic oral testimony, such as hearsay, for fear of the jurors’
inability to evaluate the information properly.”) [hereinafter Langbein, Historical Foundations].
6
ICSID Rules of Procedure for Arbitration Proceedings Arbitration Rules, Rule 34(1) [hereinafter
ICSID Arbitration Rules].
7
UNCITRAL Rules, Article 27(4) (“The arbitral tribunal shall determine the admissibility, rele-
vance, materiality and weight of the evidence offered.”); IBA Rules, Article 9.1 (“The Arbitral
Tribunal shall determine the admissibility, relevance, materiality and weight of evidence.”).
8
Brower CN (1994) Evidence before international tribunals: the need for some standard rules. Int L
28:47, 48 [hereinafter Brower, Standard Rules].
9
See, e.g., Saipem S.p.A. v. People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Award,
30 June 2009, } 112 [hereinafter Saipem Award]; ConocoPhillips Petrozuata B.V., ConocoPhillips
Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID
Case No. ARB/07/30, Award, 8 March 2019, } 264 (“The Tribunal shall be the judge of the
admissibility of any evidence adduced and of its probative value. The Tribunal is thus granted full
discretion in these matters. Such discretion applies also in respect of the weight to be assigned to the
evidence proffered in respect of calculation of damages.”) [hereinafter ConocoPhillips Award];
Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB/02/7, Award, 7 July
2004, } 62 (“[I]t is thus for this Tribunal to consider and analyse the totality of the evidence and
determine whether it leads to the conclusion that Claimant has discharged his burden of proof.”).
10
Rompetrol Award, supra note 3, } 181.
11
See, e.g., Duke Energy International Peru Investments No. 1 Ltd. v. Republic of Peru, ICSID Case
No. ARB/03/28, Decision on Annulment, 1 March 2011, } 214 (“By ICSID Arbitration Rule 34,
There are nevertheless limitations to the principle of free admissibility, including

with respect to untimely-offered evidence, evidence of settlement negotiations, and
improperly obtained evidence. We turn to these issues next.
Limited Exclusionary Rules
Untimely-Offered Evidence
The first limitation concerns what may be termed “good judicial order.”12 Specifi-
cally, tribunals often will not admit untimely evidence – such as evidence adduced
after the record of the proceeding has been closed or otherwise not in accord with the
tribunal’s procedural orders.13 Tribunals nevertheless occasionally admit untimely
evidence where the benefits of the new evidence outweigh due process concerns and
risk of prejudice to the opposing party,14 and where the opposing party has notice
and an opportunity to comment on that evidence.15
Evidence of Settlement Negotiations

It is often said that documents prepared, as well as assertions and offers made, in the
context of conciliation, mediation, or settlement negotiations are inadmissible as
evidence in subsequent legal proceedings.16 The International Court of Justice
(“ICJ”) recognized this principle – which the Permanent Court of International
Justice had set out in the Chorzów Factory case – in the Frontier Dispute (Burkina
Faso/Republic of Mali) case, noting “the firmly established rule that [t]he court
‘[t]he Tribunal shall be the judge of the admissibility of any evidence adduced and of its probative
value.’ It would not be proper for an annulment committee to re-evaluate that evidence, and nor is it
in a position to do so.”).
12
Reisman & Freedman, The Plaintiff’s Dilemma, supra note 4, at 741.
13
Id. at 741 (noting that “evidence purposely withheld for late submission, with the intent of gaining
an unfair advantage, has on occasion been rejected”). In Oostergetel v Slovak Republic, for instance,
the tribunal rejected the claimant’s untimely request for tribunal-appointed experts, which was
submitted only in post-hearing briefs, despite ample opportunity to adduce evidence concerning
damages throughout the arbitration. See Jan Oostergetel and Theodora Laurentius v. The Slovak
Republic, UNCITRAL, Final Award, 23 April 2012, }} 171–72 [hereinafter, Oostergetel Award].
14
Cascade Investments NV v. Republic of Turkey, ICSID Case No. ARB/18/4, Procedural Order No.
7, 26 March 2020, } 28 (“In considering this issue, the Tribunal would need to consider the
particular juncture actually at issue, based on when the documents became available, weighing the
benefits of admitting the allegedly material information against any prejudice that might result and
taking into account any mitigation steps that might be achievable.”) [hereinafter Cascade Invest-
ments PO7].
15
This is consistent with the overriding principle, set out in the IBA Rules, that “each Party shall act
in good faith and be entitled to know, reasonably in advance of any Evidentiary Hearing or any fact
or merits determination, the evidence on which the other Parties rely.” IBA Rules, Preamble, para. 3.
16
Berger KP (2008) The settlement privilege – a general principle of international ADR-law. Arbitr
Int 24:265, 272 [hereinafter, Berger, The Settlement Privilege]; Mosk RM, Ginsburg T (2001)
Evidentiary privileges in international arbitration. Int Comp L Q 50:345, 362; Sheppard A (2016)
The approach of investment treaty tribunals to evidentiary privileges. ICSID Rev 31(3):670, 681–
682 [hereinafter, Sheppard, Privileges].
cannot take into account declarations, admissions or proposals which the Parties may
have made during direct negotiations between themselves, when such negotiations
have not led to a complete agreement.”17 In line with that position, the IBA Rules
provide that a tribunal “may take into account . . . any need to protect the confiden-
tiality of a Document created or statement or oral communication made in connec-
tion with and for the purpose of settlement negotiations[.]”18
Specifically, the ICJ and investment tribunals will typically not admit evidence of
the content of the parties’ settlement negotiations, including statements, admissions,
or offers made in the course of those negotiations. In Merryl & Ring v. Canada, the
tribunal articulated the rule in the following terms:
All statements made in connection with or during the consultations are confidential and
privileged settlement discussions. All such statements are made without prejudice to either
disputing party’s legal position, and shall be inadmissible for any purpose in any legal
proceeding. Any information disclosed by or on behalf of a disputing party shall be
confidential and shall not constitute a waiver of any privilege. Any files or notes created
or maintained by the disputing parties are solely for their own use and shall be destroyed
following the termination of the consultations.19
As another tribunal has clarified, the privilege can extend also to internal commu-
nications discussing the negotiations or settlement offers.20
But what exactly constitutes a protected settlement communication is often less
clear in practice. For instance, even if made outside the context of formal negotia-
tions or an agreed framework for settlement discussions, should communications
that reflect a genuine attempt to resolve the dispute amicably warrant exclusion from
evidence? In contrast, even if formally labeled “without prejudice,” do communica-
tions that were in reality sent for other purposes still stake a valid claim to protection?
Can a party waive the privilege over some of its own communications and, if so,
when? Although some domestic law authorities may deal with these issues, the
answers to these questions under international law are less certain.
Investment tribunals must thus make determinations on a case-by-case basis,
guided by the parties’ expectations and the underlying policy considerations that
justify protection of settlement communications. As a matter of policy, the exclu-
sionary rule covering settlement discussions is justified by the strong interest in
17
Frontier Dispute, Judgment, I.C.J. Reports 1986, p. 554, para. 147 (quoting Factory at Chorzów,
Merits, P.C.I.J., Series A, No. 17, p. 51).
18
IBA Rules, Article 9(3)(b).
19
Merrill & Ring Forestry L.P. v. The Government of Canada, ICSID Case No. UNCT/07/1,
Amended Confidentiality Order, 18 February 2008, } 22.
20
Standard Chartered Bank (Hong Kong) Limited v. United Republic of Tanzania, ICSID Case No.
ARB/15/41, Procedural Order No. 6b, Tribunal’s Decisions on the Claimant’s Application dated 17
November 2017 Relating to the Respondent’s Disclosure Obligations Under PO 5b, 15 January
2018, } 32 [hereinafter Standard Chartered Procedural Order].
allowing parties to discuss their positions candidly to promote the amicable resolu-
tion of disputes.21 The tribunal in Standard Chartered Bank v. Tanzania explicitly
acknowledged that public policy in upholding a privilege claim over documents
related to genuine attempts to resolve the matters in difference.22
A party may wish to make a settlement offer that is without prejudice save as to
costs. That device, which originated with the English-law practice of so-called
Calderbank offers, is gaining more widespread adoption in international arbitration.
The idea underlying Calderbank offers is that a party that rejects a settlement offer
but ends up in a worse position at the end of a legal proceeding (e.g., it is ordered to
pay a greater amount than that proposed in the settlement offer) should be regarded
as having caused the subsequent costs of litigation.23 Thus, where such an offer is
made, for the limited purpose of allocating costs, a tribunal will be entitled to
consider the content of what would otherwise be a protected settlement
communication.24
Moreover, regardless of the general exclusionary rule, tribunals may arguably
take note of the fact that negotiations took place, especially if the relevant treaty
requires such negotiations as a pre-condition to arbitration.25 The extent to which a
claimant may introduce such evidence is debatable. Yet, in particular if the respon-
dent raises non-compliance with alleged mandatory prior steps as an objection to
jurisdiction or admissibility of the claims, there is a strong case for allowing the
claimant to adduce at least some evidence of settlement communications to rebut
those allegations.
Materials generated in the course of the infrequently used ICSID conciliation
proceeding are also subject to the exclusionary rule. The ICSID Convention provides
that, absent agreement, parties to ICSID conciliation may not use the conciliation
commission’s report or anything said or done during the ICSID conciliation in any
other legal proceeding.26 This rule “is designed to ensure that disclosures and
admissions made by the parties in conciliation proceedings will not be used in
21
Berger, The Settlement Privilege, supra note 16, 268–9.
22
Standard Chartered Procedural Order, supra note 20, } 32 (“[T]he ‘Without Prejudice’ privilege
is borne out of the public policy of encouraging disputing parties to engage in good faith settlement
to avoid contentious proceedings.”).
23
See Calderbank v Calderbank [1975] 3 All ER 333 (EWCA).
24
See generally Int’l Chamber Com., Decisions On Costs In International Arbitration 18 (2015)
(“[I]n certain circumstances, the tribunal may take into account the existence of unsuccessful
negotiations and/or unaccepted offers between the parties when allocating costs. There is no general
provision in international arbitration for the use of settlement offers to reduce costs, but, if
appropriate, it could be considered at the first case management meeting.”).
25
By one account, approximately 25% of investment treaties provide for some form of mandatory or
voluntary consultations or negotiations between the claimant-investor and the respondent-State. See
UNCTAD, Investment Policy Hub, International Investment Agreements Navigator, available at
https://investmentpolicy.unctad.org/international-investment-agreements/iia-mapping
26
ICSID Convention, Article 35.
subsequent arbitration . . . or court proceedings.”27 Accordingly, ICSID will not

publish the conciliation commission’s report without the consent of the parties.28
Improperly Obtained Evidence

While the ICJ has not affirmatively adopted a bright-line exclusionary rule for
improperly obtained evidence, its case law has signaled to commentators that
evidence obtained through improper methods may be inadmissible as a matter of
international law.29
Investment tribunals have taken a similarly flexible approach, noting that “admis-
sibility of unlawfully obtained evidence is to be evaluated in the light of the
particular circumstances of the case.”30 In doing so, they have invoked the parties’
duty to arbitrate fairly and in good faith and the principle of equality between the
parties as the bases for the potential exclusion of improperly obtained evidence.31
27
Schreuer CH et al. (2009) The ICSID convention: a commentary, 2nd edn. p 453
28
ICSID Rules of Procedure for Conciliation Proceedings, Rule 33(3).
29
See Corfu Channel case, supra note 66. In Corfu Channel, the United Kingdom had conducted a
mine-sweeping operation in Albanian waters to collect evidence in support of its claim for
reparation of damages caused to British vessels damaged by Albanian war mines. While the ICJ
did not exclude the evidence, despite having found that the United Kingdom obtained it in violation
of international law, commentators consider that the judgment affirms a general norm against the
admissibility of illegally obtained evidence in international proceedings. See, e.g., Reisman &
Freedman, The Plaintiff’s Dilemma, supra note 4, at 747 (noting that “[t]he phenomenon of a
judgment that affirms a norm, while allowing the illegal fruits of its violation to be enjoyed by the
violator, is not unusual”). But see James Devaney, Evidence: International Court of Justice (ICJ), in
Max Planck Encyclopedias of International Law, para. 11 (2008) (referencing the Corfu Channel
Case and opining that “the ICJ has never made such a determination and in reality the more likely
outcome is that the information itself would be admitted and subsequently reviewed at the fact-
assessment state, and (little) weight accorded to it owing to its provenance”) [hereinafter Devaney,
Evidence (ICJ)].
30
EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Procedural Order No. 3, dated
29 August 2008, } 38 [hereinafter, EDF Procedural Order].
31
See, e.g., OOO Manolium Processing v. The Republic of Belarus, PCA Case No. 2018–06,
Decision on Claimant’s Interim Measures Request, 7 December 2018, } 159 (“Parties in an
investment arbitration have a duty to not obtain evidence through improper means. This is derived
from the obligation to arbitrate fairly and in good faith, and the principle of equality of arms implicit
in all international arbitrations between a State party and a foreign investor.”); Methanex Corpora-
tion v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and
Merits, 3 August 2005, Part II, Chapter I, } 54 (“[T]he Disputing Parties each owed in this
arbitration a general legal duty to the other and to the Tribunal to conduct themselves in good
faith during these arbitration proceedings and to respect the equality of arms between them[.]”)
[hereinafter Methanex Award]; Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case
No. ARB/06/8, Decision on Preliminary Issues, 23 June 2008, } 78 (“The Tribunal would express
the principle as being that parties have an obligation to arbitrate fairly and in good faith and that an
arbitral tribunal has the inherent jurisdiction to ensure that this obligation is complied with; this
principle applies in all arbitration, including investment arbitration, and to all parties, including
States (even in the exercise of their sovereign powers.”) [hereinafter Libananco Decision]; Glencore
International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6,
Award, 27 August 2019, } 89 (“The Tribunal found that the obligation to arbitrate fairly and in good
There has been little discussion as to whether, and if so in what specific conditions,
tribunals should exercise that power to police the evidence adduced by the parties.
Two oft-cited cases are illustrative of tribunals’ tendency to exclude evidence
obtained by investors through improper means. In Methanex v. United States, the
tribunal excluded documents that the claimant had obtained by rummaging through
dumpsters located on private property.32 The tribunal found Methanex’s conduct to
be “wholly inappropriate,” noting that certain documents were “obtained by succes-
sive and multiple acts of trespass committed by Methanex over five and a half
months in order to obtain an unfair advantage over the USA as a Disputing Party to
these pending arbitration proceedings.”33 The holding of that decision leaves unan-
swered the question of whether illegality is a necessary requirement for the exclusion
of evidence. Would the tribunal should still have excluded the evidence – on the
basis that the claimant had obtained an “unfair advantage” over the respondent – if
the documents in question had been obtained without acts of trespass per se (e.g., if
the dumpsters were located in a public space, rather than private property)?
In EDF v. Romania, the tribunal excluded a truncated audio recording purporting
to show that a government official had requested a corrupt payment from the
claimant’s chairman because it had been illegally obtained and also likely manipu-
lated.34 While the tribunal observed that “[t]he lack of authenticity of the [evidence]
constitutes by itself sufficient ground for rejecting [it],”35 it also found the evidence
to have been “obtained illegally according to Romanian law.”36 Specifically, the
tribunal noted that “[a]dmitting the evidence represented by the audio recording of
the conversation held in [the government official’s] home, without her consent in
breach of her right to privacy, would be contrary to the principles of good faith and
fair dealing required in international arbitration.”37 On those bases, the tribunal
refused to admit the recording.
EDF also prompts the question of whether the provenance of the evidence must
be traced back to a technically illegal act to warrant exclusion of that evidence. If so,
a related question of applicable law arises. Should illegality be assessed by reference
to the law of the jurisdiction where the acts took place, the law of the seat of
arbitration (where, unlike the EDF dispute, which arose under the ICSID Conven-
tion, there is a defined national seat), or some other law? While the EDF tribunal held
that the evidence had been illegally obtained according to Romanian law (i.e., the
law of the place where the acts took place), the reference to “the principles of good
faith and the principle of equality of arms precluded Respondent from coercing evidence from
Claimants through its administrative powers, and to marshal it thereafter in an investment arbitra-
tion.”) [hereinafter Glencore Award].
32
Methanex Award, supra note 31.
33
Id., Part II, Chapter I, } 59.
34
EDF Procedural Order, supra note 30.
35
Id., } 29.
36
Id., } 37.
37
Id., } 38.
faith and fair dealing required in international arbitration” suggests that tribunals
may be open to considering these issues from a “transnational” perspective.
Tribunals have also excluded evidence where the respondent State used – or, on
one view, abused – its prosecutorial powers to obtain that evidence. The tribunals in
Libananco v. Turkey38 and Glencore v. Colombia,39 for instance, faced situations in
which the respondent State had gained access to documents and communications via
domestic criminal investigations and administrative proceedings, respectively.
While both tribunals recognized that States are empowered to investigate conduct
taking place in their own territory, they also found that the duty to arbitrate fairly and
in good faith, coupled with the principle of equality of arms, required the exclusion
of such evidence.40 Those decisions suggest that tribunals, perhaps alive to the
asymmetry between private claimants and sovereign respondents, may be more
willing to exclude evidence obtained by a State through mechanisms that might be
permissible in that State for other purposes such as law enforcement – even if that
evidence was not, as in Methanex and EDF, illegally obtained.
Burden of Proof
It is up to each of the parties to prove its respective case. The taking of evidence in
investor-State arbitration is, by and large, adversarial, rather than inquisitorial. Tri-
bunals in most instances do not go beyond the evidence placed before them and do
not investigate facts of their own motion.41
In that context, rules on the burden of proof play a dual rule: they instruct the
parties’ procedural conduct and function as a rule of decision where certain facts are
38
Libananco Decision, supra note 31, }} 72–75.
39
Glencore Award, supra note 31, } 25.
40
Libananco Decision, supra note 31, } 79 (“[E]ven if Turkey can be excused for not previously
having taken steps to ensure the strict separation of its criminal investigations, on the one hand, from
the prosecution of this arbitration, on the other, that will not be sufficient for the future. The right
and duty to investigate crime, accepted by the Tribunal above, cannot mean that the investigative
power may be exercised without regard to other rights and duties, or that, by starting a criminal
investigation, a State may baulk an ICSID arbitration.”); Glencore Award, supra note 31, }} 89,
647–49.
41
Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A v. Argentine
Republic, ICSID Case No. ARB/03/19, Decision on Argentina’s Application for Annulment, 5 May
2017, } 260 (“[I]t cannot be for the Tribunal to investigate evidence not placed before it by the
Parties. In line with the generally accepted principle of ‘who asserts must prove,” which is reflected
in several provisions of the ICSID Convention, it is for the parties to present their case, including
evidence to prove what they assert.”). But see Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID
Case No. ARB/10/3, Award, 4 October 2013, }} 239–41 (considering it the tribunal’s “duty to
inquire about the reasons for . . . payment” of significant sums for lobbying activities to certain
“consultants” in circumstances that “raised suspicions of corruption”–“facts . . . not alleged by the
Respondent [that] emerged during the Hearing in the course of the examination of the Claimant’s
principal witness”) [hereinafter, Metal-Tech Award].
not proven.42 Save for agreed facts and notorious facts subject to arbitral notice, a
party who bears the burden of proof on a given issue must adduce evidence to prove
the factual allegations necessary to support a favorable decision with respect to that
issue.43 If a specific factual allegation is not established, the tribunal may decide
issues that are predicated on that allegation against the party who had the attendant
burden of proof but failed to discharge it.44 Even if the opposing party fails to appear,
the tribunal must be persuaded that the relevant party discharged its burden of proof
in order to allow a claim.45 This accords with the practice of international courts and
tribunals more generally.46
Investment tribunals typically endorse the rule placing the burden of proof with
respect to a specific factual allegation on the party making that allegation.47 While
the Latin aphorism by which the rule is often referred – actori incumbit onus
probandi – might at first glance suggest that the burden falls always on the claimant
(the actor), that notion is incorrect. As the ICJ has explained, “it is the litigant seeking to
42
See, e.g., ConocoPhillips Award, supra note 9, } 271 (“One is to determine the party required to
submit to the Tribunal evidence relevant for the resolution of the dispute. The other is to identify the
party bearing the burden of losing on a submission when the requested evidence has not been
brought before this Tribunal. In many cases, but not in all cases, both components identify one and
the same party.”). Accord Amaral GR (2018) Burden of proof and adverse inferences in interna-
tional arbitration: proposal for an inference chart. J Int Arbitr 35(1):1, 3 [hereinafter Amaral,
Adverse Inferences]; Carreteiro M (2016) Burden and standard of proof in international arbitration:
proposed guidelines for promoting predictability. Rev Bras Arbitr 49: 82, 84–85.
43
Redfern & Hunter, supra note 3, at 378.
44
See, e.g., Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal Lda. v. Bolivarian
Republic of Venezuela II, ICSID Case No. ARB/12/23, Decision on Annulment, 28 December 2018,
} 94 (noting that the rule on burden of proof “provides an instrument to judges and arbitrators that
allows them to ascertain or reject a claim in situations of non liquet”) [hereinafter, Tenaris
Annulment Decision]. See also Cheng B (1953) General principles of law as applied by interna-
tional courts and tribunals. p 327 [hereinafter, Bin Cheng, General Principles].
45
See, e.g., Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan, SCC Case No. 064/2008,
Final Award, 8 June 2010 (despite the fact that the respondent-State failed to appear in the
proceeding, finding that the claimant-investor failed to prove damages arising out of the respon-
dent-State’s treaty breaches and thus denying him any recovery).
46
Article 53(2) of the Statute of the International Court of Justice is instructive in this respect. It
provides that, before ruling against a non-appearing party, “[t]he Court must . . . satisfy itself, not
only that it has jurisdiction . . . but also that the claim is well founded in fact and law.”
47
See, e.g., Saipem Award, supra note 9, } 113 (“It is a well-established rule in international
adjudication that the burden of proof lies with the party alleging a fact, whether it is the claimant
or the respondent.”); Churchill Mining and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID
Case No. ARB/12/14 and 12/40, Award, 6 December 2016, } 238 (“It is a well-established rule in
international law that each Party bears the burden of proving the facts which it alleges (actori
incumbit onus probandi).”) [hereinafter, Churchill Mining Award]; Georg Gavrilovic and
Gavrilovic d.o.o. v. Republic of Croatia, ICSID Case No. ARB/12/39, Award, 26 July 2018, }
230 (“[T]he party making an allegation bears the burden of proving it.”); Oostergetel Award, supra
note 13, } 146 (citing UNCITRAL Rules and noting that “[u]nder Swiss international arbitration
law, this principle . . . is considered part of procedural ordre public”).
establish a fact who bears the burden of proving it.”48 In practice, the whoever-asserts-
must-prove rule usually means that claimants are required to prove facts supporting their
claims or applications49 (including normally as to threshold issues of jurisdiction and
admissibility),50 while respondents carry the burden of proving facts supporting any
objections, defenses, or counterclaims.51 For example, a claimant-investor must show
that it made a qualifying investment under the treaty.52 But it is then incumbent on a
respondent-State alleging that the investment was somehow tainted by irregularities –
for instance, that a license upon which the investor relies was forged and obtained
through deception – to prove that specific allegation.53
Investor-State tribunals have typically rejected the use of other criteria when
allocating the burden of proof, including, for instance, placing that burden on the
party that is in a better position to adduce evidence.54
48
Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of
America), Jurisdiction and Admissibility, Judgment, I.C.J. Reports 1984, p. 392, para. 101; Article
27(1) of the UNCITRAL Rules is in accord, providing that “[e]ach party shall have the burden of
proving the facts relied on to support its claim or defence.”
49
See, e.g., Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of
Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, } 160
(applying that rule to dismiss the applicant-State’s request that the award be annulled on the basis
that the tribunal committed a serious departure from a fundamental procedural rule).
50
See, e.g., Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016–13, Decision
on Jurisdiction and Admissibility, 30 January 2018, } 84 [hereinafter Resolute Forest Decision on
Jurisdiction]; but see Itisaluna Iraq LLC, Munir Sukhtian International Investment LLC, VTEL
Holdings Ltd., VTEL Middle East and Africa Limited v. Republic of Iraq, ICSID Case No. ARB/17/
10, Award, 3 April 2020, } 151 (“[T]he Tribunal observes that nothing in its analysis turns on any
question of burden or standard of proof. These evidential principles address the responsibility of parties
to establish the evidential case on which they rely, and typically shift between claimant and respondent
to adduce a sufficiency of evidence to establish facts germane to their case. These principles do not
operate in respect of contentions of international law addressed to an international tribunal which, as in
this case, has a responsibility for determining the content and application of international law. Still less
do they operate in respect of legal questions going to the jurisdiction of a tribunal, which a tribunal is
required to address proprio motu, even if not raised by a party.”)..
51
See, e.g., Pac Rim Cayman LLC. v. Republic of El Salvador, ICSID Case No. ARB/09/12,
Decision on Jurisdictional Objections, 1 June 2012, }} 2.11–2.15; Rompetrol Award, supra note
3, } 179 (“[I]f the respondent chooses to put forward fresh allegations of its own in order to counter
or undermine the claimant’s case, then by doing so the respondent takes upon itself the burden of
proving what it has alleged.”).
52
See, e.g., David R. Aven, Samuel D. Aven, Carolyn J. Park, Eric A. Park, Jeffrey S. Shioleno,
Giacomo A. Buscemi, David A. Janney and Roger Raguso v. The Republic of Costa Rica, ICSID
Case No. UNCT/15/3, Final Award, 18 September 2018, } 268 (“Claimants have the burden to
prove the legitimate ownership of their investment.”).
53
Churchill Mining Award, supra note 47, } 238.
54
See, e.g., Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Decision on
the Application for Annulment of the Argentine Republic, 1 September 2009, } 215 (rejecting the
applicant-State’s contention that “there is a general principle of law that the party that is in a better
position to prove a fact bears the burden of proof,” and considering “the general principle in ICSID
proceedings, and in international adjudication generally, to be that ‘who asserts must prove’, and
Where a party has made out a prima facie case, however, a tribunal may
sometimes take account of that party’s difficulty in submitting additional evidence
and of the opposing party’s failure to adduce contrary evidence in deciding a
disputed factual issue.55 According to a classic text, “prima facie evidence has
been defined as evidence which unexplained or uncontradicted, is sufficient to
maintain the proposition affirmed.”56 Some tribunals have described this as a
mechanism that shifts the so-called “evidential burden of proof,” even if the “legal
burden of proof” remains static.57 In simpler, common-sense terms, one tribunal
explained that “[t]he respondent does not . . . bear any ‘burden of proof’ of its own,
but if it fails where necessary to throw sufficient doubt on the claimant’s factual
premises, it runs the risk in turn of losing the arbitration.”58 Along similar lines,
another tribunal cautioned: “too much importance should not be attached to the onus
of proof in international arbitration. In the end, the question is whether one or the
other party has done enough to persuade the tribunal of its case.”59 As a former
president of the Iran-United States Claims Tribunal reportedly stated, in a quote that
that in order to do so, the party which asserts must itself obtain and present the necessary evidence in
order to prove what it asserts.”).
55
See, e.g., Zhinvali Development Ltd. v. Republic of Georgia, ICSID Case No. ARB/00/1, Award,
24 January 2003, } 311 (citing AAPL in support of the propositions that, “[i]n case a party adduces
some evidence which prima facie supports his allegation, the burden of proof shifts to his opponent”
and that “[i] n cases where proof of a fact presents extreme difficulty, a tribunal may thus be satisfied
with less conclusive proof, i.e. prima facie evidence.”). But see Lao Holdings N.V. v. Lao People’s
Democratic Republic (I), ICSID Case No. ARB(AF)/12/6, Decision on the Merits, 10 June 2015, }
11 (noting “the Claimant’s contention that against a sovereign State a Claimant ‘is often unable to
furnish direct proof of facts giving rise to responsibility’ because, as the Claimant argues, such
evidence is often exclusively within the control of the Government,’” while cautioning that “a
Tribunal must be careful not to shift the onus of proof from the Claimant to the Respondent
Government or to bend over backwards to read in inferences against ‘the sovereign State’ that are
simply not justified in the context of the whole case”); Mohammad Ammar Al-Bahloul v. The
Republic of Tajikistan, SCC Case No. 064/2008, Partial Award on Jurisdiction and Liability, 2
September 2009, } 115 (holding that, “[w]hile the Tribunal can understand that currently Claimant
may have no or very limited access to documents in Tajikistan, this does not allow the Tribunal to
make far-reaching assumptions to the detriment of Respondent.”).
56
Bin Cheng, General Principles, supra note 44, at 324.
57
Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/
1, Award, 25 August 2014, }} 8.6–8.10; Eli Lilly and Company v. Government of Canada, ICSID
Case No. UNCT/14/2, Final Award, 16 March 2017, } 109. See also Churchill Mining and Planet
Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40, Decision on
Annulment, 18 March 2019, } 215 (“[I]t is . . . well accepted that placing the initial onus on a party
presenting an application does not obviate the requirement, once it adduces proof of the facts on
which its claims are based, that the opposing party present proof to the contrary, supporting its
denial of the claim.”) [hereinafter Churchill Mining Annulment Decision].
58
Rompetrol Award, supra note 3, } 179.
59
Resolute Forest Decision on Jurisdiction, } 86.
may also apply to investment tribunals, “the burden of proof is that you have to
convince me.”60
Some authorities suggest that a serious misapplication of the rules on burden of
proof may constitute a ground for award annulment in the form of a serious departure
from a fundamental rule of procedure.61 Given how closely intertwined the rules on
burden of proof are with tribunals’ assessment of the evidence, however, annulment
on that ground is unlikely in practice.62 Signaling committees’ reluctance to annul an
award on this ground, the Tenaris annulment committee, while stating that “a
reversal of the burden of proof could well lead to a violation of a fundamental rule
of procedure,” reasoned that “the burden of proof is not part of the minimal standards
and the fundamental rules of procedure.”63
Standards of Evidence
“[A] party having the burden of proof must not only bring evidence in support of his
allegations, but must also convince the Tribunal of their truth, lest they be
disregarded for want, or insufficiency of proof.”64 Whereas burdens of proof allocate
responsibility between the parties as to who must prove certain facts, standards of
evidence establish to what degree of probability a factual allegation must be dem-
onstrated.65 Effective proof may typically take the form of either direct evidence or
60
Brower, Standard Rules, supra note 8, at 52 (citing Jamison M. Selby, Fact-Finding Before the
Iran-United States Claims Tribunal: The View from the Trenches, in Fact-Finding Before Interna-
tional Tribunals: Eleventh Sokol Colloquim 135, 144 (Richard B. Lillich ed. 1992)).
61
See, e.g., Caratube International Oil Company LLP v. Republic of Kazakhstan (I), ICSID Case
No. ARB/08/12, Decision on the Annulment Application of Caratube International Oil Company
LLP, 21 February 2014, } 97 (“A breach of the general principles on burden of proof can also lead to
an infringement of Article 52(1)(d) of the Convention. As the committee in Klockner II stated, ‘a
reversal of the burden of proof could well lead to a violation of a fundamental rule of procedure. It
all depends on the importance, for the decision of the Tribunal, of the subject regarding which the
burden has been reversed.’”). On the facts before it, however, the annulment committee rejected the
applicant’s application for annulment of the award [Hereinafter, the Caratube Annulment
Decision”].
62
See, e.g., Reed L (2012) Confronting complexities in fact-finding and the nature of investor-state
arbitration. Am Soc Int L Proc 106:233, 234 (“A holding in an award based on failure of proof
should be sufficient to withstand an annulment or setting-aside process.”).
63
Tenaris Annulment Decision, supra note 44, }} 93, 96 (citing Caratube Annulment Decision,
supra note 61).
64
Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/
12/11, Decision on Jurisdiction, 1 February 2016, } 219 (citing Bin Cheng, General Principles,
supra note 44, at 329) (“[A] party having the burden of proof must not only bring evidence in
support of his allegations, but must also convince the Tribunal of their truth, lest they be disregarded
for want, or insufficiency, of proof.”).
65
Rompetrol Award, supra note 3, } 178 (“[T]he burden of proof defines which party has to prove
what, in order for its case to prevail; the standard of proof defines how much evidence is needed to
establish either an individual issue or the party’s case as a whole.”).
circumstantial evidence (i.e., inferences),66 provided that the applicable standard of

evidence is met.
By and large, the standard that governs in investment arbitration is a balance of
probabilities, which requires a party to prove that an assertion is simply more likely
than not to be true.67 Tribunals have applied that standard to most questions of fact,
including factual issues relevant to treaty interpretation and consent to jurisdiction.68
Commentators and tribunals are divided as to whether certain assertions of fact
that bear on issues freighted with particular moral significance – like claims of fraud
or bad faith – require proof to a heightened standard. Various tribunals have
explicitly endorsed the view that a “high standard of proof,”69 often described in
66
See Corfu Channel case, Judgment of April 9th, 1949, I.C.J. Reports 1949, p. 4, at 18 (“[T]he
other State, the victim of a breach of international law, is often unable to furnish direct proof of facts
giving rise to responsibility. Such a State should be allowed a more liberal recourse to inferences of
fact and circumstantial evidence. This indirect evidence is admitted in all systems of law, and its use
is recognized by international decisions. It must be regarded as of special weight when it is based on
a series of facts linked together and leading logically to a single conclusion.”). See also Rumeli
Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID
Case No. ARB/05/16, Award, 29 July 2008, } 444 (citing Corfu Channel and noting that “[i]n
general, international tribunals have given full weight to circumstantial evidence”). But see Bayindir
Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29,
Award, 27 August 2009, } 142 (taking note of Corfu Channel but holding that a tribunal has “to
assess whether or not the [circumstantial] evidence produced . . . is sufficient to exclude any
reasonable doubt” and denying to draw the inference sought on the facts before it) [hereinafter
Bayindir Award].
67
See, e.g., Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15,
Award, 28 July 2015, } 177 (“In general, the standard of proof applied in international arbitration is
that a claim must be proven on the ‘balance of probabilities.’”); see also Brower, Standard Rules,
supra note 8, at 49 (“[T]he level of proof is not capable of precise definition and may be safely
assumed to be close to what has been called the ‘balance of probabilities[.]’”).
68
See, e.g., PNG Sustainable Development Program Ltd. v. Independent State of Papua New
Guinea, ICSID Case No. ARB/13/33, Award, 5 May 2015, } 255 (“[T]he issue [of a State’s
submission to ICSID jurisdiction] is . . . to be approached objectively and neutrally, aiming to
ascertain the true intentions of the relevant party (or parties) in a particular instrument. Where
relevant, the standard of proof is generally held to be a preponderance of the evidence or a balance
of probabilities.”).
69
See, e.g., Ioan Micula, Viorel Micula and others v. Romania (II), ICSID Case No. ARB/14/29,
Award, 5 March 2020, } 378 (“[A]llegations of bad faith require a high standard of proof.”); Oded
Besserglik v. Republic of Mozambique, ICSID Case No. ARB(AF)/14/2, Award, 28 October 2019, }
362 (“The standard of proof for a conspiracy involving a component of bad faith is a demanding
one. The same is true for collusion.”); South American Silver Limited (Bermuda) v. The
Plurinational State of Bolivia, PCA Case No. 2013–15, Award, 22 November 2018, } 673
(“Such an allegation requires a high standard of proof as it entails establishing an act of the State
in bad faith or intolerable negligence.”); UAB E energija (Lithuania) v. Republic of Latvia, ICSID
Case No. ARB/12/33, Award of the Tribunal, 22 December 2017, } 541 (“[T]he standard of proof
should be appropriately high considering, first, that as a general matter bona fide conduct must be
presumed in principle.”).
terms of “clear and convincing evidence,”70 is appropriate in those situations. Other

tribunals reject the notion that a different standard applies, but acknowledge that
facts that are inherently less plausible – including actions in bad faith and corruption
– typically require more cogent evidence so as to be deemed established on a balance
of probabilities.71 The English House of Lords aptly exemplified this viewpoint,
stating that “[t]he civil standard of proof always means more likely than not [but]
some things are inherently more likely than others.”72 As Lord Hoffman memorably
put it, “[i]t would need more cogent evidence to satisfy one that the creature seen
walking in Regent’s Park was more likely than not to have been a lioness than to be
satisfied to the same standard of probability that it was an Alsatian.”73
Whether applying a heightened standard or simply treating such allegations as
inherently improbable, tribunals have very infrequently found allegations of corrup-
tion to be established on the record.74 Explanations for this phenomenon may
include claimed difficulty of marshaling evidence of corrupt acts, a possibility that
tribunals may be cautious about making findings of illegality due to the political and
70
See, e.g., Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No.
ARB/13/1, Award, 22 August 2017, } 492(“[T]he seriousness of the accusation of corruption in the
present case, including the fact that it involves officials at the highest level of the Pakistani
Government at the time, requires clear and convincing evidence.”); EDF (Services) Limited v.
Romania, (ICSID Case No. ARB/05/13), Award, 8 October 2009, } 221 (“The seriousness of the
accusation of corruption in the present case, considering that it involves officials at the highest level
of the Romanian Government at the time, demands clear and convincing evidence. There is general
consensus among international tribunals and commentators regarding the need for a high standard
of proof of corruption.”); Fraport AG Frankfurt Airport Services Worldwide v. Republic of the
Philippines (II), ICSID Case No. ARB/11/12, Award, 10 December 2014, } 479 (“[C]onsidering the
difficulty to prove corruption by direct evidence, the same may be circumstantial. However, in view
of the consequences of corruption on the investor’s ability to claim the BIT protection, evidence
must be clear and convincing so as to reasonably make-believe that the facts, as alleged, have
occurred.”); Bayindir Award, supra note 67, } 143 (“The Tribunal further considers that, as argued
by the Respondent, the standard for proving bad faith is a demanding one, in particular if bad faith is
to be established on the basis of circumstantial evidence.”).
71
See, e.g., Rompetrol, supra note 3, } 182 (“[T]he Tribunal, while applying the normal rule of the
‘balance of probabilities’ as the standard appropriate to the generality of the factual issues before it,
will where necessary adopt a more nuanced approach and will decide in each discrete instance
whether an allegation of seriously wrongful conduct by a Romanian state official at either the
administrative or policymaking level has been proved on the basis of the entire body of direct and
indirect evidence before it.”); Churchill Mining Award, supra note 47, } 24 (“[T]he Respondent
carries the burden of proving forgery and fraud, which proof will be measured on a standard of
balance of probabilities or intime conviction taking into account that more persuasive evidence is
required for implausible facts . . . . The Tribunal will assess all the available evidence on record and
weigh it in the context of all relevant circumstances.”).
72
Secretary of State for the Home Department v. Rehman [2001] UKHL 47, at [55].
73
Id.
74
But see World Duty Free Company v. Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4
October 2006 (dismissing the claimant’s claims on the basis of illegality); Metal-Tech Award, supra
note 41 (same).
reputational significance – both for investors and States alike – of such findings, or
simply that the facts did not support the accusation.
Tribunals draw other distinctions as to the degree of proof required on certain
factual issues. For example, although the balance of probabilities standard is said
to apply to damages issues generally,75 tribunals tend to distinguish between the
fact of loss and the precise extent of damages, requiring a lesser degree of certainty
with respect to quantum. Provided that future profitability is proven, tribunals
typically require the claimant to establish the amount of lost profits with only
reasonable certainty.76 Underlying this approach is the view that the inherent
uncertainty attaching to the proof of prospective losses – which necessarily entail
a counterfactual exercise of estimating future cash flows – is attributable to the
wrongdoer, who “should not be permitted to escape liability for compensation as a
direct result of the difficulty or resulting uncertainty for which that wrongdoer is
responsible.”77
75
Khan Resources Inc., Khan Resources B.V. and Cauc Holding Company Ltd. v. the Government of
Mongolia and Monatom Co., Ltd., PCA Case No. 2011–09, Award, 2 March 2015, } 375 (“The
standard of proof required is the balance of probabilities. This, of course, means that damages
cannot be speculative or uncertain. However, scientific certainty is not required and it is widely
acknowledged by investment treaty tribunals and publicists that the assessment of damages is often
a difficult exercise and will usually involve some degree of estimation[.]”).
76
See, e.g., Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case
No. ARB(AF)/11/2, Award, 4 April 2016, } 875(“[O]nce the fact of future profitability is
established and is not essentially of speculative nature, the amount of such profits need not be
proven with the same degree of certainty. In other words, the Claimant must prove that it has been
deprived of profits that would have actually been earned. This requires proving that there is
sufficient certainty that it had engaged or would have engaged in a profitmaking activity but for
the Respondent’s wrongful act, and that such activity would have indeed been profitable.”); Joseph
Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011, } 246 (“[I]t is a
commonly accepted standard for awarding forward looking compensation that damages must not be
speculative or uncertain, but proved with reasonable certainty; the level of certainty is unlikely,
however, to be the same with respect to the conclusion that damages have been caused, and the
precise quantification of such damages. Once causation has been established, and it has been proven
that the in bonis party has indeed suffered a loss, less certainty is required in proof of the actual
amount of damages; for this latter determination Claimant only needs to provide a basis upon which
the Tribunal can, with reasonable confidence, estimate the extent of the loss.”); Tethyan Copper
Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1, Award, 12 July
2019, } 297 (“[T]he standard of proof cannot be such as to exclude a valuation because the Tribunal
is not ‘certain’ that the result it produces is correct in terms of ‘scientifically precise.’ On the other
hand, the Tribunal must be convinced that the valuation is appropriate in that it will produce a
sufficiently reliable result.”).
77
Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Excerpts of
Award, 18 April 2017, } 224.
Adverse Inferences
An unjustified failure to produce documents or to make available witnesses may lead

a tribunal to draw inferences adverse to the recalcitrant party.78 An adverse inference
may be viewed as a “substitute for missing evidence”79 or “gap filler”80 – in the
sense that the inference should substitute for evidence that is lacking with respect to
facts on which the party requesting the inference has the burden of proof.81 Adverse
inferences also create incentives against a party’s refusal to comply with an order to
produce evidence. As an additional disincentive against withholding relevant evi-
dence, tribunals may also take the recalcitrant party’s behavior into account when
allocating costs.82
As the IBA Rules provide in Articles 9.5–9.6:
If a Party fails without satisfactory explanation to produce any Document requested in a

Request to Produce to which it has not objected in due time or fails to produce any Document
ordered to be produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such
document would be adverse to the interests of that Party.
If a Party fails without satisfactory explanation to make available any other relevant
evidence, including testimony, sought by one Party to which the Party to whom the request
was addressed has not objected in due time or fails to make available any evidence, including
testimony, ordered by the Arbitral Tribunal to be produced, the Arbitral Tribunal may infer
that such evidence would be adverse to the interests of that Party.83
The provisions quoted above indicate that a tribunal may draw adverse inferences
where: (i) the party requesting that inference sought the production of a document or
other evidence84; (ii) the tribunal ordered (or the opposing party did not object to) the
production of such document or other evidence; and (iii) the party opposing the
inference failed to produce the document or other evidence in question without a
78
See, e.g., IBA Rules, Article 9.5.
79
Luttrell S (2018) Ten things to consider when seeking adverse inferences in international
arbitration. Under 40 Int Arbitr 40:281, 286–87 [hereinafter Luttrell, Ten Things].
80
Greenberg S, Lautenschlager F (2011) Adverse inferences in international arbitral practice. ICC
Int Court of Arbitr Bull 22(2):43, 46 [hereinafter Greenberg & Lautenschlager, Adverse Inferences].
81
See Luttrell, Ten Things, supra note 79, at 286 (noting that “an adverse inference can only be
requested by the party that bears the burden of proof on the issue to which the missing evidence
relates”).
82
83
IBA Rules, Articles 9.5, 9.6.
84
Luttrell, Ten Things, supra note 79, at 288 (noting that “it is not unusual to see adverse inferences
requested in circumstances where the inference proponent has not earlier sought the evidence in
question”). As that author notes, the problem is particularly frequent with respect to witness
testimony, even though most arbitration laws and rules empower tribunals to direct the parties to
produce witnesses for examination. Id. at 289.
valid reason for doing so. The IBA Rules do not expand, however, on the circum-
stances in which tribunals should draw adverse inferences when those conditions are
met. Nor do they offer any guidance with respect to the often crucial question of
determining what inference is to be drawn from the absence of evidence.
According to one study,85 the applicable test – referred to, after that study’s
author, as the “Sharpe test” – comprises five factors:
• The party seeking the inference must produce all evidence available to it corrob-
orating the inference sought;86
• The party against whom the inference is sought must have access to the evidence
(unless the inference is sought on the basis that the requested party spoliated
evidence);
• The inference sought must be reasonable, consistent with the other evidence in
the record, and logically related to the evidence withheld;87
• The party seeking the inference must produce prima facie evidence; and
• The party against whom the inference is sought must be on notice that a failure to
produce evidence may give rise to an adverse inference.
Many of these elements are also present in the practice of U.S. and English
courts.88
Adverse inferences are not frequently granted in practice.89 The reasons for
tribunals’ reluctance in this respect are unclear. Perhaps the inferences requested
85
See generally Jeremy Sharpe, Drawing Adverse Inferences from the Non-Production of Evidence,
22(4) Arb. Int’l 549 (2006) [hereinafter, Sharpe, Adverse Inferences]. Accord Amaral, Adverse
Inferences, supra note 42 (endorsing the so-called “Sharpe Test”); Luttrell, Ten Things, supra note
79, at 282–83 (same).
86
See, e.g., Conocophillips Petrozuata B.V., Conocophillips Hamaca B.V. and Conocophillips Gulf
of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Interim Decision,
17 January 2017, }70 (reasoning that where “both Parties failed to provide any evidence . . . no
adverse inference can be attributed to any of them for such reason”).
87
See Bin Cheng, General Principles, supra note 44, at 325 (“The inference in every case must,
however, be one which can reasonably be drawn.”).
88
See, e.g., Thai Lao Lignite (Thailand) Co. v. Gov’t of Lao People’s Democratic Republic, No. 10
CIV. 5256 KMW DCF, 2013 WL 3970823, at *6 (S.D.N.Y. Aug. 2, 2013) (noting that “the party
seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact
could infer that the . . . unavailable evidence would have been of the nature alleged,” and, upon
finding that the petitioners had failed to do so, rejecting a request for adverse inferences with respect
to the relationship between the respondent and a government instrumentality in the context of award
enforcement) (internal quotation marks omitted); Luttrell, Ten Things, supra note 79, at 284 (citing
Wiszniewski v Central Manchester Authority [1998] 1 Lloyd’s Rep (Med) 223).
89
See Polkinghorne M, Rosenberg C (2015) The adverse inference in ICSID practice. ICSID Rev–
For Inv L J 30(3):741, 751; see also Devaney, Evidence (ICJ), supra note 29, para. 34 (“[I]n practice
the ICJ has never explicitly drawn adverse inferences from any refusal to comply with requests for
information made under Article 49 [of the ICJ Statute].”). But see Metal-Tech Award, supra note 41,
} 265 (drawing inference that no legitimate services were rendered where claimant failed to produce
documents or testimony evidencing the purpose of services performed by so-called consultants);
have not been justified or perhaps tribunals perceive an increased risk of award
annulment if they rely on adverse inferences. Some commentators have speculated
that, even if tribunals do not formally draw adverse inferences, in practice they may
tend to reach the same outcome through different reasoning.90
Even when a tribunal is seemingly prepared to draw an adverse inference, that
inference by itself may be insufficient to support a decision in favor of the requesting
party on the ultimate issue at stake. OPIC Karimum Corp. v. Venezuela is illustra-
tive.91 In that case, the parties disagreed over whether the Venezuelan Investment
Law provided consent to ICSID jurisdiction. Having found the text of the relevant
provision to be ambiguous,92 the Tribunal looked to extrinsic evidence to determine
whether Venezuela intended to give the required consent. Venezuela had failed to
produce witness testimony rebutting the account by one of claimant’s witnesses of
government processes leading up to the enactment of the law, in light of which the
tribunal remarked that “it might be entitled to infer from the absence of such rebuttal
evidence . . . that the version of events offered by [the claimant] was not contradicted
by witness evidence available to [Venezuela].”93 The Tribunal also stated that “it
might draw certain inferences from [Venezuela’s] failure to produce requested
documents . . . that the requested contemporaneous documents that relate to the
preparation of the investment law . . . do not assist the Respondent in support of its
arguments in these proceedings.”94 The majority of the tribunal nevertheless
dismissed the claims for lack of jurisdiction, finding that “such inferences fall well
short of the direct evidence that would be needed to establish intent in the face of the
ambiguities of the Investment Law.”95
The decision on whether or not to draw adverse inferences is highly fact-specific, and
tribunals accordingly enjoy significant latitude in this respect. Courts have been reluctant
to set aside awards that drew adverse inferences, reasoning that such findings of fact are
entitled to deference.96 Similarly, in dismissing a tribunal’s purported failure to draw an
adverse inference as a ground for award annulment, one ad hoc committee held that
“while adverse inferences are tools available for tribunals to deter parties from refusing to
comply with their orders about the production of evidence, nothing requires that a
Europe Cement Investment & Trade S.A. v. Republic of Turkey, Award, 13 August 2009, }} 163–64
(drawing inference that claim based on bearer share certificates was fraudulent where claimant
failed to produce originals of the share agreements or the share certificates themselves, despite being
requested to do so).
90
See Greenberg & Lautenschlager, Adverse Inferences, supra note 80, at 44 (noting that, “in an
attempt to be pragmatic, they quite often skirt around the adverse inference contention, preferring to
tread safely and rely on other evidence”).
91
OPIC Karimum Corporation v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/
14, Award, 28 May 2013.
92
Id. } 105.
93
Id. } 125.
94
Id. } 145.
95
Id. } 146.
96
See, e.g., United Mexican States v Marvin Roy Feldman Karpa, 74 OR 3d 180 (2005) (refusing
application to set aside Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No.
ARB(AF)/99/1, Award, 16 December 2002).
tribunal grant such inferences.”97 The decision not to draw an adverse inference, the
committee concluded, “was within [the tribunal’s] discretion.”98
Documents
Documents Generally
Although parties may resort to a variety of methods to adduce evidence in investor-State

proceedings, contemporaneous documents are viewed by some as the “best evidence” in
relation to issues of fact.99 In particular, in most instances, documents prepared in the
ordinary course of business, when litigation was not yet contemplated, are considered as
being more reliable than positions taken once a dispute has already arisen.
Contemporaneous written evidence may play an even bigger role in investor-
State disputes than in commercial arbitration. The parties’ motivation for entering
into a contract and the reasons underlying a particular course of action said to be in
breach of a contractual obligation may often have little bearing on the outcome of a
contractual dispute. In contrast, many investor-State disputes require the investor to
adduce evidence with respect to investment decisions made, and expectations
formed, many years before a legal dispute arose. Conversely, the underlying moti-
vation and justification for State acts is often at issue in investor-State disputes, so
the written record of State decision-making processes assumes particular relevance.
For all of these reasons, the record of documents submitted by the parties in
investment arbitrations tends to be voluminous, and the document production
phase can become not only protracted but acrimonious.
Parties to investor-State arbitrations are required to submit documentary evidence
on which they rely.100 Under normal circumstances, this is done together with the
parties’ written pleadings. For ease of reference, the parties will assign documents an
exhibit number and submit indices of those exhibits (often organized chronologically)
into the record. Given technological advances, many tribunals now dispense with hard-
copy documents, preferring to review, and take notes on, electronic document bundles.
In general, parties should submit the evidence in support of their case with their
initial pleadings.101 They may submit additional evidence with subsequent plead-
ings, but only to rebut new allegations made by the opposing party. Tribunals
97
Churchill Mining Annulment Decision, supra note 57, } 220.
98
Id.
99
Redfern & Hunter, supra note 3, at 380; see also Brower, Standard Rules, supra note 8, at 54–55
(describing the practice of the Iran-United States Claims Tribunal); Devaney, Evidence (ICJ), supra
note 29, paras. 6, 17 (2008) (describing ICJ practice).
100
ICSID Arbitration Rules, Article 33; UNCITRAL Rules, Articles 20.4, 21.2; IBA Rules, Article
3.1 (“Within the time ordered by the Arbitral Tribunal, each Party shall submit to the Arbitral
Tribunal and to the other Parties all Documents available to it on which it relies, including public
Documents and those in the public domain, except for any Documents that have already been
submitted by another Party.”).
101
See, e.g., UNCITRAL Rules, Articles 20.4, 21.2.
discourage holding back documents for tactical reasons. The tribunal’s early proce-
dural orders typically address the issue so as to avoid ambush by the late submission
of evidence.
Logistics regarding translations and authentication are subject to the parties’
agreement or the tribunal’s directions. For documents drafted in a language other
than that of the arbitration, parties are typically required to submit translations
covering at least those portions of the documents upon which they rely.102 Disputes
about the accuracy of competing translations can be resolved by the tribunal, which
may then look to an expert translator for assistance.
Unlike the prevailing practice in most common-law jurisdictions, laying founda-
tions and formally authenticating documents through affidavits or other means is
customarily not required. Moreover, usual practice permits the production and
submission into evidence of copies, rather than originals, of documents.103 When
a party challenges the authenticity of certain documents, a tribunal may direct the
opposing party to produce originals for forensic examination.
Document Production
To make out its case, a party will often need to rely not only on its own documents,
but on documents under the custody, possession, or control of its adversary or a third
party. This gives rise to the issue of means of document production, an area normally
viewed as driving a wedge between the common- and civil-law traditions. By and
large, however, the practice of international investment tribunals has produced a
balanced approach that is widely adopted by the arbitral community.
As a default rule, Article 43 ICSID Convention provides that “the Tribunal may, if
it deems necessary at any state of the proceedings . . . call upon the parties to produce
documents or other evidence.”104 Tribunals thus have the inherent power to order the
parties to the proceedings to produce documents.105
102
See, e.g., UNCITRAL Rules, Article 19.2; IBA Rules, Article 3.12(d).
103
IBA Rules, Article 3.12(a).
104
ICSID Convention, Article 43(a). Accord ICSID Arbitration Rules, Rule 34(2)(a); UNCITRAL
Arbitration Rules, Article 27(3) (“At any time during the arbitral proceedings the arbitral tribunal
may require the parties to produce documents, exhibits or other evidence within such a period of
time as the arbitral tribunal shall determine”); IBA Rules, Article 3.10.
105
See, e.g., Tokios Tokelés v. Ukraine, ARB/02/18, Procedural Order No. 3, 18 January 2005, } 25
(“Under Article 43 of the Convention and Arbitration Rule 34(2)(a), the Tribunal may “call upon the
parties to produce documents” if the Tribunal “deems it necessary” to do so.”); see also Quadrant Pacific
Growth Fund L.P. and Canasco Holdings Inc. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/08/
1, Order of the Tribunal Taking Note of the Discontinuance of the Proceedings and Allocation of Costs,
27 October 2010, } 35 (reserving the tribunal’s “power to request, up to the time of rendering the award,
the production of any additional document the Tribunal finds relevant to the outcome of this arbitration”);
Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration and Production Company
Limited and Bangladesh Oil Gas and Mineral Corporation, ICSID Case Nos. ARB/10/11 and ARB/10/
18, Procedural Order No. 18, 23 March 2017, } 68 (“Article 43 of the ICSID Convention, which deals
Moreover, Tribunals enjoy wide latitude in fashioning the document production

phase according to the circumstances of the case. It is usual practice for tribunals to
consult with the parties at the time of the initial procedural conference to organize the
taking of evidence.106 To enhance efficiency, the document production phase usually
occurs following the first round of written pleadings, which allows both the parties
and the tribunal to identify the main disputed factual issues and target any requests to
produce accordingly.
Parties to investor-State disputes often agree to conduct document production in
accordance with or by reference to the IBA Rules. Although some scholars and
practitioners have argued that the IBA Rules are biased in favor of a common-law
approach to the law of evidence,107 the IBA Rules’ wide adoption in practice
suggests that at least in principle it strikes the right balance between expansive
discovery (as would typically be available in some common-law jurisdictions) and
the more restrictive view that tends to prevail in civil-law systems.
Despite the evenhandedness of the IBA Rules – which were originally devised for
use in commercial arbitrations – the distinct, asymmetric posture of investor-State
disputes can pose specific challenges to their efficient and fair application.
In practice, States sometimes appear to encounter greater difficulty than investors
in complying with orders to produce timely and adequately and, more generally, in
engaging during the document production phase. This phenomenon may be attrib-
utable to the size and decentralized organization of many State bureaucracies,
inadequate resources, absence of officers authorized to approve production, political
considerations, or other factors.
Under the IBA Rules, parties may submit to the tribunal and the opposing party a
request to produce documents. Article 3 of the IBA Rules regulates the manner in
which requests are to be submitted, providing that:
A Request to Produce shall contain:

(a) (i) a description of each requested Document sufficient to identify it, or (ii) a
description in sufficient detail (including subject matter) of a narrow and specific requested
category of Documents that are reasonably believed to exist; in the case of Documents
maintained in electronic form, the requesting Party may, or the Arbitral Tribunal may order
that it shall be required to, identify specific files, search terms, individuals or other means of
searching for such Documents in an efficient and economical manner;
(b) a statement as to how the Documents requested are relevant to the case and material to
its outcome; and
with evidence, specifically empowers an ICSID tribunal, under paragraph (a) to call upon the parties to
produce documents or other evidence. In this regard the Convention lays the primary responsibility on
the parties to assist the Tribunal by bringing forward the evidence necessary to the fair disposition of the
dispute.”) [hereinafter Niko Resources PO18].
106
107
See, e.g., Rules on the Efficient Conduct of Proceedings in International Arbitration, Note from
the Working Group, at 2 (2018) (the “Prague Rules”) (purporting to “increase efficiency of arbitral
proceedings [by] encourag[ing] tribunals to take a more active role in managing the proceedings (as
is traditionally done in many civil law countries)”).
(c) (i) a statement that the Documents requested are not in the possession, custody or
control of the requesting Party or a statement of the reasons why it would be unreasonably
burdensome for the requesting Party to produce such Documents, and (ii) a statement of the
reasons why the requesting Party assumes the Documents requested are in the possession,
custody or control of another Party.
The provision quoted above allows us to distil the main prerequisites of appro-
priate requests to produce. First, the request to produce must be targeted. Overly
broad requests for “any and all documents” regarding a given factual issue are
unlikely voluntarily to be met by the opposing party or to be granted by the tribunal.
As the commentary to the IBA Rules notes, “[e]xpansive American- or English-style
discovery is generally inappropriate in international arbitration,” and the proverbial
“fishing expedition” is to be avoided, so requests to produce must “be carefully
tailored.”108 Parties are required to identify particular documents or a narrow and
specific category of documents. In order to do so, especially in light of the modern-
day prevalence of electronically stored documents, the requesting party may limit the
time period covered by its request, identify relevant custodians or search terms, and
specify the types of documents that it seeks.
Second, the documents requested must be relevant and material to the outcome of
the dispute. The relevancy requirement imposes a relatively lower threshold. To
borrow the definition used in the U.S. Federal Rules of Evidence, evidence is
relevant if “it has any tendency to make a fact more or less probable than it would
be without the evidence . . . and the fact is of consequence in determining the
action.”109 Materiality, in contrast, is viewed as “an increased burden [which]
enables arbitral tribunals to deny document requests where, although the requested
documents would generally be relevant, they consider that their production will not
affect the outcome of the proceedings.”110
Third, the requesting party must state that the documents requested are not in its
possession and give reasons why it assumes the documents requested are in the
possession of the other party. This requirement is intended “to prevent unnecessary
harassment of the opposing party by the requesting party.”111
Finally, while the IBA Rules do not spell out this requirement, some tribunals
reject requests for documents concerning facts on which the requesting party does
not bear the burden of proof. Tribunals sometimes consider that there is no need for
document production if the documents sought are intended to establish factual
allegations with respect to which the opposing party carries the burden of proof.
On that view, if the opposing party fails to produce evidence in support of those
108
Commentary on the Revised Text of the 2010 IBA Rules on the Taking of Evidence in International
Arbitration, 5 Disp. Resol. Int’l 45, 53–54 (2011) [hereinafter Commentary on the IBA Rules].
109
Fed. R. Evid. 401.
110
111
Commentary on the IBA Rules, supra note 108, at 56.
allegations, the tribunal will simply rule against that party on the issue in question.112
It is nevertheless common to see parties requesting the production of such evidence
(presumably, in an attempt to emphasize the opposing party’s failure to substantiate
its allegations).
Once requests to produce are formulated by the requesting party, the opposing
party is invited to comment on them. In response, the opposing party may agree
voluntarily to produce the requested documents or a subcategory of those docu-
ments. It may also object to their production by asserting that the request to produce
failed to comply with the prerequisites identified above or by invoking various other
grounds. Under Article 9.2 of the Rules, those grounds include:
(a) lack of sufficient relevance to the case or materiality to its outcome;

(b) legal impediment or privilege under the legal or ethical rules determined by the
Arbitral Tribunal to be applicable;
(c) unreasonable burden to produce the requested evidence;
(d) loss or destruction of the Document that has been shown with reasonable likelihood
to have occurred;
(e) grounds of commercial or technical confidentiality that the Arbitral Tribunal deter-
mines to be compelling;
(f) grounds of special political or institutional sensitivity (including evidence that has
been classified as secret by a government or a public international institution) that the
Arbitral Tribunal determines to be compelling; or
(g) considerations of procedural economy, proportionality, fairness or equality of the
Parties that the Arbitral Tribunal determines to be compelling.
The most common grounds to object to document production include privilege,

unreasonable burden, commercial or technical confidentiality and, for respondent
States, the equivalent notion of special political or institutional sensitivity.
Respect for legal privilege is one of the “principles which lie at the very heart of
the ICSID arbitral process.”113 Yet, privilege claims pose the challenging question of
discerning what law applies to those claims. While there is no consensus on the
subject, arbitral tribunals tend to apply a “center of gravity” test, guided principally
by the parties’ and their respective lawyers’ expectations when communicating
about legal advice.114 The preponderant connecting factor, on that view, points to
112
See Yves Derains, Towards Greater Efficiency in Document Production before Arbitral Tri-
bunals-A Continental Viewpoint, ICC Int’l Court of Arb. Bull. (Special Supplement - Document
Production in International Arbitration) 83, 87 (2006) (“When assessing requests arbitrators must
carefully check that the burden of proof actually lies on the requesting party”); but see Gary Born,
International Commercial Arbitration 2364 (2d ed. 2014) (“[I]it is both illogical and unfair to deny a
party disclosure of documents otherwise subject to disclosure, merely because it does not bear the
burden of proof with respect to the underlying issues to which the document is relevant.”)
[hereinafter Born, ICA].
113
Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Decision on
Preliminary Issues, 23 June 2008, } 78.
114
See, e.g., IBA Rules, Articles 9.3(c) and 9.3(e). See also Commentary on the IBA Rules, supra
note 108, at 75 (“Article 9.3(c) expresses the guiding principle that expectations of the parties and
the law that applies at the domicile of the lawyer who gave the advice.115 To avoid
imbalance between parties from different jurisdictions, however, certain adjustments
may need to be made. Article 9.3(e) of the IBA Rules requires the tribunal “to
maintain fairness and equality as between the Parties, particularly if they are subject
to different legal or ethical rules.”116 Those concerns with equality often lead to the
adoption of a “most-favoured-privilege” approach, whereby the tribunal will apply
the more protective set of rules on privilege, as a common denominator, to both
parties.117
Each party may be required to establish any privilege claims that it asserts.118
Where a party asserts privilege, it is typically required to prepare a privilege log, in
which it must identify the document being withheld (e.g., by describing the nature of
the communication, the sender and recipient of such communication, and the date)
and the grounds for doing so (e.g., the communication is a memorandum subject to
attorney-client privilege).
Unreasonable burden may result from either the “sheer quantity” of materials
encompassed by an overly broad request to produce or inherent difficulty in
obtaining responsive documents – even if those documents are deemed to be in
the receiving party’s possession.119
The IBA Rules treat commercial confidentiality and political sensitivity “on equal
footing.”120 Both notions require the tribunal to assess whether the concerns under-
lying the claims of confidentiality or sensitivity, as the case may be, are sufficiently
compelling to exclude the evidence.121 As the Clayton and Bilcon tribunal observed,
“in view of an evolving jurisprudence constante . . . any refusal to produce docu-
ments based on their political or institutional sensitivity requires a balancing process,
weighing, on the one hand, the compelling nature of the requested party’s asserted
sensitivities and, on the other, the extent to which disclosure would advance the
requesting party’s case.”122 The privilege is thus a qualified, rather than absolute,
their advisors at the time the legal impediment or privilege is said to have arisen should be taken into
consideration.”).
115
See Sheppard, Privileges, supra note 16, at 676–77.
116
IBA Rules, Article 9.3(e).
117
See, e.g., Tawil G, Lima I (2009) Privilege-related issues in international arbitration. In: Mourre
A, Giovannini T (eds) Written evidence and discovery in international arbitration: new issues and
tendencies. p 29, 43 (reasoning that, “absent uniform substantial rules on the matter, [the most-
favoured-rule] method appears to be the most suitable one”); Sheppard, Privileges, supra note 16, at
677; Commentary on the IBA Rules, supra note 108, 76–77 (citing the “catch-all” provision in
Article 9.2(g) as allowing this solution).
118
See, e.g., Glamis Gold Ltd. v. United States of America, Decision on Parties’ Requests for
Production of Documents Withheld on Grounds of Privilege, 17 November 2005, } 23.
119
120
Id.
121
Id.
122
William Ralph Clayton, William Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc.
v. Government of Canada, PCA Case No. 2009–04, Procedural Order No. 13, 11 July 2012, } 22
[hereinafter, Clayton and Bilcon, Procedural Order].
one. And, as one commentator notes, “[t]ribunals are less willing to accept political
sensitivity [than attorney-client or settlement privilege] as a basis for refusing
production of relevant and material evidence, even when it would require production
that goes beyond that which would be permitted in the country in question.”123 In
achieving a balance between the requesting party’s need for the evidence and the
opposing party’s concerns, tribunals may also consider ordering the production of
the evidence in question subject to redactions or specific confidentiality
undertakings.
As the Clayton and Bilcon tribunal further explained, the burden of establishing
the privilege claim is on the party asserting it. Specifically, “for a party to assert
privilege on grounds of political and institutional sensitivity . . . it must first dem-
onstrate that it carried out the requisite balancing exercise in the course of its review
of requested documents, on a document-by-document basis, supervised by suffi-
ciently senior legal or regulatory counsel, and that where such review is not carried
out by legal counsel familiar with the arbitration, the balancing exercise must be
guided by instructions from counsel familiar with the case.”124
If the decision on an objection requires prior review of the documents, it may in
some circumstances be preferable for the tribunal to delegate that task to an inde-
pendent and impartial expert, who is bound by a confidentiality undertaking, so as to
avoid that the tribunal be contaminated by knowledge of the content of a document
that may not become part of the record.125 The IBA Rules provide for that eventu-
ality in Article 3.8, which provides that the expert is to render a report on the
objection; and, should the Tribunal ultimately uphold the objection, the expert will
not disclose to the tribunal and the requesting party the content of the document
reviewed.126
The initial exchange of views on document production occurs directly between
the parties, who are duty bound to cooperate in that regard,127 without the tribunal’s
direct involvement. After any objections are made, but before taking up any disputed
request to the Tribunal for decision, the parties are encouraged to confer in an
attempt to narrow their disagreement.
Both requests for, and objections to, document production are typically recorded
using a formatting tool referred to – after the practitioner who devised it – as a
“Redfern schedule.” As that practitioner’s treatise notes, “[t]he purpose of the
Redfern schedule is to crystallise the precise issues in dispute, so that the arbitral
tribunal knows the position that the parties have reached following the exchanges
123
Sheppard, Privileges, supra note 16, at 689. See also id. at 682–87 (discussing specific investor-
state cases).
124
Clayton and Bilcon, Procedural Order, supra note 122, } 24.
125
See Commentary on the IBA Rules, supra note 108, at 57–58.
126
IBA Rules, Article 3.8.
127
Churchill Mining Annulment Decision, supra note 57, } 211 (“The obligation of the parties to
cooperate with each other and with the tribunal in the production of evidence is a general principle
of international arbitration.”).
between them.”128 A Redfern schedule is a table containing at least four columns,

which record, respectively: (i) the request to produce, with a description of the
documents requested; (ii) the requesting party’s reasons for that request (relevance
and materiality, and the assumption that the opposing party is in possession, of the
requested documents); (iii) the opposing party’s response – either acceding to the
request or setting out objections to it; and (iv) the tribunal’s decision with respect to
any request that remains disputed.129 Variations to this basic format exist – including
schedules that contain an additional column to record the requesting party’s response
to any objections or more complex tables that break out the various prerequisites of,
and objections to, document requests into discrete cells.130 But the general scope and
dynamics of the exchanges between the parties and the overall process are often very
similar.
If the tribunal allows a request for production, the party to whom that request was
directed is expected to produce responsive documents to the requesting party. Should
that party wish to rely on those documents in support of its case, it will then exhibit
them together with its subsequent written pleading.
Parties may also request documents from a person or entity that is not a party to
the arbitration. Article 3.9 of the IBA Rules provides that a party “may . . . ask [the
tribunal] to take whatever steps are legally available to obtain the requested Docu-
ments, or seek leave from the [tribunal] to take such steps itself.”131 A party may, for
instance, ask for leave to apply to domestic courts in an attempt to obtain such
documents, as discussed below. In addition, while investor-State tribunals lack the
power to compel the production of evidence in the hands of a third party, a tribunal
may order the party to the arbitration to make reasonable efforts to obtain those
documents from the relevant third party.
Pursuant to the IBA Rules, subject to limited exceptions, documents produced by
either parties or non-parties in the arbitration are to be kept confidential by the
tribunal and the other parties and to be used only in connection with the arbitra-
tion.132 Where written pleadings that refer to particularly sensitive documents
produced in the arbitration are to be made public pursuant to rules on transparency,
the tribunal may order that a redacted version of the pleadings be prepared for that
purpose. As noted above, undertakings containing heightened confidentiality obli-
gations may also be warranted in those circumstances.
128
129
Id.
130
See, e.g., Gramercy Funds Management LLC, and Gramercy Peru Holdings LLC v. The
Republic of Peru, ICSID Case No. UNCT/18/2, Procedural Order No. 3, 12 July 2018.
131
132
The Role of Domestic Courts in Obtaining Evidence in Support of

Investment Arbitrations
Certain domestic laws may provide further means to access evidence that is in the
hands of one of the arbitrating parties or even a third party. The most notorious
example of such a practice – a so-called “1782 application” – is found in U.S. federal
legislation.133 Section 1782(a) provides that “[t]he district court of the district in
which a person resides or is found may order him . . . to produce a document or other
thing for use in a proceeding in a foreign or international tribunal . . . upon the
application of any interested person.”134 The application of Section 1782 in connec-
tion with international commercial arbitrations remains the subject of debate and
division within the U.S. federal courts, but some courts have indicated a greater
willingness to allow petitioners to seek discovery for use in treaty-based
arbitrations.135
The ICSID Convention and Arbitration Rules, as well as the UNCITRAL Rules,
are silent on whether a tribunal or the parties may request the assistance of a
domestic court in obtaining disclosure of evidence. Nonetheless, at least one tribu-
nal, in response to a U.S. district court’s letter enquiring whether the tribunal would
be “receptive to the requested federal-court judicial assistance,” declared that it
would be “open in principle to . . . admitting evidence obtained through the 1782
Proceeding.”136 And, while considering that the applicant had not made out a
sufficient case in favor of the tribunal enlisting the assistance of a Canadian court
in respect of the disclosure of certain evidence, another tribunal held that “an ICSID
tribunal may . . . be entitled to issue a request for assistance in the collection of
evidence to a national court or (in what would likely be the more suitable step) to
permit a party to pursue such a request directly.”137 That tribunal reasoned that “such
a request for assistance, when issued under the control of the tribunal, supports its
exclusive jurisdiction and does not undermine it, since it submits no part of that
jurisdiction to the national court.”138
133
28 U.S.C. § 1782.
134
28 U.S.C. § 1782(a).
135
See, e.g., In re Application of Chevron Corp., 709 F. Supp. 2d 283, 291 (S.D.N.Y. 2010), as
corrected (May 10, 2010), aff’d sub nom. Chevron Corp. v. Berlinger, 629 F.3d 297 (2d Cir. 2011)
(holding that “international arbitral bodies operating under UNCITRAL rules constitute ‘foreign
tribunals’ for purposes of Section 1782”); Republic of Ecuador v. Bjorkman, 801 F. Supp. 2d 1121,
1124 (D. Colo. 2011), aff’d, No. 11-CV-01470-WYD-MEH, 2011 WL 5439681 (D. Colo. Nov. 9,
2011) (noting “significant agreement at the district court level that, after the Supreme Court’s dicta
in Intel Corp., international arbitral bodies operating under UNCITRAL rules constitute ‘foreign
tribunals’ for purposes of Section 1782”) (citations omitted).
136
Cascade Investments PO7, supra note 14, }} 29–30.
137
Niko Resources PO18, supra note 105, } 70.
138
Id.
Fact Witnesses
In many investment arbitrations, parties present evidence from fact witnesses to

provide context and shed light on disputed factual issues. Many practitioners
consider that it is only through witness testimony – in particular, oral testimony
provided at a hearing – that the facts of a case come to life.
Fact witnesses are persons with personal knowledge about the relevant issues – be
they affiliated with the parties to the dispute or not. Unlike the Iran-United States
Claims Tribunal and many civil law jurisdictions, most modern international tri-
bunals do not draw a formal distinction between testimony provided by nonparty
witnesses (testimony, proper) and that of persons considered to have an interest in the
proceedings, like company officers (information).139 In this respect, investment
tribunals are aligned with the modern common-law rule, which considers such
testimony, in principle, to be fully probative subject to the fact-finder’s evaluation
of the evidence.
Witness testimony is normally adduced in the first instance by way of written
witness statements submitted together with the parties’ pleadings. Article 4.5 of the
IBA Rules contains guidance on what witness statements should contain, including:
(i) the witness’s name, contact details, affiliation, and prior experience; (ii) a detailed
description of the facts and the source of the witness’s knowledge; (iii) a statement as
to the language in which the statement was prepared and that in which the witness
intends to testify at the hearing; (iv) an affirmation of the truth of the statement; and
(v) the witness’s signature.
In most instances, counsel will assist the witness in producing the written
statement. As a result of that process, some commentators have criticized witness
statements as having become less useful and too “lawyerly,” but many others believe
that well-drafted witness statements assist the tribunal and promote efficiency by
dispensing with the need for lengthy direct oral testimony.140 They also give both the
opposing party and the tribunal advance notice of the evidence on which a party
intends to rely. To achieve those laudable goals, counsel’s role in the drafting process
should be merely to ensure that the statement is drafted in a way that focuses on the
relevant issues and is of the utmost assistance to the tribunal. Counsel should, in
other words, strive to ensure that the statement reflects the witness’s own recollection
of the facts. Attempts by counsel to make points with which a witness is
unacquainted, or to advance arguments, in a witness statement will likely backfire.
While documents-only arbitrations may be suitable for other types of disputes, the
complexity of investor-State disputes makes hearings common (at least on merits
issues). Witnesses are expected to attend an evidentiary hearing if the opposing party
139
See, e.g., IBA Rules, Article 4.2. Cf. Brower, Standard Rules, supra note 8, at 49 (reporting on
the practice of the Iran-United States Claims Tribunal, according to which “[w]itnesses give
‘testimony’ while interested parties only provide ‘information’”).
140
See Born, ICA, supra note 112, at 2260.
wishes to cross-examine them.141 Though very infrequent, the tribunal, too, may
request a witness’s appearance even if the parties have not done so.142 If a witness
whose presence is required fails to attend the hearing without a valid reason (e.g.,
illness), a tribunal may disregard that witness’s evidence.143 Where the witness
provides a valid reason not to attend, the tribunal enjoys discretion as to what weight
should be given to the evidence.
If the statement of a witness is not contested or considered material by the
opposing party, that witness need not be called to be present at the hearing. Parties
should make clear, however, that the decision not to cross-examine a witness is not to
be taken as an admission of the truthfulness of that witness’s testimony.144 And
parties should also be alive to the possibility that certain tribunal members,
depending partly on their legal background, may expect that counsel confront core
issues by putting specific questions to certain witnesses. Under English law, which
some English practitioners and arbitrators follow in international arbitration, the rule
in Browne v Dunn145 requires a party that wishes to contradict the evidence of a
witness on a crucial part of the case either to cross-examine the witness or at least to
make it plain during examination that the witness’s evidence is not accepted. One
English court even found that counsel’s failure to put questions to a witness
constituted a ground for award annulment.146
Legal systems differ as to the permissibility, manner, and extent of any contacts
between a party’s representatives and the witness in anticipation of the hearing.
Subject to the applicable professional rules of conduct, the IBA Rules acknowledge
a “generally accepted practice”147 in providing that “[i]t shall not be improper for a
Party, its officers, employees, legal advisors or other representatives to interview its
witnesses or potential witnesses and to discuss their prospective testimony with
them.”148
The specifics of how testimony will be presented at a hearing are subject to the
tribunal’s directions, but, by and large, hearings follow a reasonably well-established
pattern. Before offering testimony, fact witnesses (other than specially designated
party representatives) are typically not allowed to be present during the testimony of
other witnesses (or otherwise to gain access to that testimony).149 That practice,
141
See IBA Rules, Article 8.1.
142
See id.
143
See id., Article 4.7.
144
145
[1894] 6 R 67.
146
See, e.g., P v D [2019] EWHC 1277 (Comm) (setting aside an arbitral award on the basis that the
tribunal made findings of fact on an issue that had not properly been put to a witness on cross-
examination).
147
148
149
The same rule applies in proceedings before the ICJ. See International Court of Justice, Rules of
Court (1978), Article 65 (“Before testifying, witnesses shall remain out of court.”).
known as sequestration, seeks to avoid the witness’s exposure to others’ testimony,

which in theory may exert undue influence on that witness.
When they take the stand, witnesses are required to recite an oath of truthfulness
before offering direct testimony. Given that the witness’s evidence in chief has
already been submitted in the form of a witness statement, only very limited oral
direct testimony is normally provided. In most instances, witnesses will simply
confirm the contents and authenticity of their statement, or perhaps have a brief
substantive direct examination. A tribunal may be more willing to allow oral direct
testimony where the opposing party has adduced contrary evidence subsequent to
the witness’s last written statement, so that counsel may ask the witness open
questions intended to elicit answers rebutting such allegations.150
The opposing party will then cross-examine the witness. Cross-examination
proceeds in a manner similar to that in which it is conducted in common-law legal
systems – with counsel putting leading questions to the witness.151 But it is often
said that international arbitration practitioners have developed a distinctive style of
cross-examination,152 normally viewed as being less “aggressive” than that which is
practiced in the stereotypical Anglo-American courtroom. While opposing counsel
may object to improperly formulated questions,153 a drumbeat of objections is not as
common as in court litigation. Moreover, investment tribunals – especially those
composed predominantly of arbitrators from the civil-law tradition – tend to be more
active in asking questions of the witnesses. All of these hybrid features might be said
to reflect the clash, and resulting balance, between the adversarial and inquisitorial
approaches to the taking of evidence that are archetypally associated with the
common- and civil-law traditions, respectively.154
The use of videoconferencing tools for cross-examination is permitted, and
technological enhancements and constraints imposed by the Covid-19 pandemic
have made the use of such tools increasingly more common. However, leaving aside
potential technical glitches, most practicing advocates would likely agree that cross-
examination by video is seldom as effective as in-person cross-examination. More-
over, where witnesses appear by video, precautions must be taken to ensure that the
150
The IBA Rules provide that “[q]uestions to a witness during direct and re-direct testimony may
not be unreasonably leading.” IBA Rules, Article 8.2.
151
Cf. Brower, Standard Rules, at 51–52 (noting that such practice was not common in the Iran-
United States Claims Tribunal, to the point of it being “generally ill-advised” to conduct cross-
examination).
152
See generally Hobér KI, Sussman HS (2014) Cross-examination in international arbitration.
153
See IBA Rules, Article 8.2 (“The Arbitral Tribunal may limit or exclude any question to, answer
by or appearance of a witness, if it considers such question, answer or appearance to be irrelevant,
immaterial, unreasonably burdensome, duplicative or otherwise covered by a reason for objection
set forth in Article 9.2.”).
154
See generally Mirjan Damaška, Presentation of Evidence and Factfinding Precision, 123 U.
Penn. L.R. 1083 (1975) (addressing the adversarial and inquisitorial approaches to the development
of witness testimony).
witness is not allowed improperly to confer with others during testimony or to

consult documents or materials not available to the other hearing participants.
Following cross-examination, counsel for the party that tendered the witness may
ask re-direct questions.155 Like questions asked on direct, redirect questions must be
open-ended.156 Moreover, the scope of any redirect testimony is limited to matters
addressed during the cross-examination.157 Redirect questions are intended to rebut
points made by the opposing counsel or to give context to the witness’s answers on
cross-examination. Tribunals may sometimes allow limited further questioning
about answers elicited during redirect or by the tribunal’s questions, but the scope
for questioning – and the tribunal’s patience – tend to narrow considerably.
Experts
The role of experts is to educate tribunal members with respect to scientific,

technical, or other specialized knowledge that may assist the tribunal in determining
facts at issue in the case. Unlike fact witnesses, experts offer opinions and expert
views, rather than their recollection of facts. As noted in the Protocol for the Use of
Party-Appointed Expert Witnesses in International Arbitration, issued in 2007 by the
Chartered Institute of Arbitrators (the “CIArb Protocol”), “experts should provide
assistance to the Arbitral Tribunal and not advocate the position of the Party
appointing them.”158
Reliability and Independence of the Expert
The standard expert declaration set out in the CIArb Protocol requires an expert to
“confirm that all matters upon which [the expert has] expressed an opinion are within
[his or her] area of expertise.”159 This is intended to ensure that the expert will
provide reliable evidence of real assistance to the tribunal. Contrary to the prevailing
practice of U.S. federal courts,160 however, and in line with the principle of liberal
admissibility of evidence, tribunals seldom exclude expert evidence on the basis that
it may be unreliable. Like with other evidence, tribunals will generally admit the
expert evidence and deal with any issues affecting the reliability of that evidence
simply as a matter of its weight and probative value.
155
See IBA Rules, Article 8.3.(a).
156
157
See id., Article 8.3.(a).
158
CIArb Protocol, Preamble } 4(ii).
159
CIArb Protocol, Article 8(c).
160
Cf. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) (endorsing a five-factor
test that applies to determine whether an expert’s testimony should be admitted as an application of
valid scientific methodology).
Expert opinion should be “impartial and objective.”161 While “[a]n appearance of

partiality does not result in the disqualification of an expert witness[,] [i]t detracts
from the weight that the Tribunal will accord to his evidence.”162 The proverbial
“hired gun” offers little assistance to a tribunal, and his or her testimony is generally
ineffective.
To be independent of the parties, an expert cannot have a financial interest in the
outcome of the dispute or other relationships that might “prevent the expert from
providing his or her honest and frank opinion.”163 Accordingly, an expert’s lack of
independence may provide grounds for his or her disqualification.
Parties to investor-State disputes have sought on at least two occasions to
disqualify an expert appointed by the other party on the ground that their own
counsel engaged in prior contacts with that expert about the dispute (i.e., in
preliminary consultation about the expert’s potential engagement), as a result of
which the expert may have received information or other views shared in confi-
dence. Yet, at least on the specific facts of those two cases, those attempts proved
unsuccessful.164 Addressing the preliminary discussions that are commonplace
between counsel and an expert candidate, the Bridgestone v. Panama tribunal
observed that “[o]ne person cannot impose a duty of confidence on another simply
by giving him information. The recipient of the information must expressly or
impliedly agree that it will be treated as confidential.”165 The tribunal found that
“[i]t cannot sensibly be suggested that . . . the potential witness became impressed
with a duty of confidence that prevented him from offering his services to the other
side.”166 The English courts also appear to be reluctant to disqualify an expert on
that basis.167 Parties and counsel conducting interviews of shortlisted expert
candidates are thus well advised to enter into nondisclosure agreements with
those candidates or otherwise to make clear to them that any information will be
transmitted in strict confidence.
161
CIArb Protocol, Article 4.1.
162
Bridgestone Americas, Inc. and Bridgestone Licensing Services, Inc. v. Republic of Panama,
ICSID Case No. ARB/16/34, Tribunal’s Ruling on Claimants’ Application to Remove the Respon-
dent’s Expert as to Panamanian Law, 13 December 2018, } 16 [hereinafter, Bridgestone Ruling].
163
164
Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela,
ICSID Case No. ARB/10/19, Decision on proposal for disqualification of expert witness and
exclusion of evidence, 29 August 2012; Bridgestone Ruling, supra note 162.
165
Bridgestone Ruling, supra note 162, } 23.
166
Bridgestone Ruling, supra note 162, } 27.
167
See, e.g., Meat Corporation of Namibia Ltd v Dawn Meats (UK) Ltd. [2011] EWHC 474 (Ch).
Accepting instructions from one of the parties to a dispute may, however, give rise to a duty of
loyalty on the part of the expert (which can extend to a group of companies with which that expert is
affiliated) and disqualify him or her from being engaged by an adverse party in a related proceeding.
See, e.g., A Company v X, Y and Z [2020] EWHC 809 (TCC) (extending an interim injunction
enjoining a global consultancy firm from acting as independent experts in related arbitration
proceedings against the claimant).
In addition to the contribution made by independent experts, nonindependent fact

witnesses can also offer useful testimony on technical or scientific issues. For
instance, in a mining dispute in which the respondent challenges aspects of the
claimant’s mine plan, the company’s mining engineer, who was responsible for the
mine plan, may be the person best placed to explain and defend it. On one view, that
fact witness is of course an “expert” – in the sense that he or she possesses specific
knowledge of technical or scientific issues that is not available to the tribunal or other
lay persons in mining engineering. And his or her testimony may (or may not) be
highly reliable and helpful to the tribunal, including on disputed technical or
scientific issues. In light of the more liberal approach to the admissibility of evidence
that was discussed above, investment tribunals tend to admit such testimony, eval-
uate its probative value (including in light of the nonindependent quality of the
witness, which cross-examination may probe), and assess the evidence accordingly.
In such circumstances, it is not uncommon for the party producing the fact witness
also to tender an independent expert who is instructed to review and, if applicable,
corroborate or validate the fact witness’s work – thus presenting two points of view
or layers of “expert” evidence on the subject.
Types of Expert Evidence
In most instances, parties will adduce expert evidence on technical or scientific

issues. Valuation experts are particularly commonplace in investor-State disputes,
which often require complex quantum assessments to calculate the amount of
compensation or damages potentially owed to the claimant for alleged treaty
breaches. It is in fact not uncommon that quantum evidence may be relevant even
with respect to the tribunal’s findings on liability (e.g., evidence assessing loss in
value may be decisive to the determination of whether an indirect expropriation has
occurred).
Parties also routinely tender experts on a multitude of other matters. In disputes
about mining projects, for instance, expert evidence may be relevant to a vast array
of technical disciplines concerning the assessment of the project’s feasibility and
value, including geology, metallurgy, mining, permitting, and financing. Similarly
broad areas of expertise are showcased by experts testifying in disputes concerning
the oil and gas, telecommunications, and many other technology-heavy industries.
Expert testimony is also on occasion adduced on legal matters, although the
rationale for doing so is less clear. Here, a distinction must be drawn between
purported expert testimony on international law versus domestic law issues.
An emerging view is that legal expert testimony is unnecessary with respect to
issues of treaty interpretation and international law, with which investor-State
tribunal members are themselves fully acquainted and well versed. As two com-
mentators have noted:
Expert evidence . . . is not usefully employed to argue questions of law within the tribunal’s
competence. That is the role of counsel. It would not be appropriate for an English lawyer
arguing a case in the English High Court under English law to adduce evidence from a
professor of English law on relevant legal questions. Those points would be argued. The
same principle should apply in investment arbitration.168
Moreover, since international law usually provides the rules of decision that apply
in an investor-State dispute, acceptance of purported expert evidence on treaty
interpretation or other international law issues creates the risk that a tribunal might
improperly delegate its mandate and authority to decide the dispute before it (or at
least be perceived as doing as much) to a so-called “legal expert.” The authors are
aware of at least two unpublished decisions in which investor-State tribunals accord-
ingly directed that opinions offered as expert testimony on international law be
received and treated as argument from counsel.
Experts offering opinions on issues pertaining to domestic legal systems in which
the arbitrators are not qualified may be of greater assistance to the tribunal. But even
the use of legal experts in that context has recently come under increased scrutiny.
Unlike technical experts, legal experts of any kind do not purport to opine on a
specialized field of human knowledge that is alien to the tribunal. While legal texts
and sources differ from one jurisdiction to another, the process of legal reasoning is
arguably universal. Accordingly, as one commentator puts it, “legal experts can be
dispensed with because their expertise – law – is shared with the tribunal and the
advocates.”169 In the words of a court, the method of receiving evidence from legal
experts is both “doctrinally unnecessary” and “forensically inefficient.”170 On that
view, the testimony of legal experts on foreign law is an anachronistic tool, and a
party’s counsel team (which will preferably include members qualified in the
relevant jurisdiction) should simply argue the law relying directly on primary and
secondary authorities.171
Party- and Tribunal-Appointed Experts
In most instances, expert evidence will be presented through party-appointed experts

only, which accords with the adversarial practice of most common-law jurisdictions.
168
Blackaby N, Wilbraham A (2016) Practical issues relating to the use of expert evidence in
investment treaty arbitration. ICSID Rev 31(3):655, 660–661 [hereinafter Blackaby & Wilbraham,
Practical Issues].
169
Donovan DF (2018) Re-examining the legal expert in international arbitration (Eleventh Kaplan
lecture, 15 November 2017). In: International arbitration: issues, perspective and practice: Liber
Amicorum Neil Kaplan. pp 247, 248 [hereinafter Donovan, Re-Examining the Legal Expert].
170
Fidel v. Felecia & Faraz [2015] DIFC CA 002, Claim No. CA 002/2015 (23 November 2015),
para. 72 [hereinafter, Fidel].
171
See Donovan, Re-Examining the Legal Expert, supra note 169, at 255–58. See also Bodum USA,
Inc. v. La Cafetière, Inc., 621 F.3d 624 (7th Cir. 2010) (Judges Easterbrook and Posner opining
against the use of legal experts and in favor of direct argument by counsel on issues of foreign law);
Fidel, supra note 170 (same).
That approach is in line with arbitrating parties’ perceived preference for “retain[ing]
a higher degree of control over the way their cases are presented,”172 including with
respect to expert evidence.
Yet, as in many civil-law jurisdictions, in consultation with the parties, the tribunal
is also empowered to appoint its own expert.173 That may occur, for instance, if, after
hearing from both party-appointed experts, the tribunal is not sufficiently satisfied with
the existing body of evidence to make an informed decision.174 In that situation, the
idea underlying tribunal-appointed experts is to draw on evidence presented by a
“truly independent” expert, who may help the tribunal bridge the gap between the
divergent opinions presented by the party-appointed experts.
The approach of relying on tribunal-appointed experts is, however, less common,
and it presents its own shortcomings. First, the tribunal must be careful not to become
beholden to its own expert and simply adopt wholesale his or her conclusions without
adequately testing the evidence. Second, tribunal-appointed experts will almost inev-
itably be less familiar with the facts of the case than party-appointed experts,175 which
may compound the problem of looking to the tribunal-appointed expert as the primary
source of evidence on highly technical issues. Third, even if the tribunal appoints an
expert, the parties must have an opportunity to comment on his or her evidence,176
which on many occasions creates significant delays and ends up eroding the potential
effectiveness and efficiency of the process. As one commentator notes, “single experts
. . . may actually add to, not reduce, the time and cost of proceedings, as parties may
appoint ‘shadow experts,’” such that, “rather than having two experts under the
original system, under a ‘single expert’ system it is possible there will in fact be
three.”177 Finally, because the tribunal-appointed expert does not have a “client” as
such, the question arises as to how to impose an appropriate level of discipline on that
expert with respect to his or her work plan and the attendant costs. Because the
arbitrators are not naturally incentivized to manage the expert’s work to ensure that
it is conducted timely and efficiently, tribunals need to be particularly sensitive to the
parties’ input in this respect, drawing up very specific terms of reference and work
schedules in consultation with the parties.
172
Blackaby & Wilbraham, Practical Issues, supra note 168, at 668.
173
See IBA Rules, Article 6.1.
174
See, e.g., Perenco Ecuador Limited v. Republic of Ecuador, ICSID Case No. ARB/08/6, Interim
Decision on the Environmental Counterclaim, 11 August 2015, }} 585–87. Cf. RREEF Infrastruc-
ture (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain,
ICSID Case No. ARB/13/30, Decision on Responsibility and on the Principles of Quantum, 30
November 2018, }} 592–95 (considering it more appropriate, in similar circumstances, to establish
certain principles of quantum and direct the parties and their respective quantum experts to attempt
to reach agreement on the relevant disputed issues, while reserving the right to appoint its own
expert if that attempt fails to resolve those issues).
175
See Blackaby & Wilbraham, Practical Issues, supra note 168, at 664.
176
177
Jones D (2008) Party appointed expert witnesses in international arbitration: a protocol at last.
Arbitr Int 24(1):137, 154
Procedure for Presenting and Challenging Expert Evidence
The expert’s evidence in chief takes the form of a written expert report. The IBA
Rules identify the minimal contents of such a report. The expert must: disclose the
instructions pursuant to which he or she is providing evidence178; affirm his or her
independence and the genuine belief that the opinions and conclusions offered are
correct179; state the factual assumptions supporting his or her opinions and conclu-
sions180; and describe his or her opinions and conclusions, as well as the method-
ology used to arrive at them.181 Although the CIArb Protocol contains more detailed
rules, it provides for essentially similar requirements.182 It also sets out the form that
the expert declaration should take.183
Counsel plays an important role in laying the foundations for the expert’s work. It
is incumbent on counsel to provide clear instructions and ensure that the expert has
access to the relevant facts that he or she might need to consider to render an opinion.
It is also common for counsel to give input on the format and style of expert reports –
in particular if the expert in question lacks prior experience of drafting such reports
and presenting evidence in legal proceedings. In communicating with the expert,
counsel should be mindful of the applicable privilege rules. The standard practice, as
codified in the CIArb Protocol, is to treat instructions and terms of appointment as
being subject to disclosure if there is good cause.184 In contrast, drafts and working
papers are generally considered privileged materials that are not subject to
production.185
In advance of the hearing, the tribunal may direct party-appointed experts to meet
and confer on issues on a without-prejudice basis in an attempt to identify areas of
agreement and disagreement (including as to any tests and analyses that may need to
be conducted).186 The experts’ differing views can then be documented in a joint
report or statement.187 If the experts have employed different methodologies, a
tribunal may direct each expert to present an alternative analysis based on the
other expert’s methodology. For instance, if the claimant’s expert has valued an
investment using a discounted-cash-flow (“DCF”) model, while the respondent’s
expert has calculated sunk costs, the tribunal may direct the claimant’s expert to
calculate sunk costs and the respondent’s expert to produce his or her own DCF
model.
178
See IBA Rules, Article 5.2(b).
179
See id., Article 5.2(c), (g).
180
See id., Article 5.2(d).
181
See id., Article 5.2(e).
182
See CIArb Protocol, Article 4.4.
183
See id., Article 8.
184
185
186
See id., Article 6.1(a).
187
See id., Article 6.1(b).
Unless otherwise agreed, experts are expected to attend hearings to provide oral
testimony.188 Subject to the tribunal’s directions, experts will not, unlike fact wit-
nesses, be sequestered during the hearing. An expert’s exposure to the facts is normally
viewed as assisting, rather than detracting from, the usefulness of that expert’s
evidence.189 Valuation experts, in particular, are seen to benefit from increased
knowledge of facts that may constitute relevant inputs to the quantum analysis.
Upon being called to the stand, experts will affirm their written reports and will
normally provide a presentation summarizing their opinions. Following that direct
testimony, counsel for the opposing party may cross-examine the expert – in a
manner and form not dissimilar to the cross-examination of fact witnesses. And
the party’s own counsel may subsequently elicit limited redirect testimony on the
issues raised during cross-examination.
A distinctive method of examining experts is witness conferencing (informally
referred to as “hot-tubbing”). By that process, the experts are questioned simulta-
neously on the same set of issues “in order to identify areas of disagreement, force
concessions and evaluate the credibility of differing contentions.”190 Witness con-
ferencing is habitually used in addition to, not in lieu of, cross-examination. As a
result, one commentator observes that “witness-conferencing seldom genuinely
saves time,”191 and tribunals should thus order witness conferencing only where
its potential benefits outweigh that cost.
While witness conferencing is normally used with expert witnesses, it may also be
an effective fact-finding tool in respect of fact witness testimony. In a case in which
one of the authors of this chapter acted as counsel, the tribunal “hot-tubbed” two fact
witnesses who provided testimony on overlapping issues. That exercise proved to be
highly effective, illustrating how tribunals can add value by being creative and
tailoring the evidentiary procedure to the specific circumstances of the case.
Other Types of Evidence
Additional means of evidence may be required for the determination of the relevant
factual issues – including, for instance, site visits and inspections. The ICSID
Convention and the ICSID Arbitration Rules empower tribunals to conduct site
visits and to inspect nondocumentary materials.192 The IBA Rules similarly allow
arbitral tribunals, “at the request of a Party or on [their] own motion, [to] inspect or
188
See id., Article 6.1(h).
189
190
Id. at 2293.
191
Id.
192
ICSID Convention, Article 43(b) (“[T]he Tribunal may, if it deems it necessary at any stage of
the proceedings, . . . visit the scene connected with the dispute, and conduct such inquiries there as it
may deem appropriate.”); ICSID Arbitration Rules, Rule 34(2)(b) (reproducing ICSID Convention
Article 43) and Rule 37(1) (“If the Tribunal considers it necessary to visit any place connected with
the dispute or to conduct an inquiry there, it shall make an order to this effect. The order shall define
require the inspection by a Tribunal-Appointed Expert or a Party-Appointed Expert

of any site, property, machinery or any other goods, samples, systems, processes or
Documents, as it deems appropriate.”193 Even in the absence of those norms, a
leading commentary notes that a tribunal has the inherent authority to order and
undertake such inspections.194
Tribunals very rarely resort to site visits.195 In Unglaube v. Costa Rica, the
tribunal visited a strip of land that the claimant alleged had been indirectly expro-
priated by the respondent through environmental regulations out of a “desirability of
gaining a greater understanding of the particular area.”196 A similar issue with
respect to land located in an indigenous region triggered an “ocular inspection” in
Álvarez y Marín v. Panama.197 In Elsamex v. Honduras, the sole arbitrator visited a
highway the subject of the rehabilitation project that was at stake in the dispute. As
reflected in several parts of the award, the arbitrator relied on the inspection, among
other things, to reject the findings of one of the parties’ damages experts.198 As
another example, in Burlington v. Ecuador, in connection with Ecuador’s environ-
mental counterclaim, the tribunal chose to visit certain oil production blocks with a
focus on disputed issues of soil contamination and land use.199
the scope of the visit or the subject of the inquiry, the time limit, the procedure to be followed and
other particulars. The parties may participate in any visit or inquiry.”).
193
IBA Rules, Article 7.
194
195
See, e.g., Jeffery Commission & Rahim Moloo, Procedural Issues in International Investment
Arbitration 161 (2018) (noting that, as of 2017, site visits figured in only 2% of publicly available
cases) [hereinafter Commission & Moloo, Procedural Issues]; Redfern & Hunter, supra note 3, at
399. See also Ioan Micula and others v. Romania I, ICSID Case No. ARB/05/20, Award, 11
December 2013, } 114 (concluding that site visit proposed by claimants and objected to by
respondent was neither necessary nor useful). Tribunals are sometimes reluctant to conduct site
visits even where the parties have so requested. See, e.g., Compañia del Desarrollo de Santa Elena
S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000, } 14.
196
Marion Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/08/1, Award, 16 May 2012,
} 165.
197
See Mr. Cornelis Willem van Noordenne, Mr. Bartus van Noordenne, Stichting Administra-
tiekantoor Anbadi, Estudios Tributarios AP S.A. and Álvarez y Marín Corporación S.A. v. Republic
of Panama, ICSID Case No. ARB/15/14, Award, 12 October 2018, } 40 [hereinafter Álvarez y
Marín Award].
198
See Elsamex, S.A. v. Republic of Honduras, ICSID Case No. ARB/09/4, Award, 16 November
2012, }} 382, 477–79. See also Kinnear M, Ayman R (2015) Site visits in ICSID arbitration. In:
Carlevaris A et al. (eds) International arbitration under review: essays in honour of John Beechey. p
247, 253 (noting that the Elsamex tribunal highlighted “the utility of that visit at several points in its
award, asserting that the visit contributed to the fact findings concerning the condition of the
disputed highway”) [hereinafter Kinnear & Ayman, Site Visits].
199
See Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on
Counterclaims, 7 February 2017, } 18 [hereinafter Burlington Decision on Counterclaims].
The details of the manner in which the site visit will be conducted are at the
tribunal’s discretion.200 Potential issues to be clarified in a site-visit protocol include:
(i) timing and scope of the visit; (ii) pre-visit inspections by the parties or others; (iii)
number and capacity of attendees; (iv) language and record of the visit; (v) materials
bundle for the visit and whether and how evidence will be introduced during the
visit; (vi) itinerary and schedule; (vii) confidentiality; (viii) travel and accommoda-
tion logistics; (ix) immunity of arbitrators and other participants; (x) post-visit
procedure including amendments to the transcript, post-visit briefs, or photographic
record, among others; and (xi) costs.201 Commentators note that it is particularly
important to clarify the “evidentiary purpose” of the visit – which might be intended
solely to grant the tribunal a framework to consider the evidence in the record or can
itself be viewed as evidence to be relied upon in the award.202 The tribunal in
Burlington v. Ecuador, for instance, clarified that “[p]arty presentations were con-
sidered to be in the nature of submissions and expert and witness responses to
Tribunal questions were deemed to be evidence.”203
Site visits and inspections have also been used to grant access by a party- or
tribunal-appointed expert to a site, documents, or other materials under the control of
one of the parties. The IBA Rules expressly confer on tribunal-appointed experts the
power to request the parties to provide access to sites for inspections, “to the extent
relevant to the case and material to its outcome,” and further clarify that the tribunal-
appointed expert’s authority to request such access “shall be the same as the
authority of the Arbitral Tribunal.”204 In Al Tamimi v. Oman, for instance, the
tribunal directed the parties to conduct a site visit that the claimant had requested
for its experts to corroborate certain photographic evidence in the record.205 In Enkev
v. Poland, a tribunal-appointed expert was allowed to visit certain facilities, the
threatened expropriation of which was the subject of the proceedings.206 And, in
BSG Resources v. Guinea, the tribunal provided for tribunal-appointed experts to
inspect the originals of certain documents, including some under the control of the
FBI, the authenticity of which was a contested issue in the proceedings.207
200
See ICSID Arbitration Rules, Rule 37(1); IBA Rules, Rule 7. See also Redfern & Hunter, supra
note 3, at 399; Kinnear & Ayman, Site Visits, supra note 198, at 254–55; Commission & Moloo,
Procedural Issues, supra note 195, 163–64.
201
See, e.g., Kinnear & Ayman, Site Visits, supra note 198, at 255–58; Commission & Moloo,
Procedural Issues, supra note 195, at 164–65. For a particularly comprehensive description of these
details, see, e.g., Burlington Decision on Counterclaims, supra note 199, }} 18–33.
202
Kinnear & Ayman, Site Visits, supra note 198, at 254.
203
Burlington Decision on Counterclaims, supra note 199, } 21.
204
205
See Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, Procedural
Order No. 2, 28 September 2012, } 6, 15.
206
See Enkev Beheer BV v. Republic of Poland, UNCITRAL, PCA Case No. 2013–01, First Partial
Award, 29 April 2014, } 39.
207
See BSG Resources Limited and ors v Guinea, ICSID Case No. ARB/14/22, Procedural Order
No. 14 (Document Inspection), 28 August 2017, } 3, Annex 1.
Ultimately, when facing requests for site visits or inspections, tribunals must
determine whether the game is worth the candle. In special circumstances, site visits
and inspections can provide very useful insights into factual issues that may other-
wise be difficult to apprehend. But poorly planned site visits tend to cost a lot and
accomplish very little. And, even when properly planned, site visits tend to pose very
significant logistical challenges and require complex and expensive arrangements
with respect to travelling, lodging, security, visas and permits, safe passage under-
takings, and other issues. Tribunals tend to be mindful of these complexities and the
inordinate impact they may have on the procedural schedule before granting requests
for site visits as a matter of default, and to take into account a party’s request for an
unproductive site visit when allocating the attendant costs.208
Conclusion
As the brief overview above shows, the norms governing the taking of evidence in
investment arbitration are, by and large, open-textured. Most written legal texts more
closely resemble loose standards than precise rules, and some evidentiary issues
simply lack any formal guidelines on point.
Despite that relative imprecision, over time, investment tribunals have developed
common practices that are reasonably well understood by the relevant participants in
investor-State disputes. In doing so, tribunals have both drawn on the experience of
other international courts and tribunals and contributed to the broader development
of international law.
Yet, while such common practices are welcome and have developed for good
reason, investment tribunals should also be wary of becoming prisoners of habit.
Thoughtless adoption of past practice risks jeopardizing the flexibility that allows
international arbitration, at its best, to provide a means of dispute resolution that is
optimally tailored to the specific facts and circumstances of the case. In a lecture
delivered over a decade ago, David Rivkin sounded a note of caution that is still
current today:
[W]e should not fall into the routine, as we too frequently do, of simply using the same
procedures from case to case. At the beginning of each new case, parties and arbitrators
should focus exactly on what is necessary – and only what is necessary – for that specific
case. Is discovery necessary at all? How about witness statements? Memorials? Oral
testimony?209
208
See, e.g., Álvarez y Marín Award, supra note 197, } 424 (while deciding whether to uphold
Panama’s earlier undertaking to assume the costs of the ocular inspection, the tribunal held: “the
Inspection was not significantly relevant to the decision of the case and, as such, it was not
determinative. It must thus be the Respondent who assumes the costs of the Ocular Inspection.”)
[original in Spanish].
209
David W. Rivkin, Towards a New Paradigm in International Arbitration: The Town Elder Model
Revisited, 24(3) Arb. Int’l 375, 378 (2008).
In line with that model, in the taking of evidence, investment tribunals should
embrace arbitration’s inherent flexibility to calibrate evidence-gathering and presen-
tation techniques to strike an optimal balance between fact-finding accuracy, fair-
ness, and efficiency in each case.
Cross-References

▶ Model Instrument for Management of Investment Disputes
Public Participation: Amicus Curiae in
International Investment Arbitration 53
Fernando Dias Simões
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1372
Historical Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1373
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1378
Potential Drawbacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1382
Subversion of the Consensual Nature of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1382
Politicization of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1382
Increase in the Cost and Length of Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1384
Concerns About the Representativeness and Accountability of Amici . . . . . . . . . . . . . . . . . . . . 1387
Potential Impact on Party Equality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1392
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1394
Abstract
Amicus curiae is a developing feature of modern international investment arbitra-
tion. This chapter starts by describing how investment arbitration shifted from a
confidentiality-based practice to a model that is more open to the participation of
civil society. It then proceeds to discuss the potential benefits and drawbacks of
allowing the participation of non-disputing parties in investment arbitration. Ami-
cus curiae is a useful tool to increase the transparency of the dispute settlement
mechanism and serves as a fundamental gateway for public participation in the
arbitration process. However, its benefits need to be weighed against potential
disadvantages, such as the risk of politicization of disputes, an increase in the
costs and length of the proceedings, and a negative impact on party equality.
Arbitral tribunals must ensure that amicus curiae participation creates added value
and does not undermine the purposes of the dispute settlement mechanism. In order
to strike this balance, tribunals should only accept submissions from individuals or
organizations who offer guarantees of independence, autonomy, and credibility.
F. Dias Simões (*)

Faculty of Law of the Chinese University of Hong Kong, Hong Kong, China
e-mail: fdiassimoes@cuhk.edu.hk

https://doi.org/10.1007/978-981-13-3615-7_13
1372 F. Dias Simões
Keywords
Amicus curiae · International investment arbitration · Public participation ·
Transparency · Civil society · Nongovernmental organizations
Introduction
Over the last two decades, the concept of amicus curiae (which can be roughly
translated as “friends of the court”) has become a key term in the lexicon of
international investment arbitration. Amici curiae are individuals or organizations
that take part in an “adjudicative proceeding who, although not a party to the dispute,
[are] permitted to make submissions or otherwise take part in the proceedings.”1
International investment treaties and arbitral rules originally contained no provisions
concerning the participation of non-parties, neither expressly prohibiting nor allo-
wing it. Following the commercial paradigm, based on party autonomy, tribunals
confronted with requests for third-party participation would reject them based on the
confidential nature of investment arbitration.
The traditional lack of openness of investor-State arbitration to public participa-
tion was, however, harshly criticized by several stakeholders.2 The emulation of the
private and confidential model was inadequate because investor-State arbitration is a
totally different creature. A growing consensus emerged that the private, confidential
atmosphere of commercial arbitration was incompatible with the public interest
nature of most international investment disputes.3 The conflicts and problems dealt
with by investment tribunals often involve societal issues and thus actors in civil
society want to provide input on the matter. The fact that tribunals are dealing with
what are essentially public law issues requires that the population of the host State be
informed about the conduct of governments and arbitrators.4 Third parties such as
public interest groups and nongovernmental organizations (NGOs) wish to have
access to the decision-making process and assess the impact of arbitral awards on the
protection of public interests and the use of public funds. The specific characteristics
1
Born G, Forrest S (2019) Amicus curiae participation in investment arbitration. ICSID Rev
34:626–665, 626
2
See, for example, Kinnear M (2005) Transparency and third party participation in investor-state
dispute settlement. Organisation for Economic Cooperation and Development, pp 1–2. http://www.
oecd.org/investment/internationalinvestmentagreements/36979626.pdf. Organisation for Economic
Co-operation and Development (2005) Transparency and third party participation in investor-state
dispute settlement procedures. p 3. https://www.oecd.org/daf/inv/investment-policy/WP-2005_1.pdf.
3
See Stern B (2007) Civil Society’s voice in the settlement of international economic disputes.
ICSID Rev 22:280–348, 280.
4
Schill S (2010) International investment law and comparative public law – an introduction. In:
Schill S (ed) International investment law and comparative public law. Oxford University Press,
New York, pp 3–37, 15
53 Public Participation: Amicus Curiae in International Investment Arbitration 1373
of investor-State disputes clearly justify a greater measure of transparency and public

participation than commercial disputes.
The investor-State dispute resolution system has changed profoundly over the last
several years, shifting from a confidentiality-based practice and tributary of the
commercial roots of investment arbitration to a model that is more open to the
participation of civil society. This momentous change in the philosophy and struc-
ture of investment arbitration, spearheaded by pioneer arbitral decisions, was duly
acknowledged and incorporated by States in their international investment agree-
ments and by arbitral institutions in their arbitral rules. This chapter starts by offering
a brief overview of the historical evolution of this phenomenon. It then proceeds to
discuss the potential benefits and drawbacks of amicus curiae participation in
investment arbitration. Arbitral tribunals need to judiciously strike a balance
between them. As practice evolves, there is an emerging body of jurisprudence on
which to rely. The chapter concludes that amicus curiae participation is a powerful
tool to engage civil society in international investment disputes and is gradually
becoming a central feature of this field of international dispute settlement.
Historical Evolution
Disputes under the North American Free Trade Agreement (NAFTA) led the way in
the movement toward greater transparency and public participation in investor-State
arbitration. While recognizing the right of NAFTA Member States to make sub-
missions to a tribunal on a question of interpretation of the agreement,5 NAFTA did
not contain any specific provision on submissions by third parties. This question
arose in two cases conducted under the United Nations Commission on International
Trade Law (UNCITRAL)‘s Arbitration Rules of 19766 – Methanex Corp. v. United
States7 and United Parcel Service of America Inc. v. Canada.8 Even though NAFTA
and the UNCITRAL Rules were silent on the issue, both arbitral tribunals decided to
accept amicus curiae submissions.9 In reaction to these path-breaking decisions, the
5
North American Free Trade Agreement, art. 1128, https://www.nafta-sec-alena.org/Home/Texts-
of-the-Agreement/North-American-Free-Trade-Agreement
6
UNCITRAL, UNCITRAL Arbitration Rules (1976), http://www.uncitral.org/pdf/english/texts/arbi
tration/arb-rules/arb-rules.pdf
7
Methanex Corp. v. United States, see http://www.italaw.com/cases/683
8
United Parcel Service of America Inc. v. Canada, see http://www.italaw.com/cases/1138
9
See Methanex Corp. v. United States, Decision of the Tribunal on Petitions from Third Persons to
Intervene as “Amici Curiae,” 47–53 (15 January 2001), http://www.italaw.com/sites/default/files/
case-documents/ita0517_0.pdf; United Parcel Service of America Inc. v. Canada, Decision of the
Tribunal on Petitions for Intervention and Participation as Amici Curiae, 73 (17 October 2001),
http://www.italaw.com/sites/default/files/case-documents/ita0883.pdf. For an in-depth analysis of
the evolution of amicus curiae in investment arbitration, see Born G, Forrest S (2019) Amicus curiae
participation in investment arbitration. ICSID Rev 34:626–665, 630 ff.
NAFTA Free Trade Commission (FTC) issued an interpretative statement10 clarify-

ing that “No provision of the North American Free Trade Agreement . . . limits a
Tribunal’s discretion to accept written submissions from a person or entity that is not
a disputing party . . . .”11 This was the first treaty provision to expressly allow for
amicus curiae participation in investor-State arbitration, clearly stating that tribunals
have the discretionary power to accept submissions from non-disputing parties.
The experience of NAFTA was reflected in the evolution of the International
Centre for the Settlement of Investment Disputes (ICSID)‘s Arbitration Rules. In
its original version (1967) and subsequent amendments (1984 and 2002), there
was no specific provision referring to third-party participation in arbitral pro-
ceedings. The first case under the ICSID Rules where third parties requested
authorization to take part in the proceedings was Aguas del Tunari v. Bolivia.12
Several NGOs and individuals submitted a petition to the tribunal requesting
authorization to participate as parties – or, alternatively, to be granted amicus
curiae status – invoking the public character of the dispute and the public interests
that might be affected.13 The tribunal rejected the request for amicus curiae
participation, reflecting the traditional tenets of confidentiality and party auton-
omy.14 Interpreting these principles, the tribunal deferred to the parties, who
unanimously opposed third-party participation in the proceedings.15 The tribunal’s
decision raised substantial criticism about the secrecy of ICSID proceedings, the
idea that such arbitrations involved nothing beyond the parties16 and the public’s
deprivation of “reasonable expectations.”17
10
NAFTA art. 1131(2).
11
NAFTA Free Trade Commission, Statement of the Free Trade Commission on Non-Disputing
Party Participation (7 October 2003), http://www.state.gov/documents/organization/38791.pdf
12
Aguas del Tunari, S.A. v. Republic of Bol., ICSID Case No. ARB/02/3 (2002), https://icsid.
worldbank.org/apps/icsidweb/cases/pages/casedetail.aspx?CaseNo¼ARB/02/3
13
Petition of La Coordinadora para la Defensa del Agua y Vida, La Federación Departamental
Cochabambina de Organizaciones Regantes, Semapa Sur, Friends of the Earth–Netherlands, Oscar
Olivera, Omar Fernandez, Father Luis Sánchez, and Congressman Jorge Alvarado to the Arbitral
Tribunal, Aguas del Tunari S.A. v. Republic of Bol., ICSID Case No. ARB/02/3, 2 (29 August
2002), http://www.italaw.com/sites/default/files/case-documents/ita0018.pdf
14
Letter from David D. Caron, President of the Tribunal, to J. Martin Wagner, Amicus Petitioner, in
re Aguas del Tunari vs. The Republic of Bolivia (29 January 2003), http://www.italaw.com/sites/
default/files/case-documents/ita0019_0.pdf
15
Id.
16
See Urueña R (2012) No citizens here: global subjects and participation in international law.
Martinus Nijhoff Publishers, Leiden, p 191.
17
Mistelis L (2005) Confidentiality and third party participation: UPS v. Canada and Methanex
Corp. v. United States. In: Weiler T (ed) International investment law and arbitration: leading cases
from the ICSID, NAFTA, bilateral treaties and customary international law. Cameron May, London,
pp 169–199, 185
The second time non-parties requested permission to take part in the proceedings
as amicus curiae under the ICSID Rules was in the Suez/Vivendi v. Argentina case.18
In contrast with the decision of the Aguas del Tunari tribunal, the tribunal held that it
had the power under Article 44 of the ICSID Convention (which grants the arbitral
tribunal the power to decide on procedural questions that are not regulated by the
rules of the ICSID Convention) to grant amicus curiae submissions to suitable
parties.19 The tribunal found that the case at hand potentially involved matters of
public interest, because it regarded the water distribution and sewage systems of a
large metropolitan area.20 Any decision rendered in the case had the potential to
affect the operation of those systems and thereby the public they serve.21 Given the
public interest in the dispute, appropriate non-parties might provide the tribunal with
perspectives, arguments, and expertise that would help it arrive at a correct decision.
The acceptance of amicus submissions would also have the additional desirable
consequence of increasing the transparency of investor-State arbitration.22 Based on
a review of amicus practices in other jurisdictions and fora, the tribunal decided that
the acceptance of amicus submissions should depend on three basic criteria: the
appropriateness of the subject matter of the case; the suitability of a given non-party
to act as amicus curiae in that case; and the procedure by which the amicus
submission is made and considered.23
As a result of the mounting pressure for greater public participation in investment
arbitration proceedings, ICSID decided to amend its Arbitration Rules. The new
rules came into effect on 10 April 2006.24 The new paragraph 2 of Rule 37 (Visits
and Inquiries; Submissions of Non-disputing Parties) provides:
After consulting both parties, the Tribunal may allow a person or entity that is not
a party to the dispute (in this Rule called the “non-disputing party”) to file a written
submission with the Tribunal regarding a matter within the scope of the dispute. In
determining whether to allow such a filing, the Tribunal shall consider, among other
things, the extent to which:
18
Suez, Sociedad General de Aguas de Barcelona, S.A., & Vivendi Universal, S.A. v. Argentine
Republic, ICSID Case No. ARB/03/19 (2003), https://icsid.worldbank.org/apps/icsidweb/cases/
Pages/casedetail.aspx?caseno¼ARB/03/19
19
Suez v. Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to a Petition for
Transparency and Participation as Amicus Curiae, 15–16 (19 May 2005), https://icsid.worldbank.
org/ICSID/FrontServlet?requestType¼CasesRH&actionVal¼showDoc&docId¼DC516_En&
caseId¼C19
20
Id. 19.
21
Id. 19.
22
Id. 22.
23
Id. 17–29. See also Suez v. Argentine Republic, ICSID Case No. ARB/03/19, Order in Response
to a Petition by Five Non-Governmental Organizations for Permission to Make an Amicus Curiae
Submission, 2–3 (12 February 2007), https://icsid.worldbank.org/ICSID/FrontServlet?
requestType¼CasesRH&actionVal¼showDoc&docId¼DC519_En&caseId¼c19
24
See ICSID, Rules of Procedure for Arbitration Proceedings (Arbitration Rules), https://icsid.
worldbank.org/en/Documents/resources/2006%20CRR_English-final.pdf
(a) the non-disputing party submission would assist the Tribunal in the determina-
tion of a factual or legal issue related to the proceeding by bringing a perspective,
particular knowledge or insight that is different from that of the disputing parties;
(b) the non-disputing party submission would address a matter within the scope of
the dispute;
(c) the non-disputing party has a significant interest in the proceeding.
The Tribunal shall ensure that the non-disputing party submission does not
disrupt the proceeding or unduly burden or unfairly prejudice either party, and that
both parties are given an opportunity to present their observations on the non-
disputing party submission.25
The new Rule 37(2) was applied for the first time in Biwater v. Tanzania,26 where
five NGOs applied for amicus curiae status. Notwithstanding the claimant’s objec-
tions, the tribunal granted the petitioners the opportunity to file a written submission.
The tribunal stated that it might benefit from a submission and that granting leave to
file such submissions is “an important element in the overall discharge of the
Arbitral Tribunal’s mandate.”27 Since then, requests for amicus curiae participation
in arbitral proceedings under the ICSID Rules have been accepted in a large number
of cases.28
As for the UNCITRAL Arbitration Rules, neither the 1976 nor the 2010
versions contained express provisions on third-party participation. This made
sense since these rules were originally designed for use in commercial arbitrations.
Differently, the UNCITRAL Rules on Transparency in Treaty-based Investor-State
Arbitration (UNCITRAL Rules on Transparency), which came into force on 1
April 2014, were designed specifically for investor-State arbitrations.29 The rules
apply to investment arbitrations initiated under the UNCITRAL Arbitration Rules
pursuant to treaties concluded on or after 1 April 2014, unless the parties to the
treaty have agreed otherwise.30 In investor-State arbitrations initiated under the
UNCITRAL Arbitration Rules pursuant to a treaty concluded before 1 April 2014,
the Rules apply only when the disputing parties agree to their application in respect
of that arbitration, or the parties to the treaty or, in the case of a multilateral treaty,
25
26
Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22
(2005), https://icsid.worldbank.org/apps/icsidweb/cases/Pages/casedetail.aspx?caseno¼ARB/05/22
27
Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22,
Procedural Order No. 5, 50 (2 February 2007), https://icsid.worldbank.org/ICSID/FrontServlet?
requestType¼CasesRH&actionVal¼showDoc&docId¼DC1584_En&caseId¼C67
28
See the ICSID cases database, https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx
29
UNCITRAL, UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration,
http://www.uncitral.org/pdf/english/texts/arbitration/rules-on-transparency/Rules-on-Transpar
ency-E.pdf
30
Id. art. 1.1. The UNCITRAL Arbitration Rules were amended in 2013, inserting Article 1(4) that
expressly incorporates the UNCITRAL Rules on Transparency.
the State of the claimant and the respondent State, have agreed after 1 April 2014 to
their application.31 In order to facilitate the application of the UNCITRAL Rules
on Transparency to disputes arising under existing investment treaties, the United
Nations adopted the United Nations Convention on Transparency in Treaty-based
Investor-State Arbitration (the “Mauritius Convention on Transparency”) on 10
December 2014.32 The convention allows parties to investment treaties concluded
before 1 April 2014 to express their consent to apply the UNCITRAL Rules on
Transparency.33 It entered into force on 18 October 2017.34 Since the rules do not
apply to treaties concluded before 1 April 2014 unless State parties opt-into the
new rules, the convention aims at facilitating the opt-in process. The UNCITRAL
Transparency Rules are also available for use in investor-State arbitrations initiated
under rules other than the UNCITRAL Arbitration Rules or in ad hoc proceedings,
if the parties so agree.35
The UNCITRAL Rules on Transparency are a powerful example of how well-
accepted amicus curiae filings have become in modern legal instruments related to
investment arbitration. Benefitting from the stamp of the United Nations, and with
a scope of application potentially magnified by the Mauritius Convention on
Transparency, the amicus curiae rules constitute an unprecedented effort toward
transparency and openness of investment arbitration proceedings on a worldwide
scale. The possibility of non-disputing parties submitting written statements to
arbitral tribunals has also become more common in international investment
agreements.36 As a result of these changes, the participation of amicus curiae in
the proceedings is now firmly entrenched in both the law and practice of interna-
tional investment arbitration.
31
Id. art. 1.2.
32
The text of the convention is available at http://www.uncitral.org/uncitral/uncitral_texts/arbitra
tion/2014Transparency_Convention.html
33
United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, article 1.
34
See article 9(1) of the United Nations Convention on Transparency. On the status of the
Convention, see UNCITRAL, ‘Status: United Nations Convention on Transparency in Treaty-
based Investor-State Arbitration (New York, 2014)’ https://uncitral.un.org/en/texts/arbitration/con
ventions/transparency/status
35
UNCITRAL Transparency Rules, supra note 29, art. 1.9.
36
See e.g., the Dominican Republic-Central America FTA (CAFTA-DR), art. 10.20.3, https://ustr.
gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-central-america-fta/final-
text; the Canada-Peru Free Trade Agreement (Canada-Peru FTA), art. 836, https://www.interna
tional.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/peru-perou/fta-ale/
index.aspx?lang¼eng; the Singapore-Australia Free Trade Agreement (SAFTA), chapter 8, art. 28
(2) and (3), https://www.dfat.gov.au/trade/agreements/in-force/safta/official-documents/Pages/
default; Comprehensive and Economic Trade Agreement (CETA), Art. 8.38, https://ec.europa.eu/
trade/policy/in-focus/ceta/ceta-chapter-by-chapter; EU-Singapore Investment Protection Agree-
ment, chapter 4, Annex 8, art. 3, https://trade.ec.europa.eu/doclib/press/index.cfm?id¼961. See
e.g., Chaisse J, Donde R (2018) ‘The state of investor-state arbitration – a reality check of the issues,
trends, and directions in Asia-Pacific. The Int Lawyer 51(1):47–67.
Benefits
The main arguments used to justify the participation of non-disputing parties in

investment arbitration relate to the promotion of public interests.
First, amicus curiae participation increases the transparency of the investment
dispute resolution system.37 Because they have the potential to significantly affect
public interests, investment disputes should not be decided in a process that was
originally designed to address private controversies, focusing on commercial con-
siderations, without due regard to the importance of transparency for democratic
governance.38 In some cases the legitimacy of adjudicative decisions that affect
regulatory concerns requires views other than those of the investor and host State to
be represented in the process.39 The involvement of amicus curiae draws the general
public’s attention to a controversy that may have a significant impact on public
interests and public finances.40
The participation of third parties also promotes greater accountability of investor-
State arbitration.41 Investment claims are initiated by investors who challenge
measures adopted by the host State that the latter frequently argues were taken in
the public interest.42 Investment disputes have an inherent public component
because they involve private challenges to the State’s exercise of public power.43
The arbitral tribunal is called upon to scrutinize the conduct of the host State against
the standards of protection prescribed in international investment agreements.
Investment arbitration is not a sibling of commercial arbitration but rather a form
of internationalized “judicial review” of governmental actions that comprehensibly
37
See de Brabandere E (2014) Investment treaty arbitration as public international law: procedural
aspects and implications. Cambridge University Press, Cambridge 171; Knahr C, Reinisch A (2007)
Transparency versus confidentiality in international investment arbitration – the Biwater Gauff
compromise. Law Pract Int Courts Trib 6:97–118, 97; Levine E (2011) Amicus curiae in interna-
tional investment arbitration: the implications of an increase in third-party participation. Berkley J
Int Law 29:200–224, 206–207.
38
See Choudhury B (2008) Recapturing public power: is investment Arbitration’s engagement of
the public interest contributing to the democratic deficit? Vanderbilt J Transnatl Law 41:775–
832, 782.
39
See Van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press,
Oxford, pp 150–151.
40
Triantafilou E (2008) Amicus submissions in investor-state arbitration after Suez v. Argentina.
Arbitr Int 24:571–586, 575
41
See Bastin L (2012) The amicus curiae in investor-state arbitration. Cambridge J Int Comp Law
1:208–234, 227; Kawharu A (2010) Participation of non-governmental organizations in investment
arbitration as amici curiae. In: Waibel M et al (eds) The backlash against investment arbitration:
perceptions and reality. Kluwer Law International, Alphen aan den Rijn, pp 275–295, 285–286;
VanDuzer A (2007) Enhancing the procedural legitimacy of investor-state arbitration through
transparency and amicus curiae participation. McGill Law J 52:681–723, 685.
42
VanDuzer A (2007) Enhancing the procedural legitimacy of investor-state arbitration through
transparency and amicus curiae participation. McGill Law J 52:681–723, 684
43
Calamita J (2014) Dispute settlement transparency in Europe’s evolving investment treaty policy:
adopting the UNCITRAL transparency rules approach. J World Invest Trade 15:645–678, 649
triggers public interest and curiosity.44 The community has an interest in checking
that vital decisions are made using proper procedures and taking due account of
public interests. Amicus curiae participation may, therefore, help to address a
democratic deficit that has been identified in the system.45
Amicus curiae participation also increases the openness of investment treaty
arbitration to input from civil society.46 This is in line with the changing nature of
investment arbitration, where tribunals are increasingly required to settle disputes
that touch upon public interests.47 Matters of public interest are almost always at the
heart of the dispute because its subject matter impacts the provision of public
services such as water, waste management, electricity, or gas, and often touches
upon sensitive matters such as environmental protection, labor rights, and other socio-
political concerns – which are normally absent from international commercial arbitra-
tion. The participation of civil society in the proceedings is meant to safeguard the public
interests at stake and ensure the sensitivity of governmental entities toward the possible
consequences of the arbitral award.48 It also shows the community that investment
tribunals are cognizant of societal concerns such as the protection of public health or the
44
Blackaby N, Richard C (2010) Amicus curiae: a panacea for legitimacy in investment arbitration?
In: Waibel M et al (eds) The backlash against investment arbitration: perceptions and reality. Kluwer
Law International, Alphen aan den Rijn, pp 253–273, 255; Knahr C, Reinisch A (2007) Transpar-
ency versus confidentiality in international investment arbitration – the Biwater Gauff compromise.
Law Pract Int Courts Trib 6:97–118, 113
45
See Blackaby N, Richard C (2010) Amicus curiae: a panacea for legitimacy in investment
arbitration? In: Waibel M et al (eds) The backlash against investment arbitration: perceptions and
reality. Kluwer Law International, Alphen aan den Rijn, pp 253–273, 255–257; Choudhury B
(2008) Recapturing public power: is investment Arbitration’s engagement of the public interest
contributing to the democratic deficit? Vanderbilt J Transnatl Law 41:775–832, 814–818; Ragni C
(2014) The role of amicus curiae in investment disputes: striking a balance between confidentiality
and broader policy considerations. In: Treves T, Seatzu F, Trevisanut S (eds) Foreign investment,
international law and common concerns. Routledge, Abingdon, pp 86–98, 87; Triantafilou E (2008)
Amicus submissions in investor-state arbitration after Suez v. Argentina. Arbitr Int 24:571–586, 575;
Zoellner C (2007) Third-party participation (NGO’s and private persons) and transparency in ICSID
proceedings. In: Hofmann R, Tams C (eds) The international convention on the settlement of investment
disputes (ICSID): taking stock after 40 years. Nomos, Baden-Baden, pp 179–208, 200–201.
46
Dimsey M (2008) The resolution of international investment disputes: challenges and solutions.
Eleven International Publishing, Utrecht, pp 111–12; de Brabandere E (2011b) Non-state actors in
international dispute settlement: pragmatism in international law. In: d’Aspremont J (ed) Partici-
pants in the international legal system: multiple perspectives on non-state actors in international law.
Routledge, Abingdon, pp 342–343, 353; Levine E (2011) Amicus curiae in international investment
arbitration: the implications of an increase in third-party participation. Berkley J Int Law 29:200–
224, 217
47
See Newcombe A, Lemaire A (2001) Should amici curiae participate in investment treaty
arbitrations? Vindobona J Int Commer Law Arbitr 5:22–40, 40.
48
Alvarez G et al (2016) A response to the criticism against ISDS by EFILA. J Int Arbitr 33:1–36,
9–13; Triantafilou E (2008) Amicus submissions in investor-state arbitration after Suez v. Argen-
tina. Arbitr Int 24:571–586, 575–576
environment.49 The participation of non-disputing parties in the proceedings enlarges

the number of stakeholders taking part in the proceedings, allowing for the introduction
of public interests and common concerns in the arbitration system.50
Amicus curiae participation has also been justified as a way to help investment
tribunals render better awards.51 While arbitrators are required to have appropriate
qualifications and experience, this does not mean that they are necessarily able to
understand all the aspects of a dispute.52 Arbitral tribunals have limited capacity to
conduct their own research. Many NGOs and civil society groups have a unique
capacity to provide relevant information because of their substantial level of funding
and technical expertise,53 offering a low-cost tool for information gathering.54 Amici
curiae can provide the tribunal with expert scientific or technical knowledge,55 which
may be particularly important when the relevant issues are outside of the arbitrators’
areas of expertise.56 By bringing into the proceedings novel legal and factual
49
Mourre A (2006) Are amici curiae the proper response to the Public’s concerns on transparency in
investment arbitration? Law Pract Int Courts Tribu 5:257–271, 266
50
Magraw D, Amerasinghe N (2008) Transparency and public participation in investor-state
arbitration. ILSA J I Comp Law 15:337–360, 343–345; Ragni C (2014) The role of amicus curiae
in investment disputes: striking a balance between confidentiality and broader policy consider-
ations. In: Treves T, Seatzu F, Trevisanut S (eds) Foreign investment, international law and common
concerns. Routledge, Abingdon, pp 86–98, 87
51
American Law Institute and International Institute for the Unification of Private Law
(UNIDROIT), ALI/UNIDROIT Principles of Transnational Civil Procedure, Principle 13, comment
P-13A: “[t]he ‘amicus curiae brief’ is a useful means by which a nonparty may supply the court with
information and legal analysis that may be helpful to achieve a just and informed disposition of the
case.” Also, the submission may concern “important legal issues in the proceeding and matters of
background information.” – id., https://www.unidroit.org/instruments/transnational-civil-procedure
52
Gómez K (2012) Rethinking the role of amicus curiae in international investment arbitration: how
to draw the line favorably for the public interest. Fordham Int Law J 35:510–564, 544
53
See Knahr C (2011) The new rules on participation of non-disputing parties in ICSID arbitration:
blessing or curse? In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration.
Cambridge University Press, Cambridge, pp 319–337, 335; Ishikawa T (2010) Third party partic-
ipation in investment arbitration. Int Comp Law Q 59:373–412, 402–403; Tava V (2013) The role
of non-governmental organisations, peoples and courts in implementing international environmen-
tal Laws. In: Alam S et al (eds) Routledge handbook of international environmental law. Routledge,
Abingdon, pp 123–135, 126.
54
Boisson de Chazournes L (2004) Transparency and amicus curiae briefs. J World Invest Trade
5:333–336, 335; Magraw D, Amerasinghe N (2008) Transparency and public participation in
investor-state arbitration. ILSA J I Comp Law 15:337–360, 346
55
See Bartholomeusz L (2005) The amicus curiae before international courts and tribunals. Non-
State Actors Int Law 5:209–2, 211; de Brabandere E (2011a) NGOs and the “public interest”: the
legality and rationale of amicus curiae interventions in international economic and investment
disputes. Chic J Int Law 12:85–113, 106–107; Magraw D, Amerasinghe N (2008) Transparency
and public participation in investor-state arbitration. ILSA J I Comp Law 15:337–360, 346–347;
Shelton D (1994) The participation of nongovernmental organizations in international judicial
proceedings. Am J Int Law 88:611–642, 640.
56
Ishikawa T (2010) Third party participation in investment arbitration. Int Comp Law Q 59:373–
412, 402–403
information relevant to a decision, amici may help improve the epistemic quality of
decisions.57
A major benefit of amicus curiae participation is that it may draw the attention of
the tribunal to the broader implications of the decision beyond the particular interests
of the disputing parties.58 Oftentimes parties fail to introduce an accurate back-
ground of the dispute and their pleadings are insufficient to provide the tribunal with
an exhaustive picture of the issues involved.59 For different reasons, parties to the
dispute may lack either the necessary ability or the appropriate incentives to submit all
of the relevant facts,60 legal arguments, and policy implications to the tribunal.61
Amici can bring to the tribunal’s attention issues which may not be reflected in the
pleadings of either party and would otherwise be overlooked. Through amicus sub-
missions, the tribunal can have a more accurate picture of the political, social, and
economic consequences of the legal issues it is tasked with resolving.62 This is crucial
when matters under discussion touch upon crucial spheres of regulatory authority.63
57
arbitration. ILSA J I Comp Law 15:337–360, 346–347. See also Steffek J, Ferretti M (2009)
Accountability or “good decisions”? The competing goals of civil society participation in interna-
tional governance. Glob Soc 23:37–57, 52.
58
412, 403; Shelton D (1994) The participation of nongovernmental organizations in international
judicial proceedings. Am J Int Law 88:611–642, 618; Stern B (2011) The future of international
investment law: a balance between the protection of investors and the states’ capacity to regulate. In:
Alvarez J, Sauvant K (eds) The evolving international investment regime: expectations, realities,
options. Oxford University Press, New York, pp 174–191, 188
59
Paparinskis M (2012) Inherent powers of ICSID tribunals: broad and rightly so. In: Laird I, Weiler
T (eds) Investment treaty arbitration and international law. JurisNet, New York, pp 11–41, p 20
60
ALI/UNIDROIT Principles of Transnational Civil Procedure, supra note 51, Principle 13,
comment P-13D: “[p]rinciple 13 does not authorize third persons to present written submissions
concerning the facts in dispute. It permits only presentation of data, background information,
remarks, legal analysis, and other considerations that may be useful for a fair and just decision of
the case. For example, a trade organization might give notice of special trade customs to the court.”
61
Chinkin C, Mackenzie R (2002) Intergovernmental organizations as “friends of the court”. In:
Boisson de Chazournes L, Romano C, Mackenzie R (eds) International organizations and interna-
tional dispute settlement: trends and prospects. Transnational Publishers, New York, pp 135–162,
137; Ishikawa T (2010) Third party participation in investment arbitration. Int Comp Law Q
59:373–412, 393, 402; Shelton D (1994) The participation of nongovernmental organizations in
international judicial proceedings. Am J Int Law 88:611–642, 614–615; Wong J, Yackee J (2010)
The 2006 procedural and transparency-related amendments to the ICSID arbitration rules: model
intentions, moderate proposals, and modest returns. In: Sauvant K (ed) Yearbook of international
investment law and policy 2009–2010. Oxford University Press, New York, pp 233–273, 250–251.
62
Triantafilou E (2010) Is a connection to the “public interest” a meaningful prerequisite of third
party participation in investment arbitration? Publicist 5:38–46, 42
63
Bastin L (2012) The amicus curiae in investor-state arbitration. Cambridge J Int Comp Law
1:208–234, 224; Newcombe A, Lemaire A (2001) Should amici curiae participate in investment
treaty arbitrations? Vindobona J Int Commer Law Arbitr 5:22–40, 23
Potential Drawbacks
Opening up investor-State arbitration to participation from non-disputing parties

significantly impacts the philosophy that inspires this dispute settlement mechanism
and the structure on which it is sustained. Scholars and practitioners have expressed
apprehension about several possible negative effects of amicus curiae participation
in investment arbitration. The benefits of greater transparency, legitimacy, and
openness brought about by the introduction of mechanisms for third-party partici-
pation need to be weighed against any potential disadvantages. Those benefits can
only be achieved if amicus curiae participation creates added value and does not
undermine the purposes of the dispute settlement mechanism.
Subversion of the Consensual Nature of Arbitration
Whereas amicus intervention may serve beneficial purposes, it may also erode the
traditional basis of arbitral proceedings – the consent of the parties.64 Because this
may lead to loss of confidentiality and privacy,65 parties may prefer other dispute
settlement mechanisms to investor-State arbitration. As Aníbal Sabater noted,
“imposing limits on the opportunities for third parties to intervene in any given
arbitration is nothing but enforcing the parties’ original dispute resolution agree-
ment.”66 Third-party participation in investment arbitration is not always permitted.
When it is permitted, there are requirements that need to be met that have been
designed specifically to address concerns regarding the protection of confidential
information. Otherwise, the public nature of most investment disputes should prevail
over any concerns the parties have about loss of privacy.
Politicization of Disputes
A second frequent criticism is that the opening up of proceedings to civil society may
harden the parties’ positions, exacerbating disputes and making the peaceful settle-
ment of disputes more difficult.67 Amici may use their intervention to criticize the
64
Viñuales J (2007) Amicus intervention in investor-state arbitration. Dispute Resolut J 61:72–
81, 75
65
1:208–234, 225; Buys C (2003) The tensions between confidentiality and transparency in interna-
tional arbitration. Am Rev Int Arbitr 14:121–138, 134–135; Levine E (2011) Amicus curiae in
international investment arbitration: the implications of an increase in third-party participation.
Berkley J Int Law 29:200–224, 220.
66
Sabater A (2010) Towards transparency in arbitration (a cautious approach). Publicist 5:47–53, 51
67
Rubins N (2007) Opening the investment arbitration process: at what cost, for what benefit? In:
Hofmann R, Tams C (eds) The international convention on the settlement of investment disputes
(ICSID): taking stock after 40 years. Nomos, Baden-Baden, pp 213–231, 218
host State’s behavior, turning the proceedings into a political battlefield.68 This may
result in the case being decided also by the “court” of public opinion, re-politicizing
the dispute and thus undermining one of the main policy objectives behind investor-
State arbitration – the de-politicization of investment disputes.69 In some instances,
amici may even use the proceedings to voice their opposition to investment law and
investment arbitration in general, thus seeking to frustrate the goals of investment
law arbitration – the promotion and protection of foreign direct investment. Both
disputing parties have reasons to fear the politicization of the dispute. While host
States may be afraid of losing credibility as an investor-friendly country, investors
may fear the negative publicity resulting from NGO campaigns.70 Turning a legal
dispute into a political quarrel disturbs the normality of proceedings, reduces the
chances of settlement between parties, and may even reduce investor confidence in
the system, having a chilling effect on foreign investment.71
By granting an opportunity for civil society to access the dispute resolution
process, the amici curiae mechanism naturally entails a risk that the discussion
will become politicized. This risk, however, should not be overemphasized. First,
this risk already exists even if third parties are not allowed to intervene in the
proceedings. Some information about the dispute is likely to reach the public domain
whether investment arbitration is open to amici or not,72 potentially causing strong
public reactions.73 Moreover, if civil society is prevented from having access to the
proceedings, it may perceive investor-State arbitration as secret and suspicious. The
lack of access to the factual and legal issues under discussion may ignite debates of a
political nature that could be avoided or at least mitigated by providing the overall
community with a clear picture of the contours of the dispute. If the public has access
to more accurate and balanced information, the opportunity for political campaigns
against either the respondent State or the claimant is reduced.74 Second, if third
parties are granted access to the proceedings, it is expected that arbitrators will be
able to identify situations where third parties are shifting the discussion from the
68
Arbitr Int 24:571–586, 576
69
1:208–234, 225–226; Shihata I (1986) Towards a greater Depoliticization of investment disputes:
the roles of ICSID and MIGA. ICSID Review 1:1–25, 4; Triantafilou E (2010) Is a connection to the
“public interest” a meaningful prerequisite of third party participation in investment arbitration?
Publicist 5:38–46, 43.
70
Tienhaara K (2007) Third party participation in investment-environment disputes: recent devel-
opments. Rev Eur Comp Int Environ Law 16:230–242, 240
71
Levine E (2011) Amicus curiae in international investment arbitration: the implications of an
increase in third-party participation. Berkley J Int Law 29:200–224, 220–221
72
73
412, 399
74
legal or factual level to the political arena and arbitrators will then exercise their
powers to restrain the discussion to the dispute issues at hand.75
An open question involves the increasing involvement of entities of a different
nature, such as the European Union. In several cases, the European Commission has
requested authorization to participate in the proceedings in order to clarify issues
relating to the scope and content of European law related to the disputes.76 Being the
“guardian of the treaties,” the Commission has a vested interest in becoming
involved in such arbitrations.77 This is a significant development in that it means
that the grant of amicus curiae status is not limited to nongovernmental private
organizations.78 Naturally, the role played by these institutions is quite different from
that of traditional participants such as NGOs and civil society groups. The European
Commission is the European Union’s politically independent executive arm. As a
result, its participation in investment arbitration increases the possibility of the
politicization of investment disputes. It remains to be seen if there is indeed a risk
that arbitrators will cede to their political influence, to the detriment of the dispute
resolution process.79
The diversification in the typology of amici curiae presents a challenge for arbitral
tribunals. Regardless of their nature, arbitrators should only accept amici curiae who
meet the applicable requirements, and if they are allowed to intervene, their behavior
should be adjusted to the specific role that they are accorded in the proceedings.
Arbitrators are accustomed to monitoring the behavior of disputing parties and
enforcing the applicable rules when they abuse the rights granted to them. Arbitra-
tors should do the same regarding the intervention of non-disputing parties and
ensure that third parties do not undermine the many advantages brought about by
third-party participation in investment arbitration.
Increase in the Cost and Length of Arbitration
Time and cost-effectiveness are major concerns in any dispute resolution process.
One of the perceived advantages of arbitration is that it is faster and cheaper than
75
arbitration. ILSA J I Comp Law 15:337–360, 354–355
76
See Dias Simões F (2017) A Guardian and a friend? The European Commission’s participation in
investment arbitration. Michigan State Int Law Rev 25:233–303.
77
Knahr C (2011) The new rules on participation of non-disputing parties in ICSID arbitration:
Cambridge University Press, Cambridge, pp 319–337, 320
78
Bastin L (2014) Amici curiae in investor-state arbitration: eight recent trends. Arbitr Int 30:125–
143, 130
79
Knahr C (2011) The new rules on participation of non-disputing parties in ICSID arbitration:
Cambridge University Press, Cambridge, pp 319–337, 335–336
court proceedings. Parties to investment disputes attach great importance to these

factors, as most proceedings run several years and entail large costs.80 With the
introduction mechanisms for third-party participation, investment tribunals must
take into account the additional costs generated by the proceedings, including
extra time and money spent by the tribunal and the parties.81
Amicus participation disrupts the ordinary timeline of arbitration and can
severely slow down the proceedings since it requires both the parties and the
tribunal to expend time reviewing, evaluating, and, if necessary, responding to
amicus submissions.82 First, arbitrators have to determine whether a brief will be
accepted at all, then review the submission once made, and finally analyze whether
the contents of the submission are relevant to their decision.83 Parties may have to
comment on applications for amicus curiae status and, if the amicus curiae briefs
are accepted by the tribunal, respond to briefs.84 This all creates an additional
burden on parties who need to expend the effort to address facts and legal
arguments presented by the amicus curiae briefs,85 which may disorganize their
strategy.86 This burden can be quite significant for the party opposing the amicus
submission.87 In order not to jeopardize due process, the disputing parties ought to
be awarded sufficient time to react to written submissions, which prolongs the
80
81
Brower C (2010) The ethics of arbitration: perspectives from a practicing international arbitrator.
Publicist 5:1–31, 28–29
82
arbitration. ILSA J I Comp Law 15:337–360, 352
83
(ICSID): taking stock after 40 years. Nomos, Baden-Baden, pp 213–231, 218–219
84
to draw the line favorably for the public interest. Fordham Int Law J 35:510–564, 552; Newcombe
A, Lemaire A (2001) Should amici curiae participate in investment treaty arbitrations? Vindobona J
Int Commer Law Arbitr 5:22–40, 33
85
Balcerzak F (2012) Amicus curiae submissions in investor-state arbitrations. Common Law Rev
12:66–69, 66; Levine E (2011) Amicus curiae in international investment arbitration: the implica-
tions of an increase in third-party participation. Berkley J Int Law 29:200–224, 219
86
Hachez N, Wouters J (2013) International investment dispute settlement in the twenty-first
century: does the preservation of the public interest require an alternative to the arbitral model?
In: Baetens F (ed) Investment law within international law: integrationist perspectives. Cambridge
University Press, Cambridge, pp 417–449, 439
87
See Friedland P (2006) The amicus role in international arbitration. In: Lew J, Mistelis L (eds)
Pervasive problems in international arbitration. Kluwer Law International, Alphen aan den Rijn, pp
321–328, 328; Newcombe A, Lemaire A (2001) Should amici curiae participate in investment
treaty arbitrations? Vindobona J Int Commer Law Arbitr 5:22–40, 33
process.88 Delays are multiplied if a third party is given the opportunity to reply to
any critiques raised by the parties.89
Naturally, the extended length of proceedings resultant from third-party partici-
pation can raise the costs of arbitration,90 which will have to be borne by the
parties.91 From respondents’ perspective, greater costs may not be in the general
interest,92 especially when the party is a developing State. Increased costs and delays
risk turning arbitration into something too similar to judicial proceedings and
therefore less attractive for disputing parties.93 Furthermore, the concern regarding
costs and delays has another important dimension; if one party to the dispute is likely
to bear a greater proportion of the increased costs, this introduces inequality between
the parties.94
The additional burden created for disputing parties needs to be taken into account
by arbitral tribunals when deciding whether to accept amicus curiae submissions. As
stated by the tribunals in Suez/Vivendi v. Argentina and Suez/Interaguas v. Argen-
tina, the goal of rules regulating the procedure for amicus curiae participation is to
“enable an approved amicus curiae to present its views and at the same time to
protect the substantive and procedural rights of the parties. In this latter context, the
Tribunal will endeavor to establish a procedure which will safeguard due process and
equal treatment as well as the efficiency of the proceedings.”95 The expectable
increase in cost and length of the proceedings can be minimized by clear procedures
88
Knahr C (2007) Transparency, third party participation and access to documents in international
investment arbitration. Arbitr Int 23:327–356, 352
89
(ICSID): taking stock after 40 years. Nomos, Baden-Baden, pp 213–231, 218–219
90
91
See Bjorklund A (2009) The emerging civilization of investment arbitration. Penn State Law Rev
113:1269–1300, 1293; Gómez K (2012) Rethinking the role of amicus curiae in international
investment arbitration: how to draw the line favorably for the public interest. Fordham Int Law J
35:510–564, 553.
92
Hachez N, Wouters J (2013) International investment dispute settlement in the twenty-first
century: does the preservation of the public interest require an alternative to the arbitral model?
In: Baetens F (ed) Investment law within international law: integrationist perspectives. Cambridge
University Press, Cambridge, pp 417–449, 439
93
to draw the line favorably for the public interest. Fordham Int Law J 35:510–564, 553; Levine E
(2011) Amicus curiae in international investment arbitration: the implications of an increase in
third-party participation. Berkley J Int Law 29:200–224, 220
94
Bastin L (2012) The amicus curiae in investor-state arbitration. Cambridge J Int Comp Law
1:208–234, 225
95
Supra note 13, 20 and Suez, Sociedad General de Aguas de Barcelona S.A. & InterAguas
Servicios Integrales de Agua S.A. v. Argentine Republic, ICSID Case No. ARB/03/17, Order in
Response to a Petition for Participation as Amicus Curiae, 28 (17 March 2006), https://icsid.
worldbank.org/ICSID/FrontServlet?requestType5CasesRH&actionVal5showDoc&docId5DC512_
En&caseId5c18.
for when and how amici may participate.96 On the other hand, it is important to
recognize that the arbitral tribunal may receive information that is highly relevant to
the resolution of the dispute at no direct cost to either party, as amici, unlike experts,
are not remunerated for their services.97 As a result, the potential benefits of third-
party participation may well outweigh the additional expenses that it imposes.
Concerns About the Representativeness and Accountability of Amici
Another major source of concern has to do with the levels of representativeness and
accountability of those applying for amici curiae status. The identity of amici curiae
may be extremely varied. Amicus curiae definitions normally do not make any
reference to a specific category of individuals or organizations who may end up
playing the role of “friends of the court.” It is not adequate for arbitral rules or
investment treaties to limit ex ante the typology of subjects allowed to submit amicus
briefs. The perspectives advocated by the amici curiae may be so diverse that there
should be ample personal legitimation in this field.98
In most cases, the non-disputing parties who apply for participation in investment
arbitration proceedings are NGOs and civil society groups.99 Professional associa-
tions, trade unions, private companies, scholars, law school clinics, and law firms
have also applied for amicus curiae status.100 More recently, intergovernmental
organizations – notably, the European Union, through the European Commission –
have also requested authorization to take part in investment arbitrations when they
have an interest in contributing to the interpretation of a certain international legal
instrument. This makes sense as public international organizations play a fundamen-
tal role in promoting public interest issues, which frequently relate to the dispute.
While amici are normally organizations, individuals and groups of individuals have
also applied to take part in the proceedings, albeit not frequently.101 The singularity
96
97
See Bennaim-Selvi O (2005) Third parties in international investment arbitrations: a trend in
motion. J World Invest Trade 6:773–807, 804; Tienhaara K (2007) Third party participation in
investment-environment disputes: recent developments. Rev Eur Comp Int Environ Law 16:230–
242, 240.
98
to draw the line favorably for the public interest. Fordham Int Law J 35:510–564, 556
99
See Kawharu A (2010) Participation of non-governmental organizations in investment arbitration
as amici curiae. In: Waibel M et al (eds) The backlash against investment arbitration: perceptions
and reality. Kluwer Law International, Alphen aan den Rijn, pp 275–295, 276, 281–282.
100
Gómez K (2012) Rethinking the role of amicus curiae in international investment arbitration:
how to draw the line favorably for the public interest. Fordham Int Law J 35:510–564, 556
101
Kawharu A (2010) Participation of non-governmental organizations in investment arbitration as
amici curiae. In: Waibel M et al (eds) The backlash against investment arbitration: perceptions and
reality. Kluwer Law International, Alphen aan den Rijn, pp 275–295, 276
or plurality of the petitioner is not the only essential factor to give greater or lesser
relevance to the submission.102
A person or entity that is not a disputing party has legitimacy to apply for amicus
curiae status if they have a significant interest in the arbitral proceedings. Third-party
participation in investment arbitration depends upon the existence of a relevant
interest in the dispute, making it necessary to inquire about the interests pursued
by potential amici. This concept encompasses in broad terms any individual or
organization that does not have a direct interest in a dispute and is not acting in a
shareholder capacity, but wishes to represent people or groups who cannot advocate
for themselves and might be affected by the decision of the arbitral tribunal.103
Normally, applicants claim to represent the interests of all or part of the civil
society.104 Amici therefore introduce themselves as advocates for the environment,
public health, workers’ rights, and other social concerns. The problem is that there is
no mechanism to ensure that potential amici do actually represent these “public
interests.”105 Most applicants for amicus curiae status are NGOs. However, these
organizations vary considerably in their composition and purposes.106 It is often
difficult to determine exactly what their intentions are and what interests they
represent.107 NGOs often promote limited interests of a commercial or industrial
nature108 that differ from the promotion of broad public interests. These organiza-
tions may feel tempted to use the amicus curiae mechanism to forward their own
agendas109 under the guise of public-benefit mission statements.110 The interests of
non-disputing parties might conflict with the interests of the disputants. Decisions on
which interests should prevail will have to be made.111 The participation of private
102
103
Ayad M (2012) The quest for the holy grail of social justice: substantive & procedural law
provisions for amicus curiae in investor-state ICSID arbitration law & practice. Macquarie J Bus
Law 9:17–29, 25
104
Mourre A (2006) Are amici curiae the proper response to the Public’s concerns on transparency
in investment arbitration? Law Pract Int Courts Tribu 5:257–271, 266
105
See Bjorklund A (2009) The emerging civilization of investment arbitration. Penn State Law Rev
113:1269–1300, 1292–1293; Viñuales J (2006) Human rights and investment arbitration: the role of
amici curiae. Int Law 8:231–274, 245
106
See, e.g., Lindblom A (2005) Non-governmental organisations in international law. Cambridge
University Press, Cambridge, p 36.
107
108
See, e.g., Willetts P (2011) Non-governmental organizations in world politics: the construction of
global governance. Routledge, Abingdon, p 31.
109
arbitration. ILSA J I Comp Law 15:337–360, 355
110
Arbitr Int 24:571–586, 576
111
actors pursuing private interests may, at its extreme, “unfairly displace the interests
of the masses by those of a few.”112
If an organization applies for amicus curiae status claiming to represent a public
interest, the tribunal needs to make sure that the applicant has a proper mandate to
represent that interest.113 On the other hand, if the applicant does not claim to
represent a public interest, a question emerges: should potential amici curiae be
required to demonstrate a close connection between their intervention and the
protection of broad public interests?114 This will depend on the specific language
used in arbitral rules or investment treaties. Some investment treaties and arbitral
rules link the notion of amicus curiae to public interest issues. There are divergent
views on the scope of intervention of amici when they do not claim to promote
public interests.
According to one perspective, the intervention of civil society in investment
arbitration should be justified by any dispute peculiarities that exceed the interests
of the host State and investor.115 The potential legitimizing role of amicus curiae can
only be limited to representing the “public interest,” or at least an interest distinct
from corporate, or State interests. From this perspective, a core value of the amicus
curiae lies in its contribution of public interest expertise rather than representative-
ness per se. Therefore, applicants should demonstrate their ability to contribute to the
tribunal’s appreciation of public interest considerations.116 The application of this
criterion can prevent baseless submissions that would constitute a burden to the
arbitral process.117
From a different perspective, the participation in investment arbitration proceed-
ings of amici who pursue “commercial” or “industrial” interests should not neces-
sarily be excluded. In World Trade Organization cases, for instance, many of the
amicus curiae briefs which have been accepted were not directly linked to public-
interest matters as such.118 By accepting arguments from amici that have different
112
Durling J, Hardin D (2005) Amicus curiae participation in WTO dispute settlement: reflections
on the past decade. In: Yerxa R, Wilson B (eds) Key issues in WTO dispute settlement: the first ten
years. Cambridge University Press, Cambridge, pp 221–231, 228
113
114
115
de Brabandere E (2011a) NGOs and the “public interest”: the legality and rationale of amicus
curiae interventions in international economic and investment disputes. Chic J Int Law 12:85–
113, 113
116
reality. Kluwer Law International, Alphen aan den Rijn, pp 275–295, 286–287
117
118
5:333–336, 334
purposes and perspectives, tribunals may furnish themselves with a wider range of
grounds for decision.119 Furthermore, if the issue involves balancing the foreign
investor’s economic interests and the public interests of the host State, excluding
submissions from commercial NGOs would be contrary to the equality of parties.120
This perspective acknowledges that non-commercial NGOs such as environmental
and human rights groups often support the position of the host State, while com-
mercial NGOs such as Chambers of Commerce normally support the position of
foreign investors. In any case, arbitral tribunals should exercise control over third-
party participation and limit their intervention when amici seek to abuse their right to
intervene.121
Regardless of whether amici pursue public interests or promote more limited,
sectorial goals, it is necessary to ensure their transparency and accountability.
Arbitral tribunals need to understand the motives and background of potential
amici so they can properly assess the content of their submissions.122 Failure to do
so might grant access to undesirable and inadequate participants that waste parties’
and arbitrator’s time, and ultimately undermine the legitimacy of investment arbi-
tration instead of reinforcing it.123 Third-party participation can only help to enhance
the legitimacy of this dispute settlement mechanism if those parties are legitimate,
transparent, and accountable interveners. The nature of the interests of the potential
amici, therefore, must be carefully considered by arbitral tribunals.124 While some
suggest the establishment of different levels of participation among the amici, taking
119
412, 400
120
412, 400
121
See Buckley R, Blyschak P (2007) Guarding the open door: non-party participation before the
international centre for settlement of investment disputes. Banking Financ Law Rev 22:353–376,
371; Chinkin C, Mackenzie R (2002) Intergovernmental organizations as “friends of the court”. In:
Boisson de Chazournes L, Romano C, Mackenzie R (eds) International organizations and interna-
tional dispute settlement: trends and prospects. Transnational Publishers, New York, pp 135–162,
154; Ishikawa T (2010) Third party participation in investment arbitration. Int Comp Law Q
59:373–412, 400–401.
122
reality. Kluwer Law International, Alphen aan den Rijn, pp 275–295, 285–287
123
See Boisson de Chazournes L (2004) Transparency and amicus curiae briefs. J World Invest
Trade 5:333–336, 334; Kawharu A (2010) Participation of non-governmental organizations in
investment arbitration as amici curiae. In: Waibel M et al (eds) The backlash against investment
arbitration: perceptions and reality. Kluwer Law International, Alphen aan den Rijn, pp 275–295,
286–287; Viñuales J (2007) Amicus intervention in investor-state arbitration. Dispute Resolut J
61:72–81, 75.
124
ALI/UNIDROIT Principles of Transnational Civil Procedure, supra note 51, Principle 13,
comment P-13B: “[t]he court may require a statement of the interest of the proposed amicus.”
into account their interest in the case,125 the truth is that general rules in this regard
would be difficult to implement.126
Aside from the connection between the interests and activities of potential amici
and the specific characteristics of the dispute at hand, some authors argue that the
representativeness of potential amici should be taken into account.127 Normally, the
leadership of an NGO is not elected by its membership, yet these organizations claim
to have political legitimacy.128 While the representative character of civil society
groups is frequently assumed, this assumption may be flawed.129 The legitimacy of
NGOs as amici curiae has been attacked for their lack of accountability to their
members for the views they present on behalf of the NGO,130 and the reduced
transparency and democracy of their internal decision-making processes.131 Further-
more, it is often not clear whether they have a political mandate and whether such a
mandate is narrow or broad.132
Arbitral tribunals need to assess the motives behind the intervention of potential
amicus curiae. Applicants should submit detailed information about their identity,
operations, purpose, and history. The tight requirements established by the tribunal
in Suez/Interaguas v. Argentina should ease some of the concerns about the account-
ability of organizations submitting requests to intervene in investment arbitra-
tions.133 While it is not realistic to expect that an arbitral tribunal will thoroughly
assess the representability of NGOs,134 potential amici should always be required to
convince the tribunal that they meet the necessary requirements to be accepted as
125
See, e.g., Levine E (2011) Amicus curiae in international investment arbitration: the implications
of an increase in third-party participation. Berkley J Int Law 29:200–224, 222.
126
127
128
5:333–336, 334
129
Blackaby N, Richard C (2010) Amicus curiae: a panacea for legitimacy in investment arbitra-
tion? In: Waibel M et al (eds) The backlash against investment arbitration: perceptions and reality.
Kluwer Law International, Alphen aan den Rijn, pp 253–273, 269
130
131
See Brower C (2003) Structure, legitimacy, and NAFTA’s investment chapter. Vanderbilt J
Transnatl Law 36:37–94, 73; Boisson de Chazournes L (2004) Transparency and amicus curiae
briefs. J World Invest Trade 5:333–336, 334.
132
5:333–336, 334
133
134
amici. Naturally, the tribunal retains the discretion to reject submissions where there
are doubts about the applicant’s background and qualifications.135
Potential Impact on Party Equality
Another concern is that amicus curiae participation might affect the balance between
the disputing parties. Amicus curiae are supposed to be “friends of the tribunal,” who
volunteer to assist the tribunal in reaching a sound decision. If amici disproportion-
ately favor one of the disputants, this may upset the balance between the positions of
the claimant and respondent. Amici tend to support one of the disputing parties.136
This may force the other side to respond to a disproportionate number of opposing
submissions,137 requiring more effort and expense into its representation.138 Nor-
mally amici support the respondent State’s position in their submissions,139 though
in some cases they also intervene to support the claimant.140 The interests of
investors are often in conflict with those of civil society,141 which may create a
disadvantage for claimants. The participation of non-disputing parties may substan-
tially increase the burden on claimants who have to review the amicus briefs and
rebut them. As they stand to benefit from amicus intervention, host States may feel
tempted to use amici as a tool to pressure the investor.142 This may even propel
135
412, 400–401
136
Bjorklund A (2009) The emerging civilization of investment arbitration. Penn State Law Rev
113:1269–1300, 1293
137
Brower C (2010) The ethics of arbitration: perspectives from a practicing international arbitrator.
Publicist 5:1–31, 28–29
138
139
See Magraw D, Amerasinghe N (2008) Transparency and public participation in investor-state
arbitration. ILSA J I Comp Law 15:337–360, 355; Rubins N (2007) Opening the investment
arbitration process: at what cost, for what benefit? In: Hofmann R, Tams C (eds) The international
convention on the settlement of investment disputes (ICSID): taking stock after 40 years. Nomos,
Baden-Baden, pp 213–231, 216; Wälde T (2010) Procedural challenges in investment arbitration
under the shadow of the dual role of the state: asymmetries and tribunals’ duty to ensure, pro-
actively, the equality of arms. Arbitr Int 26:3–42, 33.
140
141
Arbitr Int 24:571–586, 577; Viñuales J (2007) Amicus intervention in investor-state arbitration.
Dispute Resolut J 61:72–81, 75
142
Wälde T (2010) Procedural challenges in investment arbitration under the shadow of the dual
role of the state: asymmetries and tribunals’ duty to ensure, pro-actively, the equality of arms. Arbitr
Int 26:3–42, 33–34
claimants to try to reply by mobilizing their own supporters in an attempt to balance

the interests presented by third parties,143 which also requires substantial effort.144
The existence of an imbalance between supporters of the State over those of the
investor creates the risk that arbitral tribunals can feel pressured to accept the
arguments introduced by amici and thus prioritize the State’s position.145
The exact role that amici curiae should play and whether it should be character-
ized by impartiality is a central issue. It is axiomatic that amici should have an
interest in the dispute – but the question remains whether they should be independent
from the dispute. Another related question is whether they should solely be a friend
of the tribunal, or whether they may be a friend of one of the parties? According to
the Principles of Transnational Civil Procedure, amici can be either disinterested or
partisan.146 Taking into account that most amici are NGOs and special interest
groups, it is unrealistic to expect that they will not openly endorse the position
of one of the parties.147 While amici are not expected to be indifferent to the dispute,
or even take the side of one of the parties, they should not be stand in for a party, or
directly connected to them.148 Even though amici may make submissions that favor
the position of one of the parties, they are expected to remain independent. In other
words, while the amicus cannot be expected to be neutral in its attitude toward
foreign investment, it should arguably remain a friend of the tribunal, not of either
one of the parties.149 If clearly biased and partisan entities are authorized to take part
in arbitral proceedings, this opens the door to the re-politicization of investment
disputes, potentially disrupting the arbitral proceedings.150
143
144
Wälde T (2010) Procedural challenges in investment arbitration under the shadow of the dual
role of the state: asymmetries and tribunals’ duty to ensure, pro-actively, the equality of arms. Arbitr
Int 26:3–42, 33
145
Mackenzie R (2005) The amicus curiae in international courts: toward common procedural
approaches? In: Treves T et al (eds) Civil society, international courts and compliance bodies. TMC
Asser Press, The Hague, pp 295–314, 299
146
See ALI/UNIDROIT Principles of Transnational Civil Procedure, supra note 51, principle 13,
comment P-13A.
147
Blackaby N, Richard C (2010) Amicus curiae: a panacea for legitimacy in investment arbitra-
tion? In: Waibel M et al (eds) The backlash against investment arbitration: perceptions and reality.
Kluwer Law International, Alphen aan den Rijn, pp 253–273, 272–273
148
Crema L (2012) Testing amici curiae in international law: rules and practice. Italian Yearb Int
Law 22:91–132, 114
149
See Bartholomeusz L (2005) The amicus curiae before international courts and tribunals. Non-
State Actors Int Law 5:209–2, 280; Mourre A (2006) Are amici curiae the proper response to the
Public’s concerns on transparency in investment arbitration? Law Pract Int Courts Tribu 5:257–
271, 269.
150
reality. Kluwer Law International, Alphen aan den Rijn, pp 253–273, 273; Rubins N (2007)
Opening the investment arbitration process: at what cost, for what benefit? In: Hofmann R, Tams
C (eds) The international convention on the settlement of investment disputes (ICSID): taking stock
It is clear that amici should not confuse their role with that of parties.151 However,
it is difficult to determine with rigor the precise contours of the role of amicus curiae
in investment arbitration. Investment treaties and arbitral rules normally focus on the
existence of a relevant interest as a necessary condition for third parties to intervene
in the proceedings but are silent on whether they should remain strictly independent
from parties’ positions. In any case, there is a difference between independence from
the parties and merely a closeness to the disputing parties’ arguments. An amicus
curiae should not be expected to be independent in the same way as an expert or a
witness because they have a purported interest in the outcome of the dispute.
However, they should be expected to put forward their point of view in a way
which is independent from the parties’ procedural strategies.152
It is clear that amicus curiae should not have a connection to the disputing parties
that casts a shadow of doubt over their independence, autonomy, or trustworthiness.
In order for the tribunal to be able to assess the potential amicus’ credibility, the
amicus should be required to disclose any relationship with, or assistance from the
parties.153 Amici should not have been invited to participate by one of the parties,
and should certainly not be financed by one of them. These requirements are
necessary to avoid manipulations that could be detrimental to the fairness and
transparency of the process, turning the friend of the tribunal into a clear friend of
one of the parties.154
Conclusion
The consolidation of the concept of amicus curiae in the realm of investment

arbitration which has taken place over the last two decades resulted from a 180-
degree spin in the way this dispute settlement mechanism is perceived and operated.
There is now a consensus that the confidential atmosphere of commercial arbitration
– after which investor State arbitration was originally modeled – is incompatible
after 40 years. Nomos, Baden-Baden, pp 213–231, 217–219; Triantafilou E (2008) Amicus sub-
missions in investor-state arbitration after Suez v. Argentina. Arbitr Int 24:571–586, 576–577.
151
ALI/UNIDROIT Principles of Transnational Civil Procedure, supra note 51, principle 13,
comment P-13B: “[a]n amicus curiae does not become a party to the case but is merely an active
commentator.”
152
153
A related question regards the existence of possible connections between those preparing or
submitting amicus briefs and those connected in some way to the dispute such as lawyers,
witnesses, judges, or staff. Since the field of international investment arbitration is very specialized,
there are a limited number of professionals working in this area, causing the existence of connec-
tions between them to be more common than could be expected. See Gómez K (2012) Rethinking
the role of amicus curiae in international investment arbitration: how to draw the line favorably for
the public interest. Fordham Int Law J 35:510–564, 557.
154
with the public interest nature of most investment disputes. The problems dealt with
by investment tribunals are often societal challenges and for that reason civil society
wants to have access to the decision-making process.
Civil society is now an actor on its own right in the development of the law and
practice of international investment law. The importance of NGOs, civil society
groups, and even individuals is likely to increase, as the development of the
investor-State dispute mechanism will more and more involve, if not require, a
multi-stakeholder process that takes into account the concerns of civil society,
reflecting the pluralistic nature of modern societies.155 Amicus curiae is filling a
gap in regulatory order by placing certain issues on the political agenda, and
contesting the very future of that regulatory order by their actions.156 The nature
of investor-State arbitration justifies an extended measure of public participation.
When crucial public interests are involved, public interest groups and NGOs should
be given a fair and adequate opportunity to voice their concerns about the possible
impact of the arbitral award in the community at large.
The actual impact of amicus curiae briefs on the outcome of the proceedings is
difficult to assess.157 Past practice shows that even when amicus curiae briefs are
accepted, tribunals seldom refer to them.158 Their impact in the final award is, in
many cases, negligible.159 Tribunals seem to be more motivated by procedural than
substantive reasons.160 This focus on the appearance of legitimacy is troubling.
Allowing third-party participation just to soothe public criticism, while materially
disregarding their input, does not contribute to higher levels of transparency and
155
Sauvant K, Ortino F (2013) Improving the international investment law and policy regimes:
options for the future. Ministry for Foreign Affairs of Finland, p 45. http://ccsi.columbia.edu/files/
2014/03/Improving-The-International-Investment-Law-and-Policy-Regime-Options-for-the-
Future-Sept-2013.pdf.
156
Muchlinski P (2008) Policy issues. In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford
handbook of international investment law. Oxford University Press, New York, pp 3–48, 8
157
de Brabandere E (2013) Human rights considerations in international investment arbitration. In:
Fitzmaurice M, Merkouris P (eds) The interpretation and application of the European convention on
human rights: legal and practical implications. Martinus Nijhoff, Leiden, pp 183–215, 214
158
reality. Kluwer Law International, Alphen aan den Rijn, pp 253–273, 271; Schliemann C (2013)
Requirements for amicus curiae participation in international investment arbitration: a deconstruc-
tion of the procedural wall erected in joint ICSID cases ARB/10/25 and ARB/10/15. Law Pract Int
Courts Tribu 12:365–390, 389.
159
increase in third-party participation. Berkley J Int Law 29:200–224, 217; Tava V (2013) The role of
non-governmental organisations, peoples and courts in implementing international environmental
Laws. In: Alam S et al (eds) Routledge handbook of international environmental law. Routledge,
Abingdon, pp 123–135, 126; Kinnear M (2005) Transparency and third party participation in
investor-state dispute settlement. Organisation for Economic Cooperation and Development, p 7.
http://www.oecd.org/investment/internationalinvestmentagreements/36979626.pdf.
160
increase in third-party participation. Berkley J Int Law 29:200–224, 212
legitimacy of arbitral proceedings. Civil society groups are probably not going to be
pleased to simply voice their concerns if their voices do not truly resonate in the
arbitrators’ minds. Investment arbitration is unlikely to be perceived as more legit-
imate if civil society actors begin to suspect that the system only pays lip service to
the goals of transparency and legitimacy161 or that greater non-disputing party
participation serves as mere window dressing.162
Whether amicus curiae participation will fulfill its potential depends on how each
arbitral tribunal uses amicus submissions. The relevance and efficiency of non-
disputing party participation is not only in the hands of those wishing to make use
of this mechanism but also of arbitral panels, who can benefit from their technical
assistance but also get a glimpse of wider common concerns frequently knotted to
the dispute. The importance of provisions on amicus curiae as a tool to promote the
openness of investment arbitration to the concerns and anxieties of civil society will
depend, therefore, on a continued effort by arbitral tribunals to promote the interac-
tive nature of investment arbitration, as a dispute resolution mechanism that does not
operate in a techno-legal silo but accommodates the concerns of the disputing parties
as well as the legitimate expectations of external actors – national and international
communities. This perpetual effort of improvement of the system will become more
and more relevant as the scope of international economic law expands and the
implications for national policies become more intense.
161
reality. Kluwer Law International, Alphen aan den Rijn, pp 253–273, 271; Ishikawa T (2010) Third
party participation in investment arbitration. Int Comp Law Q 59:373–412, 408.
162
Schliemann C (2013) Requirements for amicus curiae participation in international investment
arbitration: a deconstruction of the procedural wall erected in joint ICSID cases ARB/10/25 and
ARB/10/15. Law Pract Int Courts Tribu 12:365–390, 389
Third-Party Funding in Investment
Arbitration 54
Stavros Brekoulakis and Catherine A. Rogers
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1398
Existing State of TPF Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1399
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1403
Evolving Character of TPF and Definitional Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1403
Address Definitional Challenges: Functional Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1405
Potential Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1409
General Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1409
Security for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1411
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1421
Abstract
Modern forms of Third-party funding or Third-party financing (TPF) are no
longer new to international arbitration. Recent years have seen significant
increases in the number of funders, the number of funded cases, the number of
law firms working with funders, and the number of reported cases involving
issues relating to funding. As a result, third-party funding has increasingly drawn
the attention of commentators and scholars, and even more recently of arbitral
The Authors were both co-chairs, together with William W. (Rusty) Park, of the ICCA-Queen Mary
Task Force on Third-Party Funding in International Arbitration. This chapter draws from their
experience in that capacity and from the Report that was ultimately published by the Task Force,
which is cited in the pages that follow
S. Brekoulakis (*)
Queen Mary University of London, London, UK
e-mail: s.brekoulakis@qmul.ac.uk
C. A. Rogers
Penn State Law School, University Park, PA, USA
e-mail: car36@psu.edu

https://doi.org/10.1007/978-981-13-3615-7_75
1398 S. Brekoulakis and C. A. Rogers
institutions, national regulatory authorities, and State trade negotiators. This

chapter offers an overview of the existing state of regulation of TPF and focuses
on the two most important areas which implicate TPF and ISDS, namely conflicts
of interest and security for costs.
Keywords
Third Party Funding · International Treaty Arbitration · Conflicts of Interests ·
Ethics · Security for Costs
Introduction
Modern forms of Third-Party Funding or Third-Party Financing (TPF)1 are no

longer new to international arbitration. Recent years have seen significant increases
in the number of funders, the number of funded cases, the number of law firms
working with funders, and the number of reported cases involving issues relating to
funding. As a result, third-party funding has increasingly drawn the attention of
commentators and scholars, and even more recently of arbitral institutions, national
regulatory authorities, and State trade negotiators.
Debates over third-party funding in the field of investment arbitration in particular are
closely linked to the different structural views about the overarching purpose of invest-
ment itself and the role of investment treaty arbitration. On one side of the debate,
investment arbitration may be regarded as a legitimate process only to the extent it
facilitates sustainable development. Under this view, certain categories of cases are
considered directly objectionable, and the overall rise in the number of cases has also
been an independent cause for concern. For related reasons, the profit incentive of third-
party funders is often regarded as inherently incompatible. The notion that some amounts
recovered from States would go to third-party funders, instead of solely to investors, is
considered inconsistent with the goal of promoting sustainable development.
On the other side of the debate, investment arbitration is regarded as an essential
means of providing recourse for foreign investors when governments act in ways
that violate applicable treaty-based protections for their investments. Under this
view, third-party funding is regarded as an essential tool for facilitating access to
justice, particularly for that class of investors who have been wrongfully expropri-
ated and therefore lack the means to pursue an investment claim in the absence of
third-party funding.
In a related vein, others argue that investor-claimants should not have to forego
business opportunities by using their own capital to pursue recourse caused by
wrongful conduct by a State. Alternative means of financing claims allows claimants
to minimize continued harm from the alleged misconduct by States and strategically
reduce the risks of pursuing the claims. Funders also argue, more generally, that
1
The terms “third-party funding” and “third-party financing” are used interchangeably in this
Chapter.
54 Third-Party Funding in Investment Arbitration 1399
modern third-party funding is not conceptually or economically distinct from alter-

native means of financing claims, such as corporate loans or contingency fees, and
should not therefore be singled out for different treatment.
Overall, the very existence of third-party funding has been a uniquely divisive
issue in investment arbitration, which explains why this issue has become a central
topic in the discussions and potential reforms in a number of national policy makers
who currently revisit national model BITs, as well as in ICSID, which is currently in
the process of amending its rules, and of course in the UNCITRAL Working Group
III.
In terms of organization and structure, this chapter starts with an overview of the
existing state of regulation of TPF (section “Existing State of TPF Regulation”), it
proceeds with a discussion on the complex question of definitions (section “Defini-
tions”), and it then focuses on the two most important areas which implicate TPF and
ISDS, namely conflicts of interest (section “Potential Conflicts of Interest”) and
security for costs (section “Security for Costs”).
Existing State of TPF Regulation
Despite the extensive public discourse and legal scholarship, in the last decade in
particular, surrounding the role and potential implications of TPF in international
arbitration, regulation of TPF varies considerably even within jurisdictions of the
same legal tradition, such as common law jurisdictions.
In Ireland, for example, maintenance and champerty are both criminal offences
and civil torts, and have been since the 1600s. The Irish Supreme Court in May 2017
reaffirmed the prohibition holding (with a clear majority of 4-1) that a third-party
funding agreement between a claimant and an English third-party funder violates the
laws on maintenance and champerty under ancient statutes from the fourteenth
century to the Maintenance and Embracery Act 1634. Importantly, the Irish Supreme
Court rejected the view that it should harmonize the old position of the common law
on maintenance with recent developments on litigation funding and modern policy
considerations such as the constitutional right of access to justice.2
Despite having reaffirmed the position of the common law prohibition of third-
party funding, however, a number of Irish Justices expressed their disquiet over
some important implications that such prohibition gives rise to. For example, Clarke
J. noted that “it is difficult to take an overview of the circumstances of this case
without a significant feeling of disquiet” observing that “it is at least arguable that
there is a very real problem in practice about access to justice [which] is growing.”
Importantly too, the Justices invited the Irish legislator to act upon and regulate
third-party funding in the future to address the conflicting considerations
2
Supreme Court Judgment Persona Digital Telephony Limited & Sigma Wireless Networks Limited
v The Minister for Public Enterprise, Ireland and the Attorney General [2017] IESC 27.
underpinning the doctrine of maintenance, on the one hand, and the right of access to
justice on the other.
For example, McKechnie J. noted that it would be preferable to defer the making
of an order on this matter “until such time as the State has been given an opportunity
to address the deeply disturbing situation of the appellants being unable to prosecute
this action solely because of the continuing existence of ancient principles of law,
such as those of maintenance and champerty,” and observed that “the outcome of
this case is manifestly troublesome from the perspective of the giving of effect to the
constitutional right of access to the courts.”
Ireland is in many respects rather unique. Other common law jurisdictions today
take a different, arguably more progressive, approach to third-party funding, and
have introduced reforms to expressly permit third-party funding in international
arbitration. Notably, Singapore and Hong Kong have now enacted legislative
reforms to permit third-party funding arrangements that were previously prohibited,
while, at the same time, they establish certain disclosure obligations for funded
parties, as well as ethical and other standards for counsel and third-party funders.3
In 2017, Singapore amended its law to permit third-party funding in relation to
prescribed dispute resolution proceedings under certain conditions and qualifica-
tions.4 Regulation 4 of the Civil Law (Third-Party Funding) Regulations of 2017 sets
out a number of qualifications for funders including the requirement that the funder
“must carry on the principal business, in Singapore or elsewhere, of the funding of
the costs of dispute resolution proceedings to which the third party funder is not a
party” and must have “a paid-up share capital of not less than S$ 5 million or the
equivalent amount in foreign currency or not less than S$ 5 million or the equivalent
amount in foreign currency in managed assets.”5
In June 2017, Hong Kong enacted the Arbitration and Mediation Legislation
(Third-party funding) (Amendment) Ordinance 2017 (Amendment Ordinance)
which expressly permits third-party funding arrangements that had been previously
prohibited under the doctrines of champerty and maintenance.6 Importantly, in
3
See Chan M, Secomb M, Tan P (2016) Third-party funding: a new chapter in Hong Kong &
Singapore, 29 July. Available at http://www.jdsupra.com/legalnews/third-party-funding-a-new-
chapter-in-40360/
4
Civil Law (Amendment) Act 2017 was passed by Parliament on 10 January 2017. See Henderson
A, Waldek D (2016) Singapore arbitration update: third-party funding and new SIAC Rules 2016.
Herbert Smith Freehills Arbitration Notes, 1 July. Available at https://hsfnotes.com/arbitration/
2016/07/01/singapore-arbitration-update-third-party-funding-and-new-siac-rules-2016/
5
Section 2 of the Civil Law (Amendment) Act 2017 to amend the Civil Law Act (Chapter 43 of the
1999 Revised Edition) (the “Act”) and to make a related amendment to the Legal Profession Act
(Chapter 161 of the 2009 Revised Edition), passed 10 January 2017 and assented by the President
on 3 February 2017 (“Civil Law (Amendment) Act 2017”).
6
It is currently unclear in Hong Kong whether the doctrines of maintenance and champerty apply to
third-party funding for arbitrations taking place in Hong Kong: see the Court of Final Appeal
judgment in Unruh v. Seeberger (2007) 10 HKCFAR 31, at para. 123 where the Court expressly left
open this question. While earlier in Cannonway Consultants Limited v. Kenworth Engineering Ltd,
[1995] 2 HKLR 475, Judge Kaplan had held that the law of champerty did not extend to arbitration,
February 2019, the Hong Kong government published the Code of Practice for Third
Party Funders, which was foreshadowed in the 2017 legislation. The Code is a
significant piece of regulation of third-party funding activities, setting out standards
and practices which third-party funders must follow in order to be permitted to
operate in the Hong Kong arbitration market. These standards include the require-
ment that the funders maintain access to minimum capital of HK $20 million,
maintain the capacity to “pay all debts when they become due and payable,” and
maintain the capacity to “cover all of its aggregate funding liabilities under all of its
funding agreements for a minimum period of 36 months.” The Code further prohibits
that a funder seeks “to influence the funded party or the funded party’s legal
representative to give control or conduct of the arbitration to the third-party funder,
except to the extent permitted by law.” Importantly, the Code sets outs clear pro-
visions on conflict of interest, requiring funders to “maintain, for the duration of the
funding agreement, effective procedures for managing any conflict of interest that
may arise in relation to activities undertaken by the third party funder in relation to
the funding agreement.” Such procedures include the duty of the funder to monitor
the funders’ operations in order to identify and assess potential conflicting interests
and protecting the interests of funded parties.
In England and Wales, maintenance and champerty do not constitute criminal
offences and civil torts, but only since the introduction of the Criminal Law Act
1967. At the same time, England and Wales have not passed formal regulation on
third-party funding, which is subject to self-regulation in the form of a voluntary
Code of Conduct for Litigation Funders (Code) which was adopted in January 2014
by the Association of Litigation Funders.7 While the Code refers expressly to
“litigation funding,” it is generally accepted that the Code includes arbitration.8
Specifically, the Code provides:
Litigation funding is where a third party provides the financial resources to enable costly
litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to
cover its legal costs from a private commercial litigation funder, who has no direct interest in
the proceedings. In return, if the case is won, the funder receives an agreed share of the
proceeds of the claim. If the case is unsuccessful, the funder loses its money and nothing is
owed by the litigant.9
later in Unruh v. Seeberger, (2007) 10 HKCFAR 31, at para. 123, the Court did not refer to this
aspect of Judge Kaplan’s judgment. Accordingly, the permissibility of third-party funding with
respect to arbitration in Hong Kong had been subject to uncertainty. See para. 1.6 of “The Law
Reform Commission of Hong Kong Final Report on Third-party funding for Arbitration” (October
2016). Available at http://www.hkreform.gov.hk/en/publications/rtpf.htm
7
See Nieuwveld B, Sahani S (2012) Third-party funding in international arbitration. Kluwer, p 114.
8
See Article (2.4) of the Code of Conduct for Litigation Funders (January 2014). Available at http://
www.associationoflitigationfunders.com/wp-content/uploads/2014/02/Code-of-conduct-Jan-2014-
Final-PDFv2-2.pdf; Osmanoglu B (2015) Third-party funding in international commercial arbitra-
tion and arbitrator conflict of interest. J Int Arbitr 32:325, at p 338
9
See Association of Litigation Funders, definition. Available at http://www.associationoflitiga
tionfunders.com/litigation-finance
This definition is binding on all members of the Association, typically commer-

cial funders,10 and mainly aims to regulate nonrecourse funding of individual cases.
At the same time, the Code sets out a number of requirements for funders, notably
that all funders retain a minimum of £2 million of capital and that they be audited by
a recognized law firm. The Code also provides a dispute resolution procedure in case
a disagreement over certain terms of third-party funding agreement arises. For
example, Article 13.2 of the Code requires that, in case a dispute arises between
the funder and the funded party over termination, “a binding opinion shall be
obtained from a Queen’s Counsel who shall be instructed jointly or nominated by
the Chairman of the Bar Council.” Only if the Queen’s Counsel agrees with the
funder that it is lawful to terminate, will the Termination Notice be valid.
Other jurisdictions have more recently enacted legislation on third-party funding.
For example, the Chief Justice of Abu Dhabi Global Market Courts, acting under
powers delegated to him by the Board of Directors of Abu Dhabi Global Market,
prescribed the Litigation Funding Rules 2019 in April 2019.11 Notable requirements
here include the requirement for funders “to carry on as a principal business the
funding of proceedings to which the Funder is not a party” and to have qualifying
assets of not less than US$5 million or the equivalent amount in foreign currency.
Further, under the Litigation Funding Rules 2019, a funder “must not be owned
(whether wholly or partly, and whether directly or indirectly, and whether by way of
shares or otherwise) by a lawyer or a law firm: (a) who has introduced or referred
the Funder to a client in relation to the proceedings; or (b) whose client has a
Litigation Funding Agreement in force with the Funder in relation to ongoing
proceedings.” Finally, the Litigation Funding Rules 2019 includes regulation on
conflicts of interest, providing that “the Litigation Funding Agreement must not
contain any terms that: (a) could induce the Funded Party’s lawyer or law firm to
breach their professional duties which are owed to the Funded Party or to ADGM
Courts including under the ADGM Courts Rules of Conduct; or (b) [. . .] allow the
Funder to influence the lawyer or law firm so that it takes control of the dispute or
assumes conduct of it” and that “Litigation Funding Agreements which include more
than one Funded Party must include provisions for managing conflicts of interest
between the Funder, the Funded Parties and the lawyers.”
Further sources of regulation of third-party funding come from arbitration insti-
tutions, professional codes of practices, including the International Bar Association
for the Conflicts of Interest, as well as a number of International Trade and Invest-
ment Agreements. These forms of regulation are in a considerable state of flux and
new amendments mainly concern issues of conflicts of interest, which are discussed
in detail in the relevant section below.
10
See Article (2) of the Code of Conduct for Litigation Funders (November 2011). Available at
http://www.associationoflitigationfunders.com/wp-content/uploads/2014/02/CodeofConductfor
LitigationFundersNovember20111.pdf
11
The enactment was effected under section 225(3)(a) and (d) of the ADGM Courts, Civil Evidence,
Judgments, Enforcement and Judicial Appointments Regulations 2015.
Definitions
Evolving Character of TPF and Definitional Challenges
Any effort to regulate requires a definition of the object to be regulated. The precise
definition of third-party funding, however, remains elusive. Even funders themselves
disagree over the precise definition of third-party funding, with some arguing that it
is not capable of definition.12
Third-party funding is difficult to define because various forms of financing
claims and paying for legal expenses have long existed and many such forms are
similar to or definitionally overlap with modern forms of third-party funding. In
some jurisdictions, contingency fee arrangements facilitate legal representation and/
or cover claimants’ expenses. Although rarely referenced explicitly as a form of
third-party funding, law firms are nonparties that advance costs and waive payment
of valuable fees contingent on the outcome of a case.
Similarly, modern third-party funding can be functionally similar to, serve pur-
poses similar to, and operate as a market alternative for before-the-event (BTE),
after-the-event (ATE), or traditional liability insurance. Some third-party funders are
providing products that are effectively a form of ATE insurance, and ATE insurance
is often purchased contemporaneously with entering into a third-party funding
agreement.
The definition of third-party funding is also difficult because of the wide range of
funding models that already exist and the rapid evolution and introduction of new
models, including some designed to get around efforts to define. Funding may be
structured through corporate debt or equity, as risk-avoidance instruments, or full
transfers of the underlying claims or through “special purpose vehicles” (SPVs).13
Equity investing by third-party funders is also increasingly common. Under this
mode, a funder purchases shares of a company (often one that is in financial distress)
and then assumes seats on its Board. In that context, the funder (or its SPV) would be
directly providing funding as an owner/shareholder. Under this scenario, neither the
party nor the shareholder would be receiving funding from an outside source, which
would make most traditional definitions inapplicable and may raise practical
12
This confusion is apparent even at a terminological level. As one commentator describes, ‘[t]he
nomenclature to describe this kind of third-party capital investment in arbitration or litigation claims
is all over the map and woefully undescriptive. It has been referred to as “third-party funding”,
“third-party litigation funding or financing”, or most commonly “alternative litigation funding or
financing”’. Destefano M (2012) Non-lawyers influencing lawyers: too many cooks in the kitchen
or stone soup. Fordham L Rev 80:2791, at p 2794
13
See Sebok AJ (2011) The inauthentic claim. Vand L Rev 64:61, at pp 63–67. See Veljanovski C
(2011) Third-party litigation funding in Europe. J L Econ Pol 8:405, at p 430 (“[Third-party
litigation funding investors] rely on Special Purpose Vehicles, which . . . are legal entities created
for . . . the acquisition, financing, or both, of a project or the setup of an investment. They are usually
used because they are free from pre-existing obligations and debts, and are separate from the parties
that set them up for tax and insolvency purposes.”).
questions about the identity of the funder and the application of particular rules to a
funder.14
More recently, “law firm financing” and “portfolio funding” have emerged as new
models to fund an identified range of cases involving a particular party or law firm.
In the latter instance, funding is provided to the law firm, not the party, which can
raise additional practical, ethical and definitional challenges. One additional com-
plexity with law firm and portfolio funding is that one portfolio of cases can be
identified to receive funding, while another portfolio is the basis for a funder’s return
or securitization of its investment. In that case, funding may be provided for one
case, but a funder may not have any interest in the actual outcome of that particular
case. More recently, funded cases and particularly portfolios of funded cases can be
“refinanced,” meaning a second third-party funder (or multiple other investors) can
invest in a portfolio or a “bundle” of cases of another funder.
Meanwhile, third-party funders may become involved either before a claim is
filed or later in the process.15 Some funders specialize only in award execution or
funding for expert witness costs, while others fund all costs, including a potential
adverse award of costs. These distinctions raise questions about potential enforce-
ment of any regulation imposed on funders, which must necessarily impose an
ongoing duty to be effective.
While most funders invest in claims, it is also possible to invest on the respon-
dent’s side of the case. For example, in the investment arbitration brought by Philip
Morris against Uruguay, The Bloomberg Foundation and its “Campaign for
Tobacco-Free Kids” provided outside financial support for the Uruguayan govern-
ment.16 Such arrangements involve the funding of a case by a third party, but funding
is for a respondent (not claimant) and the funder’s interest was tied to the political
and policy implications of the award (not financial). Other types of respondent-side
funding, more functionally similar to after-the-event insurance, have been discussed,
but the general consensus is that such funding models are at best occasional and
perhaps only hypothetical.
14
For example, just as excessive repeat appointment of an individual arbitrator by a party or law firm
can be a basis for challenging that arbitrator, under the IBA Guidelines on Conflicts of Interest in
International Arbitration repeat appointment of an arbitrator by the same third-party funder can raise
similar challenges. See IBA Guidelines 3.1.3. If funding is done through a special purpose vehicle
created for the particular case, it may mask the repeated appointment by a particular third-party
funder that owns the SPV.
15
See Kantor M (2009) Third-party funding in international arbitration: an essay about new
developments. ICSID Rev 24:65, at p 74; Trusz JA (2013) Full disclosure? Conflicts of interest
arising from third-party funding in international commercial arbitration. Georgetown Law J
101:1649, at p 1654; Chaisse J, Eken C (2020) The monetization of investment claims: promises
and pitfalls of third-party funding in investor-state arbitration. Del J Corp Law 44(2):463–509
16
See Press Release by Uruguay’s Counsel, Foley HOAG LLP (2010) Government of Uruguay
Taps Foley Hoag for representation in international arbitration brought by Philip Morris to overturn
country’s tobacco regulations, p 8 (October 2010). Available at http://www.foleyhoag.com/news-
and-events/news/2010/october/uruguay-taps-foley-hoag-for-representation
Respondent States can also be funded by another State or, as has been reported
anecdotally by some funders, have their costs for defense or for counterclaims
funded through a model similar to after-the-event insurance. There has also been
at least one case in which a respondent State was funded by an oil company that had
a competing claim to the oil rights being sought by the investor in the funded case.17
In sum, developing a complete a complete definition of third-party funding is
associated with significant challenges, but it is necessary nevetheless. The nature of
policy concerns may shift considerably depending on the funding models. Similarly,
the extent and nature of the definition may change depending on the regulatory
context. The definition adopted as a target of disclosure obligations for the purpose
of identifying potential arbitrator conflicts of interest may differ from the definition
adopted for the purpose of prohibiting funding.
Address Definitional Challenges: Functional Approach
Given difficulties in defining third-party funding in conceptual terms, this section

examines functional and comparative aspects of funding that may be helpful in
assessing alternative definitions. This functional approach aims to move beyond
formal definitions to determine the key functions of different means of financing
disputes in order to focus on those functions that are unique or not unique to third-
party funding.
By identifying specific types of conduct, rather than conceptual categories, a
functional or conduct-based approach may help avoid development of overly broad
or unduly narrow standards, guidelines, or rules. A functional analysis may also
facilitate more nuanced analysis to distinguish between conduct in which funders’
activities do not raise issues that are or should be the target of such rules and
guidance. Alternatively, functional similarities between third-party funding and
other types of finance may provide a basis for extending existing rules or doctrines
that apply to other actors. For example, the need to assess cases in both contexts is
part of the reason why some jurisdictions have extended the common interest
privilege from the insurance industry to third-party funding.18
Case Assessment and Risk-Assumption: Insurance and Funding Portfolio

One important benefit third-party funders bring to dispute settlement is an ability to
engage in a disinterested, dispassionate, and highly detailed assessment of claims.
This function is necessary for their decision to fund a case, but differs from now
either a client or its attorney may assess a case. A client, no matter how sophisticated,
17
See Cabrera Diaz F. RSM Production Corp. files second arbitration against Grenada, sues
Freshfields. Available at https://www.iisd.org/itn/2010/04/08/rsm-production-corp-files-second-
arbitration-against-grenada-sues-freshfields/
18
For an analysis of the common interest privilege for insurers and related privilege extended to
third-party funders, see Chapter 5, pp 133–135.
may be influenced by business incentives and subjective perceptions about the facts
underlying the claim. Meanwhile, a party’s lawyers may, intentionally or
unintentionally, be influenced both by an effort to please a client interested in
bringing a claim and their own potential to earn hourly fees. By contrast, funders
and traditional insurers have both structural detachment and financial incentives to
engage in a uniquely independent assessment that, by many accounts, leads to an
assessment of the case that is distinctly fine-tuned.
Leading funders report an average review-acceptance rate of 10-1, meaning that
for every 10 cases reviewed, they only agree to fund one case.19 In deciding whether
to accept a case, they assess its legal, factual, practical, temporal, and (sometimes)
political variables to determine risks, likelihood of success, and potential rate of
return. In making assessment, funders are free from many of the pressures that can
cloud a party’s or law firm’s assessment of the same claim. They are also subject to
pressures from shareholders to pick claims that are likely to deliver high rates of
return.
In assessing claims, some argue that funders bring a level of sophistication and
precision unique even among large, sophisticated multinational companies and law
firms.20 There have also been anecdotal reports, however, of inadequate due dili-
gence or inaccurate assessments in particular cases.21 In addition, one point repeat-
edly raised is that effective risk assessment is most feasible by the leading
commercial third-party funders, which have considerable expertise and experience
with international arbitration. Moreover, in the case of funders that are not sophis-
ticated commercial funders, but, for example, may become involved for policy-
related reasons, risk assessment may not be part of their calculus in deciding to fund
an arbitration.
To assess risk, commercial third-party funders generally create a risk-assessment
model or matrix that takes into account the percentage likelihood of different out-
comes in light of specific factors. These factors include, among others, the jurisdic-
tion of the claim, strength of the claimant’s legal arguments, strength of facts
supporting the arguments, extent of loss flowing directly from the respondent’s
conduct, a claimant’s motivation, commitment and honesty, the experience of the
claimant’s legal team, the respondent’s ability/likelihood to pay, reasonable duration
to obtain an award, and costs of bringing the claim.
Data for the matrix is obtained through due diligence by the funder, its legal team,
and accountants (and other experts, such as intelligence and data recollection). The
analysis entails inquiries of the claimant’s lawyers regarding timing and evidentiary
issues, legal strategy, and compilation and assessment of material documents.
19
Veljanovski, “Third-Party Litigation Funding in Europe”, p 420
20
See Smith M. Chapter 2: Mechanics of third-party funding agreements: a funder’s perspective, pp
28–35. Available at http://www.calunius.com/media/7098/mechanics%20of%20third-party%
20funding%20agreements%20(mick%20smith%20-%202012).pdf; Veljanovski, “Third-Party Lit-
igation Funding in Europe”, pp 418–420
21
See, e.g., Blackett R. Still stuck in the stone: third party funding in the Excalibur case. Available at
https://www.andrewskurth.com/insights-1491.html
Importantly, conducting this kind of due diligence often requires assessment of

information that might otherwise be subject to privileges under applicable law.
Based on this matrix, the funder determines the likelihood of estimated returns on
investment over a period of years, which will be weighed against other investments
in the funder’s overall portfolio.
It is uncertain the extent to which these case assessment procedures are as
rigorous when cases are financed as part of a portfolio. “Portfolio financing” is a
relatively new model that may challenge some of these basic features of conven-
tional third-party funding. As one funder describes, “the portfolio approach is
inherently flexible and ideally suited for defensive matters as well as claims, and
for matters that would otherwise be less attractive for funding. Pricing is generally
lower because risk is diversified.”22
Diversifying risk may make initial assessment of risk less essential. As a conse-
quence, it is at least plausible that the assessment criteria are diluted when invest-
ment is made through a portfolio, which is designed to spread the risk of higher risk
investments.
In portfolio financing, the rationale is apparently similar to contracting risks in the
insurance industry. Indeed, in the words of one author, the “practice has shown that
the losses can be offset by the wins across the board and as long as the value of the
winning cases is greater than the amount expended on a losing case, the funder will
make a profit.”23
Similarly, spreading the risk in terms of volume and quantity reduces the negative
consequences of an unsuccessful portfolio. In this sense, a funder may well provide
funds for 20 or more cases at a time, each of them with different chances of success
and different amounts at stake. The funder may anticipate that it will likely lose some
of those cases, but considers the overall investment will likely be worthwhile if
success is achieved in a sufficient number of cases to render the overall portfolio
profitable. At the same time, a loss incurred in a case will be unlikely to affect the
performance of the portfolio as a whole.
It is unclear the extent to which portfolio funding involves only international
arbitration cases, as opposed to a mix of international arbitrations in a mix with
domestic litigation cases.24 No evidence has become publicly available regarding
other funders actively engaging in portfolio funding exclusively in international
arbitration, apart from anecdotal evidence of defense-side portfolio funding of States
in investment arbitration.
To the extent portfolio funding becomes more prevalent, it may require recon-
sideration of issues relating to how cases are assessed for funding. If assessment (and
22
Burford Capital. Beyond litigation finance. Available at http://www.burfordcapital.com/wp-con
tent/uploads/2016/09/Burford-Beyond_Litigation_Finance-US_Web.pdf. See also Chaisse J, Eken
C (2020) The monetization of investment claims: promises and pitfalls of third-party funding in
investor-state arbitration. Del J Corp Law 44(2):463–509
23
See Rowles-Davies N (2014) Third-party litigation funding. Oxford University Press, p 72
24
See Reisman S. Burford clinches portfolio funding deal with UK firm. Available at https://www.
law360.com/articles/949613/burford-clinches-portfolio-funding-deal-with-uk-firm
control) are minimized in certain types of portfolio funding, it may be that that
funding model more resembles other forms of passive corporate financing that do not
implicate certain issues implicated in third-party funding of individual cases.
Control and Cost Containment

Another functional consideration that may affect whether or how to regulate third-
party funding is the level of control that a funder may exercise over case strategy,
particularly in its efforts to control costs. Control over case management is not
viewed as either an inherently good or bad feature of funding, but it may be relevant
in evaluating certain issues such as how similar modern third-party funding is to
other means of dispute financing, which may in turn affect analysis of certain issues,
such as disclosure and conflicts.
In some jurisdictions, the exercise of control by a funder – particularly over a
case’s larger objectives like settlement – can also raise ethical issues for counsel. As
national ethical rules vary considerably both on whether and how they regulate these
issues, it is difficult to consider or endeavor to articulate any guidance about attorney
obligations in light of funder control. The extent, nature, and conditions of control
are largely a function of the funding agreement negotiated by the party and funder,
applicable law, and, in some jurisdictions, applicable ethical or industry rules.
Unfortunately, there are inconsistent reports and no empirical evidence regarding
the actual degree of control that funders exercise over management of a case. Some
funders report that, after careful initial assessment, they function only as distant and
detached monitors who are entitled to receive regular updates.25 Other anecdotal
reports indicate that, on more than one occasion, a third-party funder has directly
appointed an arbitrator or physically appeared at an arbitral hearing.
Meanwhile, some argue that a relatively high degree of control would be impor-
tant for funders to be able to protect their investment and ensure that a case is
prosecuted consistent with the assumptions and analysis that facilitated the funding
in the first place. This view has effectively been endorsed by the Court of Appeal in
England, which reasoned that a third-party funder’s “rigorous analysis of law, facts
and witnesses, consideration of proportionality and review at appropriate intervals’
is what is to be expected of a responsible funder.”26
Consistent with this view, third-party funders may control or exercise detailed
oversight over numerous strategic decisions in a case, including arbitrator selection,
expenditure of significant funds (such as retention of experts), changes in legal
teams, drafting of memoranda, oral pleadings, and settlement. The extent to which
any particular funder in any particular case exercises all or some of these controls
will depend on internal practices and protocols of the funder, the nature of the case,
the professional relationship the funder has with the funded party and legal team, the
25
Molot J. “Theory and practice in litigation risk” and “Burford has no control over litigation or
settlement decisions and it does not interfere with the attorney client relationship”. Available at
http://rippmedia.com/Molot-TheoryandPractice.pdf
26
Excalibur Ventures v. Texas Keystone and others [2016] EWCA Civ 1144.
financial terms in the funding agreement (which may include financial incentives
that reduce the need for monitoring), as well as specific provisions in the funding
arrangement that either expressly authorize or limit certain forms of control.
Termination rights also factor into concepts of control. As Jonas von Goeler
explains: “when some major litigation funders emphasise in their webpages that they
do not control cases, perhaps what they mean is that such express contractual rights
to veto specific decisions tend to be absent. However, to what degree a litigation
funder will be able to exercise control over the conduct of a claim is not only
determined by the existence or not of express veto rights over key decisions. This
will also depend on the funder’s termination rights and, not least, on the configura-
tion of the litigation funder’s case monitoring.”27 Good funding agreements set clear
expectations and conditions regarding termination of the funding relationship.
Potential Conflicts of Interest
General Observations
Potential arbitrator conflicts of interest were among the first and most prominent
issues that attracted attention with respect to third-party funders’ participation in
international arbitration. More specifically, questions have arisen as to whether, how,
to what extent and by whom disclosures should be made to allow arbitrators, parties,
and institutions to assess potential conflicts of interest involving funders.
Concerns about potential conflicts of interest have increased as a number of
leading arbitrators have taken positions within, or ad hoc consultant roles with,
some funders.28 Other sources for concern about potential conflicts include the
increasing number of cases involving third-party funding, the highly concentrated
segment of the funding industry that invests in investment arbitration, the symbiotic
relationship between funders and a small group of law firms, and related links among
elite law firms and some leading arbitrators.29
Until relatively recently, there was debate about whether it was even possible for
funders, or at least certain types of funding arrangements, to create conflicts of
interest for arbitrators. Third-party funding, it had been argued, could not raise
potential conflicts of interest because it is simply one among many possible forms
of financial support for pursuing or defending a dispute. The source of financing for a
dispute is irrelevant to the merits of the dispute, the argument went, and conse-
quently there was no reason to treat third-party funding as subject to any special
27
von Goeler J (2016) Third-party funding in international arbitration and its impact on procedure.
Kluwer, p 35
28
It has also been reported by funders that they are occasionally approached directly by arbitrators
or arbitration experts to provide such advice.
29
See Goldstein M (2011) Should the real parties in interest have to stand up? Transnat Dispute
Manag 4:7
treatment that would not apply, for example, to a corporate loan taken out for the
purpose of pursuing a claim.30 This line of argument has largely faded from public
discussions, but it did preview continuing challenges to define third-party funding in
light of the expansion and evolution in funding models.
Opposition to disclosure, some funders explain, is not so much related to
maintaining their presence or identity as secret. It is instead a reaction to perceived
procedural and strategic consequences of disclosure, such as allegedly frivolous
challenges to arbitrators and unfounded requests for security for costs.31 It was also
suggested by some that these responses to disclosure may not simply be a matter of
case strategy, but an intentional effort to drive up the cost of the case to make the
funding model untenable.
It has also been argued that unknown conflicts of interest cannot be a basis of an
effective challenge to an arbitrator or an award. Some, though not all, courts have
found that unknown conflicts cannot be a basis for refusing enforcement of awards.32
Even though a resulting award may not always be subject to set aside or refused
enforcement, there are other potential costs to undisclosed conflicts.
A conflict of interest relating to a third-party funder may be initially unknown, but
discovered later in the process, with the result being the removal of an arbitrator or an
effective challenge to the award that costs the parties and the funder waste time and
money. An arbitrator may suffer the embarrassment of a public questioning of his or
her integrity. And finally, the integrity and legitimacy of international arbitration may
suffer generally. It is for these reasons that legal frameworks and practices regarding
arbitrator conflicts are not based on a see-no-evil model, but instead on an affirmative
duty for arbitrators to investigate potential conflicts.
Today the prevailing consensus in the international arbitration community is that
that the existence of third-party funding can raise potential conflicts of interest for
arbitrators, and therefore the identity of funders should be disclosed.
Existing sources that govern potential arbitrator conflicts of interest are numerous
and include arbitral rules, national law, and international soft law instruments, such
as the IBA Guidelines on Conflicts. More recently in the context of proposals for
amendment of the ICSID Rules, proposed Rule 13 introduces an obligation for a
party to disclose the name of any nonparty from which the party, its affiliate, or its
30
See Maniruzzaman M (2011) Third-party funding in international arbitration – a menace or
panacea? Kluwer Arbitration Blog (29 December 2011). Available at http://kluwerarbitrationblog.
com/2012/12/29/third-party-funding-in-international-arbitration-a-menace-or-panacea/?doing_wp_
cron¼1503332583.8441140651702880859375
31
For an extended discussion of standards for granting security for costs, see ICCA-Queen Mary
Task Force Report on Third-Party Funding International Arbitration, ICCA Reports No. 4 (2018),
Chapter 6, and for an extended discussion of competing views in the underlying policy debate, see
Chapter 8 of the same ICCA-Queen Mary Task Force Report.
32
Globally, there is some disagreement about the effect of an arbitrator’s lack of knowledge of a
conflict. In the United States, the approach of US courts is summarized in the Reporters’ Notes to
the Restatement: “Some courts have taken the view that an absence of knowledge about a conflict
per se precludes a finding of evident partiality.”
representative has received funds or equivalent support for the pursuit or defense of
the proceedings.33 Notably, the party is obliged to make the disclosure upon regis-
tration of the request for arbitration or immediately upon concluding a third-party
funding arrangements after registration. This requirement will then allow the arbi-
trators, when accepting an appointment, to make a fully informed declaration of their
independence and/or disclose any relationship with any funder.
Given that modern third-party funding is a relatively recent phenomenon, how-
ever, many of these sources have not yet specifically addressed the issue of potential
conflicts of interest involving third-party funding.
The IBA was the first organization to formally address issues relating to third-
party funding conflicts by implementing the 2014 IBA Guidelines on Conflicts of
Interest in International Arbitration. As examined in greater detail below, the IBA
Guidelines define third-party funders and insurers as relevant to conflicts analysis if
they have a “direct economic interest” in an award. This definition, however, still
leaves unresolved some questions regarding the scope and application of the IBA
Guidelines to certain types of dispute financing.
A definition similar to the IBA definition has subsequently been adopted by the
Singapore International Arbitration Centre in its Practice Note34 and the 2 February
2016 Guidance Note on conflict disclosures by arbitrators adopted by the ICC.35
Other sources, such as recent legislative reforms in Hong Kong and Singapore, as
well as proposed Bilateral Investment Treaties and trade agreements, have adopted
different definitions. ICSID is also, as of the time of this writing, grappling with new
definitions to capture the range of interests that may be implicated in funding
arrangements.
Security for Costs
There are two main doctrinal questions which arise in connection to TPF and
security for costs. The first, and more straightforward, question is whether arbitral
tribunals have the power to award security for costs. Here, it is generally accepted36
that arbitral tribunals have the power to award security for costs either pursuant to
legal provisions which expressly authority the issuance of security for costs orders
33
See proposed Article 21 in ICSID Working Paper (March 2019) paras 121 et seq.
34
Singapore International Arbitration Centre Practice Note, PN – 01/17 (31 March 2017), Admin-
istered Cases under the arbitration rules of the Singapore International Arbitration Centre, On
Arbitrator Conduct in Cases Involving External Funding (31 March 2017). Available at http://www.
siac.org.sg/images/stories/articles/rules/Third%20Party%20Funding%20Practice%20Note%2031%
20March%202017.pdf
35
See ICC Note to Parties and Arbitral tribunals on the Conduct of the Arbitration under the ICC
Rules of Arbitration (22 September 2016) p. 5, at para. 24; Note to parties and arbitral tribunals on
the conduct of the arbitration under the ICC Rules of Arbitration (1 March 2017) para. 24. Available
at https://iccwbo.org/publication/note-parties-arbitral-tribunals-conduct-arbitration
36
Born, International Commercial Arbitration, pp 2494–2495
(e.g., under the English Arbitration Act 1996)37 or pursuant to general provisions on
interim measures.38
In relation to ISDS arbitration proceedings under the ICSID Rules in particular, it
has been noted that one of the reasons why the general clause on interim measures
contained in Article 47 ICSID Convention should cover security for costs is that,
when the ICSID Convention was drafted in 1965, “issues such as third-party funding
and thus the shifting of the financial risk away from the claiming party were not as
frequent, if at all, as they are today.”39
The proposals for amendment of the ICSID Rules include a specific provision on
security for costs granting ICSID tribunals the authority to “order any party asserting
a claim or counterclaim to provide security for costs” upon request of a party.40
Even if express legal provisions allow arbitral tribunals to grant orders for
security for costs, it has been argued that a tribunal will still have the power to
order security for costs on the basis of its inherent power to preserve the integrity of
the proceedings.41
The second and more complex doctrinal question is whether the fact that a party is
funded by a third-party funder affects the tribunal’s decision on security for costs.
Before we discuss the doctrinal considerations surrounding this issue, it is worthy
addressing an important preliminary question with regard to whether States have a
protected right to security for costs under ICSID arbitration in the first place.42
37
Section 38(3) of the English Arbitration Act 1996 provides that “The tribunal may order a
claimant to provide security for the costs of the arbitration.” See also Article 25.2 of the 2014
LCIA Rules providing that “[t]he Arbitral tribunal shall have the power upon the application of a
party, after giving all other parties a reasonable opportunity to respond to such application, to
order any claiming or cross-claiming party to provide or procure security for Legal Costs and
Arbitration Costs by way of deposit or bank guarantee or in any other manner and upon such terms
as the Arbitral tribunal considers appropriate in the circumstances.”
38
See, e.g., French Code of Civil Procedure (2011), Art. 1468; Swiss Private International Law Act
(2017), Art. 183(1); German Code of Civil Procedure, (2013) Art. 1041(1)
39
RSM Production Corporation v. Saint Lucia, (ICSID Case No. ARB/12/10) Decision on Saint
Lucia’s Request for Security for Costs (13 August 2014) para. 55. Whether the explanation offered
by the tribunal in this case is accurate or supported by the history of drafting the ICSID Convention
is questionable, and the question of the propriety and jurisdiction to order a State to post security for
costs is much more complex.
40
See proposed Rule 51(1).
41
Craig, Park and Paulsson, International Chamber of Commerce Arbitration, p 467 (who report
that even when the ICC Rules did not yet contain a general clause for granting interim measures,
‘ICC tribunals had found that they had the power to grant security for costs as part of their inherent
powers in connection with the conduct of arbitral proceedings’) (with further references); Com-
merce Group Corp. & San Sebastian Gold Mines, Inc. v. the Republic of El Salvador, (ICSID Case
No. ARB/09/17), Annulment Proceeding, Decision on El Salvador’s Application for Security for
Costs (20 September 2012), para. 45.
42
See ICCA-Queen Mary Task Force Report on Third-Party Funding International Arbitration,
ICCA Reports No. 4 (2018) pp 172–173
ICSID Convention provides that each party must abide by and comply with the
terms of the award.43 However, it is generally accepted that execution of the award is
left to the national applicable law,44 and therefore, because the ICSID Convention is
not concerned with execution or collection of awards, including the collection of a
possible costs award, some tribunals and arbitrators have questioned whether a
defendant State has a “right” to security for costs which is protected under the
ICSID regime.
In Maffezini v. Spain for example, the tribunal noted that there was no present
right of the respondent State to be preserved.45 In Grynberg v. Grenada, the
dissenting arbitrator stated that “the use of the words ‘preserve’ and ‘preserved’ in
[ICSID] Article 47 and Rule 39 presupposes that the right to be preserved exists.
Because Respondent has no existing right to an ultimate award of costs, the tribunal
is thus without jurisdiction.”46
Other ICSID tribunals, such as the tribunal in EuroGas Inc. and Belmont
Resources Inc. v. Slovak Republic47 and the majority decision in Grynberg v.
Grenada, accepted that States have a right in a security for costs application,
which is protected under the ICSID regime, even if under the circumstances of the
case, the requested security for costs was rejected.
Relatedly, the tribunal in the recent, Eskosol S.P.A. in Liquidazione v. Italian
Republic,48 noted that “there is something analytically curious about the notion that
an ICSID tribunal, while not empowered to protect a claimant’s ability to collect on a
possible merits award, nonetheless should intervene to protect a State’s asserted
‘right’ to collect on a possible costs award.” While the tribunal in the Eskosol case
decided not to address this matter as the respondent had failed to demonstrate that the
security for costs request was urgent even assuming that the State had a protectable
right, it went on to observe that:
The tribunal accepts that respondent States have genuine concerns about their ability to
enforce an eventual costs award against unsuccessful claimants, and some States are starting
to raise the possibility of reforms to the ICSID system to protect themselves more system-
atically. But at the same time, such States would be unhappy to see a similar argument about
a right to effective relief used against them, for example by claimants worried about
collection risk associated with any final merits award of compensation.49
43
ICSID Article 53(1).
44
ICSID Article 54(3).
45
Emilio Agustín Maffezini v.Kingdom of Spain, (ICSID Case No. ARB/97/7) Procedural Order No.
2 (28 October 1999) para. 15.
46
Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v.
Grenada, (ICSID Case No. ARB/10/6), tribunal’s Decision on Respondent’s Application for
Security for Costs (14 October 2010), para. 5.16, in fn. 9.
47
EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic (ICSID Case No. ARB/14/14),
Procedural Order No. 3 (23 June 2015).
48
Eskosol S.P.A. in Liquidazione v. Italian Republic, (ICSID Case No. ARB/15/50) Procedural
Order No. 3 (Decision on Respondent’s Request for Provisional Measures), (12 June 2017) para. 35.
49
Ibid., para. 34.
While this is still an emerging issue, it is important to emphasize that eventually

only a relatively small number of tribunals have questioned, and mostly in a tentative
fashion, States’ right to security for costs under ICSID arbitration. Accordingly, it
would be safe to argue that unless there is a critical mass of ICSID awards deciding
otherwise, there is currently no valid doctrinal justification that would prevent a State
from pursuing a security for costs application before an ICSID tribunal.
We now turn to discuss the question of whether the existence of a third-party
funding agreement may affect the tribunal’s decision on security for costs.50 From a
review of a growing number of cases dealing with this matter, it appears that
tribunals in ICSID arbitration tend to adopt a stricter test than the claimant’s
impecuniosity to order security for costs: they usually require evidence of abusive
conduct or bad faith on the part of the claimant,51 such as evidence that the claimant
has a track record of deliberately failing to comply with costs awards.
While this appears to be an increasingly accepted test for investment arbitration
tribunals, it is questionable whether such a high threshold is warranted. It can
reasonably be argued that if the respondent State was subject to an unsuccessful
claim, it should be able to recover costs at the end of the arbitration regardless of
whether the claimant is acting in bad faith or not. On the other hand, an investor may
claim that it would be unreasonable for a tribunal to order an investor to meet a
security for costs order, because the State’s unlawful conduct (assuming that the
State’s conduct in question is indeed unlawful) has diminished or even expropriated
their investment in the first place and has left the investor with limited or no available
funds to conduct a usually costly investor-State arbitration. This can be a powerful
argument, not least because it raises issues of access to justice.52 Of course, these
arguments are predicated on larger policy considerations, which are discussed in
more detail below.
In practice, when investor-State tribunals decide security for costs requests,
usually at an early stage of the arbitration process, they tend not to presume that
the State’s conduct has actually left an investor with limited available funds to avoid
prejudging the merits of the dispute and thus violating fundamental principles of
procedural fairness.
This explains why investment tribunals tend to focus on other considerations,
which are not directly related to the merits of the dispute, but nevertheless set a high
threshold for a claimant to be subject to a security for costs order in investment
arbitration, including, for example, the requirement that the claimant has exhibited
50
See in more detail, See ICCA-Queen Mary Task Force Report on Third-Party Funding Interna-
tional Arbitration, ICCA Reports No. 4 (2018), p 173 et seq.
51
See, e.g., South American Silver Limited v. The Plurinational State of Bolivia, (PCA Case
No.2013-15), Procedural Order No. 10 (11 January 2016), para. 59; RSM Production Corporation
v. Saint Lucia, (ICSID Case No. ARB/12/10), Decision on Saint Lucia’s Request for Security for
Costs (13 August 2014), para. 75 and the cases cited therein.
52
See similar concerns expressed in commercial arbitration by Schwartz E (2016) Security for costs
and third-party funding, a bridge too far. In: Liber Amicorum William Laurence Craig. LexisNexis,
pp 371–388
abusive conduct by repeatedly failing to comply with costs orders or deliberately

dissipating its assets.
Against this background, it is perhaps unsurprising that investment arbitration
tribunals have consistently dismissed applications for security for costs in the past. In
doing so, these tribunals have relied on a range of different arguments, such as the
following:
• Impropriety of prejudging the claimant’s case on the merits.53

• Failure on the part of the respondent to establish concrete risk of nonpayment.54
• There is nothing unusual in the fact that the claimant is a vehicle or has no assets
and this does not justify a security for costs award.55
• A security for costs award would limit claimant’s access to justice.56
• The rejection of the security for costs application does not pose a threat to the
integrity of the proceedings.57
53
Emilio Agustín Maffezini v. Kingdom of Spain, (ICSID Case No. ARB/97/7), Procedural Order
No. 2 (28 October 1999), para. 21; Libananco Holdings Co. Limited v. Republic of Turkey, (ICSID
Case. No. ARB/06/8), Decision on Preliminary Issues (23 June 2008), para. 59; Guaracachi
America, Inc. (U.S.A.) and Rurelec plc (United Kingdom) v. Plurinational State of Bolivia, (PCA
Case No. 2011-17), Procedural Order No.14 (11 March 2013), para. 8.
54
Victor Pey Casado and President Allende Foundation v. Republic of Chile, (ICSID Case No.
ARB/98/2), Decision on Provisional Measures (25 September 2001), para. 89; Burimi S.R.L. and
Eagle Games SH.A. v. Republic of Albania, (ICSID Case No. ARB/11/18), Procedural Order No. 2
(3 May 2012), para. 39; Alasdair Ross Anderson et al. v. Republic of Costa Rica, (ICSID Case No.
ARB(AF)/07/3), Award (19 May 2010), para. 9; Abaclat and others v. The Argentine Republic,
(ICSID Case No. ARB/07/5), Procedural Order No. 10 (18 June 2012); Rachel S. Grynberg,
Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, (ICSID
Case No. ARB/10/6) tribunal’s Decision on Respondent’s Application for Security for Costs (14
October 2010), para. 5.21; Libananco Holdings Co. Limited v. Republic of Turkey, (ICSID Case.
No. ARB/06/8), Decision on Preliminary Issues (23 June 2008), para. 59; Guaracachi America, Inc.
(U.S.A.) and Rurelec plc (United Kingdom) v. Plurinational State of Bolivia, (PCA Case No. 2011-
17), Procedural Order No. 14 (11 March 2013), para. 7, Dawood Rawat v. Republic of Mauritius,
(PCA Case No. 2016-20), Order Regarding Claimant’s and Respondent’s Requests for Interim
Measures (11 January 2017), para. 144.
55
BSG Resources Limited v. Republic of Guinea, (ICSID Case No. ARB/14/22), Procedural Order
No. 3 (25 November 2015), para.78; Libananco Holdings Co. Limited v. Republic of Turkey, (ICSID
Case. No. ARB/06/8), Decision on Preliminary Issues (23 June 2008), para. 59; Rachel S.
Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada,
(ICSID Case No. ARB/10/6) tribunal’s Decision on Respondent’s Application for Security for
Costs (14 October 2010), para. 5.19.
56
Burimi S.R.L. and Eagle Games SH.A. v. Republic of Albania, (ICSID Case No. ARB/11/18),
Procedural Order No. 2 (3 May 2012), para. 41; Gustav F W Hamester GmbH & Co KG v. Republic
of Ghana, (ICSID Case No. ARB/07/24), Award (18 June 2010), para. 17; Commerce Group Corp.
& San Sebastian Gold Mines, Inc. v. the Republic of El Salvador, (ICSID Case No. ARB/09/17),
Annulment Proceeding, Decision on El Salvador’s Application for Security for Costs (20 Septem-
ber 2012), para. 52.
57
Commerce Group Corp. & San Sebastian Gold Mines, Inc. v. Republic of El Salvador, (ICSID
Case No. ARB/09/17), Annulment Proceeding, Decision on El Salvador’s Application for Security
for Costs (20 September 2012), para. 49.
In a well-known assenting opinion in the RSM Production Corporation v. Saint

Lucia, it was stated that the existence of a third-party funding agreement is in itself a
reason for ordering security against the funded party, or at least shift the burden of
proof to the effect that the funded party must make a case why security should not be
granted.58 The implication behind this view is that the existence of third-party
funding can be taken as an element of bad faith on the grounds that the simple fact
of recourse to funding can result in situations where the claimant’s expenses are
being covered by a third party who stands to gain if the claimant wins, but would not
be liable to meet any award of costs that might be made against the claimant if it lost.
However, to date, the overwhelming majority of ISDS awards have rejected the
suggestion that mere recourse to third-party funding is a manifestation of bad faith
which can in turn justify a security for costs award. Thus, the existence of a funding
agreement alone has not been found by arbitration tribunals to be sufficient to grant
security for costs.
Specifically, the first case to explicitly address the issue was Guaracachi America
Inc. and Rurelec plc v. Bolivia, in which the tribunal refused to order security for
costs.59 Given the controversy that the question generated in the wake of RSM
Production Corporation v. St Lucia, discussed below, it is worth citing the tribunal’s
reasoning in extenso: “[a]lthough investment treaty tribunals clearly hold the power
to grant provisional measures, an order for the posting of security for costs remains a
very rare and exceptional measure. (. . .) The Respondent has not, however, been
able to supply evidence to justify the extraordinary measure that it requests. As a
factual matter, the Respondent has not shown a sufficient causal link such that the
tribunal can infer from the mere existence of third-party funding that the Claimants
will not be able to pay an eventual award of costs rendered against them, regardless
of whether the funder is liable for costs or not.
The Respondent’s analysis of Rurelec’s balance sheet and other related financial
documents also does not sufficiently demonstrate that Rurelec will lack the means to
pay a costs award or to obtain (additional) funding for that purpose. To the contrary,
Rurelec appears to be an ongoing concern with assets beyond those involved in this
arbitration and the Claimants have promptly paid all the requested deposits of costs
with no suggestion that they have had trouble finding the necessary funds to do so.”60
In RSM Production Corporation v. St Lucia, where an ICSID tribunal – for the
first time ever in investment treaty arbitration – issued a security for costs order.61
The respondent argued that, while no ICSID tribunal had ordered security before,
such measure would be justified here, pointing out that the claimant had failed to pay
58
See notably RSM Production Corporation v. Saint Lucia, (ICSID Case No. ARB/12/10),
Assenting Reasons of Gavan Griffith (12 August 2014).
59
Guaracachi America Inc. and Rurelec plc v. Plurinational State of Bolivia PCA Case No. 2011-
17, Procedural Order No. 14 (11 March 2013).
60
Ibid., paras. 6–7.
61
RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint
Lucia’s Request for Security for Costs (13 August 2014).
ICSID’s advance on costs, had not honored costs awards rendered against it in a
number of previous ICSID arbitrations, and that “the proceedings initiated by
Claimant are funded by third parties.” Claimant’s counsel had admitted this already
at a hearing on ICSID’s advance on costs. The respondent further claimed that these
third parties would not be liable for adverse costs, enabling the claimant to engage in
“arbitral hit and run.” The claimant contested the tribunal’s jurisdiction to order
security and additionally argued that a difficult financial situation would not be
sufficient to justify a grant of security payment against claimants in ICSID pro-
ceedings. Additionally, claimant challenged whether its current conduct would give
reason to doubt about its willingness to pay adverse costs.
In reaching its decision to order security, the RSM tribunal did take into account
that the claimant was impecunious and was funded by a third-party that could
presumably not be made responsible for any adverse costs award. Notably, the
tribunal pointed out that it would be “unjustified to burden Respondent with the
risk emanating from the uncertainty as to whether or not the unknown third party will
be willing to comply with a potential cost award.” Yet, the decisive factor for the
tribunal to grant the requested security for costs was the fact that the claimant had a
proven history of not complying with costs awards rendered against it. The fact that
the third-party funder was not revealed (and was therefore unknown) to the tribunal
was incidental in the tribunal’s reasoning.62
In EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic,63 the respondent
advanced strikingly similar arguments, arguing not only that it had a good case on
the merits, but also that the claimants “‘have a history of engaging in fraud and
reneging on payment obligations’ and that they do not have the means to pay for the
costs of the arbitration proceedings, which are entirely funded by third parties.” The
claimants contested the tribunal’s power to order security for costs and argued that
ordering security would unduly restrict their access to justice, and that their financial
difficulties were “in large part attributable to acts and omissions of Respondent.”
In EuroGas, the arbitrators explicitly distinguished the case before them from RSM
Production Corporation v. Saint Lucia and denied the respondent’s security request,
pointing out that “the underlying facts in [the RSM] arbitration were rather exceptional
since the claimant was not only impecunious and funded by a third party, but also had a
proven history of not complying with cost orders. As underlined by the arbitral tribunal,
these circumstances were considered cumulatively.” The tribunal went on to note that
the respondent had failed to establish that the claimants had defaulted on their payment
obligations in the present proceedings or in other arbitration proceedings. It concluded
by making it clear that “financial difficulties and third-party funding – which has
become a common practice – do not necessarily constitute per se exceptional circum-
stances justifying that the Respondent be granted an order of security for costs.”
62
Ibid., para. 86. It is worth noting that on 15 pages of reasons, only one paragraph is in truth
devoted by the tribunal to third-party funding.
63
EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, (ICSID Case No. ARB/14/14),
Procedural Order No. 3 (23 June 2015).
In South American Silver Limited v. The Plurinational State of Bolivia, the

respondent argued that the claimant was an impecunious shell company which
was funded by a third party, which in combination, according to some arbitrators,
would create “a prima facie case for granting the cautio judicatum solvi,” meaning
that the burden of proof is transferred to the funded party, who must prove why the
cautio judicatum solvi should not be ordered.64 Referring to RSM v. St. Lucia, the
claimant pointed out that “the only investment tribunal that has ever issued security
for costs did so primarily because of the claimant’s notorious history of failing to pay
prior cost awards,” and that the position that “the mere uncertainty as to the existence
of a third-party funder’s obligation to reimburse constitutes ‘compelling grounds for
security for costs’ correspond[s] to a minority view,” while “[t]he majority of
international tribunals have stated the contrary in recent decisions, and on the
contrary, the existence of a funder indicates that the claim is plausible on the merits.”
The PCA tribunal transferred the “extreme and exceptional circumstances-test”
favored by ICSID tribunals into the framework of Article 26 of the applicable
UNCITRAL Arbitration Rules, concluding that “Bolivia’s mere analysis of SAS’
or SASC’s balances and other related accounting documents, or the mere existence
of a third-party funder do not meet the high threshold set forth by investment
tribunals.”65 In reaching this conclusion, the tribunal explicitly referred to the two
previously mentioned cases and confirmed that “the mere existence of a third-party
funder is not an exceptional situation justifying security for costs,” explaining that:
[i]f the existence of these third-parties alone, without considering other factors, becomes
determinative on granting or rejecting a request for security for costs, respondents could
request and obtain the security on a systematic basis, increasing the risk of blocking
potentially legitimate claims.66
In a procedural order issued in April 2017 in the case Eskosol S.P.A. v. Italy,67 the
tribunal rejected the respondent’s request for an order that the claimant post a bank
guarantee of US$ 250,000 or prove it had obtained an undertaking from its third-party
funder to pay any costs awards against it, notwithstanding the fact that the claimant
had been declared insolvent and placed under receivership in 2013. In its security for
costs application, the respondent argued that the claimant’s insolvency made it
unlikely that it would be able to meet any adverse costs, if the claim was declined.
The respondent further argued that a security for costs order was necessary and
urgent because it had “a suspicion” that the claimant was funded by a third-party
64
South American Silver Limited Bolivia v. The Plurinational State of Bolivia, (PCA Case No.2013-
15), Procedural Order No. 10 (11 January 2016), para. 27, citing RSM Production Corporation v.
Saint Lucia, (ICSID Case No. ARB/12/10), Assenting Reasons of Gavan Griffith (12 August 2014).
65
South American Silver Limited Bolivia v. The Plurinational State of Bolivia, (PCA Case No.2013-
15), Procedural Order No. 10 (11 January 2016), paras. 59, 83.
66
Ibid., para. 77.
67
Eskosol S.P.A. in Liquidazione v. Italian Republic, (ICSID Case No. ARB/15/50) Procedural
Order No. 3 (Decision on Respondent’s Request for Provisional Measures), (12 June 2017). See
also above p 173.
funder, which – according to the respondent – increased the risk that the claimant
would not comply with a costs order. Responding to the security for costs applica-
tion, the claimant confirmed that it had been funded by a third-party funder which
had assisted the claimant to purchase an ATE insurance policy protecting the
company against adverse costs of up to Euro 1 million. While accepting that the
claimant’s insolvency meant that the claimant would be unable to meet an adverse
costs award from its own funds, the tribunal stated that the ATE insurance policy was
sufficient to cover the amount of costs requested by the respondent. The tribunal thus
concluded that the respondent had failed to demonstrate that it was either necessary
or urgent to grant the security for costs application.
However, in two recent procedural orders issued in July 2017 in relation to the
same investment dispute in the parallel cases of Luis Garcia Armas v. Venezuela and
Manuel Garcia Armas et al. v. Venezuela,68 the tribunal (sitting in both cases)
granted a security for costs order against the funded claimants.
In these two cases, the claimants had voluntarily disclosed the existence of a
third-party funding agreement and the respondent requested a security for costs order
from the tribunal.
Before deciding on the request for security, the tribunal, siting under the
UNCITRAL Arbitration Rules, asked the claimants to provide reliable evidence of
their solvency, including asset valuations. The claimants were also directed to inform
the tribunal of the jurisdictions where those assets were located, in order to assess the
enforceability of any future adverse costs order. Eventually, in a procedural order
dated 20 June 2018, the arbitral tribunal ordered the claimants to issue a security for
costs in the amount of US$1.5 million holding that the existence of a third-party
funder and the fact that the third-party funding agreement expressly provided that the
funder will not cover any adverse costs were relevant for determining if the claimant
should be ordered to issue a security for costs.
Finally, in a recent decision issued on 27 January 2020 in ICSID Case No. ARB/
18/35 Dr Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex
Industrieanlagen GmbH v Turkmenistan, the tribunal ordered the administrator of an
insolvent German construction company who was bringing a third-party funded
claim against Turkmenistan to pay security for costs, citing “exceptional circum-
stances.” In this case, not only the claimant was declared impecunious, but also and
crucially the third-party funder did not accept liability for any adverse costs award.
Thus, the majority of the tribunal held that the non acceptance of liability of the third-
party funder for an adverse costs award presented a “more extreme situation,” in
which it would be “effectively impossible” for Turkmenistan to collect such an
award. To ensure that the claimant’s access to justice is not restricted by the decision,
the tribunal decided to ask the Claimant to produce a bank guarantee, rather than to
obtain and escrow the full amount of security for costs. At the same time, the tribunal
68
Luis Garcia Armas v. Venezuela and Manuel Garcia Armas et al. v. Venezuela, (ICSID AF Case
No. ARB(AF)/16/1) Procedural Order (7 July 2017) administered by ICSID’s Additional Facility
Rules; PCA Case No. 2016-08, administered by the Permanent Court of Arbitration, (Both with the
seat in The Hague, The Netherlands).
ordered the Respondent to reimburse the expense of posting the security in the event
the State would not win a costs award.
The discussion above sets out the legal framework and practical considerations
which emerge through existing case law addressing security for costs in ISDS. In
developing legal rules and principles on security for costs applications against the
existence of third-party funding agreements, ISDS arbitral tribunals are naturally
constrained by the applicable legal framework of the existing ISDS rules and BIT/IIA’s.
However, it is increasingly accepted that the existing legal framework does not
necessarily capture some important policy considerations which have emerged in the
course of the public and scholarly discourse in the last decade. This partly explains
why the recent ICSID proposals for amendment of its Rules introduce a stand-alone
provision on security for costs, which while it does not refer to the existence of third-
party funding, it expressly confers wide discretion on ICSID tribunals, pursuant to
proposed Rule 51(3), to “consider all relevant circumstances in determining whether
to order security for costs.”69
69
Proposed Rule 51 which currently reads as follows:
“Rule 51 Security for Costs
(1) Upon request of a party, the tribunal may order any party asserting a claim or counterclaim to
provide security for costs
(2) The following procedure shall apply:
(a) The request shall specify the circumstances that require security for costs.
(b) The tribunal shall fix time limits for written or and oral submissions, as required, on the
request.
(c) If a party requests security for costs before the constitution of the tribunal, the Secretary-
General shall fix time limits for written submissions on the request, so that the tribunal may
consider the request promptly upon its constitution.
(d) The tribunal shall issue its decision on the request within 30 days after the latest of:
(i) The constitution of the tribunal
(ii) The last written submission on the request or
(iii) The last oral submission on the request
(3) In determining whether to order a party to provide security for costs, the tribunal shall consider:
(a) That party’s ability to comply with an adverse decision on costs and
(b) That party’s willingness to comply with an adverse decision on costs
(c) The effect that providing security for costs may have on that party’s ability to pursue its
claim or counterclaim
(d) The conduct of the parties and
(e) All other relevant circumstances.
(4) The tribunal shall specify any relevant terms in an order to provide security for costs and shall
fix a time limit for compliance with the order.
(5) If a party fails to comply with an order for to provide security for costs, the tribunal may
suspend the proceeding until the security is provided. If the proceeding is suspended for more
than 90 days, the tribunal may, after consulting with the parties, order the discontinuance of the
proceeding.
(6) A party must shall promptly disclose any material change in the circumstances upon which the
tribunal ordered security for costs.
(7) The tribunal may at any time modify or revoke its order for on security for costs, on its own
initiative or upon a party’s request.”
The recent ICSID Working Paper # 2 explains in this regard70:
Proposed AR 51(3) does not include other specific criteria suggested by commentators. In
particular, WP # 2 does not implement the suggestion of many States to include an express
reference to third-party funding. Including third-party funding among the listed factors in
AR 51(3) would suggest that third-party funding is relevant in every case. However, there
appears to be a consensus among the comments received that third-party funding is not
always relevant to a request for security for costs. Parties know of the existence of third-
party funding from an early stage in accordance with the disclosure obligation in proposed
AR 13, and can assess whether to raise this fact in the context of a request for security for
costs. To the extent third-party funding is relevant to a party’s ability to comply with an
adverse cost award in a particular case, it would be considered under AR 51(3)(a).
As can be seen, the ICSID amendment process is rightly concerned to take

account of the, often diverging, views and interests of a wide range of Member
States, and in this respect, the proposed amended rule strikes the right balance
between not limiting the right of investors to access justice and the right of States
to be able to recover their costs in case they successfully defend an unmeritorious
claim.
Conclusion
While third-party funding in investment arbitration raises a number of potential

issues, to date many of these questions remain open. Even with recent rule changes
to require disclosure, the actual practice and overall effect of funding remain
uncertain. As a result, a clear view of the facts underlying the main policy questions
remains uncertain.
For example, in a letter to ICSID, the Government of Panama raised concerns that
prevailing States have pursued costs awards that have not been voluntarily paid by
investors and, in a significant percentage of cases, States have been unable to collect
on costs awards.71 Some speculate that the reason for States’ inability to collect may
be because impecunious claimants cannot pay and funders are not liable on awards.
These observations may raise structural issues about what standards should apply to
requests for security for costs. But the underlying facts relating to these concerns are
to date unknown and unknowable.
Meanwhile, in another example, some funders have pointed out that there has
never been an award set aside based on conflict of interest between an arbitrator and
70
Para 363.
71
Reporting on a recent survey, the letter notes that “Responses to the survey also indicated that,
among the 22 costs awards in favour of respondent states that had been paid either in full or in part,
14 awards were paid voluntarily (64%), two awards were paid pursuant to a settlement (9%), and six
awards were paid through enforcement (27%).” Ibid. at 3 (citing Judith Gill QC, Hodgson M (2015)
Costs awards – who pays? Global Arbitr Rev 10(4). Available at http://globalarbitrationreview.com/
article/1034757/costs-awards-%E2%80%93-whopays
a funder. Funders rely on this fact to support the argument that funders have an
incentive to avoid potential conflicts that might potentially imperil an award. Nev-
ertheless, there has been at least one case in which a significant conflict of interest
involving a third-party funder was reported.72 Without more information, it is
unknowable the extent to which such conflicts may exist or be prevented by
disclosure.
In the future, more information about funding, which is bound to become
available as rules and laws increasingly require disclosure about the existence of
funding, will provide meaningful background to make effective and informed
decisions about regulating third-party funding.
72
In one case, it seems there may have been concerns raised, but they became moot before ever
being formally addressed. See Perry S. Pakistan fights bid to revive treaty claims as funder is
revealed. Available at https://globalarbitrationreview.com/article/1150573/pakistan-fights-bid-to-
revive-treaty-claims-as-funder-is-revealed
Notably, the issue never became ripe because the dispute in which the issue arose was transferred
to another tribunal comprised of different arbitrators.
Damages and Valuation in International
Investment Arbitration 55
Christina L. Beharry and Elisa Méndez Bräutigam
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1424
Sources of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1425
International Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1425
Arbitration Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1426
International Law and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1426
General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1428
Burden of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1428
Causation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1430
Standard of Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1433
Methods of Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1438
Income-Based Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1439
Market-Based Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1440
Asset-Based Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1443
Limits on Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1444
Contributory Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1444
Mitigation of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1446
The State of Necessity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1447
Speculative Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1448
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1449
Pre-award Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1450
Post-award Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1452
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1453
Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1453
C. L. Beharry (*) · E. Méndez Bräutigam

Foley Hoag LLP, Washington, DC, USA
e-mail: CBeharry@foleyhoag.com; emendezbrautigam@foleyhoag.com

https://doi.org/10.1007/978-981-13-3615-7_58
1424 C. L. Beharry and E. Méndez Bräutigam
Abstract
The assessment of damages in international investment arbitration entails the
evaluation of a set of legal as well as economic elements. The key objective of a
damages award is to compensate an investor for injury caused by breaches of the
host State’s investment obligations. This, in turn, requires a tribunal to ensure that
an investor is neither over- nor under-compensated but rather is awarded damages
for its actual losses. An examination of the numerous awards dealing with dam-
ages-related issues reveals some consensus as to the overarching principles
governing compensation but they also expose tribunals’ divergent views on certain
facets of the damages and valuation analysis. This chapter analyzes the settled as
well as disputed aspects of compensation in international investment arbitration and
provides an overview of how investor-State tribunals have grappled with resolving
damages-related matters. It studies the governing principles and sources as well as
the main aspects of damages, including burden of proof, causation, standard of
compensation, methods of valuation, limitations on damages, and interest.
Keywords
Restitution · Compensation · Evidence and burden of proof · Causation ·
Methods of valuation · State defenses · Interest
Introduction
This chapter examines the legal and financial consequences of a finding of liability
by a tribunal against a State in an international investment arbitration. In recent
years, the topic of damages and valuation has gained increasing prominence. These
high-stakes disputes – with claims often exceeding several hundreds of millions of
dollars – have called for more rigorous consideration of these issues. Having a solid
understanding of damages principles and valuation methodologies is therefore
imperative for counsel and arbitrators alike.
The involvement of States presents unique challenges in assessing damages in these
disputes. Tribunals are tasked with evaluating the economic impact of a State’s regula-
tory measures – relating oftentimes to fiscal, public health, or environmental policies –
on the investment of a foreign investor. The weight of this task may be exacerbated by
the political or economic circumstances of the State. These features have influenced the
distinctive approach adopted by international investment tribunals in awarding damages.
The objective of this chapter is to delineate the legal framework of the damages
analysis and to highlight unsettled issues that have emerged from investment arbitra-
tion cases. The chapter begins by examining the sources of law that tribunals apply in
deciding matters relating to damages and valuation. The next section outlines the
general principles applicable in establishing a damages claim. After this, the main
valuation methods used by quantum experts will be presented. Subsequent sections
address the main compensation-reducing defenses raised by States as well as the topic
of interest.” A brief conclusion closes the chapter.
55 Damages and Valuation in International Investment Arbitration 1425
Sources of Law
Tribunals refer to a myriad of legal sources when deciding compensation issues.

Many of these sources apply generally to other legal aspects relating to the dispute,
whereas others are specifically relevant to damages. This section will focus on the
legal rules and principles which govern the award of damages in international
investment cases.
International Investment Treaties
Most investor-State disputes are brought under international investment treaties.1

These agreements contain both substantive rules that set out the obligations of
States and give foreign investors procedural rights to access dispute resolution. As
such, these treaties are usually the starting point in a tribunal’s analysis on
damages.
The majority of agreements, however, only deal directly with damages issues in
the expropriation clause. These provisions normally set out the conditions for
effectuating an expropriation through the payment of “prompt, adequate, and effec-
tive” compensation. Although treaties normally provide for compensation, they
do not ordinarily provide guidance on how to calculate this amount.2 While less
typical, some treaties also contain damages-related provisions relating to compen-
sation for losses in armed conflicts or similar extraordinary events,3 prohibiting
punitive damages,4 and empowering the State to choose between restitution and
compensation.5
Due to the lack of detailed rules on damages, tribunals are afforded wide
discretion in determining compensation. In exercising their discretion, arbitrators
will be guided by other legal sources, as discussed below.
1
According to ICSID’s current statistics, approximately 75% of cases are brought pursuant to
bilateral investment or multilateral treaties, 16% under investment contracts between the investor
and the host State, and 9% under the investment law of the Host State. See International Centre for
Settlement of Investment Disputes, The ICSID Caseload – Statistics, Issue 2019-1, p. 10.
2
Cf. Article 1110(2) of NAFTA is a rare example of an expropriation provision that provides
guidance on valuation. It states in relevant part that: “Valuation criteria shall include going concern
value, asset value including declared tax value of tangible property, and other criteria, as appropri-
ate, to determine fair market value.” See also Chaisse J, Bellak C (2015) Navigating the expanding
universe of investment treaties – creation and use of critical index. J Int Econ Law 18(1):79–115
3
See e.g., Agreement on encouragement and reciprocal protection of Investments between the
Kingdom of the Netherlands and the Argentine Republic, art. 8 (1994).
4
See e.g., Agreement Between the Government of the United Kingdom of Great Britain and
Northern Ireland and the Government of the United Mexican States for the Promotion and
Reciprocal Protection of Investments, Article 18(5) (2007).
5
See e.g., Treaty between the United States of America and the Oriental Republic of Uruguay
concerning the Encouragement and Reciprocal Protection of Investment, art. 34(1) (2006).
Arbitration Agreements
Some claims arise from international investment contracts entered into between a
foreign investor and a State or a State-owned entity. In addition to providing recourse
to international arbitration, these contracts may also contain terms relevant to
damages. For instance, the contract may stipulate the applicable domestic law that
would apply to the dispute, including on issues like the fixing of compensation.
The contract may also contain terms that are relevant to remedies for breaches
under an investment treaty.6 The Venezuela Holdings case illustrates this effect.
Although the claim was made pursuant to the Netherlands-Venezuela BIT, Venezu-
ela argued that the Price Cap contained in the agreement, under which the project
was authorized, should be applied in evaluating damages.7 The Price Cap – which
was one of the consequences of discriminatory government actions – essentially
limited compensation when income received was “equal to a price of crude oil above
a maximum price that shall be specified in the Association Agreement.” The
tribunal, however, found that the Price Cap was only applicable to compensation
payable to Lagoven, a subsidiary of PDVSA, and that the State could not use its
internal laws as a justification for failing to perform its treaty obligations.8
On annulment, the ad hoc Committee disagreed with both findings. First, it
determined that there was no ex post facto attempt to override an established
international obligation because the conditions for approval of the project had
been laid down in advance based on terms negotiated with the investor.9 Second,
the Committee held that the applicability of the Price Cap as a matter of contract law
was separate from its relevance for assessing compensation under the treaty.10 In the
Committee’s view, the tribunal erred in failing to consider the effect of the Price Cap
on the investor’s right in determining the market value of the investment under the
BIT. As a result, the Committee partially annulled the award owing to the tribunal’s
deficient reasoning and in its choice and application of appropriate sources of law
under the BIT.11
International Law and Practice
International investment treaties usually refer to both the agreement itself and
applicable rules and principles of international law as the governing law. Accord-
ingly, the prevailing practice among arbitral tribunals has been to apply international
6
See e.g., Unión Fenosa Gas v. Egypt, ICSID Case No. ARB/14/4, Award (31 Aug 2018), } 10.105.
7
Venezuela Holdings and others v. Venezuela, ICSID Case No. ARB/07/27, Award (9 Oct 2014), }}
369–374.
8
Id., }} 225, 373.
9
Venezuela Holdings, Decision on Annulment (9 March 2017), } 161.
10
Id., } 184.
11
Id., } 187.
law in determining the consequences for a State’s breach of an international obliga-

tion. This section will address three sources of international rules and principles
applied by investment tribunals: (i) the ILC Articles on State Responsibility, (ii)
international case law, and (iii) the World Bank Guidelines on Investment.
First, the 2001 ILC Articles on State Responsibility (“ILC Articles”) is a com-
monly consulted source for determining damages. Part II of the ILC Articles sets out
the scope of the obligation of States to make reparation for the harmful consequences
of their unlawful acts. The general obligation to make “full reparation for the injury
caused by the internationally wrongful act” is contained in Article 31. Article 34
provides the three forms in which full reparation may be made: restitution, compen-
sation, and satisfaction. The primary obligation to make restitution (Article 35) is
rarely awarded in investment arbitration given the legal and practical challenges
involved in ordering a State to return property or reverse a governmental act.12
Similarly, the obligation to give satisfaction (Article 37) – through, for example, “an
expression of regret, a formal apology or another appropriate modality” – is not a
conventional remedy in investor-State arbitration. Instead, tribunals usually resort to
Article 36 on compensation and its accompanying commentary.
Although the ILC Articles are not binding in a legal sense, they have been
influential in investment treaty case law. Nevertheless, some commentators question
whether the ILC Articles should apply outside the context of inter-State disputes.13
One of the main reasons cited is that Article 33(1) states that “[t]he obligations of the
responsible State set out in this Part may be owed to another State, to several States,
or to the international community as a whole . . .”14 However, the force of this
argument is somewhat flattened by subsection (2) which provides: “This Part is
without prejudice to any right, arising from the international responsibility of a State,
which may accrue directly to any person or entity other than a State.” The Com-
mentary clarifies that primary obligations can be owed directly to a non-State actor
giving the example of “human rights treaties” and “bilateral or investment protection
agreements.” Putting these arguments aside, one may reasonably ask whether the
principles on compensation in Part Two simply restate general principles that would
apply in any event.
Second, tribunals and counsel alike consistently refer to awards of international
courts and tribunals even though there is no stare decisis rule in investment arbitra-
tion. To be sure, the perennial 1928 judgment of the Permanent Court of Justice
12
See Beharry C (2016) Lawful versus unlawful expropriation: heads I win, tails you lose. JDIA
9:72–79
13
See e.g., Paparinskis M (2013) Investment treaty arbitration and the (new) law of state respon-
sibility. EJIL 24(2):617; Crawford J (2010) Investment arbitration and the ILC articles on state
responsibility. ICSID Rev 25:1, pp 128, 132; Douglas Z (2010) Other specific regimes of respon-
sibility: investment treaty arbitration and ICSID. In: Crawford J et al (eds) The law of international
responsibility. Oxford University Press, Oxford, pp 815–842
14
See also, International Law Commission (2001) Articles on responsibility of states for interna-
tionally wrongful acts with commentaries, art. 28, Commentary 3.
(“PCIJ”) in the Chorzów Factory case15 is cited without fail in establishing the
standard of compensation – a topic on which the authors return in the “Expropriatory
Breaches” section. Equally, awards rendered by standing tribunals (e.g., Iran-US
Claims Tribunal) and ad hoc investment tribunals are also treated as persuasive
authority. To the extent that this practice contributes to the development of a coherent
body of case law, it could enhance the predictability and legitimacy of the investment
arbitration regime.
Third, the World Bank Guidelines on the Treatment of Foreign Direct Investment
is another frequently cited source in the damages analysis.16 These Guidelines –
which were promulgated by the World Bank in 1992 – provide non-binding guid-
ance on the admission and treatment of foreign investments. They were prepared to
complement bilateral or multilateral treaties governing foreign investments. The
pertinent set of recommendations relating to compensation are contained in Guide-
line IV. These clauses provide definitions of valuation terms such as “fair market
value” and explain which valuation methods should be applied in a given situation.
While they may not represent international law per se, the Guidelines are routinely
considered in assessing compensation.
This discussion highlights that multiple sources may be relevant in assessing
damages for a State’s breach of its investment obligations. In the next section, the
principles generally applicable in establishing a damages claim are examined.
General Principles
This section addresses three important issues that parties should address in making
and responding to claims for damages: (1) burden of proof, (2) causation, and (3) the
standard of compensation.
Burden of Proof
In international law, it is well-established that the party who asserts a fact bears the
burden of proving it (“actori incumbit onus probandi”).17 In line with this general
principle, the investor, as the party claiming to have suffered economic harm, must
furnish probative evidence to support its claims.18
The investor’s burden of proof with respect to damages extends to: (1) the
existence of harm, (2) the causal nexus between its harm and the State’s conduct,
15
Case Concerning the Factory at Chorzów (Claim for Indemnity) (Merits), P.C.I.J. Rep., Ser. A.
No. 17, Judgment No. 13 (13 Sept 1928).
16
World Bank (1992) Guidelines on the treatment of foreign direct investment. ILM 31:1363
17
Sandifer D (1939) Evidence before international tribunals (rev. ed 1975). University of Virginia
Press, Charlottesville, p 127
18
Ripinsky S, Williams K (2008) Damages in international investment law. BIICL, London, p 162
and (3) the amount of loss. As the tribunal in Rompetrol v. Romania put it, “[t]o the
extent [. . .] that a claimant chooses to put its claim [. . .] in terms of monetary
damages, then it must, as a matter of basic principle, be for the claimant to prove,
in addition to the fact of its loss or damage, its quantification in monetary terms and
the necessary causal link between the loss or damage and the treaty breach.”19
Conversely, the burden lies with the State to prove that the loss is attributable to
causes other than the State’s acts or omission, the investor’s damages are speculative
or uncertain, or other limiting circumstances should reduce the amount claimed by
the investor.20
To meet its burden, investors have to make sufficient efforts to furnish the
required evidence.21 However, tribunals have also been mindful of the impedi-
ments to investors accessing the required proof, particularly if they no longer have
access to documents in the host State due to the seizure of the investment.22 Once
the party bearing the burden has provided the necessary proof, tribunals will
exercise their discretion in determining its admissibility as well as its probative
value.23
Apart from meeting its burden of proof – which in essence defines which party
has to prove what assertion in order to prevail – the parties will equally have to carry
out this duty to the applicable standard of proof. The latter concept defines the degree
of proof required for the party to discharge its onus probandi. Notably, investor-State
arbitral tribunals have not adopted a unified approach on this issue. While most
tribunals refer to a standard of “reasonable certainty,” particularly with respect to
proof of lost profits, some tribunals have interpreted this standard by borrowing
concepts from national law.24 Indeed a number of tribunals have adopted a “balance
of probabilities” test,25 while others have referred to proof with “sufficient
19
Rompetrol Group v. Romania, ICSID Case No. ARB/06/3, Award (6 May 2013), } 190. See also,
Nordzucker v. Poland, UNCITRAL, Third Partial and Final Award (23 Nov 2009) where the
tribunal held that it “has no way to determine whether the damages which it had envisaged as a
possible consequence of the breach of the BIT by Poland have actually been suffered by
Nordzucker, nor a way to assess the quantum of these damages” (} 66).
20
Ripinsky, p. 162; Sourgens FG, Laird I, Duggal K (2018) Evidence in international investment
arbitration. Oxford University Press, Oxford, }} 2.71–2.73; Sabahi B et al (2018) Principles
limiting the amount of compensation. In: Beharry C (ed) Contemporary and emerging issues on
the law of damages and valuation in international investment arbitration, p 338
21
See, e.g., ConocoPhillips Petrozuata et al. v. Venezuela, ICSID Case No. ARB/07/30, Award (8
Mar 2019), } 275; See also Generation Ukraine v. Ukraine, ICSID Case No. ARB/00/9, Award, (16
Sept 2003) } 19.4, requiring the investor to provide “everything in its power” to prove its economic
harm.
22
Sola Tiles v. Iran, IRAN-U.S. C.T.R. Case No. 317, Award (22 Apr 1987), } 52.
23
This rule is expressly embodied in arbitration rules such as Rule 34 of the ICSID Arbitration Rules
and Rule 41 of the ICSID Additional Facility Rules.
24
Ripinsky, p. 162.
25
See, e.g., Khan Resources et al. v. Mongolia, Award (2 Mar 2015), } 375.
certainty,”26 “a reasonable degree of certainty,”27 and “in all probability.”28 Thus, the
standard of proof for damages in investment arbitration has not been well-developed,
with tribunals endorsing a variety of tests. It is therefore a topic which merits further
examination in order to reach a harmonious approach.
Causation
As described above, an investor must prove that its losses and the State’s breach are
causally linked. The purpose of the causation analysis is to distinguish compensable
losses – which an investor can collect because they are attributable to the State’s
conduct – from losses which the State does not have to bear.29 The requirement of a
causal link between the loss and the State’s breach has been deemed a general
principle of law and is enshrined in Article 31 of the ILC Articles, which obliges a
State to make full reparation for the injury caused by its wrongful act.30
The failure of a claimant to prove causation will result in a tribunal finding liability
but not granting any damages.31 This potential outcome demonstrates that causation
should be treated as a distinct step after liability has been established and prior to the
quantum phase.32 The treatment of causation as a separate analytical element marks a
break from the past where tribunals and scholars traditionally inserted causation within
the broader quantum analysis, particularly as a potential limiting factor on
compensation.
To prove causation, an investor needs to show that the State’s breach is factually
as well as legally connected to its losses. According to the factual element, the State’s
conduct must have influenced the occurrence of the loss or, in other words, be the
conditio sine qua non for the existence of loss. Thus, to meet its burden, a claimant
must prove that but for the treaty breach complained of, it would not have suffered its
claimed damage.
26
Autopista Concesionada de Venezuela v. Venezuela, ICSID Case No. ARB/00/5, Award (23 Sept
2003), } 351.
27
Rudloff Case (Merits), US-Venezuela Mixed Claims Commission, Decision (1903), 9 U.N.R.I.A.
A. 255, p. 259.
28
Bilcon of Delaware et al. v. Canada, PCA Case No. 2009-04, Award on Damages (10 Jan 2019),
} 168; Chorzów, at p. 47.
29
Alschner W (2017) Aligning Loss and Liability – Toward and Integrated Assessment of Damages
in Investment Arbitration. In: Jansen M et al (eds) The use of economics in international trade and
investment disputes, vol 283, p 292
30
Cheng B (1953) General principles of law as applied by international courts and tribunals.
Cambridge University Press, Cambridge, p 241 et seq.
31
Pearsall P, Health J (2018) Causation and injury in investor-state arbitration. In: Beharry C (ed)
Contemporary and emerging issues on the law of damages and valuation in international investment
arbitration, p 83
32
Victor Pey Casado and President Allende Foundation v. Chile, ICSID Case No. ARB/98/2, Award
(8 May 2008).
Arbitral tribunals have adopted different standards for factual causation. While
some tribunals, such as in Nordzucker v. Poland, have followed a more stringent test
consisting of having to prove that the wrongful conduct “necessarily” led to the
investor’s losses,33 others have adapted their factual causation test to account for the
inherent uncertainties of the case that they were called upon to resolve. For example, in
Lemire v. Ukraine the issue concerned whether the claimant would have been awarded
additional broadcasting frequencies but for Ukraine’s repeated denials of the investor’s
bids. The tribunal noted that the claimant only needed to prove that “through a line of
natural sequences it is probable – and not simply possible –” that the claimant would
have been awarded the frequencies in the tender process.34 It concluded that two links
in the causal chain needed to be proven: firstly, that if the tenders had been decided in a
fair and equitable manner and the investor had participated in them, the investor – and
not other participants – would have been awarded the frequencies; and, second that,
with these frequencies, the claimant would have been able to grow its broadcasting
company into the business he had planned. The Lemire tribunal was satisfied that both
links were proven, particularly because the claimant was “one of the most successful
radio operators in Kyiv” and, as a leading broadcasting company, was in an ideal
position to be successful in the bid.35
The recent award in Bilcon v. Canada has revived the discussion as to the
applicable standard. The Bilcon tribunal had to decide whether the claimants’ basalt
quarry and marine terminal project would have been approved had Canada’s envi-
ronmental assessment process been NAFTA-compliant. As to the standard for its
factual causation inquiry, the Bilcon tribunal held that:
[a]pplying the standards articulated by the PCIJ in Chorzów and the ICJ in Genocide [. . .]
the Tribunal must conclude that the causal link between the NAFTA breach and the injury
alleged by the Investors has not been established. While the Tribunal has no doubt that there
is a realistic possibility that the Whites Point Project would have been approved as a result of
a hypothetical NAFTA-compliant JRP Process, it cannot be said that this outcome would
have occurred “in all probability” or with “a sufficient degree of certainty.”36
In the tribunal’s view, a NAFTA-compliant environmental assessment process could

have: (i) reasonably concluded that the claimant’s project should not be approved
because it could not mitigate serious environmental and socio-economic effects; (ii)
recommended certain public health measures that would render the project economically
unviable37; or (iii) approved the project only to have it subsequently denied or subject to
onerous conditions that threatened its viability by the Federal or Nova Scotia Ministers.
This led the tribunal to reject the investors’ lost profit claim.
33
Nordzucker v. Poland, } 51.
34
Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (28 Mar 2011), }}
168–169.
35
Id., } 179.
36
Bilcon v. Canada, Award on Damages, } 168.
37
Id., } 169–171.
The factual dimension of the causation analysis is a necessary step for establishing the
causal link, but it is not the only condition. According to the ILC Commentary, the
“allocation of injury or loss to a wrongful act is, in principle, a legal and not only a
historical or casual process.”38 Thus, an investor cannot recover any and all losses
flowing from the State’s breach, but only those which are “proximate,” “foreseeable,” or
“direct” to the wrongful conduct. In other words, a State does not have to bear losses
which are deemed too “remote” or “consequential” to have caused the claimed damage.
All of these tests aim at limiting “the extent to which the factual chain of events leading
to a loss should be followed”.39 The ILC Commentary, for its part, does not endorse a
specific test for legal causation and leaves it to the tribunal’s discretion to apply the one it
considers most suitable in light of the facts of the case.40
The approaches adopted by international arbitral tribunals have thus varied
greatly. Some tribunals have put the emphasis on whether the State’s conduct was
the foreseeable cause of the investor’s losses. Whether the conclusion under the
foreseeability test is different from a proximity analysis remains unclear. The Lemire
v. Ukraine case, for example, found that both concepts are related. Indeed, the
tribunal held that “a chain of causality must be deemed proximate, if the wrongdoer
could have foreseen that through successive links the irregular acts finally would
lead to the damage.”41 In contrast, the S.D. Myers v. Canada tribunal rejected using
the foreseeability test, which it deemed to be a concept of contract law. The tribunal
concluded that the notion was unsuitable for the case under review, which was
comparable to a tort or delict, where remoteness is “the key.”42
Also relevant to the causation analysis is the notion that an intervening cause can
sever the chain of causation.43 As noted above, the burden of proof then shifts to the
State to show that other factors44 were the real cause of the investment’s failure. As
explained by the Micula tribunal, there are instances in which an intervening event
“is so compelling” that it interrupts the causal nexus thereby making the State’s
conduct too remote.45
38
ILC, Articles on Responsibility, art. 31, commentary 10.
39
Sabahi et al., p. 329.
40
Marboe I (2018) Damages in investor-state arbitration: current issues and challenges. Koninklijke
Brill, Leiden, p 39
41
Joseph Charles Lemire v. Ukraine, } 170.
42
S.D. Myers v. Canada, UNCITRAL, Second Partial Award, (21 Oct 2002), }} 154, 159.
43
Ripinsky, p. 144; Marboe, p. 53. This analysis is different from the possibility of reducing the
amount of damages – once the causal nexus has been established between the State’s conduct and
the damages – in cases of contributory fault. The effect of contributory fault as a limit on recovery is
analyzed in the section entitled “Contributory Fault.”
44
See, e.g., Blusun S.A., et al. v. Italy, ICSID Case No. ARB/14/3, Award, (27 Dec 2016), } 394;
Ronald S. Lauder v. Czech Republic, UNCITRAL, Award, (3 Sept 2001), } 234; Biwater Gauff
(Tanzania) Limited v. Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008), }} 790, 798.
45
Ioan Micula, et al. v. Romania, ICSID Case No. ARB/05/20, Award, (11 Dec 2013), }} 926–927.
The inquiry into causation ensures that the investor is neither over- nor under-
compensated. It therefore fulfills the full reparation principle. Thus, apart from
proving its financially assessable losses, the investor has to prove that there exists
a factual as well as legal nexus between the State’s conduct and its injury.
Standard of Compensation
The quantification of damages arises only after a State has been found to have
breached its investment obligations and caused the investor’s losses. When assessing
quantum, tribunals will seek to place the injured party in the same position that they
would have been if the injury had not occurred. The function of damages is therefore
purely compensatory and is not meant to punish the responsible State.46
Damages are measured in accordance with the applicable standard of compensa-
tion. This section examines the practical consequences of applying the standard of
compensation in terms of the violation alleged. In particular, it looks at the approaches
to measuring damages for: (1) expropriatory breaches, (2) non-expropriatory treaty
breaches, and (3) contractual breaches.
Expropriatory Breaches
As discussed in the “Sources of Law” section, international investment treaties
normally only refer to a State’s obligation to pay “prompt, adequate, and effective”
compensation in the expropriation provision. The so-called Hull Formula – devel-
oped in the 1930s by US Secretary of State Cordell Hull in response to Mexico’s
nationalization of foreign-owned oil fields – became the standard formulation for
expropriations initially in Friendship, Commerce, and Navigation Treaties and later
in bilateral investment treaties. Although this terminology is not defined in most
treaties, it is usually equated with the fair market value standard (“FMV”).47 Under
this standard, value is determined as “the price . . . at which property would change
hands between a hypothetical willing and able buyer and a hypothetical willing and
able seller acting, at arm’s length in an open and unrestricted market, when neither is
under compulsion to buy or sell and when both have reasonable knowledge of the
relevant facts.”48
There have been differing opinions on the applicability of this standard. According
to one view, the treaty standard constitutes lex specialis that is applicable to all cases of
46
ILC, Articles on Responsibility, art. 36.
47
Cf. Article 1110(2) of NAFTA stating that “[c]ompensation shall be equivalent to the fair market
value of the expropriated investment immediately before the expropriation took place (‘date of
expropriation’), and shall not reflect any change in value occurring because the intended expropri-
ation became known earlier.”
48
American Society of Appraisers, ASA Business Valuation Standards (2008), p. 27. For a similar
definition, see also World Bank Guidelines on Investment, Guideline IV.5.
expropriation.49 Others however regard this treaty standard as applicable only to

“lawful expropriations” (i.e., a non-discriminatory expropriation carried out in the
public interest, with due process, and accompanied by compensation). When these
conditions have not been met, tribunals have deemed the expropriation unlawful and
have resorted to the full reparation (or full compensation) principle under customary
international law.50 As discussed below, full reparation may theoretically lead to
different remedies or to a higher damages result. In practice, however, the valuation
outcome is similar regardless of whether the treaty standard or the full reparation
principle is applied.
The full reparation principle is contained in Article 31 of the ILC Articles which
refer to the classic statement in the Chorzów Factory case. The case concerned the
seizure of a German-controlled nitrate factory in Upper Silesia by Poland. The
Geneva Convention – which restricted Poland’s right to expropriate German assets
in Upper Silesia – contained a provision on restitution but did not address matters of
compensation. The PCIJ therefore laid down “guiding principles according to which
the amount of compensation due may be determined.”51 The commonly quoted
passage articulating the full reparation principle states:
The essential principle contained in the actual notion of an illegal act—a principle which
seems to be established by international practice and in particular by the decisions of arbitral
tribunals—is that reparation must, as far as possible, wipe out all the consequences of the
illegal act and reestablish the situation which would, in all probability, have existed if that act
had not been committed. Restitution in kind, or, if this is not possible, payment of a sum
corresponding to the value which a restitution in kind would bear; the award, if need be, of
damages for loss sustained which would not be covered by restitution in kind or payment in
place of it—such are the principles which should serve to determine the amount of com-
pensation due for an act contrary to international law.52
The case establishes two main consequences for a breach of an internationally

wrongful act. First, a State’s primary obligation is to make restitution. This form of
49
Sheppard A (2006) The distinction between lawful and unlawful expropriation. In: Ribeiro C (ed)
Investment arbitration and the energy charter treaty. Jurisnet, New York, p 196. See also, Phillips
Petroleum Co. Iran v. Iran and The National Iranian Oil Co., Award No. 425-39-2 (29 June 1989),
21 IRAN-U.S. C.T.R. 79, } 109; Wena Hotels v. Egypt, ICSID Case No. ARB/98/4, Award (8 Dec
2000); Técnicas Medioambientales Tecmed S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award
(29 May 2003).
50
See ADC Affiliate Limited and ADC & ADMC Management v. Hungary, ICSID Case No. ARB/
03/16, Award (2 Oct 2006), } 481; Biwater Gauff v. Tanzania, }} 773–775; Quiborax v. Bolivia,
ICSID Case No. ARB/06/2, Award (16 Sept 2015), } 329. However, some tribunals have found that
an expropriation may be deemed lawful despite the non-payment of compensation. See e.g.,
Tidewater v. Venezuela, ICSID Case No. ARB/10/5, Award (13 Mar 2015), } 140; Venezuela
Holdings v. Venezuela, Award, }} 301, 306. See also Chaisse J (2015) Investor-state arbitration in
international tax dispute resolution – a cut above dedicated tax dispute resolution? Virginia Tax Rev
41(2):149–222.
51
Chorzów Factory, at p. 46.
52
Id., p. 47.
relief may involve the return of property unlawfully seized (“material restitution”) or the
reversal of a governmental act (“juridical restitution”). A State may pay damages instead
where restitution is either materially impossible or involves a disproportionate burden.
This may arise where the property in question has been lost, destroyed, or fundamentally
changed.53 If restitution is not available, a tribunal may award damages in the
alternative.
The second key aspect of the case is that damages should “as far as possible, wipe
out all the consequences of the illegal act.” Tribunals have generally applied the
FMV standard in giving effect to this principle for expropriations.54 While this
approach would tend to produce a similar valuation result as the treaty standard, it
is sometimes argued that application of the principle of full reparation may reflect
increases in the value of the property after the dispossession.55 To date, only a
handful of tribunals have awarded damages based on increases in the value of the
investment after the breach.56 This might reflect the reality that few investments
increase in value after a taking.
It would be remiss – in a work that seeks to balance the predominantly Western-
Centric views on international law with those of the Global South – to omit reference
to the backlash against the notion of full compensation in the 1960s and 1970s by
newly independent and developing States. The international legal requirement to
fully compensate foreign investors for the expropriation of their property was
viewed as an impermissible infringement of State sovereignty over natural resources.
Consequently, a series of UN General Assembly resolutions were adopted during
this period recognizing the right of States to expropriate for reasons of “public utility,
security or the national interest” upon payment of “appropriate compensation,”
including the 1962 General Assembly Declaration on Permanent Sovereignty over
Natural Resources (Resolution 1803 (XVII)).57 Most significantly, Article 2(2)(c) of
the Charter of Economic Rights and Duties of States (1974) provided that compen-
sation “shall be settled under the domestic law of the nationalizing State and by its
tribunals.” Despite their arguably symbolic value, these resolutions have had little
practical significance in international arbitration.58
53
54
See e.g., CME Czech Republic v. Czech Republic, UNCITRAL, Partial Award (13 Sept 2001),
} 618; Tenaris v. Venezuela II, ICSID Case No. ARB/12/23, Award (12 Dec 2016), } 396.
55
Chorzów, at p. 50 (stating “the value of the undertaking at the moment of dispossession does not
necessarily indicate the criterion for the fixing of compensation.”). But see, Dissenting Opinion of
Lord Finlay, pp. 70–71.
56
See e.g., ADC v. Hungary, Award, } 497; ConocoPhillips v. Venezuela, ICSID Case No. ARB/07/
30, Decision on Jurisdiction and the Merits (3 Sept 2013), }} 343, 401; Quiborax v. Bolivia, } 422.
57
See e.g., UNGA Resolution 3171 (XXVIII), Permanent Sovereignty Over Natural Resources
(1973); UNGA Resolution 3201 (S-VI), Declaration on the Establishment of a New International
Economic Order(1974), } 4(e)-(i); and UNGA Resolution 3281 (XXIX), Charter of Economic
Rights and Duties of States (1974), arts. 2-3.
58
See e.g., Libyan American Oil v. Libya, Award on the Merits (10 Oct 1977), 53 ILM 389; Kuwait
v. American Independent Oil Company, Final Award (24 Mar 1982), 21 ILM 876.
Other Treaty Breaches

Investment treaties may also contain obligations regarding fair and equitable treatment
(“FET”), national treatment, most favored nation, umbrella clauses, and performance
requirements. The application of Chorzów Factory dicta – which concerned the
measure of compensation in the context of an expropriation59 – has posed challenges
in cases where the investor has not been permanently and fully deprived of title, the
property’s value, or the ability to use or control the property in a meaningful way.
In relation to these other treaty breaches, the effect of the measure will be determi-
native in assessing damages. When other treaty breaches have resulted in the same
effect as an expropriation, tribunals have applied the FMV standard.60 But for treaty
breaches that are non-expropriatory in nature, damages are limited to “the actual losses
incurred as a result of the internationally wrongful act,”61 in accordance with the full
reparation principle. In these cases, tribunal should engage in a fact-based analysis to
ascertain the harm actually caused by the treaty violation.62 This distinction is
important because harms for non-expropriatory breaches will not necessarily be
monetarily equivalent to the injuries suffered for an expropriatory breach. As the
PSEG v. Turkey tribunal explained:
While the Tribunal has found that there is in this case a breach of fair and equitable treatment,
this breach relates not to damages to productive assets but to the failure to conduct
negotiations in a proper way and other forms of interference by the Respondent Government.
The appropriate remedies thus do not relate to a compensation for the market value of those
assets but to a different objective. This, as will be discussed below, also entails an economic
value but of a different nature.63
59
The ILC Articles similarly only mention FMV in the context of “property taken or destroyed as
the result of an internationally wrongful act.” See Crawford J (2002) The international law
commission’s articles on state responsibility: introduction, text and commentaries. Cambridge
University Press, Cambridge, Article 36, Comment (22), at p. 225.
60
See e.g., Murphy v. Ecuador II, PCA Case No. 2012-16, Partial Final Award (6 May 2016), } 482;
Gemplus, et al. v. Mexico, ICSID Case No. ARB(AF)/04/3 & ARB(AF)/04/4, Award (16 June
2010), }} 12–26, 12–52; CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/
8, Award (12 May 2005), } 410.
61
ILC, Articles on Responsibility, art. 36, commentary 4. See also, S.D. Myers, Inc. v. Canada,
UNCITRAL, Partial Award (13 Nov 2000), } 306; Marvin Roy Feldman Karpa v. Mexico, ICSID
Case No. ARB(AF)/99/1, Award (16 Dec 2002), } 194; Archer Daniels Midland Company (ADM)
and Tate & Lyle Ingredients Americas v. Mexico, ICSID Case No. ARB(AF)/04/5, Award (21 Nov
2007), } 283; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v.
Argentina, ICSID Case No. ARB/04/16, Award (25 Feb 2016), }} 124–127.
62
See Kinnear M (2010) Damages in investment treaty arbitration. In: Yannaca-Small K (ed)
Arbitration under international investment agreements: a guide to the key issues. Oxford University
Press, Oxford, pp 561–562; Cohen Smutny A (2007) Some observations on the principles relating
to compensation in the investment treaty context. ICSID Rev 22:1, pp 19–20.
63
PSEG Global and Konya Ilgin Elektrik Üretimve Ticaret Limited Sirketi v. Turkey, ICSID Case
No. ARB/02/5, Award (19 Jan 2007), } 308.
The importance of quantifying the particular economic injury caused by a non-

expropriatory breach was underscored in the long-running Pey Casado v. Chile case.
The case arose from the seizure of the El Clarín newspaper by the military during the
coup d’état in Chile in 1973. Two shareholders in the company controlling the
newspaper, Mr. Pey Casado and the President Allende Foundation, initiated ICSID
proceedings against Chile in 1997, following the adoption of the Spain-Chile BIT.
The following year, Chile instituted a program aimed at compensating people who
had suffered losses under the Pinochet regime, and it was under this program that, in
April 2000, Chilean authorities allowed compensation to third parties for the expro-
priation of El Clarín.
The claimants sought compensation for the expropriation of the newspaper and
argued, inter alia, that the lack of compensation in the 2000 domestic proceeding
constituted a breach of FET. The tribunal ultimately rejected the expropriation
claim on ratione temporis grounds because the seizure took place before the BIT’s
entry into force, but ruled that Chile had breached the FET obligation and com-
mitted a denial of justice. The claimants’ damages calculation assumed that an
expropriation took place but the tribunal nevertheless awarded damages on this
basis.64
The award was partially annulled by the ad hoc committee which concluded that
it was “manifestly inconsistent” for the tribunal to apply an expropriation-based
calculation to claims of non-expropriatory breaches.65 Following this decision, the
claimants reinitiated the proceedings. However, they resubmitted their expropriation
valuation based on a “continuing act” theory instead of availing themselves of this
new opportunity to quantify their FET damages claim.66 Predictably, the tribunal in
the re-submitted proceedings dismissed “virtually in their entirety, the Claimants’
monetary claims” because the claimants had not shown “what particular injury and
damage could be proved to have been caused to them by the breach of the guarantee
of fair and equitable treatment.”67 Although the ICSID case is all but over, the
claimants have no doubt learned important lessons for their new UNCITRAL
arbitration.68
In sum, parties that fail to particularize their damages claim face a significant risk
of their request for compensation being denied by financially savvy tribunals. To
avoid this outcome, it is advisable to ensure that quantum experts are appropriately
instructed to calculate the specific economic harms connected to the alleged treaty
violations.
64
See Casado v. Chile, ICSID Case No ARB/98/2, Decision on the Application for Annulment(18
Dec 2012), } 261.
65
Id., } 285.
66
Casado v. Chile, Award (13 Sept 2016), } 88.
67
Id., } 244.
68
See Casado v. Chile, Notice of Arbitration (12 Apr 2017).
Contractual Breaches
Contractually-related disputes may arise in different ways in investment arbitration.
First, contracts are typically included within the definition of an “investment” in
international investment treaties and may be the subject of the dispute. Second, some
treaties include umbrella clauses which oblige the host State to observe specific
undertakings towards its foreign investors. Third, some international contracts
contain a dispute resolution clause allowing for international arbitration. As a result,
the approach to measuring damages relating to a contract will depend on how the
claim has been articulated. The preceding discussion related to approaches for
measuring damages for treaty breaches. This section focuses on damages for con-
tractual breaches.
The Roman concepts of damnum emergens and lucrum cessans have been
traditionally applied in these cases.69 As the arbitrator in the Sapphire case
explained, compensation for a breach of contract “includes the loss suffered
(damnum emergens), for example, the expenses incurred in performing a contract,
and the net profit loss (lucrum cessans), for example, the net profit which the contract
would have produced.”70 This approach compensates an injured party for expenses
incurred in reliance of the contract and for the expectation of receiving some profit
revenue. Although the parties may disagree on eligible expenses and precise
amounts, damnum emergens is generally more objective and easier to establish.
Conversely, lucrum cessans/net profits may be awarded provided they are not too
remote, uncertain, or speculative.71
Quantifying damages based on this conceptual framework gives rise to a risk of
double counting if lost profits and historical costs are combined. In order to avoid
over-compensating the investor, profits should be calculated net of expenses when
awarding damages for damnum emergens and lucrum cessans.
Methods of Valuation
This section presents the three main valuation methods used to calculate the FMV of
an asset: (1) income-based, (2) market-based, and (3) asset-based approaches.72
While the first two approaches are forward-looking (i.e., focusing on the asset’s
profit-making potential), the asset-based approach is backward-looking (i.e.,
assessing value by reference to historical investment costs). As discussed above,
FMV is the valuation standard commonly applied to treaty breaches where the effect
69
Himpurna v. PLN, Final Award of 4 May 1999 (2000), XXV Yearbook of Commercial Arbitration 13.
70
Sapphire International Petroleum v. National Iranian Oil Co., 25 ILR 136, 186 (1963).
71
Shufeldt Claim (United States v. Guatemala), 2 RIAA 1080, 1099 (1930).
72
See generally, Rubins N et al (2018) Approaches to valuation in investment treaty arbitration. In:
Beharry C (ed) Contemporary and emerging issues on the law of damages and valuation in
international investment arbitration, pp 171–204.
is expropriatory in nature. In such cases, damages are measured by taking the

difference between the hypothetical but-for value of the investment and the actual
value of the investment. The choice of valuation method will depend on the type of
asset being valued and the information available. In practice, tribunals will often
refer to the multiple valuation methods in determining damages.73
Income-Based Approaches
Methods that value an asset by reference to its future revenue-generating potential

are classified as income-based approaches. Examples of income-based methodolo-
gies include the discounted cash flow (“DCF”), adjusted present value, and capital-
ized cash flow methods. However, the DCF method is the most common
methodology in investment arbitration. At bottom, the DCF method calculates the
present value of future anticipated cash flows of a business and then applies a
discount rate to take into account the time value of money and risks. While there
are different variants of the DCF method, damages are often calculated by
discounting free cash flows by the weighted average cost of capital (“WACC”).74
The reliability of the DCF method will depend on the availability of information
about the asset’s performance, expenditures, market conditions, financing, compet-
itive forces, and industry outlook. In general, the suitability of the inputs and
assumptions used in the DCF calculation turns into a battle of the experts but the
discount rate is usually the biggest source of contention. That is because the discount
rate has the effect of reducing the amount of damages by factoring in risk (e.g.,
market, country, industry risks) and the time value of money.
Although this method is widely used in the financial world to value a wide range
of assets, investor-State tribunals have been reluctant to award damages using a DCF
analysis for non-operating assets or businesses with a limited history of operations.75
The World Bank Guidelines on Investment similarly take this view, noting that it
would be reasonable to determine compensation “for a going concern with a proven
record of profitability, on the basis of the discounted cash flow value.”76 That’s
73
See e.g., Crystallex International Corporation v. Venezuela, ICSID Case No. ARB(AF)/11/2,
Award (4 Apr 2016), } 917; Rusoro Mining v. Venezuela, ICSID Case No. ARB(AF)/12/5, Award
(22 Aug 2016), }} 787–790; Windstream Energy v. Canada, PCA Case No. 2013-22, Award (27
Sept 2016), } 481.
74
One notable departure was the Tethyan v. Pakistan case where the tribunal adopted the so-called
“modern DCF.” In fact, this well-established method – which is known as “certainty equivalent
valuation” – involves reducing expected cash flows by a risk adjustment and discounting the risk
adjusted cash flows at the risk-free rate. See Tethyan Copper Company v. Pakistan, ICSID Case No.
ARB/12/1, Award (12 July 2019), } 361.
75
Southern Pacific Properties (SPP) v. Egypt, ICSID Case No. ARB/84/3, Award (20 May 1992),
} 188; Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (30 Aug 2000),
} 120; NextEra Energy v. Spain, ICSID Case No. ARB/14/11, Decision on Jurisdiction, Liability
and Quantum Principles (12 Mar 2019), } 647.
76
World Bank Guidelines on Investment, Guideline IV.6.
because operating businesses have a sufficient track record to provide a reliable basis
for the inputs used in the calculation. Thus, the availability of information is
important in deciding whether the DCF method is appropriate in a given case. To
this end, the Rusoro v. Venezuela tribunal identified six criteria for the DCF method
to work properly:
• The enterprise has an established historical record of financial performance.

• There are reliable projections of its future cash flows, ideally in the form of a
detailed business plan adopted in tempore insuspecto, prepared by the company’s
officers and verified by an impartial expert.
• The price at which the enterprise will be able to sell its products or services can be
determined with reasonable certainty.
• The business plan can be financed with self-generated cash, or, if additional cash
is required, there must be no uncertainty regarding the availability of financing.
• It is possible to calculate a meaningful WACC, including a reasonable country
risk premium, which fairly represents the political risk in the host country.
• The enterprise is active in a sector with low regulatory pressure, or, if the
regulatory pressure is high, its scope and effects must be predictable: it should
be possible to establish the impact of regulation on future cash flows with a
minimum of certainty.77
The DCF method is a highly sensitive valuation tool. As a result, slight changes in
the parameters can lead to distorted outcomes. Therefore, even when damages are
calculated with the DCF method, tribunals will normally use other methods as a
“reality check” on its valuation result.78
Market-Based Approaches
The second category of valuation methods are market-based approaches. These

methods infer value using information from the market with respect to the disputed
asset or business. They are forward-looking because values established by reference
to share prices or transactions reflect market perceptions about the investment’s
income-making prospects. This section examines the principal methods applied in
investment arbitration cases.
Comparables Method
Quantum experts sometimes value investments by reference to comparable compa-
nies or transactions. In general, the comparables method can provide a reliable basis
77
Rusoro v. Venezuela, } 759.
78
National Grid v. Argentina, UNCITRAL, Award (3 Nov 2008), } 285; OI European Group v.
Venezuela, ICSID Case No. ARB/11/25, Award (10 Mar 2015), } 663; Eiser Infrastructure v. Spain,
ICSID Case No. ARB/13/36, Award (4 May 2017), } 474.
for valuation where the comparables are in the same industry, share similar business
characteristics, are sufficient in number, and represent market value. The two
approaches to implement this method are briefly described below.
The comparable companies method estimates the value of an asset or company
using the market valuation of companies holding similar assets. It derives a value for
the investment based on an adjusted standardized variable such as earnings or cash
flows.79 It is based on the theory that the ratio of a company’s value to the chosen
variable should be consistent across companies with a comparable business (e.g.,
productor service), size (e.g., revenue, production, sales), geography (e.g., regula-
tory regime, political system, taxes, currency), and financial profile (e.g., debt-to-
equity ratio). It is impossible to find identical businesses to the enterprise being
valued so valuation practitioners apply a standard of “reasonable and justifiable
similarity.”80 In practice, the method has been accepted by tribunals when a suffi-
cient number of comparable companies have been identified81 but rejected in cases
where the comparables were found to be too dissimilar.82
The comparable transactions method estimates the value of an asset by examining
data from arm’s length transactions occurring on or near the valuation date. Like the
comparable companies method, transactions involving comparable assets or enter-
prises are compared on a common unit basis and, after making adjustments to account
for differences, are applied to the valuation subject. However, transaction data may be
harder to find than daily stock price data as there is no central mechanism for collecting
this information.83 In addition, it is important that prices reflect arm’s length trans-
actions rather than specific considerations of individual buyers and sellers (e.g.,
synergies, control, distressed sale, etc.). This method has been received with mixed
results in investment arbitration. It has been adopted in cases where comparable sales
is the standard method to value the given asset in the industry (e.g., agricultural land)84
or that method provided the best valuation evidence.85 However, other tribunals have
rejected this method where the transactions involved assets with dissimilar character-
istics86 or the adjustments were too “plentiful.”87
The simplicity of the method is both its advantage and disadvantage. It provides a
quick and easy data point but, in so doing, makes implicit assumptions about funda-
mentals that may be inapplicable to the valuation subject. In addition, some tribunals
79
Ripinsky, p. 213.
80
Pratt S, Niculita A (2008) Valuing a business: the analysis and appraisal of closely held
companies, 5th edn. McGraw-Hill, New York, p 262.
81
Crystallex v. Venezuela, } 901.
82
See e.g., CMS v. Argentina, Award} 412; Khan Resources v. Mongolia, } 399.
83
Pratt, p. 310.
84
Vestey Group Ltd v. Venezuela, ICSID Case No. ARB/06/4, Award (15 Apr 2016), }} 352–354.
85
Windstream Energy v. Canada, Award, } 476.
86
Occidental Petroleum Corp. et al. v. Ecuador, ICSID Case No. ARB/06/11, Award (5 Oct 2012),
}} 787–788.
87
Crystallex v. Venezuela, } 909.
have been skeptical of the comparables method due to the high degree of subjectivity
involved in selecting comparable companies or transactions. Some tribunals have
therefore adopted it as a secondary check rather than as a primary method.88
Valuation Indicators Involving the Investment

Another set of market-based methods infers value from data points involving the
investment. For instance, investment tribunals have referred to the stock prices as
well as past transactions or offers to purchase the evaluated investment. Depending
on the circumstances of the case, both methods offer potentially useful indicia of
value.
If the investment is held by a publicly-traded company, its market capitalization
can be used to infer value on the valuation date. Market capitalization is calculated
by multiplying the share price by the number of issued shares at a given point in
time. Damages can be measured by taking the difference between the market
capitalization on the day before and the day after the offending measures. This
method is particularly well suited for single asset companies where value can be
directly observed. However, market capitalization may not reflect market value when
the shares are not traded in sufficient volumes or with sufficient frequency. In
addition, it may not be practicable to find a “clean” date for determining the
company’s market capitalization prior to the wrongful act when the State has
implemented a series of measures affecting the share price over a long period of
time. Nevertheless, several investment tribunals have considered a company’s mar-
ket capitalization in evaluating compensation.89
Another indicator of FMV can be found in actual or contemplated transaction
involving the valuation subject. This information can provide objective evidence of
value so long as the price can be considered arm’s length and no material changes in
the assets have occurred between the transaction/offer date and the valuation date. All
else being equal, an offer to purchase will be less probative than evidence of an actual
contemporaneous transaction. Investment tribunals have been willing to consider sales
in the same asset either as a primary or supplemental valuation method. For example,
in Enron v. Argentina, the tribunal determined that it could use a swap and share sale
transaction involving the claimant’s participation in the natural gas transportation
company. The tribunal aptly noted that: “Willing sellers and willing buyers in this
case are thus no longer hypothetical but real enough, a situation that has turned to be
meaningful in the Tribunal’s findings.”90 The Kardassopoulos tribunal reached a
similar conclusion in relation to three arm’s-length contemporaneous offers and
88
See e.g., Gold Reserve Inc. v. Venezuela, ICSID Case No. ARB(AF)/09/1, Award (22 Sept 2014),
} 832. See also, PwC (2015) International arbitration damages research, p 8
89
See e.g., Crystallex v. Venezuela, }} 889–895; Rusoro v. Venezuela, }} 767–769, 789.
90
Enron Creditors Recovery Corp. et al. v. Argentina, ICSID Case No. ARB/01/3, Award (22 May
2007), } 387.
transactions involving the asset.91 More recently, the Khan Resources v. Mongolia
tribunal relied on a contemporaneous offer to purchase which it adjusted based on an
earlier offer to remove the impact of the State’s actions.92
Asset-Based Approaches
The third category of valuation approaches is backward-looking in that the value of

assets are based on past investment-related expenditures. The underlying rationale is
that a notional buyer would not spend more to acquire an asset than it would cost to
construct the asset itself. The advantages are that: (a) these amounts can be
ascertained with certainty, (b) these methods are simpler and more straightforward
to implement, and (c) the information required to establish these values is readily
available. The disadvantage, however, is that these methods often bear little relation
to the market value of the investment. As a result, they may under-compensate an
investor if the asset’s income-generating potential is greater than the sum of its parts.
On the other hand, these methods may over-compensate a claimant if the asset is
worth less than its investment costs.
The most common asset-based approach adopted by investment tribunals estab-
lishes damages by the amounts incurred in developing the investment prior to the
injurious acts. This method is usually applied when the investment is not a going
concern or does not have a track record of profits.93 To recover its costs, the claimant
bears the burden of proving its past expenditures. In particular, an investor must
show that the expenses were: (i) linked to the investment, (ii) made by the investor,
(iii) not manifestly unreasonable, and (iv) supported by sufficient evidence.94
Investment tribunals have also considered, albeit less frequently, other asset-
based methods including:
• Book value: the net book value of an enterprise is arrived at by subtracting total
liabilities from total assets net of accumulated depreciation, depletion, amortization,
and impairment.95 The World Bank Guidelines on Investment recommends this
approach only where the book value was recently assessed prior to the valuation
date.96
91
Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award (3 Mar 2010), }}
598–603.
92
Khan v. Mongolia, }} 419–420.
93
See e.g., Metalclad v. Mexico, }} 121–122; Wena v. Egypt, } 125; Copper Mesa v. Ecuador, PCA
No. 2012-2, Award (15 Mar 2016), }} 7.24–7.29.
94
Ripinsky, pp. 266, 271.
95
See e.g., Liamco v. Libya, Award (12 Apr 1977), 20 ILM 1.Cf. Enron v. Argentina, } 382;
Tidewater v. Venezuela, } 165.
96
World Bank Guidelines on Investment, Guideline IV.6(iii).
• Liquidation value: the amount that the assets of an enterprise could be sold under
conditions of liquidation to a willing buyer less any liabilities of the company.
This approach has not been widely applied by investment tribunals.97
• Replacement value: the amount necessary to replace assets in their actual condi-
tion prior to the valuation date with similar assets. This method has been used to
value physical assets like vehicles, airplanes, equipment, and livestock.98
In a few cases, tribunals have adopted a mixed approach to capture a loss of future
financial benefits. This has been done by applying an adjustment factor or additional
sum on an investor’s sunk cost representing a reasonable return,99 loss of opportu-
nity,100 or lost profits.101 Conceptually, this supplemental value appears to be
grounded more in equity than in economic logic.
Limits on Recovery
Even after damages have been quantified, a State will be able to invoke circum-
stances which can limit the amount of compensation due. Chief among these are: (1)
the investor’s contributory fault, (2) the investor’s failure to mitigate its injury, (3)
the defense of necessity, and (4) the prohibition against granting speculative dam-
ages. Each limiting circumstance is discussed in turn.
Contributory Fault
Article 39 of the ILC Articles provides that “[i]n the determination of reparation,
account shall be taken of the contribution to the injury by willful or negligent action
or omission of the injured State or any person or entity in relation to whom reparation
is sought.” As discussed above, the burden lies with the State to prove that, in spite of
the causal link between its conduct and the damage, the investor materially contrib-
uted to its own injury.102
Not every action or omission will amount to contributory fault. The ILC Com-
mentary indicates that “only those actions or omissions which can be considered as
97
See e.g., CME v. Czech Republic, } 612. Cf.; Tidewater v. Venezuela, } 165.
98
See e.g., Petrolane v. Iran, Award of 14 August 1991, 27 IRAN-U.S. C.T.R. 64, }} 106–108;
Vestey v. Venezuela, }} 400–414, 424–426; Antoine Abou Lahoud and Leila Bounafeh-Abou
Lahoud v. Congo, ICSID Case No. ARB/10/4, Award (7 Feb 2014), } 572.
99
NextEra v. Spain, } 650.
100
SPP v. Egypt, }} 216–218.
101
Tecmed v. Mexico, }} 186, 195.
102
Copper Mesa v. Ecuador, } 6.88; Anatolie Stati et al. v. Kazakhstan, SCC Case No. V 116/2010,
Award, (19 Dec 2013), } 1454.
willful or negligent” can be taken into account.103 The negligent conduct need not be
“serious” or “gross,” but must have materially contributed to the damage.104 Tri-
bunals will consider the degree to which the investor contributed to its damage as
well as other circumstances of the case.105
Contributory fault encompasses the idea of the investor’s inadequate assessment
of risk, or voluntary assumption thereof.106 For example, in MTD v. Chile, the
claimant’s unwise business decision led to a 50% reduction of the damages awarded.
The dispute related to the investor’s development of a residential and commercial
complex on land which was used for agricultural purposes. Before the project could
be constructed, the Chilean authorities had to approve the re-zoning of the area but
this approval was never issued. The tribunal found that the State had breached the
FET standard by authorizing a project which could not obtain the required urban
development approval. However, the tribunal also analyzed the investor’s conduct
during the purported project’s development and found that the investor imprudently
undertook certain risks irrespective of Chile’s wrongful actions.107 The outcome of
MTD echoes the long-established notion that investment treaties do not operate as
insurance policies for the investor’s bad business decisions.108 Thus, the State
should not be required to pay for the totality of the damages when the investor’s
negligent conduct has materially contributed to their occurrence.
Apart from the investor’s unwise business decisions, contributory fault equally
encompasses conduct of the investor which, pursuant to the host State’s national law,
is illegal. An example of this behavior was considered in Yukos v. the Russian
Federation. There, the tribunal found that Russia’s tax assessments and collection
efforts against the investors were aimed at bankrupting them. However, the tribunal
equally took into account the investors’ tax avoidance arrangements on which
Russia relied to justify its actions against the investors.109 The tribunal accounted
for the investors’ conduct by reducing the amount of compensation by 25%.
Arbitral tribunals have discretion to determine the degree of reduction in the
compensation due. This was recognized by the MTD ad hoc committee which, albeit
agreeing with Chile that the arbitral tribunal could have proffered additional reasons
for its decision to reduce the compensation by 50%, recognized that the tribunal had
a margin of discretion to estimate the percentage of reduction.110 The reductions
103
ILC, Articles on Responsibility, art. 39, commentary 5 (“i.e., which manifests a lack of due care
on the part of the victim of the breach for his or her own property or rights”).
104
Burlington Resources v. Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and
Award, (7 Feb 2017), } 576.
105
106
Ripinsky, p. 315.
107
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award, (25
May 2004), }} 178, 242.
108
Emilio Agustín Maffezini v. Spain, ICSID Case No. Arb/97/7, Award (13 Nov 2000), } 64.
109
Yukos Universal Limited v. Russian Federation, PCA Case No. AA 227, Final Award (18 July
2014), } 1614.
110
MTD v. Chile, Decision on Annulment, } 101.
granted by tribunals have varied, with some reducing the amount by half,111 by
30%,112 or by 25%.113
Mitigation of Damages
The obligation of the investor to mitigate its injury is a general principle of law. The
duty to mitigate acknowledges that “even the wholly innocent victim of wrongful
conduct is expected to act reasonably when confronted by the injury.”114 Thus, an
investor is required to take reasonable steps to avoid the losses incurred as a result of
the State’s treaty breaches. Those losses which could have been avoided are not
recoverable.
Mitigation can occur through diverse actions or omissions, depending on the
circumstances of the case. For example, mitigation might require the investor to sell
products, stop the delivery of services, attempt to renegotiate a contract, or give up
unprofitable projects.115 Tribunals have also deemed it to be a reasonable mitigation
strategy to put the operation of the investment into “hibernation” to minimize the risk
of further losses.116 Whether recourse to local remedies can be considered a feasible
mitigation action is unsettled. Some tribunals have considered that there might be
instances where the local administrative procedures can offer the investor a more
effective response than international arbitration.117 In those instances, investors
“would be derelict in failing to attempt the local process,” but their duty to use
administrative procedures “does not imply that they must forego the option of
pursuing international remedies or must agree to whatever compensation is offered
at the local level.”118
Nor can an investor be expected to overcome insurmountable hurdles to avoid its
damage. Put differently, mitigation efforts must be reasonable.119 In SPP v. Egypt,
the State argued that the investors’ tourist resort was never cancelled and that the
investors were offered an alternative site to develop the project. When calculating
damages, the tribunal acknowledged the existence of the investors’ duty to take
111
Id., Award, } 243.
112
Copper Mesa v. Ecuador, } 6.102.
113
Occidental v. Ecuador, } 687; Yukos v. Russia, } 1637.
114
115
Marboe, p. 55.
116
Achmea v. Slovakia, UNCITRAL, Award, (7 Dec 2012), } 320.
117
See Dunkeld International Investment v. Belize (1), PCA Case No. 2010-13, Award, (28 June
2016).
118
Id., }} 197, 199; See Bilcon v. Canada, } 213, where the tribunal found that the investor does not
have to exhaust local remedies as part of its duty to mitigate where there is no requirement to do so
in the treaty.
119
Unión Fenosav. Egypt, } 10.124, stating that the duty to mitigate does not follow an “absolute
standard.”
mitigating steps, but held that “such an obligation is not so broad and all-
encompassing as to require the Claimants to accept an unsuitable alternative site”
to develop the project, which was not even contemplated by the parties in their under-
lying agreement.120
Arbitral tribunals have sought to apply the investor’s duty to mitigate in a
cautious manner. For example, in the context of an expropriation, the tribunal in
AIG v. Kazakhstan considered it “wrong” to oblige the investor to examine and
accept an alternative solution more favorable to the host State. In the tribunal’s view,
“[s]uch an imposition would only encourage Governments to breach with impunity
solemn provision of an international treaty and weaken the protection of foreign
investors – which such a treaty is expressly designed to safeguard.”121
The State of Necessity
The ILC Articles define the state of necessity as a circumstance precluding wrong-
fulness of the State’s conduct. States can have recourse to this defense for situations
where their sole means of preserving an essential interest, threatened by a grave and
imminent peril, is by adopting conduct inconsistent with their international obliga-
tions.122 For a State to invoke the defense, it cannot have contributed to the situation
of necessity.123
The effect of the state of necessity on compensation is unclear. By referring to it
as a circumstance precluding wrongfulness, the ILC Articles seem to endorse the
idea that during the period the necessity lasts, the State would not be committing an
internationally wrongful act. This would imply that the investor could not seek
compensation for any injury caused during that period. However, Article 27 of
ILC Articles – which describes the consequences of invoking a circumstance
precluding wrongfulness – establishes that compensation might be awarded for
any material loss caused by the acts. It is, to say the least, rather astonishing that
the ILC Articles would allow the granting of compensation even if the conduct is not
deemed wrongful.
Several investment treaties include provisions similar to the state of necessity
defense. Whether these so-called “Non-Precluded Measures” (“NPMs”)124 have the
same scope and effect as the customary rule remains disputed.125 These provisions
seem to excuse a treaty breach, which means that no compensation will be due
120
SPP v. Egypt, } 172.
121
AIG Capital Partners v. Kazakhstan, ICSID Case No. ARB/01/6, Award, (7 Oct 2003), } 10.6.4(5).
122
Ripinsky, p. 339.
123
ILC, Articles on Responsibility, art. 25(2)(b).
124
Burke-White W (2008) The argentine financial crisis: state liability under BITs and the legiti-
macy of the ICSID system. Paper 193. University of Pennsylvania Law School, p 2
125
Ripinsky, p. 340.
during the state of necessity.126 The state of necessity was a crucial defense raised by
Argentina in the more than 40 investment arbitration cases initiated as a consequence
of measures taken by the State in response to an economic crisis. The tribunals were
split as to their findings on necessity, with most rejecting Argentina’s defense127 and
a few considering that it met the requirements under customary international law or
the relevant NPMs.128
The CMS v. Argentina case provides an interesting example where the defense
was interpreted restrictively by the tribunal in the original proceedings but a different
interpretation was reached in the annulment proceedings. The ad hoc committee
concluded that both provisions are different in nature. It held that the CMS tribunal
erred when interpreting the NPM in the US-Argentina BIT in accordance with
Article 25 of the ILC Articles. In the committee’s view, the treaty provision is
different in scope because once it is invoked and upheld, it precludes the operation
of the other BIT provisions. As a result, the State would be absolved from compen-
sating the investor during the necessity period.129 Given the current state of the
jurisprudence and its potential relevance for investments in the Global South,
additional work would be warranted on the scope, requirements, and consequences
of this defense.
Speculative Damages
As noted above in the “Burden of Proof” section, an investor needs to prove its
economic harm with reasonable certainty. This means that “the assessment of damages
cannot be based on conjecture or speculation.”130 This is in line with the full reparation
principle, which prescribes that compensation should only cover the actual injury
suffered.131 In these instances, a tribunal will reject an investor’s claims, even if it has
established liability against the State.132 The disinclination of tribunals to award
speculative damages has occurred in several ways.
For example, tribunals have refused to grant compensation for damages which, at
the moment of the arbitration proceedings, were not ripe. This was the case in Mobil
v. Canada. The tribunal noted that the State’s action – consisting of the adoption of a
set of guidelines which required the investors to make additional expenditures – was
126
Sabahi et al., p. 336.
127
See CMS v. Argentina, Award; Enron v. Argentina, Sempra Energy v. Argentina, ICSID Case No.
ARB/02/16, Award (28 Sept 2007).
128
See LG&E v. Argentina, ICSID Case No. ARB/02/1, Award (25 July 2007); Continental
Casualty v. Argentina, ICSID Case No. ARB/03/9, Award (5 Sept 2008).
129
CMS v. Argentina, Decision on Annulment (25 Sept 2007), } 146.
130
Mohammad Ammar Al-Bahloul v. Tajikistan, SCC Case No. V064/2008, Final Award (8 June
2010), } 39.
131
ILC, Articles on Responsibility, art. 36, commentary 27; Chorzów, at p. 57.
132
Gemplus v. Mexico, } 12.56.
an ongoing NAFTA breach. The tribunal held that the breach would give rise to
damages once “there was a firm obligation to make a payment and there is a call for
payment of expenditure, or when a payment or expenditure related to the implemen-
tation of the 2004 Guidelines has been made.”133 Singularly, with respect to future
damages, the tribunal deemed it possible for the investors to claim compensation in a
new arbitration for losses which had not materialized in the current proceedings.134
In addition, tribunals have been careful not to award future lost profits, unless the
investor shows that the anticipated income stream has attained sufficient attributes to
be considered a legally protected interest of sufficient certainty to be compensa-
ble.135 Relatedly, tribunals have avoided using valuation methods with unreliable
outcomes to calculate the future profits of an investment. One of these methods is the
DCF method, which “analyses a wide range of inherently speculative elements,
some of which have a significant impact upon the outcome (e.g., discount rates,
currency fluctuations, inflation figures, commodity prices, interest rates, and other
commercial risks).”136 As discussed in the section on “Income-Based Approaches,”
tribunals have avoided applying the DCF method when the investment has not been
developed at all, or has only been in operation for a short amount of time.137
The limiting circumstances on compensation safeguard the principle of full
reparation. Their function is to avoid overcompensating an investor by allowing it
to recover damages only for the actual harm caused by the State’s conduct. While the
existence of these limiting factors has been widely recognized in investment arbi-
tration, there are still divergent views as to their scope, application, and effects.
Interest
There is a growing recognition that interest forms an integral element of the damages
analysis. This is reflected in Article 38(1) of the ILC Articles which provides that
interest “shall be payable when necessary in order to ensure full reparation. The
interest rate and mode of calculation shall be set so as to achieve that result.”
Interest may be ordered from a specified date until the date of the award (“pre-
award interest”) and from the date of the award until the date of payment (“post-award
133
Mobil Investments Canada Inc. and Murphy Oil Corporation v. Canada, ICSID Case No.
ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012), } 469. See
id., }} 470, 472–473.
134
This possibility was, in fact, exercised by one of the investors. In 2015, Mobil initiated a new
arbitration seeking losses incurred from 2012 to 2015 as a result of the 2004 Guidelines (Mobil
Investments Canada Inc. v. Canada, ICSID Case No. ARB/15/6). Remarkably, in a decision
rendered on 11 December 2018, the tribunal allowed Mobil to claim for losses beyond this period
(Mobil v. Canada, Procedural Order No. 9 – Decision on Scope of Damages Phase, (11 December
2018), }} 63–64, 75, 80).
135
136
Id., commentary 26.
137
See e.g., Metalclad v. Mexico, }} 119–120.
interest”).The rationale for each type of interest differs. The purpose of pre-award
interest is to compensate the investor for the delay in the payment of funds owed to it
as a result of the breach. Post-award interest, on the other hand, serves a different
function by incentivizing timely payment of the award. While their objectives are
different, both pre- and post-award interest are subject to the same three consider-
ations: (1) the period over which interest should run, (2) the interest rate, and (3) the
mode of calculating interest.
Pre-award Interest
The impact of pre-award interest on the overall sum of damages awarded can be
significant. In some circumstances, interest can surpass the principal sum awarded
depending on the variables selected.138 As a result, inadequate consideration of these
issues can lead to unsatisfactory outcomes for both disputing parties. The discussion
that follows provides an overview of the main elements of pre-award interest that
should be carefully contemplated.
Dies a quo – there are various options for the period over which damages can run.
Tribunals have used the date of the breach,139 the date of initiation of the arbitra-
tion,140 and the date of the award.141 Only post-award interest is available for
damages calculated as of the date of the award in order to avoid double counting.
Despite these various possibilities, most tribunals now apply interest from the date
of the breach to avert gaps between this period and the date of the award.142
Rate – the case law reflects three approaches for the applicable interest rate.143 First,
the borrowing costs of the claimant or the respondent State are common reference
points. Arbitral practice indicates however that tribunals more often resort to a
commercial rate such as LIBOR or EURIBOR rather than the actual borrowing
138
See e.g., Santa Elena v. Costa Rica where only $4 million out of the $16 million award
comprised of the principal sum of damages (Compañia del Desarrollo de Santa Elena S.A. v.
Costa Rica, ICSID Case No. ARB/96/1, Award (17 Feb 2000)).
139
See e.g., MTD v. Chile, Award, } 247; Asian Agricultural Products LTD (AAPL) v. Republic of
Sri Lanka, ICSID Case No. ARB/87/3, Final Award (27 June 1990), } 114; Metalclad v. Mexico,
} 128.
140
See e.g., Swem Balt AB, Sweden v. Latvia, UNCITRAL, Decision by the Court of Arbitration (23
Oct 2000), } 47; Amco Asia Corporation and others v. Indonesia, ICSID Case No. ARB/81/1,
Award (20 Nov 1984), } 281.
141
See e.g., Franck Charles Arif v. Moldova, ICSID Case No. ARB/11/23, Award (8 Apr 2013),
} 618; ADC v. Hungary, }} 520, 522.
142
Beeley M (2018) Approaches to the award of interest. In: Beharry C (ed) Contemporary and
emerging issues on the law of damages and valuation in international investment arbitration. p 393.
143
See generally, Beharry C (2017) Prejudgment interest rates in international investment arbitra-
tion. JIDS 8(1):56–78.
costs of the investor.144 This approach promotes more objective and predictable
outcomes by eschewing rates based on the creditworthiness of an individual
investor. For similar reasons, many tribunals have declined to apply the sovereign
borrowing rate of the respondent on the premise that the claimant was compelled
to be the unwilling creditor of the State (“coerced loan theory”).145 This is mainly
because the State’s borrowing rate is misaligned with the objective of pre-award
interest by focusing on the State’s default risk and unjust enrichment. Second, the
rate of return on investment is another routine choice. In most cases, tribunals
establish this rate by reference to widely available low risk investments (such as
treasury bills, certificates of deposit, and savings deposits)146 rather than by the
anticipated return on the claimant’s investment.147 Third, fixed rates have been
used, particularly in early cases, based on national law, prevailing global financial
conditions, and without any explanation at all.148 This approach has received
limited support as it lacks any economic or legal justification.149
Method of Calculation – the debate traditionally centered on whether it is appropri-
ate to use simple or compounded interest. The longstanding practice had been to
calculate interest on a simple basis – i.e., the application of interest on the
principal sum.150 However, there has been a recent shift towards calculating
interest on the basis of the principal sum as well as the accrued interest from
the previous compounding period (i.e., compound interest). The Santa Elena v.
Costa Rica case is often regarded as having marked this turning point.151 For a
time, compound interest was viewed as limited to expropriation.152 However, the
144
See e.g., Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Venezuela, ICSID Case No.
ARB/10/19, Award (18 Nov 2014), } 962; National Grid v. Argentina, } 294.
145
See e.g., Tidewater v. Venezuela, } 205; Yukos v. Russia, } 1679. For a defense of this approach,
see Colon J, Knoll M (2005) The calculation of prejudgment interest. University of Pennsylvania
Law School, Public law and legal theory research paper series, research paper no #06-21
146
It is argued that so-called risk-free rates have the advantage of: (a) avoiding subjective determi-
nations about risk and the likely return on the investment; (b) leading to consistent, fair and
predictable outcomes, and (c) reflecting shifts in market conditions (see Beharry C (2017) Prejudg-
ment interest rates in international investment arbitration. JIDS 8(1)). See e.g., Siemens A.G. v.
Argentine Republic, ICSID Case No. ARB/02/8, Award (6 Feb 2007), } 396; ADM v. Mexico,
} 300.
147
See e.g., SAUR International v. Argentina, ICSID Case No. ARB/04/4, Award (22 May 2014),
} 430; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentina, ICSID Case
No. ARB/97/3, Award (20 Aug 2007), } 9.2.8.
148
SPP v. Egypt, }} 222–223; Case of the SSM Wimbledon, PCIJ Series A, No 1, Judgment, 32
(1932), p. 32; AAPL v. Sri Lanka, } 113.
149
See e.g., Uchkunova I, Temnikov O (2014) A procrustean bed: pre- and post-award interest in
ICSID arbitration. ICSID Rev 29(3):648.
150
See e.g., ILC, Articles on Responsibility, art. 38, commentary (8) (noting that this was the
position consistently adopted by the Iran-US Claims Tribunal). See also Whiteman M (1943)
Damages in international law, vol 3. Government Printing Office, Washington, DC.
151
Santa Elena v. Costa Rica, }} 103–104.
152
Id.; Autopista v. Venezuela, } 394.
trend has been to apply compound interest for all breaches although some tri-
bunals continue to order simple interest.153
Post-award Interest
The treatment of post-award interest has followed a similar pattern as pre-award

interest. In some cases, tribunals do not distinguish between pre- and post-award
interest when ordering interest until the date of payment.154 Other tribunals have
differentiated between the application of interest before and after the award, taking
different approaches on issues such as the starting date, rate, and mode of calculating
post-award interest. First, while post-award interest normally runs from the date of
the award, some tribunals have opted for a grace period to enable States to take the
necessary internal steps to arrange for payment.155 Second, in terms of the interest
rate, tribunals typically select the same rate as the pre-award interest rate but a few
have chosen to apply a higher rate for post-award interest.156 Third, the method of
calculation has been another area where some tribunals have modified their
approaches to pre- and post-award interest. In some cases, tribunals have chosen
to only compound post-award interest157 or to adopt a shorter interval for
compounding post-award interest.158 These approaches demonstrate an implicit
recognition of the different roles served by pre- and post-award interest.
Parties should give equal consideration to their submissions on post-award
interest and not assume any automatic entitlement. Failure to do so may put these
claims in jeopardy if post-award interest is not specifically claimed.159
As discussed, some trends have emerged regarding the main components of pre-
and post-award interest but there are still significant areas of divergence. The
important point about interest is that it should not be overlooked. Both the investor
and State may seek the payment of interest on any compensation awarded. Although
discussions on interest are usually presented from the perspective of investors, States
should also seek interest on their costs in the event that they prevail in the
proceedings.160
153
See e.g., Duke Energy Electroquil Partners et al. v. Ecuador, ICSID Case No. ARB/04/19,
Award (18 Aug 2008), } 457; Yukos v. Russia, } 1689; CME v. Czech Republic, } 643.
154
See e.g., ADM v. Mexico, } 304(5); PSEG v. Turkey, } 354(3); MTD v. Chile, Award } 253(4).
155
Tenaris v. Venezuela I, } 595; Yukos v. Russia, } 1691; Wena v. Egypt, } 136.
156
See e.g., Gold Reserve v. Venezuela, } 863(ii)-(iii); Eiser v. Spain, } 486(d); Maffezini v. Spain,
}} 96–97.
157
See e.g., Opera Fund Eco-Invest SICAV PLC and Schwab Holding AG v. Spain, ICSID Case No.
ARB/15/36, Award (6 Sept 2019), } 746(5)-(6); CMS v. Argentina, } 471.
158
See e.g., Metalclad v. Mexico, } 131.
159
See e.g., Enron v. Argentina, } 452; Sempra v. Argentina, } 485.
160
See e.g., Pac Rim Cayman LLC. v. El Salvador, ICSID Case No. ARB/09/12, Decision on the
Respondent’s Request for a Supplementary Decision (28 Mar 2017), } 1.19.
Conclusion
After a finding of liability, a tribunal will begin its assessment of damages in which
the objective is to compensate the investor for the losses caused by the State’s
unlawful actions. The guiding norm is to avoid either over- or under-compensating
the investor but rather to compensate it for its actual losses.
Despite the clear purpose of the damage assessment and the comprehensive body
of awards which have nurtured the discussion, many aspects of this topic remain
debatable. Certainly, one factor contributing to tribunals’ sometimes divergent
approaches is their wide discretion to resolve damages-related issues. While this
discretion might be convenient as it allows tribunals to account for the specific facts
of the case, it has also contributed to uncertainty in outcomes.
To promote consistency and intellectual rigor, it would be desirable to delineate
the boundaries of arbitral discretion through more guidance – whether in the
underlying investment treaties or efforts aimed at codifying core principles – as
well as identifying areas for further study to resolve thornier issues, which this
chapter has endeavored to highlight.
Cross-References
Further Reading
Abdala M, Lopez-Zadicoff P, Spiller P (2011) Invalid round trips in setting pre-judgment interest in
international arbitration. WAMR 5:1
Abdala M, Spiller P (2008) Chorzów’s standard rejuvenated: assessing damages in international
investment treaty arbitration. J Int Arbitr 15:103
ASA (2008) American Society of Appraisers business valuation standards.
Ball M (2001) Assessing damages in claims by investors against states. ICSID Rev 16:2
Beharry C (2017) Prejudgment interest rates in international investment arbitration. JIDS 8(1)
Beharry C (2018) Contemporary and emerging issues on the law of damages and valuation in
international investment arbitration. Koninklijke Brill, Leiden
Bollecker-Stern B (1973) Le préjudice dans la théorie de la responsabilité internationale. Pédone,
Paris
Bungenberg M, Griebel J, Hobe S, Reinisch A (eds) (2015) International investment law: a
handbook. Beck-Hart-Nomos, Oxford
Gotanda Y (1996) Awarding interest in international arbitration. AJIL 90:40
Gotanda Y (2004) Awarding compound interest in international disputes. Oxford University
Comparative Law Forum
Gotanda Y, Sénéchal TJ (2009) Interest as damages. Villanova University working paper series 107.
Gray C (1987) Judicial remedies in international law. Clarendon Press, Oxford
Jansen M, Pauwelyn J, Carpenter T (2017) The use of economics in international trade and
investment disputes. Cambridge University Press, Cambridge
Kantor M (2008) Valuation for arbitration: compensation standards, valuation methods and expert
evidence. Kluwer, The Hague
Knoll MS, Colon JM (2005) The calculation of prejudgment interest. Research paper no #06-21.
University of Pennsylvania Law School.
Lieblich WC (1990) Determinations by international tribunals of the economic value of expropri-
ated enterprises. J Int Arbitr 7:37
Lieblich WC (1991) Determining the economic value of expropriated income-producing property
in international arbitrations. J Int Arbitr 8:59
Lillich R (1983) International law of state responsibility for injuries to aliens. University Press of
Virginia, Charlottesville
Marboe I (2017) Calculation of compensation and damages in international investment law, 2nd
edn. Oxford University Press, Oxford
Sabahi S (2011) Compensation and restitution in investor-state arbitration: principles and practice.
Oxford University Press, Oxford
Sabahi S, Wälde T (2008) Compensation, damages and valuation. In: Muchlinski P et al. (eds) The
Oxford handbook of international investment law. Oxford University Press, Oxford, pp
1049–1124
Trenor JA (2018) Guide to damages in international arbitration. Law Business Research Limited,
London
Weisburg H, Ryan C (2006) Means to be made whole: damages in the context of international
investment arbitration. In: Derains Y, Kreindler R (eds) Evaluation of damages in international
arbitration. ICC Institute of World Business, Paris
Wells L (2003) Double dipping in international awards? An economist questions damages awarded
to Karaha Bodas Company in Indonesia. Arbitr Int 19(4):471
Wittich S (2008) Compensation. In: Max Planck encyclopedia of public international law
Wöss H, San Roman A, Spiller P, Dellepiane S (2014) Damages in international arbitration under
complex long-term contracts. Oxford University Press, Oxford
The Issue of Costs: How much does ISDS
Cost and Who Bears the Cost? 56
Noam Zamir
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1456
Costs in Investor-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1457
Arbitrators’ Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1457
Legal Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1460
Allocation of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1460
Costs Follow the Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1461
Each Party Bears its Own Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1461
International Law Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1462
Arbitration Rules and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1465
Cost-Allocation in Investment Arbitration Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1467
Reducing the Costs in Investor-State Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1470
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1474
Abstract
The costs associated with investor-State arbitral proceedings are usually high as
the parties to the proceedings often need to spend considerable sums of money for
legal services, which include lawyers’ fees and arbitration costs. These high costs
motivate different actors, including arbitration users and academics, to study
issues such as costs allocation and reduction of costs. This chapter examines in
detail the different components of costs in arbitration, namely the legal costs and
arbitration costs, how they should be allocated between the parties to a given
dispute, and how they can be reduced. In conducting this examination, the
experience of different arbitral institutions and arbitration rules such as ICSID,
HKIAC, ICC, and SIAC is tackled in the text.
N. Zamir (*)
Faculty of Law, Lyon Catholic University, Lyon, France
e-mail: noam.zamir@cantab.net

https://doi.org/10.1007/978-981-13-3615-7_69
1456 N. Zamir
Keywords
International arbitration · Investor-State arbitration · Allocation of costs ·
Arbitration fees · Reduction of costs
Introduction
The issue of costs in investor-State arbitration and international commercial arbitra-

tion has received growing attention from arbitration users,1 practitioners, and aca-
demics.2 This is not surprising as the average costs in investor-State arbitration is
around 10–11 million USD (for claimant and respondent together with tribunal
costs) according to different studies.3 This high sum of money suggests that issues
such as the reduction of costs and allocation of costs are of vital importance to
arbitration users. In light of this importance, the structure of this chapter is as
follows. After this brief introduction, the first section examines the components of
costs in investor-State arbitration. The second section discusses the different
approaches to allocation of costs. It explains their rationale and their prevalence in
litigation. It then explains the international law approach in relation to allocation of
costs and demonstrates how arbitration rules and practice of arbitral tribunals have
diverged from the international law approach. The third section suggests different
ways to reduce costs in investor-State arbitral proceedings, followed by concluding
remarks.
1
See Queen Mary University of London (2018) Queen Mary’s survey on international arbitration, p 8.
http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey%
2D%2D-The-Evolution-of-International-Arbitration-(2).PDF, which revealed that majority of arbitra-
tion practitioners consider costs to be the worst characteristics of international arbitration.
2
For details, see the Harbour Lecture of Kaplan N (2016) Decision on costs – a mind field for
arbitrators and uncertainty for participants. Presented at Harbour lecture in Hong Kong, 19 October
2016. http://neil-kaplan.com/wp-content/uploads/2016/11/HarbourLectureNK-Final.pdf; Chaisse J,
Donde R (2018) The state of investor-state arbitration – a reality check of the issues, trends, and
directions in Asia-Pacific. Int Lawyer 51(1):47–67.
3
See Susan D. Franck “Arbitration Costs: Myths and Realities in Investment Treaty Arbitration”
(Chap. 9, March 2019) (stating an average sum of 10–11 million USD of ISDS arbitration costs);
The Allen & Overy (2017) Study on investment treaty arbitration. https://www.allenovery.com/en-
gb/global/news-and-insights/publications/investment-treaty-arbitration-cost-duration-and-size-of-
claims-all-show-steady-increase, introduction on the web-site page of the report (referring to 11.8
million USD); Jeffery P. Commission, “How Much Does an ICSID Arbitration Cost? A Snapshot of
the Last Five Years” (2016) (suggesting that the average ICSID arbitration costs is around 11.3
million USD); Hodgson M (2014) Costs in investment treaty arbitration: the case for reform.
Transnatl Dispute Manage 1:3 (suggesting that the average sum is 10 million USD; see also
OECD “Government perspectives on investor-state dispute settlement: a progress report” (2012),
p. 8 (suggesting a total average sum of more than eight million USD).
56 The Issue of Costs: How much does ISDS Cost and Who Bears the Cost? 1457
Costs in Investor-State Arbitration
In order to understand why costs in arbitration are high and the possible ways of
reducing them, it is necessary to understand the different components of costs and
how they differ between arbitral institutions and rules.
The term “costs” is defined in different ways in the context of international
commercial arbitration and investor-State arbitration. Various arbitral institutions
distinguish between the “costs of the arbitration” and “legal costs”/“party costs.” The
costs of the arbitration typically include the arbitrators’ fees, the fees of the admin-
istrating body, and the different related hearing expenses such as payment for
hearing rooms. The legal costs typically include the lawyers’ fees and related
expenses of each side on its experts and witnesses.4
The costs of arbitration would be affected by the venue of arbitration, the fees that
the arbitration institution that administrates the case charges, and the arbitrators’
fees. In investor-State arbitration, the arbitrators’ fees usually constitute the largest
share of the arbitration costs and therefore we need to understand how these fees are
determined.
Arbitrators’ Fees
Arbitrators’ fees can vary considerably depending on the relevant arbitration rules
and the individual arbitrators.
ICSID Arbitrations
In arbitrations under the International Center for Settlement of Investment Disputes
(ICSID), arbitrators’ fees are capped at USD 375 per hour and USD 3000 per day of
hearing or related meetings.5 In addition, arbitrators will be entitled to subsistence
allowances and reimbursement of travel expenses.
In practice an hourly rate of USD 375 is not considered high when compared with
rates that other arbitral institutions allow. However, when discussing the costs of
4
See 2014 LCIA Arbitration Rules, Article 28(1): “The costs of the arbitration other than the legal
or other expenses incurred by the parties themselves (the ‘Arbitration Costs’) shall be determined
by the LCIA Court in accordance with the Schedule of Costs. The parties shall be jointly and
severally liable to the LCIA and the Arbitral Tribunal for such Arbitration Costs.” Also see 2017
ICC Arbitration Rules, Article 38.1: “The costs of the arbitration shall include the fees and expenses
of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the
scale in force at the time of the commencement of the arbitration, as well as the fees and expenses of
any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by
the parties for the arbitration”. Also see 2018 HKIAC Arbitration Rules, Article 34.1 states that the
term “costs of the arbitration” includes only: the fees of the arbitral tribunal; the reasonable travel
expenses incurred by the tribunal; the reasonable costs of expert advice required by the tribunal,
including fees and expenses of any tribunal secretary; the reasonable costs for legal representation,
including fees and expenses of any witnesses and experts and the HKIAC registration fee.
5
See para I.3 of ICSID Memorandum on the Fees and Expenses (2005).
1458 N. Zamir
arbitration, one should note that ICSID charges relatively high administration fees.
For example, ICSID will charge an administrative charge of USD 42,000 upon the
registration of a request for arbitration, and will continue to charge this fee on annual
basis.6 Therefore, it may not be surprising that ICSID arbitrations are not much cheaper
from average UNCITRAL arbitration, in which arbitrators’ fees are not capped. As
indicated by a 2017 study, average ICSID arbitration costs (i.e., arbitrators’ fees/expenses
and institutional charges) were USD 920,000.7
UNCITRAL Arbitrations
In UNCITRAL arbitrations, i.e., arbitrations under the UNCITRAL rules that are
used both in commercial arbitrations and investor-State arbitrations, proceedings are
often conducted on an ad hoc basis. However, some arbitral institutions including the
Permanent Court of Arbitration (PCA) and the Hong Kong International Arbitration
Centre (HKIAC) will administer UNCITRAL arbitrations.
In UNCITRAL arbitrations, there are no schedules of fees. In other words, the
arbitrators’ fees are not set or capped. Instead, the 2013 UNCITRAL Arbitration Rules
states that “[t]he fees and expenses of the arbitrators shall be reasonable in amount,
taking into account the amount in dispute, the complexity of the subject matter, the
time spent by the arbitrators and any other relevant circumstances of the case.”8
In practice, soon after the acceptance of appointment, the tribunal will usually
send to the parties a draft Terms of Appointment (“TOA”) for their consideration. In
the TOA, the arbitrators will state their hourly rate, which the parties may negotiate.
Often, the suggested arbitrators’ fees will be set in accordance with or in reference to
the fees of other arbitral institutions.
In practice, hourly rates can diverge from USD 375 to USD 850, but there is no
minimum or maximum figure. In some cases, the parties might be able to convince
the arbitrators to reduce their fees if they are significantly higher than the ones that
other arbitral institutions allow.
A recent study has found that arbitration costs (i.e., arbitrators’ fees/expenses and
institutional charges) in UNCITRAL arbitrations were USD 1,089,000.9 In this
regard, it is interesting to note that the PCA, which mainly deals with intra-State
disputes and investor-State disputes, has no fixed schedule of fees for its
6
See para. 4 of ICSID Schedule of Fees (2019).
7
For more data and information about other institutions see the Allen & Overy (2017) Study on
investment treaty arbitration. https://www.allenovery.com/en-gb/global/news-and-insights/publica
tions/investment-treaty-arbitration-cost-duration-and-size-of-claims-all-show-steady-increase. Also
see a publication of Aceris Law LLC with budget summary in investment arbitration (Aceris Law
LLC (2019) How to reduce the overall cost of investment treaty arbitration to less than USD 1
million. https://www.acerislaw.com/how-to-reduce-the-overall-cost-of-investment-treaty-arbitration-
to-less-than-usd-1-million/).
8
See Article 41 of the 2013 UNCITRAL Arbitration Rules.
9
See Allen & Overy (2017) Study on investment treaty arbitration. https://www.allenovery.com/en-
gb/global/news-and-insights/publications/investment-treaty-arbitration-cost-duration-and-size-of-
claims-all-show-steady-increase
administration services. As explained by the PCA, “to promote maximum flexibility

in each case, the PCA has no fixed fee schedule. The PCA assists the parties and
tribunal in finding a fee arrangement that is most appropriate for the case.”10 In that
sense, if the parties manage to agree with the arbitrators on reasonable fees which are
not much higher than in ICSID arbitrations, PCA arbitrations can be cheaper than
ICSID ones.
HKIAC, ICC, and SCC

Some arbitral institutions which traditionally were used for commercial disputes are
now also used for investor-State arbitrations. For example, HKIAC, which is one of
leading arbitration institutions in Asia, has administered several investor-State
arbitrations in the recent years.
According to the HKIAC Arbitration rules, the arbitrators are expected to agree
on their fees with the parties to the arbitration. However, the maximum agreed
hourly rate of an arbitrator is HKD 6,500 (USD 836).11 The 2018 HKIAC
Arbitration Rules provides that “[h]igher rates may be charged if expressly agreed
by all parties to the arbitration or if HKIAC so determines in exceptional
circumstances.”12
In addition, the HKIAC also allows for the arbitrators’ fees to be decided by
reference to an ad valorem fee scale, i.e., based on the amount of the dispute.
However, the majority of HKIAC tribunals are paid on an hourly rate basis.13
Bearing in mind that most of the HKIAC cases are not investor-State arbitrations,
it should be noted that the average costs of the arbitration under HKIAC between
2013 and 2019 are USD 119,078 with the median at USD 56,138.14 This can be
explained in light of the fact that many commercial disputes tend to be less
complicated and therefore less costly than investor-State disputes.
Similarly, the International Chamber of Commerce (ICC) and the Stockholm
Chamber of Commerce (SCC), which are mainly dedicated to commercial dis-
putes, can also be used, in some instances, for investor-State arbitration. These
institutions determine the arbitrator’s fees based on the amount in dispute. This
system can be cheaper for the parties to the arbitration when the sum in dispute is
relatively low. However, if the sum is high, which often is the case in investor-State
disputes, the ad valorem method may not save significant amounts in terms of
costs.
10
See the FAQ section of the PCA official website.
11
The exact maximum rate for arbitrators is not envisaged in the Rules, but HKIAC publishes this
maximum rate on its website in accordance with article 10.2 of the 2018 HKIAC Arbitration Rules.
For details, see section on the website “HKIAC 2018 Schedule of Fees.”
12
See Article 9.5 of Schedule 2 of the 2018 HKIAC Arbitration Rules.
13
For more detailed information and additional statistics, see the section of the HKIAC website
“HKIAC Average Costs and Duration.”
14
HKIAC website “HKIAC Average Costs and Duration.”
1460 N. Zamir
Legal Costs
The legal costs in arbitration are comprised of counsel’s fees, expert costs (including
remuneration and their expenses) if appointed, and witnesses’ expenses. A study
from 2017 has found that the average legal costs per party is high; claimants pay on
average USD 6,019,000 per arbitration, and the average legal costs for respondent
States are USD 4,855,000.15
Therefore, it is evident that legal costs constitute the biggest share of costs in
international arbitration. Indeed, the PCA stated in relation to investor-State disputes
that “in the PCA’s experience, counsel and expert fees can account for 90% of the
cost, while tribunal and institutional fees can account for the remaining 10%.”16 In
the same vein, the ICC, which mainly deals with commercial arbitrations, found that
“[p]arty costs (including lawyers’ fees and expenses, expenses related to witness and
expert evidence, and other costs incurred by the parties for the arbitration) make up
the bulk (83% on average) of the overall costs of the proceedings.”17 On the other
hand, the ICC stated that arbitrators’ fees make up only 15% of total costs on
average.18
Bearing this point in mind, it is clear that if one is interested in reducing costs in
arbitration, reducing the legal costs should be one of the main targets. This is
addressed again below.
Allocation of Costs
As costs can be very high, one of the most important questions is how to allocate the
costs at the end of the arbitration proceedings. There are two main approaches. The
first one is costs follow the event, or, in other words, loser pays. According to this
approach, the losing party shall pay the costs of the prevailing party. This is the
dominant approach in litigation in most jurisdictions, including England, Australia,
15
See Allen & Overy (2017) Study on investment treaty arbitration. https://www.allenovery.com/
en-gb/global/news-and-insights/publications/investment-treaty-arbitration-cost-duration-and-size-of-
claims-all-show-steady-increase, introduction on the web-site page of the report.
16
See the PCA document, submitted to The United Nations Commission on International Trade
Law (2018) Duration and cost of state-state arbitration proceedings. Submitted to UNCITRAL
working group III by PCA, pp 1–3. https://uncitral.un.org/sites/uncitral.un.org/files/pca-_submis
sion_-_duration_and_cost_-_20181024.pdf
17
The International Chamber of Commerce (2015) ICC commission report, decisions on costs in
international arbitration, ICC dispute resolution bulletin 2015, Issue 2, pp 1–3 (“Party costs
(including lawyers’ fees and expenses, expenses related to witness and expert evidence, and
other costs incurred by the parties for the arbitration) make up the bulk (83% on average) of the
overall costs of the proceedings.”).
18
Ibid.
Hong Kong, Singapore, Switzerland, and Germany.19 The other approach is that
each party should pay its own costs, which is sometimes called the “pay-your-own-
way” approach or the “American rule.” As the name suggests, this is the rule
common in the United States. Before addressing the arbitration and international
law practice in relation to allocation of costs, it is important to state a few words on
the history of each approach.
Costs Follow the Event
The concept of “costs follow the event” has ancient roots. The rule that the losing side in
litigation may need to pay the costs of the prevailing party was announced by the East
Roman emperor Zeno in 487 A.D.20 This rule was later codified in the Code of Justinian
in the first half of the sixth century.21 From the Code of Justinian, this costs allocation
approach has later found its way to other legal systems of continental Europe throughout
the years.22 The costs follow the event approach found its way to the common law in the
Statute of Gloucester of 1275.23 This Statute was the basis for the law on this subject,
and it remained so until the Supreme Court of Judicature Act of 1875.24
Each Party Bears its Own Costs
The United States follows a different approach in relation to allocation of costs, namely
that each party should bear its own costs. The reason why the United States has taken a
different approach in relation to allocation of costs has been the subject of different
19
See Harbour Lecture of Kaplan N (2016) Decision on costs – a mind field for arbitrators and
uncertainty for participants. Presented at Harbour lecture in Hong Kong, 19 October 2016, p 5.
http://neil-kaplan.com/wp-content/uploads/2016/11/HarbourLectureNK-Final.pdf
20
Pfennigstorf W (1984) The European experience with attorney fee shifting. Law Contemp Probl
47(37):42
21
See the full text of the relevant part in Code of Justinian, Book VII, 51.5. (“The constitution
ordains that every judge shall, in his decision, order the defeated party to pay all expenses of
litigation, giving permission to the judge to order the payment of one-tenth more than the amount
paid out, whenever the insolence of the defeated party gives him cause to do so, provided that the
amount over and above the expense shall go to the fisc, unless the judge gives a part of it to the
victor in order to repair the damages which he has sustained.”).
22
E.g. Article 98 of the Russian Civil Procedural Code prescribes losing party to cover court
expenses of the winning party. Same approach is used in Germany, Switzerland, France (see Article
91 of German Code of Civil Procedure; Article 106 of Swiss Civil Code of Procedure, Article 696
of French Civil Procedure Code).
23
Chapter 1 of the Statute provided that “the defendant may recover against the tenant the costs of
his writ purchased, together with the damages above said. And this Act shall hold place in all cases
where the party is to recover damages.” See also discussion in Goodhart AL (1929) Costs. Yale Law
J 38(849):852.
24
Goodhart AL (1929) Costs. Yale Law J 38(849):852
1462 N. Zamir
studies which offered different explanations. Nevertheless, there is no official explana-

tion or justification for the “American approach,” as explained by Professor Leubsdorf:
one of the most curious features of the American Rule in the nineteenth century was its
almost total absence of justification. That lawyers should be paid by their clients rather than
by opposing parties seemed so natural that, when attorney fee statutes began to appear,
courts usually regarded them as imposing penalties on the acts of the defendant. A few courts
condemned certain fee statutes as penalizing the defendant’s decision to litigate. Another line
of cases criticized the assessment of attorney fees as damages against plaintiffs as discour-
aging their access to the courts. From such reasoning, the road led to a general assessment of
the American Rule as an incentive or disincentive to litigation.25
In his lecture on the issue of costs, Neil Kaplan provided additional possible
explanation:
[. . .] during early Colonial times lawyers were not held in high repute and were treated with
suspicion. However, by the end of the 18th and early nineteenth Century I am pleased to say
that the Bar had become more respectable and in New York, for instance, Counsel’s fees were
allowable. However, the recovery of Counsel’s fees was based on a fixed fee. In 1829 the fixed
fee was $3.75. But as lawyers raised their fees over time and the statutory amount was not
revised, the position soon became that in effect lawyers’ fees were not claimable. As Professor
Goodhart noted, had the 1829 Statute allowed a reasonable fee as opposed to a fixed fee, the
difference between the English and American rules might have disappeared. [. . .] Another
reason why the English rule may not have been adopted in the USA is that the fear of having to
pay the other side’s costs would act as a disincentive to bringing an action and would thus be
seen as a possible bar to the access to justice. And still further reason was that litigation was
seen as a gamble and that it was unfair and un-American to penalize the losing party (See
Harbour Lecture of Kaplan N (2016) in footnote 2).
Whatever, the reason may be, already in 1796, the Supreme Court of the United
States stated that the general practice of the United States is in contrast to the English
approach of “costs follow the event.”26
International Law Practice
The basic rule in public international law, as reflected in Article 64 of the Statute of
the International Court of Justice (ICJ), is that subject to the court’s discretion each
party bears its own costs.27
25
Leubsdorf J (1984) Toward a history of the American rule on attorney fee recovery. Law Contemp
Probl 47(9):28
26
See the case Arcambel v Wiseman (1796). The judges expressed their view as follows: “We do not
think that the charge ought to be allowed. The general practice of the United States is in opposition
to it and even if that position were not strictly correct in principle, it is entitled to the respect of the
Court until it is changed or modified by statute.”
27
See Article 64 of the Statue of the ICJ: “Unless otherwise decided by the Court, each party shall
bear its own costs.”
The ICJ elaborated on its approach in relation to costs in its Advisory Opinion in
Review of United Nations Administrative Tribunal (UNAT) Judgment No. 158,
which dealt inter alia with the issue of costs in the context of mixed proceedings
in front of the UNAT, which typically deals with disputes between individual
claimants and the UN as a respondent. The ICJ supported UNAT’s decision to
dismiss the claimant’s request for exceptional costs “without stating any standards
or reasons”28 and noted as follows:
Account must also be taken of the basic principle regarding the question of costs in
contentious proceedings before international tribunals, to the effect that each party shall
bear its own in the absence of a specific decision of the tribunal awarding costs (Art. 64 of the
Statute of the Court). An award of costs in derogation of this general principle, and imposing
on one of the parties the obligation to reimburse expenses incurred by its adversary, requires
not only an express decision, but also a statement of reasons in support. On the other hand,
the decision merely to allow the general principle to apply does not necessarily require
detailed reasoning, and may even be adopted by implication.29
This approach was reaffirmed by the ICJ in its decision in the Land and Maritime
Boundary case (Request for Interpretation) between Cameroon and Nigeria,30 and in
the case Ahamadou Sadio Diallo (Compensation owed by the Democratic Republic
of the Congo to the Republic of Guinea).31
Therefore, it is evident that according to the ICJ, the public international law
approach is that international courts and tribunals will follow the approach “each
party bears its own costs.” The international courts and tribunals can derogate from
the general principle and adopt the “costs follow the event” rule, but they must
provide reasons for the derogation. No similar obligations arise when international
courts and tribunals follow the rule that each party bears its own costs, even when
one or both parties request the court to use the “costs follow the event” approach.32
Thus, for example, in the case of the M/V “SAIGA” (No. 2) between Guinea and
Saint Vincent and the Grenadines, despite the request from both parties to follow the
“costs follow the event” approach, the International Tribunal for the Law of the Sea
28
See the Review of UNAT Judgment No. 158, ICJ Reports (1973), p. 97.
29
Ibid.
30
See the Request for Interpretation of the Judgment of 11 June 1998 in the case concerning the
Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v. Nigeria), ICJ Reports
(1999), p. 31.
31
See the case involving individual Ahamadou Sadio Diallo, who was imprisoned by Congo
Authorities (Republic of Guinea v Democratic Republic of the Congo), Compensation owed by
the Democratic Republic of the Congo to the Republic of Guinea, Judgment of 19 June 2012, pp.
58–60.
32
The court in case Canter v. American Ins. Co. (1830) stated that “the law did not limit the power to
award such fees, but that this authority remained within a court’s discretionary powers”.
1464 N. Zamir
(ITOLS) decided to divide the costs in accordance with the general approach of the
ICJ, which is also stated in ITLOS’ statute.33 Until this date, the ICJ has never
adopted the “costs follow the event” approach.34
The ICJ’s approach in relation to costs is striking in light of the fact that most
domestic jurisdictions adopted the rule of “costs follow the event.” Therefore, an
interesting question arises why the ICJ adopted a different approach. Unfortunately,
examination of travaux préparatoires does not provide a clear answer. Article 64
was originally drafted for and used by the Permanent Court of International Justice
(PCIJ), the ICJ’s predecessor. The travaux préparatoires reveal that the Article was
adopted without much discussion.35 The Article was later debated during the
discussion of the Sub-Committee of the Third Committee of the First Assembly
when the British delegation proposed to clarify that the parties are free to reach an
agreement on the allocation of costs. While the British proposal was rejected, the
Sub-Committee stated that it “unanimously recognises that the terms of [Article 64]
do not prevent division of the costs between the Parties in accordance with an
agreement between them.”36
The lack of discussion in relation to Article 64 left scholars speculating the
reasons behind the approach of Article 64. Shabtai Rosenne, for example, explained
that Article 64 derives from “the classic theory of international arbitration and the
principle of the equality of the parties, according to which it is not appropriate to
regard the parties as standing in some sort of plaintiff /defendant relationship.”37
Other scholars explained that any deviation from the general approach of the ICJ on
the costs would be considered like a penalty.38 In the same vein, another leading
practitioner explained the rationale of Article 64 as follows:
33
See the case M/V “SAIGA” (No. 2) Case (Saint Vincent and the Grenadines v. Guinea),
Judgement of 1 July 1999, pp. 181–182 (“. . .the parties agreed that the Tribunal “shall be entitled
to make an award on the legal and other costs incurred by the successful party in the proceedings
before the International Tribunal”. In the written pleadings and final submissions, each party has
requested the Tribunal to award legal and other costs to it. [. . .] The rule in respect of costs in
proceedings before the Tribunal, as set out in article 34 of its Statute, is that each party shall bear its
own costs, unless the Tribunal decides otherwise. In the present case, the Tribunal sees no need to
depart from the general rule that each party shall bear its own costs. Accordingly, with respect to
both phases of the present proceedings, it decides that each party shall bear its own costs.”).
Interestingly, some judges dissented in this case in the question of costs allocation. See Joint
declaration of Judges Caminos, Yankov, Akl, Anderson, Vukas, Treves and Eiriksson (1997).
34
Bradfield M, Verdirame G, Giorgetti C (eds) (2014) Costs in investment treaty arbitration. In:
Litigating international investment disputes: a practitioner’s guide. Brill Nijhoff, Leiden, pp 418–
419; see also Massicci E (2012) Article 64. The Statute of the International Court of Justice: a
commentary, pp 160, 1604
35
See Procès-Verbaux of the Proceedings of the Advisory Committee of Jurists (1920), pp. 594
and 651.
36
See the Records of the First Assembly of League of Nations (1920), p. 537.
37
Shaw MN (2015) Rosenne’s law and practice, vol III. pp 1200–1280
38
Massicci E (2012) Article 64. The Statute of the International Court of Justice: a commentary,
p 1604
[T]he reason international courts and tribunals are reluctant to require one State to pay the
other’s costs is that imposing such a requirement would imply that the State’s claims or
defences were either frivolous or made in bad faith. This would be inconsistent with the
dignity and respect courts and tribunals traditionally treat the States that appear before them,
discourage States from submitting their disputes to judicial resolution, and, in many cases,
aggravate the dispute rather than contribute to its peaceful resolution. It is one thing to rule
against a State; it is quite another to insult it in the process of so ruling. Ordering the payment
of fees or costs in inter-State cases crosses that line – except, possibly, where there has been
exceptionally egregious conduct by the losing State that may call out for condemnation by
the court.39
Whatever the reason may be, the international law rule on allocation of costs is
simple: each party bears its own costs unless the international tribunal/court decides
otherwise with reasons for its decisions. Nevertheless, international arbitration rules
and arbitral tribunals in investor-State arbitrations do not follow strictly the interna-
tional law approach of the ICJ in relation to allocation of costs. This is the subject of
the next subsections.
Arbitration Rules and Practice
Most international arbitration rules leave wide discretion to arbitral tribunals in

relation to the allocation of costs. Accordingly, Article 61(2) of the ICSID Conven-
tion provides as follows:
In the case of arbitration proceedings the Tribunal shall, except as the parties otherwise
agree, assess the expenses incurred by the parties in connection with the proceedings, and
shall decide how and by whom those expenses of the members of the Tribunal and the
charges for the use of the facilities of the Centre shall be paid. Such decision shall form part
of the award.
In the same vein, Rule 28(1) of the ICSID Arbitration Rules provides:
Without prejudice to the final decision on the payment of the cost of the proceedings the
Tribunal may, unless otherwise agreed by the parties, decide. . . with respect to any part of
the proceedings, that the related costs. . . shall be borne entirely or in a particular share by
one of the parties.
Similarly, Rule 58 under the Arbitration Rules of the ICSID Additional Facility
states:
39
Miron A (2014) Le coût de la justice internationale: enquête sur les aspects financiers du
contentieux interétatique. Annuaire français de droit international 60:241–277. 2012, p. 264 (citing
Paul Reichler).
1466 N. Zamir
Unless the parties otherwise agree, the Tribunal shall decide how and by whom the fees and
expenses of the members of the Tribunal, the expenses and charges of the Secretariat and the
expenses incurred by the parties in connection with the proceeding shall be borne.
This approach is also common in international commercial arbitration. For

example, 2012 ICC Arbitration Rule 37.4 states that “the final award shall fix the
costs of the arbitration and decide which of the parties shall bear them or in what
proportion they shall be borne by the parties.” However, Rule 37.5 of the ICC
Arbitration Rules provides that “[i]n making decisions as to costs, the arbitral
tribunal may take into account such circumstances as it considers relevant, including
the extent to which each party has conducted the arbitration in an expeditious and
cost-effective manner.”
In the same way, the 2018 HKIAC Arbitration Rules states as follows:
34.2 With respect to the costs of legal representation [. . .] the arbitral tribunal, taking into
account the circumstances of the case, may direct that the recoverable costs of the arbitration,
or any part of the arbitration, shall be limited to a specified amount.
34.3 The arbitral tribunal may apportion all or part of the costs of the arbitration referred
to in Article 34.1 between the parties if it determines that apportionment is reasonable, taking
into account the circumstances of the case
However, some arbitration rules, which are used both in investor-State arbitra-
tions and in international commercial arbitrations, include a rebuttable presumption
that the successful party may recover costs from the unsuccessful party.40 In this
regard, one should note Article 42(1) of the 2013 UNCITRAL Arbitration Rules
which provides that “The costs of the arbitration shall in principle be borne by the
unsuccessful party or parties. However, the arbitral tribunal may apportion each of
such costs between the parties if it determines that apportionment is reasonable,
taking into account the circumstances of the case.” Similarly, Article 42(1) of the
2012 PCA Arbitration Rules follows the same wording of Article 42(1) of the 2013
UNCITRAL Arbitration Rules.
It is therefore clear that contrary to the ICJ’s approach and despite the fact that
tribunals dealing with investor-State disputes are international tribunals which apply
international law, these tribunals should follow rules that either contain no
40
For commercial arbitration, see 2014 LCIA Arbitration Rules. Article 28(4): “The Arbitral
Tribunal shall make its decisions on both Arbitration and Legal Costs on the general principle
that costs should reflect the parties’ relative success and failure in the award or arbitration or under
different issues, except where it appears to the Arbitral Tribunal that in the circumstances the
application of such a general principle would be inappropriate under the Arbitration Agreement or
otherwise”. Also see Article 52(2) of the 2015 CIETAC Arbitration Rules, which stipulate that:
“The arbitral tribunal has the power to decide in the arbitral award, having regard to the
circumstances of the case, that the losing party shall compensate the winning party for the expenses
reasonably incurred by it in pursuing the case. In deciding whether or not the winning party’s
expenses incurred in pursuing the case are reasonable, the arbitral tribunal shall take into
consideration various factors such as the outcome and complexity of the case, the workload of
the winning party and/or its representative(s), the amount in dispute, etc.”
presumption in favor of “each party pays its own costs” or follow arbitral rules which
contains a presumption in favor of the recovery of costs by the successful party.41
Cost-Allocation in Investment Arbitration Practice
In the practice of commercial arbitration tribunals, the dominant approach in relation

to costs allocation is “costs follow the event” approach.42 In contrast, in investor-
State arbitration, the approach of “costs follow the event” has had a slow start as
investor-State tribunals originally preferred the international law approach of “each
party bears its own expenses”.
In 2009, the tribunal in the EDF Service v. Romania case noted that “the
traditional position in investment arbitration, in contrast to commercial arbitration,
has been to follow the public international rule which does not apply the principle
that the loser pays the costs of the arbitration and the costs of the prevailing party.
Rather, the practice has been to split the costs evenly, whether the claimant or the
respondent prevails.”43
Nevertheless, as indicated by various empirical studies, it seems that the domi-
nant position in investment arbitration in relation to costs allocation is changing, and
currently “costs follow the event” is becoming more dominant. This change of
practice has been gradual as exemplified by the following studies.
In 2003, after conducting a survey of investment arbitration cases, one author
noted that “awards of costs or legal fees against unsuccessful claimants in investment
arbitration cases appear to be exceedingly rare” and that “investment arbitration
tribunals have examined the issue on a case-by-case basis, more often than not
dividing the arbitration costs equally between the parties, and, more frequently yet,
ordering each party to bear its own legal fees”.44
In 2006, another study on “ICSID Arbitration Awards and Cost” concluded that
the reviewed awards under the study “indicate that, with few exceptions, the tri-
bunals generally allocate one half of the arbitration costs to each party. In addition,
41
Born G (2014) International commercial arbitration. Kluwer Law Int: 3093–3094 (“All leading
institutional rules also expressly confirm the arbitrators’ authority to “apportion” legal costs,
allowing awards of less than 100% of a party’s reasonable costs.”).
42
The International Chamber of Commerce (2015) ICC commission report, decisions on costs in
international arbitration, ICC dispute resolution bulletin 2015, Issue 2, pp 1–3, pp. 4–5 (“Despite
the fact that the ICC and at least half of the other major institutional rules contain no presumption
in favour of the recovery of costs by the successful party, it appears that the majority of arbitral
tribunals broadly adopt that approach as a starting point, thereafter adjusting the allocation of
costs as considered appropriate”). See also ICC, Statistics Concerning Awards of Legal Costs
(1993).
43
EDF Services v. Romania, Award 8 October 2009, para. 321. Nevertheless, the tribunal in this
case did follow the “costs-follow the event” rule. In response, the arbitrator Arthur W. Rovine
dissented on the issue of costs.
44
Robins N (2003) The allocation of costs and Attorney’s fees in investor-state arbitration. ICSID
Rev 18(1):109
1468 N. Zamir
the tribunals generally hold each party responsible for their own representation
costs”.45
Another study examined 102 awards in the 1990–2006 period and found that
around 67.4% of the cases followed the traditional public international law approach
of “each party pays its own costs”. The rest of the cases had included some form of
cost-shifting in favor of the prevailing pa.46 Similarly, another study examined cases
in the 2004–2010 period and found that 65% of the cases followed the traditional
public international law approach and only 35% of the cases included cost-
shifting.47
Based on the above studies, we can conclude that during the 1990s and first years
of 2000s most investor-State tribunals followed the classic public international
approach of “each party bears its own costs.” This was not surprising as investor-
State arbitral tribunals are international tribunals which are meant to follow interna-
tional law. However, the trend of cost-shifting has become noticeable from 2008
onwards. For example, one study reviewed the published awards in the 2008–2009
period and found that the percentage of cost shifting increased to 41.9% in this
period.48
In the same vein, another study surveyed cases from 2010 to 2013 and found that
cost-shifting has been applied in 46.3% of the cases.49 This study differentiated
between ICSID cases and UNICTRAL cases and found that “there is significantly
more cost-shifting in the UNCITRAL cases than in the ICSID cases, with 11 of the
16 (68.8%) UNCITRAL cases in 2010–2013.”50 This was understandable in light of
the fact that the 2010 and 2013 UNCITRAL Arbitration Rules contain a presumption
of “costs follow the event.”51
45
Wilson, Cain and Gray (2006), pp. 15–18. See also Gotanda J (2006) Chapter 3 (Attorneys’ fees
& costs). In: Damages in private international law, preliminary draft for Hague academy lecture, p
41 (“One trend that has developed is the tribunals’ hesitation in awarding attorney’s fees against a
private party under the ICSID rules. Where there is case law awarding attorneys’ fees against a
losing government party, there is a noticeable lack of cases where tribunals order a losing private
party to bear the winning party’s cost of representation. Even where the private party’s claim or
defense fails in its entirety tribunals have opted not to award attorneys’ fees and split the costs of the
proceeding between the two parties”).
46
Franck S (2010) Rationalizing costs in investment treaty arbitration. Wash Univ Law Rev 88
(769):807–810
47
Reed (2011), p. 79.
48
Smith D (2011) Shifting sands: cost-and-fee allocation in investment treaty arbitration. Va J Int
Law 51(749):1 and 753.
49
Bradfield and Verdirame (2014), p. 434.
50
Ibid., p. 426. The article explains that with regard to ICSID cases, “in 31 cases (60.8%) the
outcome was that the parties paid their own costs and an equal amount of the arbitration fees. In 20
cases (40%) there was cost-shifting, either fully or partial. In eight cases (15.7%) costs shifted in
full from the successful party to the unsuccessful party, while in 12 cases (23.5%) only partial cost-
shifting occurred.”.
51
Article 42(1) of 2013 UNCITRAL Arbitration Rules. See also 1976 UNCITRAL Arbitration
Rules, Arts. 40(1) and 40(2).
Another study that reviewed awards until 2012 found that “a slight majority of
investment treaty tribunals (56%) required each party to bear their own costs. Just
10% made a fully adjusted costs order, with the remaining 34% making a partially
adjusted costs order.”52
The trend of cost-shifting became even more noticeable from 2012 onwards. A
study from 2017, which examined 147 cases between 31 December 2012 and 31
May 2017, found that “since the end of 2012, there has been a significant increase in
the number of tribunals making an adjusted costs order: 57% made a partially
adjusted costs order and 7% made a fully adjusted costs order. Only just over a
third (36%) of tribunals required each party to bear their own costs.”53 Therefore, the
authors of this study concluded that in 51% of the cases during the aforesaid time
frame, investor-State tribunals applied some cost shifting. The authors also found
that “successful investors are more likely to recover costs (58%) [. . .] than successful
States (47%).”54 Moreover, the authors found that “[i]n contrast to the previous
survey’s findings, successful parties are no longer significantly more likely to
recover costs in UNCITRAL claims (72% since 31 December 2012 compared
with ICSID claims (61% since 31 December 2012).”
When examining the above statistics and studies, one should bear in mind that the
different numbers should be taken with a grain of salt. In some cases, tribunals did
not refer explicitly to the principle of “costs follow the event” or “pay your own
way” but instead examine various factors such as the equity and fairness of a
particular outcome on costs.55 Therefore, one cannot necessarily point whether the
tribunals in some cases adopted the one or another principle concerning costs
allocation.56 Moreover, it should be noted that even when tribunals follow the
principle of “loser pays,” they will often shift only part of the legal costs of the
winning party to the losing party.57
Nevertheless, it seems fair to conclude that the trend of cost-shifting has been
ascending in international investment arbitration. Indeed, as noted by the PCA,
which often administrates UNCITRAL arbitrations, “[i]n the PCA’s experience, in
52
See Allen & Overy Study on investment treaty arbitration (2012).
53
See Allen & Overy (2017) Study on investment treaty arbitration, p 6. https://www.allenovery.
com/en-gb/global/news-and-insights/publications/investment-treaty-arbitration-cost-duration-and-size-
of-claims-all-show-steady-increase
54
Ibid., introduction on the web-site page of the report.
55
Bradfield and Guglielmo, p. 432.
56
Bradfield and Guglielmo, p. 426.
57
For example, Neil Kaplan, one of the leading arbitrators in the world stated as follows: “Speaking
of my own experience over 45 years, I have to say that the cases where each party was ordered to
bear their own costs were extremely rare and based on extraordinary circumstances. However, it
has also been extremely rare that a winning party recovered 100% of what it was claiming and quite
often in the exercise of the wide discretion they were granted far less, having regard to some of the
problems I have identified earlier in this lecture.” See the Harbour Lecture of Kaplan N (2016)
Decision on costs – a mind field for arbitrators and uncertainty for participants. Presented at
Harbour lecture in Hong Kong, 19 October 2016. http://neil-kaplan.com/wp-content/uploads/
2016/11/HarbourLectureNK-Final.pdf
1470 N. Zamir
recent years, cost shifting to the losing party is becoming the norm rather than the
exception in ISDS proceedings.”58 While UNCITRAL tribunals are more likely to
adopt the approach of “costs follow the event” than ICSID tribunals, it seems that
more and more ICSID tribunals are also following this approach as demonstrated in
the studies cited above.
In conclusion, it is evident that international investment tribunals do not strictly
follow the cost allocation approach of public international law, as reflected in Article
64 of the ICJ. Of course, this is not to say that all investor-State tribunals always
adopt the “costs follow the event” approach, but simply that “each party pays its own
costs” is no longer the dominant approach to costs allocation in investment
arbitration.
Reducing the Costs in Investor-State Arbitration
After examining the issue of costs allocation, this section addresses one of the key
questions for arbitration users – how to reduce costs.59 At the outset, it should be
noted that this section focuses on investor-State arbitration. Therefore, this section
does not examine the separate question of reducing costs through the creation of
investment courts, which in effect provide an alternative to the resolution of investor-
State disputes through arbitration.60 Similarly, this section does not deal with one of
the increasing ways that investors deal with the costs of arbitration – that is third
party funding, which is the subject of a separate chapter in this book.61
The main costs in arbitration, as explained above, are the legal costs. These costs
can be traced mainly to the fees that law firms charge and, to a lesser extent, the
remuneration of the experts. The average legal and arbitration costs of 10–11 million
USD are staggering. Luckily, these high costs are not inevitable.
Arbitration users, namely the parties, are in the strongest position to reduce their
legal costs. The users can negotiate lower fees and choose less expensive law firms.
In the past, parties that sought to resort to investment arbitration had to rely on big,
international, and expensive law firms, which had exclusive expertise in dealing with
58
See the PCA document, submitted to The United Nations Commission on International Trade
Law (2018) Duration and cost of state-state arbitration proceedings. Submitted to UNCITRAL
working group III by PCA, p 1. https://uncitral.un.org/sites/uncitral.un.org/files/pca-_submission_-
_duration_and_cost_-_20181024.pdf
59
See Queen Mary University of London (2018) Queen Mary’s survey on international arbitration,
p 8. http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Sur
vey%2D%2D-The-Evolution-of-International-Arbitration-(2).PDF
60
Bungenberg M, Reinisch A (2019) From bilateral arbitral tribunals and investment courts to a
multilateral investment court: options regarding the institutionalization of investor-state dispute
settlement, European yearbook of international economic law, 2nd edn. Springer Nature, Berlin, p
193. See Chaisse J, Donde R (2018) The state of investor-state arbitration – a reality check of the issues,
trends, and directions in Asia-Pacific. Int Lawyer 51(1):47–67; Chaisse J, Vaccaro-Incisa M (2018) The
EU investment court: challenges on the path ahead. Columbia FDI Perspectives 218:1–3.
61
S. Brekoulakis and C. Rogers, Third-Party Funding in Investment Arbitration, volume IV.
investor-State disputes. However, today there are cheaper alternatives with relatively
the same high quality of legal expertise. For example, there are boutique law firms
that specialize in arbitration and charge less than big law firms. In addition, local
firms can often be used in combination with external counsel, a barrister or inde-
pendent legal experts, who in any case will usually charge less than big international
law firms. The external counsel can be used for strategy, drafting, and pleading,
while the local firm can focus on document exchange and other elements of the case
preparation which require extensive work but not specialized knowledge in investor-
State arbitration. Finally, parties can also agree in advance on different costs
arrangements, such as caps on the hourly rates and the total costs. In practice,
some international law firms will agree to negotiate their fees in order to represent
a client in investor-State arbitration – this is particularly true with regard to States, as
various law firms consider it prestigious to represent a State. Therefore, arbitration
users should be more proactive in negotiating their legal costs with the understand-
ing that these costs can be reduced.
Some arbitral institutions and rules have already emphasized that arbitrators
should aim to reduce legal costs by more effective case management. For example,
the arbitrators should ensure that the parties know in advance that the arbitral
tribunal will consider the parties’ procedural behavior in the allocation of costs.62
Moreover, arbitrators should make it clear to the parties that the advancement of
unmeritorious claims might be penalized by costs shifting.63 In the same vein, in the
award on costs, the tribunal should consider penalizing different behavior such as
unnecessary prolixity and calling redundant witnesses. Similarly, it is not uncommon
to see parties who drop some of their claims just before or during the hearings. While
the need to adopt and change the focus of the pleadings is inevitable in some cases,
tribunals should consider the amount of legal costs that the other side had to bear in
order to address issues which eventually became moot or deliberately were futile.
Furthermore, tribunals should take into account whether the legal costs are
reasonable/proportionate to amount in dispute and whether the amount of work
done is proportionate and reasonable.64 In this regard, as stated in a commentary
62
E.g., Article 38 (5) of 2017 ICC Arbitration Rules stipulates that “In making decisions as to costs,
the arbitral tribunal may take into account such circumstances as it considers relevant, including
the extent to which each party has conducted the arbitration in an expeditious and cost-effective
manner.”
63
E.g., Article 28.4 of 2014 LCIA Arbitration Rules stipulates, “The Arbitral Tribunal may also take
into account the parties’ conduct in the arbitration, including any co-operation in facilitating the
proceedings as to time and cost and any noncooperation resulting in undue delay and unnecessary
expense.”
64
See Article 38(1) of 2017 ICC Arbitration Rules, which prescribes that “The costs of the
arbitration shall include [. . .] the reasonable legal and other costs incurred by the parties for the
arbitration”. Also see the Harbour Lecture of Kaplan N (2016) Decision on costs – a mind field for
arbitrators and uncertainty for participants. Presented at Harbour lecture in Hong Kong, 19 October
2016. http://neil-kaplan.com/wp-content/uploads/2016/11/HarbourLectureNK-Final.pdf
1472 N. Zamir
to the ICC Arbitration Rules, “[a] sharp difference between parties may reflect
unreasonableness in one side’s costs claim.”65
In relation to arbitration costs, which as explained above constitute a smaller
percentage of the total costs, various steps can be taken to reduce them. First, parties
should negotiate the arbitrators’ fees when the fees are not fixed to a specific rate.
There is a wide pool of arbitrators today who are willing to agree on lower rates, for
example, in accordance with ICSID rates or similar rates. Therefore, the reference to
higher hourly rates such as HKIAC rates should not necessarily be the bottom line
for arbitrators’ fees.
Second, tribunal secretaries can also reduce the arbitration costs. The role of the
tribunal secretary has received wide attention in the recent years.66 In general, the
tribunal secretary’s role varies from case to case and based on the arbitrators’ needs.
However, often, the tribunal secretary will assist the tribunal by making procedural
arrangements, drafting non-substantive parts of the award such as the procedural
record and the parties’ submissions, attending hearings and proof-reading awards.67
The use of a tribunal secretary can save significant amount of time for the
arbitrators and therefore also significant amount of costs. As stated by the HKIAC
in a report from 201868:
The appointment of a tribunal secretary [. . .] can save costs for parties. For example, in an
emergency arbitration, the HKIAC-appointed tribunal secretary undertook 34.7 hours of
administrative and drafting work at the rate of HK$1,700/hour (US$217/hour) which would
have been undertaken by the emergency arbitrator at the rate of HK$5,500 (US$700/hour),
thereby saving the parties HK$131,860 (US$16,800).
Some rules such as 2013 UNCITRAL Arbitration Rules and 2018 HKIAC
Arbitration Rules allow the tribunal secretary’s remuneration to be paid by the
parties. For example, HKIAC allows to charge an hourly rate which is limited to
HKD 2200 (USD 283).69 Similarly, the parties will often pay the hourly rates of the
tribunal secretary in UNCITRAL arbitrations. In contrast, in ICSID proceedings the
parties shall pay an annual fee of US$42,000. The fee covers time spent by all
65
Fry J, Greenberg S, Mazza F (2012) The Secretariat’s guide to ICC arbitration, p 410
66
See Karadelis K (2011) The role of the tribunal secretary. Global Arbitr Rev. http://globalarbi
trationreview.com/b/30051/; Zaslowsky D, Hanessian G (2013) The fourth arbitrator: contrasting
guidelines on the use of law secretaries. Lexology. www.lexology.com/library/detail.aspx?
g¼e7826e7b-0a84-409d-9ebb-af84ad6d1d3f
67
See Section 8.1 of LCIA Notes for Arbitrators (‘Tribunal secretary role”); also see HKIAC
Guidelines on the use of a Secretary to the arbitral tribunal (2014).
68
Report on Use of HKIAC Tribunal Secretary Service (2018).
69
See HKIAC Arbitration Rules, Schedule 2, article 6 (“Where the arbitral tribunal appoints a
secretary in accordance with Article 13.4 of the Rules, such secretary shall be remunerated at a rate
which shall not exceed the rate set by HKIAC, as stated on HKIAC’s website on the date the Notice
of Arbitration is submitted. The secretary’s fees and expenses shall be charged separately. The
arbitral tribunal shall determine the total fees and expenses of a secretary under Article 34.1(c) of the
Rules.”) For more information see the HKIAC website section “Tribunal Secretary Service.”
members of the dedicated ICSID case team, including the assistance of the tribunal
secretary. ICSID does not charge the parties for the services of a secretary by the
hour.70
On the other hand, other institutions, mainly in commercial arbitration, such as
the ICC and SCC do not allow to charge the parties for services of the tribunal
secretary.71 The assumption that this would save the parties money is understand-
able. However, such approach is not useful for saving costs as it may deter
tribunals from appointing tribunal secretaries as arbitrators will have to cover
their remuneration. Therefore, as the appointment of tribunal secretaries can save
significant costs to the parties, arbitration rules such as the 2017 ICC Arbitration
Rules may result in additional costs for the parties. Accordingly, it is submitted that
these rules should be revised to allow the parties to pay for the remuneration of the
tribunal secretaries. This will also encourage transparency in relation to the work
of the tribunal secretaries who will need to submit invoices which describe their
work in details.
In practice, the appointment of a tribunal secretary is often initiated by the
tribunal with the final approval of the parties. However, considering the costs
saving effect of tribunal secretaries, arbitration institutions should encourage the
appointment of tribunal secretaries. Moreover, the parties should take a more
proactive approach and suggest tribunals to appoint a tribunal secretary in big
cases.
Finally, the use of technology can reduce both legal and arbitration costs.72 For
example, many procedural meetings and some hearings can be conducted via video
conference calls. This can reduce the costs of flights, which often envisage service in
business class, hotel rooms, and hearing venue-related expenses. Similarly, this will
reduce the billable hours that both the arbitrators and counsel charge as they usually
charge part of their travel time. In addition, the use of technology can also save
money in other ways. With the use of online platforms and hyperlinked submissions,
arbitration proceedings should move to soft submissions instead of hard copies.
Often, the arbitrators will not need to examine in detail many of the exhibits which
are not central to the dispute. Moreover, most of the legal authorities are often known
to the arbitrators and therefore they do not need hard copies. Accordingly, it is
suggested that hard copies should only be provided for core materials unless the
arbitrators insist otherwise. This will both save costs and be environmentally
friendly.
70
For more information see the ICSID web-site section “Cost of proceedings.”
71
However, the tribunal secretary is entitled to its reasonable costs. See Article 24(6) of 2017 SCC
Arbitration Rules (“Any fee payable to the administrative secretary shall be paid from the fees of the
Arbitral Tribunal”).
72
Halket T (2007) The use of technology in arbitration: ensuring the future is available to both
parties. GPSOLO 44 32(1):269
1474 N. Zamir
Conclusion
Costs are clearly one of the most important topics for investor-State arbitration users.
If one cannot afford the arbitration proceedings, one may not be able to resort to
investor-State arbitration.
As explained above, investor-State arbitration is expensive. The main factor of
the costs of arbitration is the legal costs. However, even the arbitration costs are
considerable. Therefore, when an investor brings a claim, the investor needs to
consider the total costs of the arbitration. Moreover, as the rule of “costs-follow
the event” is becoming more common in investor-State arbitration, the investor also
needs to consider that it might pay the respondent’s costs if it loses the case. In
addition, even if the investor wins, there is no guarantee that the investor will be able
to recover all the costs as tribunals will often shift only part of the costs. Similarly,
the respondent State should be aware that the costs of arbitration are high and that
there is no guarantee that it could recover its legal costs and the costs of arbitration –
even if the State prevails in the proceedings.
Nevertheless, the high costs associated with investor State arbitration are not
inevitable and they can be reduced. It is up to the parties, counsel, arbitrations
institutions, and arbitrators to make it happen.
Cross-References
▶ Third-Party Funding in Investment Arbitration

Enforcement of Investment Arbitration
Awards 57
Leonardo Borlini and Stefano Silingardi
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1476
Enforcement Under the New York Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1478
Scope of Application of the Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1479
General Obligations under Article III and Article IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1482
Article V and Grounds for Refusal of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1483
Article VII: The So-Called “More Favorable-Right” Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . 1486
Enforcement Under the ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1488
Articles 53 and 54 of the ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1489
Article 55 and the Issue of State Immunity as an Obstacle to Enforcement . . . . . . . . . . . . . . 1494
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1495
Abstract
The enforceability of decisions is a central pillar of any dispute resolution
mechanism, whether of internal or international nature. This chapter aims to
explain the rules for enforcement under the two main enforcement systems that
are currently in force in the realm of investment arbitration: the 1958 New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and
the 1965 Washington Convention (the “ICSID Convention”). In particular,
This chapter was conceived and written together. However, sections 1 and 2 have been written by
Leonardo Borlini, and sections 3 and 4 by Stefano Silingardi
L. Borlini (*)
Department of Legal Studies, Bocconi University, Milano, Italy
e-mail: leonardo.borlini@unibocconi.it
S. Silingardi
Department of Legal Studies, University of Modena, Modena, Italy
e-mail: stefano.silingardi@unimore.it

https://doi.org/10.1007/978-981-13-3615-7_71
1476 L. Borlini and S. Silingardi
Section “Enforcement Under the New York Convention” analyses the scheme for
enforcement under the New York Convention, and assesses the obligations of the
States parties; Section “Enforcement Under the ICSID Convention” examines the
scheme for enforcement under the ICSID Convention along with the related
obligations of States parties. In both cases, we will shortly introduce a linkage
to the threat that sovereign immunity for execution of awards poses to the
function of the investor-State arbitration regime. Some conclusions on the rela-
tionship between the two Conventions will be attempted. In such a context, we
will finally propose some reflections on an issue related to the enforcement and
recognition of arbitral awards which could assume particular relevance in the very
near future: the proposed investment court system (ICS) and multilateral invest-
ment court (MIC). We thus briefly address the main doubts that have been raised
concerning the enforcement and recognition of decisions by the ICS/MIC.
Keywords
International investment law · Investment arbitration · Enforcement · ICSID ·
New York Convention · International investment Court · Multilateral Investment
Court
Introduction
Once an arbitral tribunal has completed its task and issued its decision, the two
parties of the proceeding (i.e., the winner and the loser) face a fundamental concern:
the enforcement of the arbitral decision. Arbitration awards are, indeed, not self-
executing. As a consequence, even if the prevailing party might reasonably expect
the unsuccessful party to comply with the award voluntarily, it is not to be excluded
that the latter may choose not to comply with the award (i.e., pay the amount due
thereunder). Should this be the case, the party that has successfully obtained an
arbitral award will have to take all the necessary steps to enforce it; the failure to
enforce an arbitral award will, in most cases, render that award of little or no value
whatsoever.
The enforceability (or, in other words, the effectiveness) of decisions is a central
pillar of any dispute resolution mechanism, whether of internal or international
character.1 In the realm of investment arbitration, there are currently two main
enforcement systems that should be taken into account: the first is laid down in the
1958 New York Convention on the Recognition and Enforcement of Foreign
1
Bugenberg M, Reinisch A (2020) Recognition and enforcement of decisions. In: From Bilateral
Arbitral Tribunals and Investment Courts to a Multilateral Investment Court, European Yearbook of
International Economic Law. Springer, p. 155 ff., 155. See also Reinisch A (2013) The Scope of
Investor-State Dispute Settlement in International Investment Agreements. Asia Pac Law Rev 21
(1):3–26
57 Enforcement of Investment Arbitration Awards 1477
Arbitral Awards (the “New York Convention”)2; the second stems from the 1965
Washington Convention (the “ICSID Convention”).3 Thus, when States parties to a
bilateral investment treaty (BIT) choose to submit a dispute to the ICSID, enforce-
ment of the related awards is governed by the ICSID Convention, whereas in nearly
all cases where a different choice has been made (that is, in the case of non-ICSID
awards), enforcement of awards will be subject to the New York Convention,
regardless of which arbitral rules apply: by way of example, the International
Chamber of Commerce (ICC), UNCITRAL, the Stockholm Chamber of Commerce
(SCC), or the London Court of International Arbitration (LCIA).
These two Conventions share a number of similarities: (i) no separate recognition
procedure (in the sense of a double exequatur) is required for enforcement; (ii)
arbitral awards are final and binding on the parties to the dispute; and (iii) awards can
be enforced (and recognized) also in other States parties to the treaty which are not
involved in the specific investment dispute. The enforcement provisions in both
these Conventions have therefore been described as “a powerful tool in the hands of
investors, who, if they win, will have in hand arbitral awards readily recognized
around the world.4”
However, the Conventions do maintain some fundamental differences: an ICSID
award is considered as final and enforceable for States parties (Article 54)5; on the
other hand, a non-ICSID award may be enforced through the New York Convention
and is subject to the recognition by the court where the enforcement is sought. As a
consequence, awards under the New York Convention “are often more readily
enforceable than municipal court judgments from other States.6” Moreover, unlike
the ICSID Convention, which is fundamentally designed to promote the settlement
of disputes between States and private foreign investors, the New York Convention
is commonly deemed to permit the enforcement of arbitral awards either between
States and private parties or between private parties.7
2
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done in New York
City, on 10 June 1958, 330 UNTS 38, 7 ILM 1046 (1968).
3
Convention on the Settlement of Investment Disputes Between States and Nationals of other
States. International Centre for Settlement of Investment Disputes, done in Washington, DC, on 18
March 1965, 575 UNTS 159; 4 ILM 232 (1965).
4
Bjorklund AK (2009) State Immunity and the Enforcement of Investor-State Arbitral Awards. In:
Binder C et al (eds) International investment law for the twenty-first century: essays in honour of
christoph schreuer. Oxford, p 302 ff., 304
5
As of June 9, 2020, 163 countries have signed the ICSID Convention; among them, 155 have
deposited their instruments of ratification. The Parties are listed at: https://icsid.worldbank.org/en/
Documents/icsiddocs/List%20of%20Contracting%20States%20and%20Other%20Signatories%
20of%20the%20Convention%20-%20Latest.pdf
6
Bjorklund AK, State Immunity. . ., p. 304.
7
The New York Convention does not explicitly refer to recognition and enforcement of an arbitral
award against a State, however it is well established that the New York Convention applies also to
awards involving States. van den Berg AJ (1981) The New York Arbitration convention of 1958:
towards a uniform judicial interpretation. The Hague, p 277 ff.
In the following sections, we will analyze the scheme for enforcement of arbitral
awards under the ICSID Convention and the New York Convention and will assess
the obligations of the States parties.
Enforcement Under the New York Convention
The 1958 New York Convention entered into force on 7 June 1959 and has now 164
Contracting States.8 It was established under the auspices of the International ICC
with the aim to replace between its Contracting States the highly unsatisfactory
Geneva Convention on the Execution of Foreign Arbitral Awards of 1927.
With a view to “going further than the Geneva Convention in facilitating the
enforcement of foreign arbitral award,”9 and thus, at the end of the day, in order to
allow a better circulation of foreign arbitral awards and to remove unnecessary
obstacles to recognition and enforcement, the New York Convention is specifically
aimed, among other things: at eliminating the need for a judicial confirmation of the
award prior to the enforcement procedure (so-called double exequatur); at limiting
the grounds for refusal of enforcement by the courts of Contracting States solely to
the grounds listed in Article V; and at shifting the burden of proof of the validity of
an award to the resisting party.
The Convention has been described “as the most successful treaty in private
international law”,10 and the UNCITRAL Secretariat, in its Guide on the Conven-
tion, states that it is “one of the most important and successful United Nations
treaties in the area of international trade law, and the cornerstone of the international
arbitration system.”11The Guide also observes that since its inception, the Conven-
tion’s regime for recognition and enforcement “has become deeply rooted in the
legal systems of its Contracting States and has contributed to the status of interna-
tional arbitration as today’s normal means of resolving commercial disputes.12” As a
matter of fact, it is not unnecessary to say, before moving to the judicial analysis of
its content, that the New York Convention has indeed become the principal standard
for enforcement, and it has been replicated, at the international level, in other
8
This number was accurate as of 10 July 2020. The last countries to have accessioned the
Convention are: Seychelles (3 February 2020); Palau (31 March 2020); and Tonga (12 June
2020). The parties are listed at: http://www.newyorkconvention.org/countries
9
Travaux préparatoires, ‘Report of the Committee on the Enforcement of International Arbitral
Awards’, E/2704, E/AC.42/4/Rev.1., p. 5.
10
van den Berg AJ (2008) Convention on the recognition and enforcement of Foreign arbitral
awards. Available at: https://legal.un.org/avl/pdf/ha/crefaa/crefaa_e.pdf; Neuhaus J (2004) Current
issues in the enforcement of international arbitration Awards. 36 University of Miami Inter-
American Law Review, p 23 ff., 24
11
UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 2016 Edition, p. 1. See also R. Sorieul, former Secretary of UNCITRAL,
declaration available at: https://uncitral.un.org/en/events/28.11.2018
12
UNCITRAL Secretariat Guide. . ., p. 1.
regional agreements and in the UNCITRAL Model Law as well as in domestic laws;
further, it is noteworthy that the New York Convention currently has more than 1700
court decisions interpreting and applying its content, which are published in the
“Yearbook Commercial Arbitration” since its Volume I (1976).13
Scope of Application of the Convention
The scope of application of the New York Convention is outlined in Article I, and it
signals a first, clear departure of the New York Convention regime from the Geneva
Convention of 1927. Article 1 indeed gives the New York Convention a broader
scope, as it applies to awards made in any foreign State, irrespective of whether that
State is a Contracting State. Furthermore, the New York Convention applies
irrespective of the nationality or residence of the parties to the arbitration proceed-
ings, while the Geneva Convention applied only to arbitral awards that were
rendered in proceedings between persons subject to the jurisdiction of one of the
High Contracting Parties.
Pursuant to Article 1, the New York Convention applies to the “recognition” and
“enforcement” of awards that fall within its scope. It is well-known that the Con-
vention does not define these two terms and that the case law interpreting them is
indeed scarce. However, scholars are in broad agreement that “recognition” refers to
the process of considering an arbitral award as binding but not necessarily enforce-
able, while “enforcement” refers to the process of giving effect to an award.14 With
regards to the specific rules that define the scope of application, Paragraph 1 of
Article 1 provides that the Convention shall apply to the recognition and enforce-
ment of arbitral awards according to two criteria: a “territorial” criterion, that is to
arbitral awards “made in the territory of a State other than the State where the
recognition and enforcement of such awards are sought”; and a “nondomestic”
criterion, that is to arbitral awards “not considered as domestic awards in the State
where their recognition and enforcement are sought.” As the New York Convention
does not define the term “domestic,” Contracting States have the discretion to
decide, in accordance with their own laws, what constitutes a nondomestic award.15
13
See at: http://www.newyorkconvention.org/court+decisions
14
15
The United States courts have a rich case law on that issue. See, among others, Republic of
Argentina v. BG Group PLC, District Court, District of Columbia, United States of America, 7 June
2010, 715 F. Supp. 2d 108; Jacada Ltd v International Marketing Strategies, Inc., US Court of
Appeals, Sixth Circuit, 18 March 2005, 03–2521; Bergesen, as Owners of the M/T Sydfonn and
others v. Joseph Müller Corporation, Court of Appeals, Second Circuit, United States of America,
17 June 1983, 710 F.2d 928; Ocean Partners Holdings LIMITED and Ocean Partners USA, Inc. v.
Doe Run Resources CORP., District Court, Eastern District of Missouri, Eastern Division, United
States of America, 12 March 2012, 4:11-CV-173 (CEJ); Anthony N. LaPine v. Kyocera Corpora-
tion, District Court, Northern District of California, United States of America, 22 May 2008, C 07–
06132 MHP; Trevino Hernandez, S. de R.L. de C.V. v. Smart & Final Inc., District Court, Southern
District of California, United States of America, 17 June 2010, 09-cv-2266 BEN (NLS).
Paragraph 2 provides that “the term ‘arbitral awards’ shall include not only
awards made by arbitrators appointed for each case but also those made by perma-
nent arbitral bodies to which the parties have submitted.” Among these stands, for
example, the Iran-United States Claims Tribunal, the ICC International Court of
Arbitration, the Singapore International Arbitral Centre, the Commercial Arbitration
Centre in Sweden, and the Vienna Commodity Exchange Arbitration Board.16
Finally, paragraph 3 of Article I allows a State, when signing, ratifying, or
accessioning to the Convention, to restrict the scope of application of the Convention
by making two allowed reservations. The first reservation allows a State to apply the
Convention “to the recognition and enforcement of awards made only in the territory
of another Contracting State” (so-called “reciprocity reservation”). The second
reservation allows a State to apply the Convention only “to differences arising out
of legal relationships, whether contractual or not, which are considered as commer-
cial under the national law of the state making such declaration” (so-called “com-
mercial reservation”). With regard to the expression “legal relationship,” the
UNCITRAL Secretariat Guide lists, among others, the following: a cereal purchase
contract, a charter-party, a contract for provision of consulting services, a contract for
the shipment of goods, an agreement for the division of property and businesses, a
joint venture agreement to establish and operate a chain of stores.17 If an award does
not arise out of such a relationship, the enforcement will be governed by domestic
law.18
The scope of the Convention was originally intended to be limited to the
recognition and enforcement of arbitral awards; however, at a later stage – no less
than three weeks before the Convention was adopted19 – the drafters also decided to
include a specific provision on the recognition and enforcement of arbitral agree-
ments. Article II thus sets forth the rules regarding arbitration agreements: paragraph
1 requires Contracting States to “recognize an agreement in writing” under which the
parties undertake to submit their disputes to arbitration; Paragraph 2 governs the
form of “agreement in writing” and covers those agreements that have been “signed
by the parties or contained in an exchange of letters or telegrams”; finally, Paragraph
3 requires that national courts “when seized of an action in a matter in respect of
16
Ministry of Defense of the Islamic Republic of Iran v. Gould Inc., Gould Marketing, Inc.,
Hoffman Export Corporation, and Gould International, Inc., Court of Appeals, Ninth Circuit,
United States of America, 23 October 1989, 887 F.2d 1357; FG Hemisphere Associates LLC v.
Democratic Republic of Congo, Supreme Court of New South Wales, Australia, 1 November 2010,
[2010] NSWSC; Transpac Capital Pte Ltd. v. Buntoro, Supreme Court of New South Wales,
Australia, 7 July 2008, 11,373 of 2008; Egyptian Concrete Company & Hashem Ali Maher v.
STC Finance & Ismail Ibrahim Mahmoud Thabet & Sabishi Trading and Contracting Company,
Court of Cassation, Egypt, 27 March 1996, 2660/59; Holzindustrie Schweighofer GmbH v.
Industria Legnami Trentina – ILET srl., Court of Appeal of Florence, Italy, 3 June 1988, XV Y.B.
Com. Arb. 498 (1990).
17
18
Gaillard E, Siino B (2019) Enforcement under the New York Convention. In: Rowley J.W (ed)
The guide to challenging and enforcing Arbitration Awards. London, p 86 ff., 88
19
UNCITRAL Secretariat Guide on the Convention . . ., p. 39.
which the parties have made an agreement within the meaning of this article” shall,
upon the request of one of the parties, refer the parties to arbitration “unless it finds
that the said agreement is null and void, inoperative or incapable of being
performed.” Although a more in-depth analysis of this provision is beyond the
scope of this chapter, it is worthy to refer to a recent decision of the United States
Supreme Court, of June 1, 2020,20 in the case GE Energy Power Connersion France
SAS, Corp., v Outokumpu Stainless USA, holding that the New York Convention
does not prohibit nonsignatories from enforcing international arbitration agreements
under the doctrine of “equitable estoppel.”21 This is a judicially created doctrine,
rooted in concerns of equity and good faith, that operates as a principle of State
contract law applicable to domestic arbitration: a signatory to a contract who has
relied upon the contract in filing court claims against a nonsignatory is precluded (or
“estopped”) from subsequently denying the applicability of the contract’s arbitration
provision The key issue before the Supreme Court was whether the text of the New
York Convention (and in particular, its Article II’s requirement of an agreement in
writing “signed by the parties”) conflicts with Chap. 1, “General Provisions” of the
Federal Arbitration Act (FAA) and precludes the application of contract-law doc-
trines like equitable estoppel to bind nonsignatories to arbitration agreements. In the
opinion for an unanimous court rendered by Justice Clarence Thomas, the Court
found that “[t]he Convention is simply silent on the issue of non-signatory enforce-
ment” and that: “[t]his silence is dispositive here because nothing in the text of the
Convention could be read to otherwise prohibit the application of domestic equitable
estoppel doctrines.” Further, the Court endorsed an open-ended reading of Article II
(3) of the Convention – that is the only provision explicitly dealing with enforcement
of arbitration agreements – by holding that it requires enforcement “in certain
circumstances, but it does not prevent the application of domestic laws that are
more generous.” After an examination of the drafting history of the New York
Convention – which “shows only that the drafters sought to impose baseline
requirements on contracting states” but did not seek to “prevent contracting states
from applying domestic law that permits nonsignatories to enforce arbitration
agreements in additional circumstances” – the Court makes a further reference to
the circumstance that “the courts of numerous contracting states permit enforcement
of arbitration agreements by entities who did not sign an agreement,”22 and to the
2006 UNCITRAL Recommendation, both supporting such a view. The latter was
20
GE Energy Power Connersion France SAS, Corp., fka Converteam SAS v Outokumpu Stainless
USA, LLC et al., 590 U.S. _ (2020), 1 July 2020, available at: https://www.scotusblog.com/case-
files/cases/ge-energy-power-conversion-france-sas-v-outokumpu-stainless-usa-llc/. For a short
comment, see T. McKenzie, Non-Signatory Enforcement of Arbitration Agreements Under the
New York Convention: the U.S. Supreme Court Weighs In, in EJIL: Talk!, 9 June 2020, available at:
https://www.ejiltalk.org/non-signatory-enforcement-of-arbitration-agreements-under-the-new-
york-convention-the-u-s-supreme-court-weighs-in/
21
See Ibid., p. 6.
22
See Ibid., p. 18. See also Born G (2014) International Commercial Arbitration, 2 ed., Kluwer,
p. 1418 ff
issued by the United Nations Commission on International Trade Law (UNCITRAL)

on the proper interpretation of the Convention and encourages States to apply Article
II(2) of the New York Convention “recognizing that the circumstances described
therein are not exhaustive.23”
General Obligations under Article III and Article IV
The general obligations for enforcement and recognition are laid down in Article III
and IV.
Article III provides that Contracting States “shall recognize arbitral awards as
binding and enforce them in accordance with the rules of procedure of the territory
where the award is relied upon, under the conditions laid down in the following.”
Reported case laws provide illustrations on how that obligation has been conceived
by courts: a number of courts have, by way of example, referred to the overall
scheme for the facilitation of enforcement of arbitral awards in the Convention as
reflecting a “pro-enforcement bias,” that is to say that, through that provision,
foreign arbitral awards are entitled to a prima facie right to recognition and enforce-
ment24; other courts have consequentially considered that the use of the term “shall”
denotes the mandatory nature of that obligation.25 Finally, as for the requirement set
forth by the first sentence of Article III whereby the recognition and enforcement of
awards shall be granted “in accordance with the rules of procedures of the territory
where the award is relied upon,” there is a common understanding that, because of
the silence of the Convention on that specific matter, it is up to each Contracting
State to define the applicable rules of procedure. A number of courts have therefore
applied the procedural rules of their national laws with regard to a number of issues
such as the determination of the competent authority with jurisdiction to hear
requests for the recognition and enforcement of foreign arbitral awards, or of the
limitation periods applicable to an application for recognition and enforcement, or
23
Recommendation regarding the interpretation of article II, paragraph 2, and article VII, paragraph
1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done in New
York, 10 June 1958 (2006), Adopted by UNCITRAL on 7 July 2006, available at: https://uncitral.
un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/a2e.pdf
24
See, among others, WTB–Walter Thosti Boswau Bauaktiengesellschaft v. Costruire Coop. srl,
Court of Cassation (Italy), 7 June 1995, 6426; Glencore Grain Rotterdam BV v. Shivnath Rai
Harnarain Company, US Court of Appeals, Ninth Circuit, 26 March 2002, 01–15,539; Yukos Oil
Co. v. Dardana Ltd., Court of Appeal (England and Wales), 18 April 2002, [2002] EWCA Civ 543
28; Gouvernement de la région de Kaliningrad v. République de Lituanie, Paris Court of Appeal
(France), 18 November 2010, 09/19535. See also van den Berg, The New York Arbitration
Convention of 1958, p. 267; and G. Born, International Commercial Arbitration . . ., p. 3411 ff. A
key feature of this “pro-enforcement bias” is the abolition of the “double exequatur” requirement.
See Dowans Holding SA v Tanzania Electric Supply Co Ltd. [2011] 2 Lloyd’s Rep 275, par.8 ff.
25
See, e.g., Kanoria v. Guinness [2006] EWCA Civ 222; Diag Human SE v Czech Republic, High
Court of Justice Queen’s Bench Division Commercial Court, [2014] EWHC 1639 (Comm), par. 12.
even to issues concerning the ranking of creditors’ claims, the doctrine of forum non
conveniens, and issues of diplomatic protection.26
The conditions regarding recognition and enforcement are laid down in Article
IV. According to that provision, a party seeking enforcement of a foreign award is
only required to provide the court with: (a) the arbitral award and (b) the original
arbitral agreement. Compared to the previous scheme embodied in the Geneva
Convention, the conditions set forth by Article IV not only decidedly reflect the
elimination of the double exequatur (that is to say the need to obtain a declaration of
the award’s enforceability from the courts of the country where the award was
rendered), but it also enshrines the original aims of the New York Convention to
remove unnecessary obstacles to recognition and enforcement and to maximize the
circulation of foreign arbitral awards. As a matter of fact, under the New York
Convention, an applicant seeking to recognize or enforce an award is required to
provide only a very limited set of documents27; further, paragraph 2 of the same
Article states that if these two documents are not available in an official language of
the country in which the award is relied upon, the applicant party “shall produce a
translation of these documents into such language,” and that “the translation shall be
certified by an official or sworn translator or by a diplomatic or consular agent.28”
Article V and Grounds for Refusal of Enforcement
Under the New York Convention, the grounds for refusing enforcement are restricted
and construed narrowly: enforcement may be refused29 by a competent authority in
the Contracting State where recognition and enforcement is sought only if one of the
listed grounds in Article V, which are exhaustive,30 is satisfied. These are: (1) the
26
See Gaillard, B. Siino, Enforcement under the New York Convention. . ., p. 91 f.
27
WTB–Walter Thosti Boswau Bauaktiengesellschaft v. Costruire Coop. Srl. . .;
28
See Leidos Incorporated v. The Hellenic Republic – Greece, Gerechtshof, The Hague, Case No.
200.248.376/01, 10 September 2019, Yearbook Commercial Arbitration, Vol. XLV (2020),par. 20;
Tampico Beverages, Inc. v. Productos Naturales de la Sabana S.A. (Alquería), Corte Suprema de
Justicia, Civil Cassation Chamber, SC9909–2017, 12 July 2017, Yearbook Commercial Arbitration,
Vol. XLV (2020), par. 48 and 55.
29
Pursuant to the introductory sentence of Article V(1), “[r]ecognition and enforcement of the
award may be refused” (italics added). Thus, the Convention seems to grant courts of contracting
States the discretion to refuse recognition and enforcement of an award on the grounds listed in
Article V, without requiring them to do so. See, among others, China Nanhai Oil Joint Service
Corporation Shenzhen Branch v. Gee Tai Holdings Co. Ltd., High Court (Hong Kong),13 July
1994,1992 No.MP 2411. In literature, see van den Berg, The New York Arbitration Convention of
1958, p. 265; Born, International Commercial Arbitration. . ., p. 3428 ff.; J. Paulsson, May or Must
Under the New York Convention: An Exercise in Syntax and Linguistics, 14 Arb. Int’l 227 (1998);
G. H. Sampliner, Enforcement of Foreign Arbitral Awards After Annulment in their Country of
Origin, 11(9) Int’l Arb. Rep. 22, 23 (1996);
30
As a consequence, since the grounds for refusal under Article V do not include an erroneous
decision in law or in fact by the arbitral tribunal, a court seized with an application for recognition
incapacity of a party or invalidity of the arbitration agreement (Article V(1)(a)); (2)

the violation of due process (Article V(1)(b)); (3) the arbitral tribunal exceeding its
authority (Article V(1)(c)); (4) the improper constitution of the arbitral tribunal or
procedural irregularities (Article V(1)(d)); and (5) when an award has not yet
become binding or has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award was made, the so-called
lex arbitri (Article V(1)(e)). Further, according to Article V, paragraph 2, a court may
ex officio raise two grounds for refusal: (6) when the subject matter of the difference
is not capable of settlement by arbitration under the law of that country; or (7) if the
recognition or enforcement of the award would be contrary to the public policy of
that country.
A detailed analysis of each of these seven grounds is not the primary purpose of
this contribution: a robust literature already explores the issue.31 It is however
important to highlight at least four specific features.
Firstly, it should be noted that the introductory sentence of Article V(1) provides
that recognition and enforcement may only be refused “at the request of the party
against whom [the award] is invoked,” and if that party “furnishes proof” of the
grounds listed in that paragraph. Courts in the Contracting States have therefore
consistently recognized that the party opposing recognition and enforcement has
the burden of raising and proving the grounds for nonenforcement under Article
V(1).32
Secondly, in the system envisaged by the New York Convention, the refusal of
recognition or enforcement in one country does not impair the initial award. A court
in another country may indeed take a different view and thus permit enforcement. As
this may take place simultaneously, it is commonly referred to as “multiple pro-
ceedings” in the same dispute. Further, there may also be a distinction where the
challenge to the enforcement is made under the lex arbitri (Article V(1)(e)), which
possibly nullifies the award and renders it unenforceable in all States; however, as
refusal of enforcement is still, as seen above, a mere discretion of the court, the lack
of a duty to abide by the annulment in the country of origin of the award decidedly
prevents this system from operating properly.33
Thirdly, with regard to the grounds listed in Article V(2), that is those on which a
court may refuse enforcement on its own motion, the Convention does not identify
and enforcement under the Convention may not review the merits of the arbitral tribunal’s decision.
This is a principle which is unanimously confirmed in the case law and commentary on the New
York Convention. See UNCITRAL Secretariat Guide on the Convention . . ., p. 126.
31
See, ex multis, UNCITRAL Secretariat Guide. . ., p. 131 ff., and the references to case law and
literature that have been made in that study. See also S. Petit, E. Kajwoska, Grounds to refuse
Enforcement, in The Guide to Challenging and Enforcing Arbitration Awards . . ., p. 125 ff.
32
See UNCITRAL Secretariat Guide . . ., p. 126.
33
[Cross Reference] See Jacobsen L (2020) ISDS Control Mechanisms (Annulment and Setting
Aside). In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of International Investment Law and
Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-5744-2_108-1
the specific subject matter that is capable of settlement by arbitration (let. a),34 nor
does it define the concept of “public policy” (let. b). National courts therefore
exercise their discretion to interpret these provisions. With regard to the “public
policy requirement”, some jurisdictions have, for example, emphasized the relation-
ship between public policy and national interest or national sovereignty35; others that
a mere violation of domestic law is unlikely to amount to a ground to refuse
recognition or enforcement on the basis of public policy (thereby opening the door
to a more general concept of “universal” or “transnational” public policy)36; and
there have also been occasions where courts considered. . . that public policy is not a
concept that lends itself to a precise definition.37 In sum, applications to refuse
recognition and enforcement on these grounds have rarely been successful.38
Finally, even if State immunity is not listed by the New York Convention among
the explicit grounds on which a court can rest a decision to refuse to enforce an
arbitral award, “there are, however, several avenues through which immunity might
enter.39” On general terms, issues of State jurisdictional immunity could arise in
defenses based on lack of capacity, arbitrability of the award, or the tribunal’s
treatment of matters beyond the scope of submission to arbitration, whereas more
specific issues of State immunity from execution would arise either through the
concept of “public policy,” as the base grounds for recognizing State immunity are
34
The New York Convention addresses the issue of whether or not the subject matter of a dispute is
“capable of settlement by arbitration” even under Article II, in relation to the recognition of an
arbitration agreement. As noted by commentators, the meaning of that expression should be
understood in the same manner in both provisions.
35
See, among others, Grain Partners S.p.A. v. Cooperativa dos Produtores Trabalhadores Rurais de
Sorriso Ltda., Superior Court of Justice, Brazil, 18 October 2006; Renusagar Power Co. Ltd. v.
General Electric Company & anor., Supreme Court, India, 7 October 1993, 1994 AIR 860;
Petrotesting Colombia S.A. & Southeast Investment Corp. v. Ross Energy S.A., Supreme Court
of Justice, Colombia, 27 July 2011.
36
See the discussion in UNCITRAL Secretariat Guide . . ., p. 243 ff. See also X S.p.A. v.Y S.r.l.,
Federal Tribunal (Switzerland), 8 March 2006, Judgments of the Federal Court (2006) 132 III 389,
where the Swiss Federal Tribunal stated that an award contravenes public policy “if it disregards
essential and widely recognised values which, according to the conceptions prevailing in Switzer-
land, should form the basis of any legal order”; and Agence pour la sécurité de la navigation
aérienne en Afrique et à Madagascar v. M. Issakha N’Doye, Paris Court of Appeal (France), 16
October 1997, where a similar approach has been taken, by defining international public policy as
“the body of rules and values whose violation the French legal order cannot tolerate even in
situations of international character”.
37
By way of example, the Court of Appeal of England and Wales acknowledged that “[c]
onsiderations of public policy can never be exhaustively defined, but they should be approached
with extreme caution”. Deutsche Schachtbau-und Tiefbohrgesellschaft m.b.H. v. Shell International
Petroleum Co. Ltd., Court of Appeal, England and Wales, 24 March 1987, [1990] 1 A.C. 295.
38
See Gaillard, B. Siino, Enforcement under the New York Convention. . ., p. 96; S. Choi, Judicial
Enforcement of Arbitration Awards Under the ICSID and New York Conventions, 28 N.Y.U. J. Int’l
& Pol. (1995–1996), p. 175 ff., 206 and 207.
39
A.K. Bjorklund, State Immunity. . ., p. 308.
effectively public policy concerns, or through the “territorial criterion” set forth in
Article III of the New York Convention, which decidedly allows to treat municipal
immunity laws as preliminary matters of procedure which claimants seeking to
execute awards must overcome.
Article VII: The So-Called “More Favorable-Right” Provision
Article VI of the Convention addresses the specific case in which a party seeks to set
aside or suspend an award in the country where it was issued, while the other party
seeks to enforce it elsewhere. It addresses the issue with a permissive language
providing that a court of a Contracting State “may, if it considers it proper, adjourn”
proceedings and “may also . . . order the other party to give suitable security,” the
following provision of the Convention is considered to be one of its cornerstones.
Article VII governs the relationship of the New York Convention with other
treaties and domestic law and stipulates that the provisions of the Convention “shall
not affect the validity of multilateral or bilateral agreements concerning the recog-
nition and enforcement of arbitral awards entered into by the Contracting States nor
deprive any interested party of any right he may have to avail himself of an arbitral
award in the manner and to the extent allowed by the law or the treaties of the
country where such award is sought to be relied upon.” As a matter of fact, certain
arbitral awards (or agreements)40 could not only fall under the scope of application
of the New York Convention but also of other multilateral or bilateral treaties or
under domestic laws. The treaties, or the domestic laws of certain national legal
systems, may have more or less favorable provisions concerning recognition and
enforcement of awards. In these cases, Article VII not only ensures the compatibility
of the Convention with these instruments in force, but it also ensures that
Contracting States may enforce arbitral awards pursuant to the provisions of domes-
tic laws or treaties if the latter are more favorable to enforcement. It follows that a
Contracting State is not allowed to impose more stringent conditions for recognition
and enforcement than those laid down by the Convention. For this reason, it is
commonly acknowledged that Article VII reflects the Convention’s intention to set a
“ceiling,” or a maximum level of control; the Parties are nevertheless free to apply
more liberal rules than those set forth in the Convention. By virtue of this, Article VII
is also known as the “more favorable-right” provision.41
40
Article VII refers only to enforcement of arbitral awards, but at present it is also considered
applicable to arbitration agreements. See van den Berg, The New York Arbitration Convention of
1958. . ., p. 86 ff. See also Recommendation regarding the interpretation of article II, paragraph 2,
and article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, done in New York, 10 June 1958 (2006), Official Records of the General
Assembly, Sixty-first Session, Supplement No. 17 (A/61/17), paras. 177–181 and Annex II,
available at www.uncitral.org/pdf/english/texts/arbitration/NY-conv/A2E.pdf
41
See See UNCITRAL Secretariat Guide . . ., p. 289. See also P. Fouchard, La portée internationale
de l’annulation de la sentence arbitrale dans le pays d’origine, 1997 Rev. Arb. p. 329; E. Gaillard,
It is also noteworthy that Article VII’s regime even applies to the substantive
grounds for control listed in Article V. By way of example, we can refer to Paragraph
(1)(e), which provides that recognition and enforcement may be refused if the award
“has been set aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.” Even if the relationship between
Article VII(1) and Article V(1)(e) is not directly addressed by the New York
Convention, courts in some Contracting States have consistently enforced awards
that had been set aside or suspended.
This is a well-settled reasoning, for instance, in French courts. For example, in the
2007 Putrabali decision, the Court of Cassation affirmed that “[a]n international
arbitral award, which is not anchored in any national legal order, is a decision of
international justice whose validity must be ascertained with regard to the rules
applicable in the country where its recognition and enforcement is sought. Under
Article VII [the interested party] [. . .] could invoke the French rules on international
arbitration, which do not include the annulment of an award in the country of origin
among the grounds for refusing recognition and enforcement of an award rendered in
a foreign country.”42
A similar approach has been taken, at times, by US courts, while courts in other
countries have taken an opposite stand. For instance, the English Commercial
Court had recently, in 2017, in the case of Nikolay Viktorovich Maximov v. Open
Joint Stock Company, refused to enforce an award set aside at its seat in Russia,
notwithstanding the English court’s obvious concerns as to the validity of the
Russian court’s reasoning.43 The award arose out of a dispute between the defen-
dant, a leading Russian steel company, and the claimant, a Russian billionaire, and
concerned a share purchase agreement in which the defendant had agreed to
purchase a majority share of the claimant’s holding in a Russian company. As a
disagreement arose as to the calculation of the purchase price, the International
Commercial Arbitration Court of the Chamber of Commerce and Industry of the
Russian Federation (ICAC) decided in favor of the claimant, awarding him an
extremely high sum. But the award was later set aside by the Moscow Arbitrazh
Court on three grounds: that two of the arbitrators, having failed to disclose their
connections to the claimant’s expert witnesses, were in a subordinate position to
the experts; that the arbitrators had breached a fundamental principal of Russian
law and public policy demanded that the award be set aside; and that the dispute
was a corporate claim and could only be heard by the courts. That decision was
The Urgency of Not Revising the New York Convention, in 50 Years of the New York Convention:
ICCA International Arbitration Conference, ICCA Congress Series No. 14, p. 689 (A.J. van den
Berg ed., 2009).
42
PT Putrabali Adyamulia v. S.A. Rena Holding, Court of Cassation, France, 05–18,053, 29 June
2007, 2007 Rev. Arb. 507, affirming PT Putrabali Adyamulia v. S.A. Rena Holding, Court of
Appeal, Paris, France, 31 March 2005, 2006 Rev. Arb. 665.
43
Nikolay Viktorovich Maximov v. Open Joint Stock Company, [2017] EWHC 1911 (Comm)
upheld on appeal, but the claimant, among other actions including applications to
the Constitutional Court of the Russian Federation and to the European Court of
Human Rights, sought to enforce the annulled award abroad: in Paris, Amsterdam,
and London.
The French court, following the above-mentioned well-established approach to
enforcing an arbitral award that has been set aside at the seat, rejected the defendant’s
arguments that the arbitrators had failed to make disclosures and that there had been
a fraud, thus concluding that the award was enforceable.
The Dutch court refused, instead, to enforce the award, by noting that it was not
satisfied on the evidence that “exceptional circumstances” (namely, that he judgment
was rendered in proceedings that did not follow proper judicial procedure) existed to
justify enforcement of the award. That decision was later upheld by the Amsterdam
Court of Appeal.
In the English proceedings, the claimant submitted that the court should not
recognize the Russian court decisions, because they were perverse and were thus
procured by bias. In dismissing the application to enforce the award, the Commercial
Court considered the test for enforcing an award that has been set aside according to
the formula that “[t]he decision of the foreign court must be deliberately wrong, not
simply wrong by incompetence.”44 That test, which is “on any basis a high hurdle for
the Claimant to surmount,” therefore requires to demonstrate, in the absence of other
evidence of bias, that the Russian courts’ decisions were so extreme and incorrect as
to be by themselves evidence of bias, or be such that no Russian court acting in good
faith could have arrived at it. But he Court held that, on the facts of the case, the
claimant had failed to discharge this heavy burden. Thus, notwithstanding the severe
criticism of the Russian annulment decision, and in particular of the nondisclosure
and public policy grounds and the failure of the court to put the public policy and
nonarbitrability grounds to the parties,45 the Commercial Court was unpersuaded
that the decisions were so extreme and perverse that they could only be ascribed to
bias against the claimant; and the claimant’s application to enforce the award was
finally refused.
Enforcement Under the ICSID Convention
Enforcement of arbitral awards under the ICSID Convention is governed by a trio of

provisions: Articles 53, 54, and 55. These provisions give rise to what has been
variably described as “a comprehensive, self-sufficient system of truly international
44
Ibid., par. 12 ff.
45
For arguments on non-disclosures, see paras. 23, 27–29, 31. For arguments on public policy, see
paras 34, 40–42. For arguments on the arbitrability of the dispute, see paras 46, 60–61.
arbitration in the area of investment disputes”46; or “a complete, exclusive, and

closed jurisdictional system, insulated from national law.47”
The idea underlying that scheme of enforcement is that the ICSID awards are
binding on the parties and are not subject to appeal or any other remedy outside the
Convention; and it is, indeed, the Convention that provides for a number of remedies
and review procedures in Articles 49(2) (supplementation and rectification), 50
(interpretation), 51 (revision), and 52 (annulment). In this perspective, we can
therefore conclude that the system of review under the Convention is self-contained
(rectius, self-sufficient) since it does not permit any external review48: Once consent
to ICSID arbitration has been given, the access to national courts is precluded and
awards are only subject to revision and annulment under Articles 51 and 52 of the
Convention. This principle is also extended to the stage of recognition and enforce-
ment: thus, ICSID awards are not subject to the New York Convention.
Under that perspective, we can briefly refer to the Vivendi v. Argentina committee
(but for more on that case, see infra, section “Articles 53 and 54 of the ICSID
Convention”), where it emphasized that “one of the fundamental issues which the
drafters of the ICSID Convention were keen to achieve was a total divorce from the
recognition and enforcement system which prevailed under domestic laws or under
the 1958 New York Convention.49” This leads us to the relationship between Article
53 and Article 54 (the two cornerstones of the enforcement scheme under the ICSID
Convention), which we will analyze in the following section.
Articles 53 and 54 of the ICSID Convention
In its first sentence, Article 53(1) provides that “[t]he award shall be binding on the
parties” and that an award “shall not be subject to any appeal or to any other remedy
except those provided for in this Convention.” The binding force of ICSID awards is
further strengthened by the second sentence of Article 53(1), which requires
the parties to a dispute to “abide and comply with the terms of the award” with the
exception of cases where “enforcement shall have been stayed pursuant to the
relevant provisions of this Convention.” As it has been argued, the obligation to
46
van den Berg AJ (1987) Some Recent Problems in the Practice of Enforcement under the New
York and ICSID Conventions. 2 ICSID Review–Foreign Investment Law Journal, p 439 ff., 441
47
Broches A (1987) Awards Rendered Pursuant to the ICSID Convention: Binding Force, Finality,
Recognition, Enforcement, Execution. 2 ICSID Review–Foreign Investment Law Journal, p 287
ff., 288
48
Schreuer C, Malintoppi L, Reinisch A, Sinclair A (2010) Binding Force. In The ICSID conven-
tion: a commentary, 2 ed. Cambridge, p 1096 ff., 1139
49
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic,
ICSID Case
No. ARB/97/3, Decision on the Argentine Republic’s Request for a Continued Stay of
Enforcement
(4 Nov 2008), para. 35
comply is “automatic,”50 which means that the text of Article 53 “does not condition
the obligation to abide by and comply . . . on any steps of any kind by the prevailing
party.” More specifically, the general obligation set forth by Article 53 is not
predicated on the initiation of enforcement proceedings under Article 54; rather, it
is conditioned only on the possibility, provided for by the second sentence of Article
53(2), of a stay issued pursuant to the ICSID Convention. In other words, according
to Article 53, an ICSID award is self-executing (that is to say that the ICSID
Convention brings automatic recognition and gives res judicata effect ipso
facto)51; and even if a prevailing investor claimant failed to collect under Article
54, the respondent State would still be in violation of Article 53. As noted by
Schreur, “a party that successfully resists enforcement of an award before a court,
or another authority of a State in which enforcement is sought, is in violation of its
obligation under Art. 53.52”
Article 54, which is commonly referred to as “one of the most important pro-
visions of the [ICSID] Convention,”53 provides the enforcement mechanism of the
ICSID Convention and comes into play “only when the losing party violates Article
53 and refuses to comply with an award.54” This Article sets forth tree main
obligations. Firstly, paragraph 1 lays out the general obligation of Contracting States
to “recognize an award rendered pursuant to this Convention as binding and enforce
the pecuniary obligations imposed by that award within its territories as if it were a
final judgment of a court in that State.” Further, paragraph 2 sets forth the formal
procedures that States must establish55 and that parties must follow to obtain
enforcement: Parties to the Convention shall designate the competent court or
authority for the purpose of recognition and enforcement to the Centre; a party
seeking recognition or enforcement shall submit a certified copy of the award
(certified by the Secretary-General) to such court or authority. Finally, paragraph 3
provides that the modalities of execution are governed by the law concerning the
execution of judgments of the country where execution is sought. We will dwell into
that last paragraph in the next subsection (and briefly highlight the role of Article
55); for now, we should further explore the content of Article 54 and its complex
relationship with Article 53, which has been directly questioned at the beginning of
the millennium, when Argentina, responding to investors seeking to enforce awards
50
Alexandrov SA, Enforcement of the ICSID Awards: Article 53 and 54 of the ICSID Convention,
Investment Law for the twenty-first Century. . ., p 32 ff., 324
51
C. Schreuer, The ICSID Convention. . ., p. 1128.
52
53
54
Ibid.
55
As it has been observed, only Contracting States, that is, the signatories to the ICSID Convention,
bear this obligation. Investors do not, and cannot, have an obligation under Article 54, as they are
not parties to the ICSID Convention. Thus, because Article 54 imposes no obligations on investors,
the obligation to comply with the award—which the investor undoubtedly has—must arise from
Article 53 and not from any operation of Article 54. See Alexandrov, Enforcement of the ICSID
Awards. . ., p. 324.
against it, argued that its obligation to comply with an award under Article 53 was
subject to the prevailing mechanism for enforcement of awards under Article 54.
Firstly, we must note that under the scheme of the ICSID Convention, and
specifically bearing in mind Article 54(1), recognition and enforcement generally
refers to the same process. This means that the ICSID Convention is even more
favorable to recognition and enforcement than the New York Convention because
Article 54 nullifies the need for a local court’s decision for the purpose of enforce-
ment. Furthermore, unlike the New York Convention (see Article V), the ICSID
Convention does not allow any refusal grounds for recognition and enforcement.
Just as all States parties to the Convention shall recognize and enforce an award as if
it were a final judgment of a court in that State, in the case of noncompliance, the
prevailing party can apply to courts of another Contracting State where the losing
party has attachable assets, because awards should be recognized and enforced by all
Contracting States. Under that perspective, the party seeking recognition and
enforcement does have the possibility to select the most favorable forum for this
purpose.
Secondly, there is the issue of enforcement by private investors against defaulting
States. Article 54 was indeed laid out “primarily with the needs of host States in
mind.56” As Broches explained57:
[I]f a host State obtains an award against an investor in arbitration proceedings before the
Centre, and the investor does not comply with the award, the host State can seek forced
execution in the territories of any Contracting State without running into the obstacles which
frequently stand in the way of enforcement of foreign arbitral awards.
However, this does not preclude the opposite circumstance from arising and thus
to limit the provision to enforcement for collecting from defaulting States. As
Schreuer explained in his Commentary58:
A provision on enforcement was seen as necessary to balance the situation in favour of the
host State, should the investor not comply with an award. But all the drafts leading to the
Convention refer to recognition and enforcement against the parties in equal terms, without
distinguishing between investors and host States, and it is clear that this was also the
intention of the drafters.
The first time an investor started an enforcement procedure against a State was in
Benvenuti & Bonfant v. Congo.59 This well-known case involved an Italian com-
pany, which had entered into an agreement with the Congolese government to jointly
56
A. Broches, ‘The Convention on the Settlement of Investment Disputes between States and
Nationals of Other States’, 136 Recueil des Cours (1972) p. 331 ff., 349
57
Ibid.
58
C. Shreuer, Binding Force. . ., p. 1102.
59
S.A.R.L. Benvenuti & Bonfant v. Republic of the Congo, Decision of Jan. 13, 1981 of the
Tribunal de Grande Istance, Paris, 108 Journal du droit international 365 (1981). Also in 20 ILM
878 (1981).
establish a company in Congo for the manufacture of plastic bottles. The Italian
company obtained from the Tribunal de Grande Instance of Paris an order for the
enforcement (i.e., an exequatur) of a Convention award against the company based
in the Republic of Congo, which Benvenuti and Bonfant complained, before an
ICSID arbitration, had in fact been nationalized as a result of what was considered to
be constructive expropriation. The court granted recognition after ascertaining that
the award did not conflict with French law and order, but under the condition that “no
measure of execution, or even conservatory measure, can be taken pursuant to that
award on any assets located in France, without the prior authorization of this Court.”
The Italian company appealed to the Paris Court de Cassation, which deleted the
limiting condition, even if it did not address the public policy examination made by
the Tribunal de Grande Instance of Paris, on the grounds that it conflicted with the
ICSID Convention’s simplified enforcement procedure. Following the recognition,
Benvenuti and Bonfant attempted execution through the attachment of funds owned
by Banque Commerciale Congolaise (BCC), but the attempt failed as the Court de
Cassation held that the claimant was a creditor of the State of Congo, but not of BCC
who, albeit dependent on the State, could not be regarded as an emanation of the
State of Congo. Ultimately, Congo paid the amount due under the award.
Critically for our purposes, the above trial, like subsequent cases regarding the
execution of an award against a State,60 demonstrates that securing compliance by
sovereign States with international arbitral awards remains a challenging task. More
specifically, even if the ICSID Convention has gone a long way in limiting domestic
review of arbitral awards by providing for an international self-contained procedure,
it nonetheless grants a certain degree of discretion to Contracting States, when it
comes to the enforcement stage that is the actual execution of the award as a final
judgment of the court, to determine under their national laws whether the award can
be executed against particular assets. That is particularly true with regard to the
invocation of the State immunity doctrine that we will briefly analyze in the next
subsection.
Before tackling that specific issue, mention must be made of what probably
represents the toughest challenge to the enforceability of ICSID awards.
Following the 1998–2002 financial crisis and in order to stabilize its domestic
economy, Argentina adopted a number of initiatives that substantially contributed to
the dissolution of the regulatory framework that had been previously established to
attract foreign capitals. As a consequence of that action, Argentina was faced with
dozens of investment arbitration claims, most of which were filed under the ICSID
Convention. Argentina’s responding argument was that its obligation to comply with
the award under Article 53 was subject to the prevailing mechanism under Article
60
See Societè Ouest Africane des Bètons Industries v. Senegal, Decision of December 5, 1989, of
the Court of Appeal, Paris, ICSID Case No. ARB/82/1, 117 Journal du droit international 141
(1990); Liberian Eastern Timber Corporation v. Republic of Liberia, ICSID Case No. ARB/83/2,
ICSID Rep. 343 (1994); AIG Capital Partners, Inc. & CJSC Tema Real Estate Company v. Republic
of Kazakhstan, ICSID Case No. ARB/01/06, (Oct. 07, 2003). See C. Schreuer, The ICSID
Convention. . ., p. 1131 ff.
54, which it described as the “distinctive feature of the mechanism of recognition

and enforcement of awards enshrined in the ICSID Convention.61” In that perspec-
tive, the attempt has thus made by Argentina “to weaken, and even eliminate
altogether, its Article 53 obligation to comply with awards, by telling claimants
and ad hoc committees that injured investors must instead resort to Argentina’s
domestic courts to enforce those awards under Article 54.62” In other words,
according to Argentina, the claimant has to comply with the same procedures that
are applicable to the enforcement of final judgments in local courts in Argentina, and
until then the obligation to pay the award under Article 53 does not arise.
The first ICSID tribunal to address in detail the issue of the relationship between
Articles 53 and 54 was the ad hoc committee in the Enron annulment proceeding,63
which confirmed that the obligations under these two provisions are to be seen as
separate and independent and that a State’s obligation to comply is unconditional,
meaning that it arises directly after the award is rendered and remains unaffected by
any domestic procedure for collection. The committee’s position was fundamentally
based upon two main arguments.
Firstly, the obligations set forth in Articles 53 and 54 “are addressed to different
subjects”. The obligation to comply under Article 53 is addressed to a party to a
dispute, whereas the obligation to recognize and enforce under Article 54(1) is
addressed to “each Contracting State” of the Convention, “whether or not that
Contracting State is a party to the award in question.64” Secondly, it argued that in
accordance with Article 54, parties are obliged to enforce only the pecuniary
obligations imposed by an award, whereas following Argentina’s reasoning that
there is no obligation to comply with an award unless and until the judgment creditor
avails itself of enforcement mechanisms established under Article 54, the result
“could be that there would never be an obligation to comply with nonpecuniary
obligations in an award.65”
Less than one month later, this construction of the relationship between Articles
53 and 54 was confirmed by the Vivendi II annulment committee in its decision on
the stay of enforcement.66 In that case, the committee observed that Article 54 was
“worded in a manner that excludes any possible court intervention in all States that
adhered to the ICSID Convention, particularly the judicial organs of the State which
61
Siemens v Argentina, ICSID Case No. ARB/02/8, Argentina’s Response to US Department of
State Letter, 2 June 2008, reported in A.K. Bjorklund, State Immunity. . ., p. 312.
62
See Alexandrov, Enforcement of the ICSID Awards. . ., p. 330.
63
Enron Corporation and Ponderosa Assets LP v Argentine Republic, ICSID Case No. ARB/01/3
(Annulment Proceeding), Decision on the Argentine Republic’s Request for a Continued Stay of
Enforcement of the Award (Rule 54 of the Arbitration Rules), 7 October 2008. The issue of the
relationship between these two Articles was firstly placed before the Siemens ad hoc committee,
which, however, never ruled on the matter as the annulment proceeding was suspended at the
request of the parties.
64
Ibid., par. 62.
65
Ibid., par. 66.
66
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic. . .
was party to the dispute adjudicated under the ICSID rules”; and that “all sort of
recourse to domestic courts [. . .] was to be avoided” in order “[t]o eliminate state
intervention in the field of investment disputes.” The committee notably concluded
that: “Any possible intervention by a judicial authority in the host State is unaccept-
able under the ICSID Convention, as it would render the awards simply a piece of
paper deprived from any legal value and dependent on the will of State organs.67”
Article 55 and the Issue of State Immunity as an Obstacle to

Enforcement
The scheme of enforcement is completed by Article 55, the last of the trio of
provisions pertaining to the enforcement of ICSID awards, which provides an
interpretative guideline of Article 54, and more specifically a clarification to Article
54(3) which states that execution of an award is governed by the law of the State in
which execution is sought. As this law includes the law on State immunity, Article
54(3) states that “[n]othing in Article 54 shall be construed as derogating from the
law in force in any Contracting State relating to immunity of that State or of any
foreign State from execution.”
As the drafters of the Convention were concerned that waiving immunity from
execution would have “run into the determined opposition of developing countries
and would have jeopardized the wide ratification of the Convention,”68 State immu-
nity affects the enforcement and execution process and it applies to the execution of
an ICSID award in the same way as it would apply to the execution of a judgment of
a domestic court.69 On the contrary, Article 55 does not apply to immunity from
jurisdiction: in the context of the Convention, the issue of immunity from jurisdic-
tion does not indeed arise; jurisdiction is governed by Article 25 and is determined
by the tribunal under Article 41. Therefore, domestic courts have no role to play in
the determination of jurisdiction.70
The rationale for maintaining immunity from execution is that certain State assets,
such as central bank reserves and military and diplomatic property, are integral to the
business of government and should not be subject to seizure. As Schreuer noted in
1988, long before the recent surge in the number of investors resorting to investor-
State arbitration: “The assumption of jurisdiction by domestic courts over foreign
States without any prospect of having the resulting decisions made effective would
67
Ibid., par. 35–36.
68
A. Broches, The Convention on the Settlement of Investment Disputes between States and
Nationals . . ., p. 403.
69
[Cross Reference] See Lai A (2020) State Immunity in the Context of Enforcement of Investment
Arbitration Awards. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international
70
C. Shreuer, The ICSID Convention: A Commentary. . ., p. 1153.
not only be rather half-hearted but would also largely nullify the progress made in
the protection of the private claimant.”
It has also been observed that the State immunity referred to in Article 55 “is not
static; it leaves room for the law of immunity from execution to change over time”71;
and, more generally, the continuing availability of the State immunity plea has been
criticized by scholars as being contrary to the principle of effectiveness of awards.
Schreuer, for example, has termed Article 55 “the Achilles’ heel of the Conven-
tion.”72 But this may suffice as a linkage to the threat that sovereign immunity for
execution of awards poses to the function of the investor-State arbitration regime, as
the issue of State immunity is addressed in a separate chapter.73
Conclusion
Beyond the specific issue of State immunity, which not even the Convention
addresses in full, we can offer some reflections on the relationship between the
ICSID Convention and the New York Convention.
The fundamental difference between enforcement of awards under the New York
Convention and under the ICSID Convention is that Article V of the former
establishes certain grounds according to which domestic courts may refuse enforce-
ment, while the ICSID Convention envisages a self-contained regime and does not
allow any external review. ICSID awards shall therefore be recognized as binding
and their monetary content shall be enforced as a last-instance decision of its own
State courts by all parties to the ICSID Convention. The only permissible restriction
to enforceability is the recourse to the doctrine of State immunity in enforcement
proceedings (i.e., if the assets subject to execution are immune under the law of that
State).74
It follows that ICSID awards enjoy a particularly high degree of enforceability,
and enforcement under the ICSID Convention is, in principle, easier and much faster.
As argued by Schreuer, the issue of applicability of the New York Convention to
ICSID awards is not likely to arise; it may, however, become relevant in exceptional
circumstances, such as in the event of enforcement of an ICSID award in a State that
is a party to the New York Convention but not to the ICSID Convention, or in the
case of enforcement of a nonpecuniary obligation, which is not possible under
Article 54.75 Further, as the differing approaches adopted by the French court, on
71
A.K. Bjorklund, State Immunity. . ., p. 306.
72
C. Shreuer, The ICSID Convention: A Commentary . . ., p. 1154.
73
[Cross Reference] See Lai A (2020) State Immunity in the Context of Enforcement of Investment
Arbitration Awards. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international
74
M Bugenberg, A Reinisch, Recognition and Enforcement of Decisions. . ., p. 156.
75
Schreuer, The ICSID Convention: A Commentary . . ., p. 118. In the last case, the author observes
that it is submitted that the question should be dealt with by analogy to Additional Facility awards.
the one hand, and the Dutch and English courts on the other clearly show, a lack of
conformity among the courts of States parties to the New York Convention exists
with regard to the enforcement of annulled awards; and the more “forgiving”
approach, which is reflected in the hesitation of the English and Dutch courts to
disregard the Russian judgments, provides a decisive reason why parties ought to be
cautious when choosing their seat of arbitration. Notwithstanding the interference of
the national courts of the seat of arbitration that the New York Convention ultimately
allows, it is commonly considered an equally effective and established enforcement
mechanism.76
The success of the two Conventions is reflected in a number of empirical surveys
conducted over the last dozen years. According to the 2019 survey conducted by the
School of International Arbitration of the Queen Mary University of London, the
“enforceability of awards” is listed as the most valuable characteristic of arbitration,
with 64% of respondents selecting this option. The second most popular response
was “avoiding specific legal systems/national courts” (60%). As the Study observes,
this result can be perceived as reinforcing the continued success of the New York
Convention and the benefit to the parties of avoiding the potential biases and
specificities of domestic courts.77 A previous survey, conducted in 2008 on the
specific topic of recognition and enforcement of arbitral awards, reported that awards
are usually voluntarily complied with and that proceedings for enforcement are
initiated in only a very small number of cases: 84% of respondents indicated that,
in over 76% of their arbitration proceedings, the nonprevailing party voluntarily
complied with the arbitral award; only 3% reported that an award debtor had failed to
comply. The same survey also showed that in only 11% of cases participants had had
to proceed to courts or other enforcement agencies to enforce an award; out of that
11%, only 19% of corporations had encountered difficulties when seeking to recog-
nize and enforce foreign arbitral awards. Where difficulties were encountered, they
usually related to the circumstances of an award debtor, typically a lack of assets or
an inability to identify relevant assets (70%), or to the place of enforcement and its
domestic procedures (17%). Further, for our purposes, the survey reported that only
6% of participants had encountered difficulties due to the country of enforcement not
being a signatory to the New York Convention 1958 (a clear indication of the high
number of countries parties to the Convention), whereas when invited to identify the
main factors affecting their decision on the place of enforcement, 20% of participants
took into consideration the applicability of the New York Convention 1958.78
Finally, we can conclude by offering some reflections on an issue related to the
enforcement and recognition of arbitral awards which could assume particular
76
Ibid., 158.
77
See 2018 International Arbitration Survey: The Evolution of International Arbitration, available
at: http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Sur
vey%2D%2D-The-Evolution-of-International-Arbitration-(2).PDF
78
See 2008 International Arbitration: Corporate attitudes and practices, available at: http://www.
arbitration.qmul.ac.uk/research/2008/
relevance in the very near future: the proposed investment court system (ICS) and
multilateral investment court (MIC) and the doubts that have been raised concerning
the enforcement and recognition of decisions by the ICS/MIC.79 It was also the subject
of discussion during the resumed 38th session of UNCITRAL Working Group III –
held in Vienna from January 20 to 24, 202080 – and has been extensively addressed in
relevant literature. The following are, therefore, only some brief inputs.81
_Essentially, the core question is whether the outcomes produced through a new
appellate mechanism or investment court would fall within the scope of the New York
Convention or ICSID Convention, in order to ensure their effective recognition and
enforcement. Particularly strong doubts arise in the case of the ICSID Convention,
given that it is a self-contained regime (see Article 53, which establishes a very limited
annulment procedure), and that it only applies to arbitrations conducted “pursuant to”
the Convention’s terms, thus excluding arbitrations subject to an appellate mechanism
or awards issued by an investment court. As a matter of principle, the foregoing
obstacle could be overcome through an amendment to the Convention, but, as noted,
amendments to the ICSID Convention require the agreement of all Contracting Parties,
and this seems highly unlikely and politically unfeasible at present.82 With regard to
the New York Convention, there seems to be more room for maneuver, albeit to the
extent that an enforcement of ICS/MIC decisions according to the New York Conven-
tion would be legally possible. Nonetheless, a high degree of uncertainty remains over
a number of issues.83 Firstly, it has been questioned whether the ICS procedure can still
qualify as an arbitration proceeding; secondly, whether ICS decisions (or the decisions
of an appellate body) may be treated as “arbitral awards,” and whether they can be
regarded as “commercial” where States have made a reservation to this effect; and
finally, whether the parties to an appellate mechanism or investment court could bypass
79
The matter has already been covered in-depth in [Cross Reference] Lavranos N (2020) The ICS
and MIC Projects: a critical review of the issues of arbitrator selection, control mechanisms, and
recognition and enforcement. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international
and Li Y (2020) The notion and development of international investment court. In: Chaisse J,
Singapore. https://doi.org/10.1007/978-981-13-5744-2_12-1
80
See UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), A/CN.)/WG.III/
WP. Available at: https://uncitral.un.org/en/working_groups/3/investor-state
81
See, among other, Sauvant K (ed) (2008) Appeals mechanisms in international investment
disputes. Oxford, p 231 ff.; A. van den Berg, Appeal mechanism for ISDS Awards, Interaction
with New York and ICSID Conventions, Conference on Mapping the Way Forward for the Reform
of ISDS, ICSID Review, 2019, p. 1 ff.; M Bugenberg, A Reinisch, Recognition and Enforcement of
Decisions. . ., p. 159 ff; N. Jansen Calamita, UNCITRAL Working Group III Debate: Enforceability
of awards by an appellate mechanism or an investment court under the ICSID and New York
Conventions, Investment Treaty News (ITN), Issue 1, Vol. 11, March 2020, p. 9 ff.
82
Jensen Calamita, UNCITRAL Working Group III Debate. . ., p. 10.
83
See e.g. Chaisse J, Vaccaro-Incisa M (2018) The EU investment court: challenges on the path
ahead 218 Columbia FDI Perspectives 1–3.
the process of review by the courts of enforcing jurisdictions envisaged in Article V of

the New York Convention.
Different solutions have been prospected by commentators, but these fundamen-
tally “partial” solutions, as well as the doubts concerning the compatibility of ICS/MIC
decisions with the ICSID Convention and the New York Convention, clearly show
how these two instruments are no longer fully reflective of their surroundings. As the
international trade and commercial realms have developed exponentially over the past
few years, due to a series of unexpected and sudden challenges, only a rapid change in
their well-settled features may secure their survival.
Cross-References

▶ State Immunity in the Context of Enforcement of Investment Arbitration Awards
▶ The ICS and MIC Projects: A Critical Review of the Issues of Arbitrator Selec-
tion, Control Mechanisms, and Recognition and Enforcement
▶ The Notion and Development of International Investment Court
State Immunity in the Context of
Enforcement of Investment Arbitration 58
Awards
Adrian Lai
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1500
State Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1500
Immunity from Suit and from Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1502
Recognition of an Investment Award Being a Distinct and Separate Stage from Execution . . . 1504
Immunity from Suit at the Recognition Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1507
Is Immunity Engaged at All? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1507
Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1510
The “Commercial” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1517
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1520
Immunity from Execution at the Execution Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1520
Immunity from Execution as Distinct from Immunity from Suit . . . . . . . . . . . . . . . . . . . . . . . . . . 1520
The “Waiver” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1522
The “Earmarked Property” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1524
The “Commercial Property” Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1525
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1530
Abstract
In enforcing an investment arbitral award against the debtor State, State immunity
is engaged in both the recognition stage and at the execution stage. While forum
States are more prepared to withhold immunity at the recognition stage, whether
by waiver or otherwise, State immunity from execution remains to be the thorny
issue standing in the investor’s way to collect the award. The chapter considers
that immunity from execution being the “Achilles’ heel” of the investor-State
arbitration system is an over-statement, in particular when the 2017 ICSID’s
survey suggested that States generally complied with awards made in favor of
investors. Waiver remains an important exception to both types of immunity and
A. Lai (*)
Asian Academy of International Law, Hong Kong, China
e-mail: adrianlai@aail.org

https://doi.org/10.1007/978-981-13-3615-7_21
1500 A. Lai
forum States generally accept contractual waiver. While “caveat emptor” may still
apply in cross-border investment involving a State, the risk can be reduced
(though not eliminated) by an agreement with a properly drafted waiver clause.
Keywords
ICSID · Enforcement · Immunity
Introduction
An investor, having succeeded its claim in an investment arbitration against a State,

from time to time faces obstacles in putting its hands on the debtor State’s assets due
to the plea of State immunity. In fact, State immunity, in particular immunity from
execution, has been described as the “Achilles’ heel” of the investor-State arbitration
system.1
In this chapter, the author discusses what the stages that a creditor investor needs
to go through in enforcing an investment arbitration award against a State are, and
explains by reference to treaties, statutes, and case law the different legal issues
involved in each stage. For the purpose of this chapter, the awards referred to herein
are awards resulted from arbitrations commenced by investors against States
(excluding States’ agencies or instrumentalities)2 with respect to any legal dispute
arising directly out of an investment, whether such arbitrations are commenced
pursuant to the ICSID Convention or otherwise.
State Immunity
State immunity derives from the trite principle of international law that all States are
equal and one does not have authority over another (par in parem non habet
imperium). Marshall CJ in The Schooner Exchange v. McFaddon3 explained:
This full and absolute territorial jurisdiction being alike the attribute of every sovereign, and
being incapable of conferring extra-territorial power, would not seem to contemplate foreign
sovereigns nor their sovereign rights as its objects. One sovereign being in no respect
amenable to another, and being bound by obligations of the highest character not to degrade
the dignity of his nation, by placing himself or its sovereign rights within the jurisdiction of
another, can be supposed to enter a foreign territory only under an express licence, or in the
confidence that the immunities belonging to his independent sovereign station, though not
expressly stipulated, are reserved by implication, and will be extended to him.
1
Schreuder CH (2009) The ICSID convention. A commentary, 2nd edn. p 1154
2
Accordingly, discussion on the law treating an entity to be an agent or instrumentality of a State is
beyond the scope of this article.
3
[1812] 7 Cranch 16
58 State Immunity in the Context of Enforcement of Investment Arbitration Awards 1501
This perfect equality and absolute independence of sovereigns, and this common interest
compelling them to mutual intercourse, and an interchange of good offices with each other,
have given rise to a class of cases in which every sovereign is understood to waive the
exercise of a part of that complete exclusive territorial jurisdiction, which has been stated to
be the attribute of every nation.
Despite debate regarding the origin of State immunity in the past, the principle
remains an important tenet of international legal order and it not only affords
privilege to the defendant State in the forum State but also imposes a duty on the
forum State to afford such privilege to the defendant State. In Jurisdictional Immu-
nities of the State (Germany v. Italy: Greece intervening) (the “Jurisdictional
Immunities Case”), the International Court of Justice (the “ICJ”) held:
. . . [The State practice] shows that, whether in claiming immunity for themselves or
according it to others, States generally proceed on the basis that there is a right to immunity
under international law, together with a corresponding obligation on the part of other States
to respect and give effect to that immunity.
The Court considers that the rule of State immunity occupies an important place in
international law and international relations. It derives from the principle of sovereign equality
of States, which, as Article 2, paragraph 1, of the Charter of the United Nations makes clear, is
one of the fundamental principles of the international legal order. This principle has to be
viewed together with the principle that each State possesses sovereignty over its own territory
and that there flows from that sovereignty the jurisdiction of the State over events and persons
within that territory. Exceptions to the immunity of the State represent a departure from the
principle of sovereign equality. Immunity may represent a departure from the principle of
territorial sovereignty and the jurisdiction which flows from it.4
Traditionally, State immunity was said to be absolute in that without consent of

that State (i.e., waiver), that State and its assets could never be made subject to
legal proceedings of another State. Inroads have been made since the last century
in that, at least insofar as immunity from suit is concerned, the “restrictive”
approach is said to have gained the floor to be the norm replacing the traditional
“absolute” approach.
Instead of treating the “restrictive” approach as the antithesis to the “absolute”
approach, the better view, the author considers, is that the general principle of State
immunity remains but exceptions have been created thereto by many States, whether
by domestic legislation or case law. It is indeed the approach how the international
community approaches the matter. For instance, in the UN Convention on Jurisdic-
tional Immunities of States and Their Property (“UNCSI”) adopted on 2 December
2004,5 Article 5 provides:
A state enjoys immunity, in respect of itself and its property, from the jurisdiction of the
courts of another State subject to the provisions of the present Convention.
4
Judgment, I.C.J. Reports 2012, at 99, paras 56–57
5
Resolution of the UN General Assembly 59/38 (A/Res/59/38)
1502 A. Lai
The said Article lays down the default position that a State is entitled to immunity
unless it is otherwise provided in UNSCI. This approach is shared by many juris-
dictions practicing “restrictive” approach. For instance, in the United Kingdom, s.1
(1) of the State Immunity Act 1978 (“UKSIA”) provides that:
A State is immune from jurisdiction of the courts of the United Kingdom except as provided
in the following provisions of this Part of this Act.
Also, in, §§1604 and 1609 of the US Foreign Sovereign Immunities Act
(“USFSIA”) provides:
Subject to existing international agreements to which the United States is a party at the time
of enactment of this Act a foreign state shall be immune from the Jurisdiction of the courts of
the United States and of the States except as provided in sections 1605 to 1607 of this
chapter.
Subject to existing international agreements to which the United States is a party at the time of
enactment of this Act the property in the United States of a foreign state shall be immune from
attachment arrest and execution except as provided in sections 1610 and 1611 of this chapter.
The default position (subject to exceptions created by law) is important: it is because

even the “restrictive” approach is practiced, the forum State has to identify an
exception to the default position, whether statutory or otherwise, before it assumes
jurisdiction over the defendant foreign State. Absent any applicable exception, the
forum is obliged to afford immunity to the defendant State as a matter of interna-
tional legal obligation.
Immunity from Suit and from Execution
Theoretically, immunity from suit is separate from immunity from execution in the
sense that the former refers exclusively to immunity from the forum State exercising
adjudicative power to hear and decide a substantive claim against the defendant State
and the latter the immunity from forum State’s measures of execution over the
foreign State with respect to its property.
There have been instances where national courts did not draw such a distinction
and held that a defendant State would not be entitled to assert immunity from
execution if it is found to have not been entitled to assert immunity from suit: “Le
pouvoir d’ exécution est la consequence du pouvoir de jurisdiction” (“execution was
the necessary consequence of jurisdiction”): e.g., Société Commerciale de Belgique
v. L’État Hellenique (“SOCOBEL v. Greece”) (Belgium)6; and Kingdom of Greece v.
Julius Bär & Co (Switzerland).7
6
(1952) 79 Clunet 244 (Belgium); 18 ILR 3 (1951) at 7
7
Swiss Federal Tribunal, 6 June 1956; 23 ILR 195 (1960)
That said, the general modern practice of States remains treating two types of
immunities separate and this is the basis upon which UNCSI was drafted. In the
Report of the International Law Commission (“ILC”) with respect to the adoption of
the draft articles on jurisdictional immunities of States and their properties and
commentaries thereto, the following commentary was made to Article 18 (now
split into Articles 18 and 19):
(2) The practice of States has evidenced several theories in support of immunity from
execution as separate from and not interconnected with immunity from jurisdiction. What-
ever the theories, for the purposes of this article, the question of immunity from execution
does not arise until after the question of jurisdictional immunity has been decided in the
negative and until there is a judgment in favour of the plaintiff. Immunity from execution
may be viewed, therefore, as the last bastion of State immunity. If it is admitted that no
sovereign State can exercise its sovereign power over another equally sovereign State . . ., it
follows a fortiori that no measures of constraint by way of execution or coercion can be
exercised by the authorities of one State against another State and its property. Such a
possibility does not exist even in international litigation, whether by judicial settlement or
arbitration.8
The distinction, the author considers, is important. Unlike immunity from suit to
which substantial inroads have been made by States’ practices, immunity from
execution remains to be “the last bastion of State immunity”. The ICJ held in the
Jurisdictional Immunities Case:
. . . the Court observes that the immunity from enforcement enjoyed by States in regard to
their property situated on foreign territory goes further than the jurisdictional immunity
enjoyed by those same States before foreign courts. Even if a judgment has been lawfully
rendered against a foreign State, in circumstances such that the latter could not claim
immunity from jurisdiction, it does not follow ipso facto that the State against which
judgment has been given can be the subject of measures of constraint on the territory of
the forum State or on that of a third State, with a view to enforcing the judgment in
question. Similarly, any waiver by a State of its jurisdictional immunity before a foreign
court does not in itself mean that that State has waived its immunity from enforcement as
regards property belonging to it situated in foreign territory. The rules of customary
international law governing immunity from enforcement and those governing jurisdic-
tional immunity (understood stricto sensu as the right of a State not to be the subject of
judicial proceedings in the courts of another State) are distinct, and must be applied
separately.9
In the context of an investment award, the distinction is further illustrated by the

ICSID Convention in which Article 55 expressly preserves the defendant State’s
immunity from execution (but silent on immunity from suit) afforded by the forum
State in accordance with the law of the forum State.
8
Report of the International Law Commission on the work of its forty-third session (Doc A/46/10)
(1991) YBILC, vol II, part 2, at 56
9
Id. at para 113
1504 A. Lai
Recognition of an Investment Award Being a Distinct and

Separate Stage from Execution
While an investment award may by itself give rise to an obligation owed by the
debtor State to satisfy the award, a creditor investor is still required to go through the
domestic legal system of the forum State to enforce the award.
Article 54 of the ICSID Convention uses the terms “recognition,” “enforcement,”
and “execution” to prescribe the procedures for collection of the awards while the
New York Convention the terms “recognition” and “enforcement.” These terms need
to be clarified for they refer to distinct and separate stages.
It is considered that a creditor investor needs to go through two distinct stages,
namely, the recognition stage and the execution stage, in enforcing an award. Recogni-
tion refers to the formal confirmation by the forum State that the award in question is
enforceable within the forum State. Upon completion of the recognition stage, the award
becomes a binding and enforceable decision in the eyes of the forum State and can be
executed against the award debtor (subject to any defences available to the said debtor).
In the context of an award made under the ICSID Rules, the recognition stage is
straightforward in that:
Each Contracting State shall recognize an award pursuant to [the ICSID Convention] as
binding and enforce the pecuniary obligation imposed by that award within its territories as if
it were a final judgment of a court in that State.10
Accordingly, when a creditor investor engages the jurisdiction of the court of the
forum State to recognize an ICSID arbitral award, the contracting forum State is
obliged to accede to the investor’s application, subject to the investor’s compliance
with its duty to furnish the forum State with a copy of the award certified by the
ICSID Secretary-General.11
In the context of a non-ICSID award, the New York Convention provides an
avenue through which an award creditor may seek recognition of the award in a
contracting forum State. Article III of the New York Convention provides that a
contracting forum State, upon the investor’s compliance with the requirements under
Article IV, is obliged to recognize an award (including an investment award unless
the contracting forum State has excluded it from the scope of application)12 made in
10
Article 54(1) of the ICSID Convention
11
Article 54(2) of the ICSID Convention. See Chaisse J (2015) The issue of treaty shopping in
access to investment agreements. Hastings Bus Law Rev 11(2):225–306
12
Some States pursuant to Article I(3) of the Convention make reservations confining the applica-
tion to differences arising out of commercial legal relationship as defined by their respective
domestic laws. For instance, China has expressly excluded awards made with respect to disputes
between foreign investors and the host State from the application: see the “Circular of Supreme
People’s Court on Implementing Convention on the Recognition and Enforcement of Foreign
Arbitral Awards Entered by China”
the territory of another contracting State in accordance with its rules of procedures.
That obligation, however, is subject to the grounds of refusal to recognize a
Convention award exhaustively set out in Article V of the Convention.
It is to be noted that neither the ICSID Convention nor the New York Convention
makes the presence of the defendant State’s assets as a precondition for the
contracting forum State to recognize the award,13 though a territorial nexus may
be required by some States.14 It follows that the “recognition” stage, while in most
cases being the first step towards seizing the award debtor’s assets situated in the
forum State to satisfy the award, remains a distinct and separate stage.
The “recognition” stage being accepted as a distinct and separate stage is crucial.
It is because the recognition stage is the first step that an investor needs to embark on
in collecting its award, and the Article 54(1) of the ICSID Convention and Article III
of the New York Convention for that purpose, respectively, provide for summary
procedures, leaving the problems (both legal and factual) concerning actual execu-
tion to be dealt with at a later stage.
In Société Ouest Africaine des Bétons Industriels (SOABI) v. Senegal, the French
Cour de cassation in reinstating the decision to recognize the ICSID award against
Senegal held:
[The ICSID Convention] has instituted in Articles 53 and 54 an autonomous and simplified
regime for recognition and enforcement which excludes that provided for in Articles 1498
and following of the New Code of Civil Procedure and, in particular, the remedies which are
provided therein.15
This view was echoed in Ioannis Kardassopoulos v. Georgia,16 in which the ad hoc
annulment committee held:
30. . . . The simplified and automatic enforcement system of Article 54(1) of the ICSID
Convention should not be conflated with the measures of execution that follow the order
13
Article IVof the New York Convention, however, does not prohibit the contracting forum State to
impose such a pre-condition as part of its own rules of procedures.
14
For instance, Swiss case law requires a “sufficient domestic connection” with Switzerland (known
as “Binnenbeziehung”) before an award can be enforced in Switzerland, and this has recently been
reaffirmed. In A Ltd v. Uzbekistan (Second Civil Law Court, 7 September 2018), the court, in
refusing to enforce a New York Convention award against Uzbekistan, held (1) that the
Binnenbeziehung requirement went to the jurisdiction of the court to recognize and enforce an
award; (2) that the Binnenbeziehung requirement was compatible with New York Convention for it
permits contracting States to enforce awards “in accordance with the rules of procedure of the
territory where the award is relied upon”; (3) that the Binnenbeziehung requirement could be
satisfied if (a) the legal relationship underlying the award was established in Switzerland or to be
fulfilled there; or (b) the award debtor undertook certain positive acts to establish that the award
could be executed in Switzerland; and (c) mere presence of assets in Switzerland or the award being
made in Switzerland would be insufficient.
15
113 ILR 440 (1999), at 445
16
ICSID Case No. ARB/05/18, Decision of the ad hoc Committee on the Stay of Enforcement of the
Award (12 November 2010)
1506 A. Lai
granted by the court or authority designated in accordance with Article 54(2) for enforce-
ment of the award and which are referred to in Article 54(3) providing that ‘[e]xecution of
the award shall be governed by the laws concerning the execution of judgments in force in
the State in whose territories such execution is sought’. . . .
Similarly, in the context of the New York Convention, in Norsk Hydro ASA v. State
Property Fund of Ukraine,17 Gross J. held:
Ss. 100 and following of the [English] Arbitration Act 1996 . . . provide for the recognition
and enforcement of New York Convention Awards. There is an important policy interest,
reflected in this country’s treaty obligations, in ensuring the effective and speedy enforce-
ment of such international arbitration awards; the corollary, however, is that the task of the
enforcing court should be as ‘mechanistic’ as possible. Save in connection with the threshold
requirements for enforcement and the exhaustive grounds on which enforcement of a New
York Convention award may be refused . . ., the enforcing court is neither entitled nor bound
to go behind the award in question, explore the reasoning of the arbitration tribunal or
second-guess its intentions. Additionally, the enforcing court seeks to ensure that an award is
carried out by making available its own domestic law sanctions. . . . Viewed in this light, as a
matter of principle and instinct, an order providing for enforcement of an award must follow
the award.
The “mechanistic” approach adopted by the United Kingdom at the recognition

stage is echoed by the French decision of Benevenuti & Bonfant v. Congo.18 In that
case, the investor obtained an ICSID award in its favor. The court of first instance of
Paris recognized the award but imposed a condition that “[n]o measure of execution,
or even a conservatory measure, shall be taken pursuant to the said award, on any
assets located in France, without the prior authorization of this Court.” The investor
appealed against the condition and contended that the first instance judge had
confused two different stages, namely, that relating to the obtaining of an exequatur
and that relating to actual execution. The Cour d’ appel allowed to the investor’s
appeal and held:
The judge at first instance, acting on a request pursuant to Article 54 of [the ICSID
Convention] could not therefore, without exceeding his competence, become involved in
the second stage, that of execution, to which the question of immunity from execution of
foreign State relates.
It is considered that the Cour d’ appel was correct in holding that the question of
immunity from execution was not engaged at the recognition stage. Similar view was
expressed by the Hong Kong Court of Final Appeal in FG Hemisphere Associates
LLC v. D.R. Congo.19 In that case, D.R. Congo pleaded immunity from suit to resist
the award creditor’s attempt to have the award recognized in the Hong Kong SAR. In
considering the question of waiver, the majority of the Court held:
17
[2002] EWHC 2120 (Comm)
18
Cour d’ appel, Paris, 26 June 1981, 65 ILR 88 (1984)
19
(2011) 14 HKCFAR 95, 147 ILR 376 (2011)
379. . . .It is well-established at common law that a party seeking to enforce an arbitration
award (or a judgment) against a foreign State on the basis of a waiver of state immunity must
establish a waiver at two distinct stages. The impleaded State must have waived both its
jurisdictional immunity from suit in the forum State and the immunity of its property from
execution by the forum State’s process.
...
382. An application for the grant of leave to enforce the award, often referred to as the
‘recognition’ phase of enforcement, therefore involves discretionary adjudicative proceed-
ings in which the impleaded State may claim state immunity.
383. It is furthermore clear, as stated above, that even where the recognition proceedings are
successful, when the applicant subsequently seeks to execute the award (now treated like a
judgment of the court), the impleaded State has a further right to object to execution against
the targeted property on the ground of state immunity. The parties have jointly requested the
Court to focus only on the recognition proceedings, leaving aside questions of execution.
Neither the ICSID Convention nor the New York Convention prescribes the
procedures to be followed after the recognition stage. This is not surprising because
after the investment award has been recognized by the forum State, it remains for
the creditor investor to execute the award in accordance with the domestic rules
of the forum State as if it were a judgment of the forum State. From that point of time
the creditor investor has moved to the execution stage.
Immunity from Suit at the Recognition Stage
As discussed above, the forum State is not to impose any measures of constraint on
the debtor State’s assets at this stage and accordingly the issue of immunity from
execution does not arise. The only issue remains to be considered is whether the
debtor State is entitled to assert immunity from suit at the recognition stage.
Is Immunity Engaged at All?
One view is that State immunity is simply not engaged at all at this stage because the
recognition stage (1) is the tail end (or the “final step”20) of the arbitration itself from
which the impleaded State has waived the immunity, and/or (2) is purely an
administrative (or ministerial) act of the forum State not involving its adjudicative
function.
20
Bernini G., Van den Berg AJ (1987) The enforcement of arbitral awards against a state: the
problem of immunity from execution. In: Lew JDM (ed) Contemporary problems in international
arbitration. Springer, Dordrecht
1508 A. Lai
Neither ground has been held sustainable, at least in common law jurisdictions.
With respect to the first ground, the court in Ex parte Caucasian Trading Corp Ltd21
held:
It [was] argued that the application to enforce the award must be considered as a mere
continuation of the arbitration . . .. I do not think that contention can be sustained. The
application for leave to enforce the award is not a matter which takes place in the arbitration.
It is no more a continuation of the arbitration than an action on the award would be.
The aforesaid legal proposition, albeit pronounced over a century ago, continues
to hold: e.g., the majority decision of the Hong Kong Court of Appeal in the FG
Hemisphere case.22 In fact, when one considers Article 17 of the USCSI and Article
12 of the European Convention on State Immunity 1972 (“ECSI”), one would agree
that the removal of immunity by such provisions only “[covers] the adjudication
stage of arbitration but stop short of enforcement of the arbitral award.”23 Indeed,
Lady Fox QC’s review of the practices of various jurisdictions led her to the
following conclusion:
It can now be stated with reasonable certainty . . . that international law limits the scope of
jurisdictional immunities of a State Party to an international commercial arbitration in the
first stage of adjudication and permits national courts to exercise a supervisory jurisdiction in
support of the arbitration agreement and the arbitral proceedings. As to the removal of State
immunity when the arbitral award is sought to be enforced in a national court, the differing
requirements which have to be met in national legislation indicate that there is no generally
accepted rule sufficient to constitute a customary international rule permitting measures of
constraint without express consent where only an exception to immunity for an arbitration
exception applies.24
With respect to the second ground, it was rejected in AIC Ltd. v. Federal
Government of Nigeria25 (concerning registering a Nigeria judgment in the court
of the UK). Stanley Burnton J. held:
21
[1896] 1 QB 368
22
[2010] 2 HKLRD 66, paras 176–177. The decision of the Hong Kong Court of Appeal was
reversed by the Hong Kong Court of Final Appeal: see (2011) 14 HKCFAR 95, 147 ILR 376 (2011)
and (2011) 14 HKCFAR 395, 150 ILR 684 (2011) on different grounds (namely the Hong Kong
SAR could not as a matter of legal and constitutional principle adhere to a doctrine of State
immunity different from that adopted by China).
23
Fox H. The law of state immunity, Revised and Updated 3rd edn, at 395; also ILC’s Report, at 55
(supra, note 8)
24
Id., at 397
25
[2003] EWHC 1357, 129 ILR 571 (2007), at paras 19–21. The conclusion was approved first by
the Court of Appeal in Svenska Petroleum Exploration AB v. Lithuania (No 2) [2007] QB 886 (at
para 137) and later by the Supreme Court (by majority) in NML Capital Ltd v. Argentina [2011] 2
AC 495, 147 ILR 575 (2011)
The fact that an act does not involve the exercise of judgment by the court does not mean that
it is not the exercise of jurisdiction. The issue of a claim form may be said to be an
administrative act; it is nonetheless an exercise of jurisdiction. . . .
The provisions of section 9 of the 1920 Act are essentially procedural. The Act created a
less costly and more efficient means of enforcing a judgment of a superior court of a part of
Her Majesty’s dominions outside the United Kingdom than a common law action on such a
judgment and the registration of a judgment have the same consequence: they bring into
existence of a judgment of the High Court which may be the subject of process of execution
in this country. The registration of a judgment under the 1920 Act on an application made
without notice is at least as much an exercise of jurisdiction as the entering of a judgment in
default of, say, the filing of an acknowledgement of service by a defendant. The entry of such
a judgment might also be described as a non-adjudicative act.
In any event, however, it is clear that the registration of a judgment under the 1920 Act is
an adjudicative act. Section 9 of that Act confers a discretion on the court to order a judgment
to be registered not a duty . . .
While the Master will normally order the registration of a judgment if the application for
its registration . . . appears to be regular, he must nonetheless apply his judgment to the
application and the written evidence in support in order to determine whether the require-
ments of the Act have been satisfied, and that it is just and convenient for the foreign
judgment . . . to be enforced in this country. The fact that the application is made without
notice does not mean that the court does not adjudicate on it . . .
Although the AIC case was in the context of registering a foreign judgment, its
reasoning was adopted by the Hong Kong Court of Appeal in the FG Hemisphere
case, in which the majority of the Court held:
I do not agree that the grant of leave [to enforce a foreign arbitral award] is, or is in the nature
of a ministerial act. True it is that s.44 of the Arbitration Ordinance provides that enforce-
ment of a [New York Convention] award shall not be refused except in the cases mentioned
in the section – for example, where a party to the arbitration agreement was under some
incapacity – but not only does the court necessarily exercise its jurisdiction when it grants or
refuse leave, but it also embarks upon an adjudicative function. The fact that the application
for leave is prescribed to be made ex parte is not to the point, for the applicant is not thereby
relieved of his obligation to disclose possible defences and it is open to the party against
whom the award was made to seek to set aside leave, if granted. . . ..26
Similar view was expressed by the ICJ in the Jurisdictional Immunities Case:
The Court will then explain how it views the issue of jurisdictional immunity in relation to a
judgment which rules not on the merits of a claim brought against a foreign State, but on an
application to have a judgment rendered by a foreign court against a third State declared
enforceable on the territory of the State of the court where that application is brought (a
request for exequatur). The difficulty arises from the fact that, in such cases, the court is not
being asked to give judgment directly against a foreign State invoking jurisdictional
immunity, but to enforce a decision already rendered by a court of another State, which is
deemed to have itself examined and applied the rules governing the jurisdictional immunity
of the respondent State.
26
Supra, note 22, at para 174
1510 A. Lai
. . . The relevant question, from the Court’s point of view and for the purposes of the
present case, is whether the Italian courts did themselves respect Germany’s immunity from
jurisdiction in allowing the application for exequatur. . ..
Where a court is seized, as in the present case, of an application for exequatur of a foreign
judgment against a third State, it is itself being called upon to exercise its jurisdiction in
respect of the third State in question. It is true that the purpose of exequatur proceedings is
not to decide on the merits of a dispute, but simply to render an existing judgment
enforceable on the territory of a State other than that of the court which ruled on the merits.
It is thus not the role of the exequatur court to re-examine in all its aspects the substance of
the case which has been decided. The fact nonetheless remains that, in granting or refusing
exequatur, the court exercises a jurisdictional power which results in the foreign judgment
being given effects corresponding to those of a judgment rendered on the merits in the
requested State. The proceedings brought before that court must therefore be regarded as
being conducted against the third State which was the subject of the foreign judgment.27
The reasoning of AIC, FG Hemisphere and the Jurisdictional Immunities Case

has force in the context of recognizing a New York Convention award for the forum
State, under the New York Convention, has a discretion to decline recognizing the
award if one or more of the “Article V” grounds is made out, and such process
invokes the adjudicative power of the forum State. However, this reasoning is
weaker vis-à-vis recognition of an ICSID award for the forum Court, under Article
54(1), has no discretion similar to that under the New York Convention not to
recognize an ICSID award.28 In that confined context, it may be argued that State
immunity from suit has no place at the recognition stage. However, the better view,
the author considers, is that Article 54(1) should be read together with Article 53(1),
pursuant to which the debtor State waives its immunity from suit and thereby
allowing the forum State to recognize an ICSID award without attracting legal
liability for not affording the defendant State immunity.
It is considered that the better view is to approach the recognition stage on the
basis that immunity from suit is engaged, subject to exceptions recognized by the
forum State.
Waiver
Article 7(1) of UNCSI provides three ways for a defendant State to waive immunity
from suit, namely, by international agreement, contractual waiver, and/or submis-
sions to jurisdiction of the court of the forum State.
Waiver by International Agreement

Article 7(1)(a) of UNCSI allows a State to waive its immunity from suit in advance
by way of an international agreement.
27
Supra, note 4, paras 126–128, see also paras 129–130
28
Albeit such proceedings are still regarded as proceedings having been instituted against the debtor
State by reason of that State being named as a party thereto: see Article 6(2) of the UNCSI
Article 53(1) of the ICSID Convention imposes an obligation on the contracting

debtor State to comply with the terms of the award and Article 54(1) imposes an
obligation on the contracting forum State to recognize the award. Both Articles,
taken together, provide a forceful argument that a debtor State has waived its
immunity from suit at the recognition stage, and such wavier could be relied upon
by the court of the contracting forum State29: pacta sunt servanda.30 This argument
is reinforced by the resounding silence of Article 55 with respect to immunity from
suit.
On the other hand, the above argument does not apply if the award concerned is
sought to be recognized in a non-ICSID State. It is because a non-ICSID State, not
being privy to the ICSID Convention, is precluded from the benefit or advantage to
be derived from the debtor State’s obligation made under Article 53(1) – which is the
basis upon which waiver is said to have been made. Further, as discussed below, no
waiver can be implied from the debtor State being a party to the New York
Convention, which only imposes an obligation on the contracting forum State to
recognize a Convention award (subject to Article V thereof) but is silent with respect
to legal duties owed by the defendant State (award debtor) to the investor (award
creditor). The fact that the debtor State happened to be a contracting party to the New
York Convention does not take the creditor investor’s case further for one cannot
logically infer an international legal duty to comply with the award from a treaty
obligation to recognize an award in its own jurisdiction.
Contractual Waiver
Article 7(1)(b) of UNCSI provides that immunity from suit can be waived in advance
by contract and this method is said to be “[a]n easy and indisputable proof of
consent.”31 Contractual waiver of immunity is widely accepted: e.g., s.2(2) of
UKSIA. In Bayerisher Rundfunk v. Schiavetti Magnani,32 the Italian Corte di
Cassazione held that by reason of the fact that the defendant (allegedly acting on
behalf of Germany) concluding the contract which declared that “they willingly and
clearly accepted the jurisdiction of the Italian courts . . .,” the defendant was not
entitled to invoke immunity. Also, in Atwood Turnkey Drilling Inc. v. Petroleo
Brasileiro,33 the US Court of Appeal (5th Circuit) found that the State agent, by
having concluded the contract which provided that it “expressly and irrevocably
29
ILC Report, supra, note 8, at 27. Also: Delaume GR (1987) Sovereign immunity and transna-
tional arbitration. In: Lew JDM (ed) Contemporary problems in international arbitration. Springer,
Dordrecht, p 316
30
Article 26 of the Vienna Convention on the Law of Treaties 1969
31
ILC Report, supra, note 8, at 27
32
Italian Corte di Cassazione, 12 January 1987; 87 ILR 38 (1992)
33
875 F.2d 1174 (5th Cir. 1989). The relevant provision reads: “The Borrower . . . expressly and
irrevocably waives any such right of immunity (including any immunity from the jurisdiction of any
court or from any execution of attachment in aid of execution prior to judgment or otherwise) or
claim thereto which may now or hereafter exist, and agrees not to assert any such right or claim in
any such action or proceeding, whether in the United States or otherwise.”
1512 A. Lai
waives any such right of immunity (including any immunity from the jurisdiction of
any court or from any execution of attachment in aid of execution prior to judgment
or otherwise) . . . agrees not to assert any such right or claim in any such action or
proceeding” had waived the immunity.
However, the notion of contractual waiver is at odds with the traditional common
law view that waiver can only be made at the time the national court’s jurisdiction is
invoked and cannot be made in advance. It is because the issue of State immunity
does not arise until the forum State is asked to exercise jurisdiction over the foreign
State, and there is nothing for the foreign State to waive unless and until the forum
State’s jurisdiction is invoked. Viscount Finlay in Duff Development Co Ltd v.
Government of Kelantan held:
To the arbitration the Government of Kelantan had no objection; they attended the pro-
ceedings throughout. It was only when it was proposed to take a step which involved the
right to execution against the Government that there was any occasion to raise the objection
of sovereignty.34
The traditional common law position has been confirmed in a more recent case of
A Co Ltd. v. Republic of X, in which Saville J. held:
. . . on the authorities no mere inter partes agreement could bind the State to such a waiver,
but only an undertaking or consent given to the Court itself at the time when the Court is
asked to exercise jurisdiction over or in respect of the subject matter of the immunities. . ..35
The above proposition is also made by Dicey:
At common law, sovereign immunity could be waived by or on behalf of the foreign State,
but waiver had to have taken place at the time the court was asked to exercise jurisdiction and
could not be constituted by, or inferred from, a prior contract to submit to the jurisdiction of
the court or to arbitration. The [1978] Act, however, has made a far-reaching and beneficial
change. . ..36
Also, in the FG Hemisphere case, the Court of Final Appeal held that the
arbitration agreement was “plainly insufficient” to be the basis “for finding that the
[D.R. Congo] has waived its state immunity before the Hong Kong SAR courts,
either in respect of recognition or execution of the arbitral awards”37:
We are, with respect, not persuaded that such a change would be wise or desirable. Whether
or not a particular State accepts a commercial exception, the rationale of state immunity
remains the par in parem principle. Mutual recognition as co-equal sovereign States leads
each State to refrain from exercising jurisdiction over the foreign State concerned without the
34
[1924] AC 797 (HL), at 819
35
[1990] 2 Lloyd’s R 520, at 524
36
Dicey, Morris, Collins. The conflict of laws, 15th edn, vol I, at para 10-028
37
latter’s consent. Questions of waiver only arise where the impleaded State does qualify for
jurisdictional immunity in the forum State, or else there is nothing to waive. In such
circumstances, the common law rule as to waiver is consonant with elementary good sense
by requiring an unequivocal submission to the jurisdiction of the forum State at the time when
the forum State’s jurisdiction is invoked against the impleaded State. Courts would be ill-
advised to attempt to deem an impleaded State to have submitted to their jurisdiction when it
has not done so explicitly by its words or conduct and where its objection to such jurisdiction is
made clear in the recognition proceedings. Such a course is likely to be damaging to the
relations between the two States and may very well be ineffectual in any event.38
The above strict common law approach is not free from attack. In NML Capital
Ltd. v. Argentina,39 Lord Collins of the UK Supreme Court observed:
As Dr F A Mann said, ‘the proposition that a waiver or submission had to be declared in the
face of the court was a peculiar (and unjustifiable) rule of English law: (1991) 107 LQR 362,
364. In a classic article (Cohn, Waiver of Immunity (1958) 34 BYIL 260) Dr E J Cohn
showed that from the 19th century civil law countries had accepted that sovereign immunity
could be waived by a contractual provision, and that the speeches in Duff Development on
the point were obiter (and did not constitute a majority) and that both Duff Development and
Kahan v Pakistan Federation had overlooked the fact that submission in the face of the court
was not the only form of valid submission since the introduction in 1920 in RSC Ord 11, r
2A (reversing the effect of British Wagon Co Ltd v Gray [1896] 1 QB 35) of a rule that the
English court would have jurisdiction to entertain an action where there was a contractual
submission. In particular, in Duff Development Lord Sumner had overlooked the fact that
British Wagon Co v Gray was no longer good law.
The principle enunciated in Kahan v. Federation of Pakistan was reversed by section 2
(2) of the 1978 Act, which provided that a State could submit to the jurisdiction ‘by a prior
written agreement.’ This is consistent with international practice . . .
Lord Collins’ observation certainly has force and his view is said to be the
“correct version of the common law rule.”40 Common law is not treated as fossilized
in its own time, and customary international law, which governs the law of State
immunity including waiver, can and should shape the common law whenever it can
do so consistently with domestic constitutional principles, statutes, and common law
rules.41 Contractual waiver, which itself is permitted under Article 7(1)(b) of
UNCSI, does not offend any constitutional principles and acceptance of it is
consonant with justice.
A contractual waiver has to be unequivocal. For instance, in both Atwood and
NML Capital, the defendant States concerned have in their respective contracts
waived State immunities in clear terms.
38
Id. at para 392
39
[2011] 2 AC 495 (SC) at paras 125–126, 147 ILR 575 (2011). See also Pearl Petroleum Co Ltd v.
Kurdistan Regional Government of Iraq (Dubai International Financial Centre Courts, 20 August
2017, ARB 003/2017), at paras 29–30
40
FOX, supra, note 23, at 379–380
41
Keyu v. Secretary of State for Foreign and Commonwealth Affairs [2016] AC 1355 (SC), per Lord
Mance at para 150
1514 A. Lai
A frequently raised question is whether an agreement to arbitrate per se gives rise

to a waiver of immunity in recognition proceedings. Many eminent scholars have
advocated affirmatively,42 and Professor Bachand even intimates that this has
become a “general rule of international law.”43
Canada’s practice supports the above proposition. In TMR Energy Ltd. v. State
Property Fund of Ukraine,44 the court, in obiter, took the view (also in the light of
Ukraine’s concession) that an agreement to arbitrate constituted an implied waiver of
immunity at the recognition proceedings:
Indeed, building on to the arbitrator’s reasons, by the mere fact that a state entity should have
entered into an arbitration agreement providing for arbitration in a country signatory to the
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards
of 1958, without reserving its right to jurisdictional immunity, it must be taken to have
known and accepted that any resulting award could be subject to recognition and enforce-
ment by judicial process, and thus, have waived jurisdictional immunity in relation to the
recognition of the award. Counsel for the State of Ukraine at any rate conceded at the hearing
that if the State of Ukraine itself had executed the 1999 Constituent Contract with its
arbitration clause, it would indeed be taken to have waived jurisdictional immunity in
subsequent recognition proceedings.
France takes a similar view. In Yugoslavia v. Société Européenne et

d’Entreprises,45 (“Yugoslavia v. SEEE”) the court held:
By the very fact of becoming a party to an arbitration clause the Yugoslav State agreed to
waive its immunity from jurisdiction with regard to arbitrators and their award up to and
including the proceeding for granting an exequatur which was necessary for the award to
acquire full force.
The above position was reaffirmed by the French Cour de cassation in SOABI v.
Senegal (supra),46 which held “that a foreign State which has submitted to arbitral
jurisdiction has thereby accepted that the award may be made the subject of an
exequatur which does not itself constitute of act of execution . . .”
USA’ case law has been somewhat inconsistent. In Ipitrade International v.
Nigeria,47 the court held that “. . . an agreement to arbitrate or to submit to the
laws of another country constitutes an implicit waiver . . . [which] cannot be revoked
by a unilateral withdrawal.” However, Ipitrade was not adopted by the US Court of
42
Bachand F (2009) Overcoming immunity-based objections to the recognition and enforcement in
Canada of investor-state awards. J Int Arbitr 26(1):67; Delaume GR, id. at 315; Toope (1990) Mixed
international arbitration: studies in arbitration between states and private persons. pp 146–150
43
Bachand, supra note 42, at 69. Fox, however, suggests otherwise: supra note 24.
44
2003 FC 1517, at para 65
45
Decision of 6 July 1970, Trib. gr. inst. Paris, 65 ILR 46 (1984)
46
Supra, note 15, at 445
47
(US District Court for the District of Columbia) 465 F Supp 824 (1978), (1978) 17 ILM 1395
Appeal for the District of Columbia in in Creighton v. Qatar.48 There, the award
creditor attempted to enforce an ICC award against Qatar (not a signatory to the New
York Convention), which had agreed to arbitrate the dispute in France (a signatory to
the Convention). The court, having rejected a broad reading of “implied waiver”
exception, distinguished Ipitrade and refused to find that Qatar had implied waived
its immunity:
Creighton seeks support in three cases in which the court found an implied waiver where a
foreign government had agreed (like Qatar) to arbitrate in the territory of a state that had
signed the New York Convention. See Seetransport . . .; M.B.L. Int’l Contractors v. Republic
of Trinidad Tobago . . .; Ipitrade Int’l S.A. v. Federal Republic of Nigeria . . .. In each of these
cases, however, the defendant sovereign was (unlike Qatar) a signatory to the Convention. In
Seetransport the Second Circuit reasoned, correctly we think, that ‘when a country becomes
a signatory to the Convention, by the very provisions of the Convention, the signatory state
must have contemplated enforcement actions in other signatory states.’
Qatar not having signed the Convention, we do not think that its agreement to arbitrate in
a signatory country, without more, demonstrates the requisite intent to waive its sovereign
immunity in the United States. As Creighton directs us to no other evidence of such an intent,
we hold that §1605(a)(1) does not confer subject matter jurisdiction upon the district court.
It is to be recalled that the duty of the forum State to afford immunity to another
State is a duty as a matter of international law. The duty of the debtor State to satisfy
the award, which is a separate duty owed not to the forum State but the award
creditor (or to the State of nationality of the creditor), without more cannot be
interpreted as an unequivocal act of the debtor State to absolve the forum State
from the international legal duty.49 On this, it is noted that the majority of the Hong
Kong Court of Appeal in the FG Hemisphere case expressed the following:
In my judgment, the logic underlying the decision [of Creighton] is cogent and has been said
to be ‘consistent with Crawford’s view that international agreements cannot be interpreted as
waiving immunity of a State which is not a party to the international agreement “since it
would violate the pacta tertiis rule”, a rule reflected in art. 34 of the Vienna Convention:
‘A treaty does not create either obligations or rights for a third State without its consent.’
The rationale for the decision, as well as my unease with the decisions to the contrary by
the Court of Cassation in Creighton . . . find their root in the principle underlying Duff and
Mighell, namely, that since equals do not have authority over each other, consent for the
exercise of such authority must be unequivocal and communicated by one to the other, from
which it follows that, absent legislative permission to imply permission that is not directly
communicated, a refusal to consent may well . . . constitute a breach of agreement between
the foreign State and the claimant but the agreement itself does not, without more, confer
jurisdiction upon the forum court. It is different if the foreign State is party to an international
48
181 F 3d 118 (DC Cir 1999)
49
See also the observation of the Supreme Court of the Netherlands in N.N. v. The State of The
Netherlands (14 October 2016, ECLI:NL:HR:2016:2371, 15/01944) that the forum State’s respon-
sibility lies primarily with its international law duty to afford immunity to the debtor State, not with
the satisfaction of the award.
1516 A. Lai
agreement to which the forum State is also a party, by the terms of which State parties
undertake to enforce awards: in such circumstances each State party that enters upon that
international agreement clearly says to each other State party: ‘We hereby expressly repre-
sent to you, and to all other States that are party to this arrangement, that you may enforce
such award as is made against us and as is covered by this international agreement.’ It cannot
in my judgment be said that by entering upon an ICC arbitration agreement with a private
party, a foreign State that is not a party to the New York Convention is going beyond the
making of a representation to the private party and is making a representation to each
Convention State that it consents to the enforcement against it in the Convention State of
such arbitral award as may be made. It seems to me that jurisdiction in the forum State can, in
such circumstances, only be conferred by legislation or by an express representation by the
foreign State to the forum State.50
The proposition held by scholars that an arbitration clause gives rise to a waiver,
at best, is lex ferdenda. Neither there is sufficient opinio juris nor sufficient State
practice to make it a customary international law, and this is evidenced by the waiver
under Article 17 of UNCSI “stop short of enforcement of the arbitral award.”51 In
fact, on balance, the conclusions of Creighton and FG Hemisphere are more
convincing and avoid stretching the arbitration clause to the breaking point.52
Instead of construing the arbitration agreement in the context of “waiver,” many
jurisdictions have by legislation created the “arbitration” exception, by which the
debtor State is not entitled to assert immunity by reason of its agreement to arbitrate.
For instance, s.9(1) of UKSIA provides:
Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to
arbitration, the State is not immune as respects proceedings in the courts of the United
Kingdom which relate to the arbitration.
And s.1605(a)(6) USFSIA provides:
A foreign state shall not be immune from the jurisdictions of the courts of the United States
or of the States in any case – . . .
in which the action is brought, . . . to confirm an award made pursuant to such an
agreement to arbitrate, if (A) the arbitration takes place or is intended to take place in the
United States, (B) the agreement or award is or may be governed by a treaty or other
international agreement in force for the United States calling for the recognition and
50
At paras 170–171. See also the judgment of the Hong Kong Court of First Instance on this issue
by Reyes J. [2009] 1 HKLRD 410, at para 116
51
Supra, note 23
52
Creighton and FG Hemisphere seem to be suggesting that the New York Convention is capable of
giving rise to a waiver where there is a trio of (a) a contracting State in which the award is made, (b)
the debtor State being a contracting State, and (c) the forum State also being a contracting State.
However, this suggestion, with respect, conflates a contracting State’s international legal duty as the
forum State to enforce an award with its civil legal duty as the award debtor to comply with the
award. The US Court of Appeal’s “contemplation” logic equally applies to a non-contracting State
(like Qatar) which knowingly agreed to arbitrate in the territory of a contracting State. The better
view, the author considers, is that the New York Convention does not give rise to a waiver of
immunity.
enforcement of arbitral awards, (C) the underlying claim, save for the agreement to arbitrate,
could have been brought in a United States court under this section or section 1607, or (D)
paragraph (1) of this subsection is otherwise applicable.
Similar statutory exceptions can be found in some other jurisdictions: e.g.

Australia,53 and Singapore.54
This exception has to be distinguished from that created by Article 17 of UNCSI,
the extent of which only “[covers] the adjudication stage of arbitration but stop short
of enforcement of the arbitral award.”55
In the context of investment arbitration, the arbitration clause contained in an
investment treaty is considered to have satisfied the written arbitration agreement
requirement, albeit the treaty is concluded between States: e.g., PAO Tatneft v.
Ukraine.56 It has also been held that the scope of the statutory exception to State
immunity is wide enough to cover recognition proceedings: Svenska Petroleum
Exploration AB v. Lithuania (No 2).57
The “Commercial” Exception
Article 10(1) of UNCSI provides for the “commercial” exception pursuant to which
a State cannot invoke immunity from suit in a proceeding arising out of a commer-
cial transaction, subject to exceptions created in Article 10(2).
Similar exceptions can be found in many national legislation. For instance,
UK: “A State is not immune as respects proceedings relating to . . . a commercial

transaction entered into by the State . . .”: s.3(1)(a) of UKSIA.
Canada: “A foreign state is not immune from the jurisdiction of a court in any
proceedings that relate to any commercial activity of the foreign state.”: s.5 of the
Canada State Immunity Act (“CSIA”).
Australia: “A foreign State is not immune in a proceeding in so far as the proceeding
concerns a commercial transaction.”: s.11 of the Australian Foreign State Immu-
nities Act (“AFSIA”).
An important question to be considered is whether in considering the applicability

of the “commercial” exception, the forum court should direct itself to the subject
matter of the recognition proceedings (i.e., the award) or the source of the legal
relationship which has given rise to the award (i.e., the transaction giving rise to the
dispute for arbitration).
53
Section 17(2) of the Australian Foreign States Immunities Act 1985
54
Section 11 of the Singapore State Immunity Act 1979
55
Supra, note 23
56
[2018] EWHC 1797 (Comm), at paras 25–27
57
[2007] QB 886, at para 117
1518 A. Lai
Common law jurisdictions, while having similarly drafted statutory “commer-

cial” exceptions, do not speak with one voice.
In Canada, the courts tend to proceed on the basis that it is the source of the legal
relationship, rather than the award itself, that should be considered in deciding
whether to withhold immunity under the “commercial” exception58: e.g., TMR
Energy v. Ukraine (in obiter),59 Collavino Inc v. Yemen (Tihama Development
Authority),60 and Kuwait Airways Corp v. Iraq.61
In the Hong Kong SAR (where State immunity is governed by common law),
despite arguments on this issue were laid before the Hong Kong Court of Appeal in
the FG Hemisphere case, the court decided to adopt the source of legal relationship
as the point of reference (if restrictive immunity were to be applied) by reason of D.
R. Congo’s own concession.62
Australia has sided with Canada. The High Court of Australia in Firebird Global
Master Fund II Ltd. v. Nauru63 had the benefit of the Jurisdictional Immunities Case
and the NML Capital Ltd. Case and held that “the fact that such a proceeding might
also be described as one which concerns the registration of a foreign judgment does
not detract from the semasiological propriety of describing it as a proceeding which
concerns a commercial transaction” and that by reference to the ICJ’s decision the
Court should consider the underlying transaction itself (i.e., “the case in which that
judgment was given”).
UK has taken the opposite position. The courts have consistently construed that
the statutory “commercial” exception64 did not include recognition proceedings: see
AIC Ltd v. Nigeria, Svenska Petroleum Exploration AB v. Lithuania (No 2), and NML
Capital case.65
One may think that UK prefers the narrow interpretation of the “commercial”
exception because award recognition proceedings have already covered under the
“arbitration” exception, while that “arbitration” exception does not exist at common
law or in CSIA. However, Lord Phillips, Lord Collins, and Lord Clark in NML
Capital rejected it being a ground of preferring a narrow interpretation of the
“commercial” exception. In fact, Australia, of which AFSIA has provided for the
“arbitration” exception, also preferred the broad interpretation.
Despite the conflicting views of the common law jurisdictions, the ICJ prefers the
position adopted by Canada. In the Jurisdictional Immunities Case, the ICJ having
58
S.5 of the Canadian State Immunity Act provides: “A foreign state is not immune from the
jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.”
59
Supra, note 44, para 64
60
(2007) ABQB 212, paras 130–135
61
[2010] 2 SCR 571, para 33
62
Supra, note 22 (para 268)
63
[2015] HCA 43
64
S.3(1)(a) of the UKSIA provides: “A state is not immune as respects proceedings relating to (a) a
commercial transaction entered into by the state . . .”
65
Supra, notes 25, 57, and 39 (by majority).
concluded that the exequatur proceedings are proceedings instituted by the forum
State against the defendant State explained:
It follows . . . that the court seised of an application for exequatur of a foreign judgment
rendered against a third State has to ask itself whether the respondent State enjoys immunity
from jurisdiction — having regard to the nature of the case in which that judgment was given
— before the courts of the State in which exequatur proceedings have been instituted. In
other words, it has to ask itself whether, in the event that it had itself been seised of the merits
of a dispute identical to that which was the subject of the foreign judgment, it would have
been obliged under international law to accord immunity to the respondent State (see to this
effect the judgment of the Supreme Court of Canada in Kuwait Airways Corp. v. Iraq . . .),
and the judgment of the United Kingdom Supreme Court in NML Capital Limited v.
Republic of Argentina . . ..66
In practical terms, the conflicting views may not matter much for a creditor
investor certainly will rely on all possible exceptions allowed under the laws of
the forum State to resist the debtor State’s plea of immunity from suit at the
recognition stage.
Assuming the forum court has decided to look behind the award, the next
question is whether the underlying transaction falls within the “commercial” excep-
tion. The “purpose” test initially adopted by States in the earliest cases has proved to
be over-inclusive in relation to economic activities of the State and attracted criti-
cism.67 On the other hand, the “nature” test, originated back in 1920s in Switzerland
and followed by a few continental European States, started gaining floor and has
become the prevailing test: e.g., s.1603(d) of USFSIA. The UK adopts the “contex-
tual” approach in which the court “must consider the whole context in which the
claim against the State is made”: I Congreso del Partiodo68; Holland v. Lampen-
Wolfe.69 Article 2(2) of UNCSI, which seems to be a compromise reached, has
provided for the “two-pronged” approach, namely, the “nature” test and the “pur-
pose” test to be applied successively. Hence, if the transaction appears to be
commercial under the “nature” test, it is open to the defendant State to contest this
finding by reference to the purpose of the transaction if in its practice, that purpose is
relevant to determining the non-commercial character of the transaction.70
States adhering to the absolutist approach generally do not admit the “commer-
cial” exception to State immunity. For instance, in the FG Hemisphere case, the
Hong Kong Court of Final Appeal, in the light of China’s absolutist approach,
dismissed the award creditor’s application to have the recognized in Hong Kong.71
66
Supra, note 4, at para 130. It is unclear to which part of the UK Supreme Court’s judgment in NML
Capital Ltd. v. Argentina the ICJ referred when the majority of the court held that the statutory
“commercial” exception did not apply.
67
FOX, supra, note 23, at 410
68
[1983] 1 AC 244; 64 ILR 307 (1983)
69
[2000] 1 WLR 1573, at 1580
70
ILC Report (supra, note 8, at 20)
71
(2011) 14 HKCFAR 395
1520 A. Lai
That said, it does not logically follow that an award creditor can never have the
award recognized against the debtor State in an “absolutist” jurisdiction. After all,
even the “absolutist” jurisdictions allow immunity to be waived, and there are, as
discussed above, respectable arguments in favor of treaty and/or contractual waiver
in the context of enforcing an investment award under the ICSID Convention or the
New York Convention.
Summary
The States’ practice suggests that forum States are more and more inclined to
withhold immunity from suit at the recognition stage vis-à-vis the debtor State,
whether by way of statutes or waiver. In jurisdictions where the law on State
immunity has been codified, the creditor investors generally can rely on one or
more statutory exceptions to resist the debtor State’s assertion of immunity. Absent
such exceptions (including States practicing “absolute” immunity), waiver becomes
the only argument which a creditor investor relies on. From an investor’s perspec-
tive, perhaps the best it can do to protect the position is to insert an unambiguous
waiver clause in the concession concluded with the host State.
Immunity from Execution at the Execution Stage
Immunity from Execution as Distinct from Immunity from Suit
As discussed above, States’ practice generally treats execution as a separate stage at

which the debtor State may claim immunity, irrespective whether the State
concerned has claimed, or successfully claimed, immunity from suit at the recogni-
tion stage. Part IV of the UNCSI specifically deals with State immunity from
execution. The legal justification of treating the two types of immunities distinct
and separate is succinctly encapsulated by the German Federal Constitutional Court
in Philippine Embassy Bank Account Case:
. . . It does not follow, simply because general customary international law embodies a
minimum obligation in the case of trial proceedings, namely the granting of immunity in
respect of acts iure imperii; that it also demands only relative immunity in the case of
execution, since preventive measures and measures of forced execution generally have a
much more direct or drastic impact on the exercise of sovereignty by the foreign State than
do judicial judgments. It is therefore necessary to consider separately whether and to what
extent general rules of international law preclude forced execution.72
Unsurprisingly, the above proposition is only a general one and States’ practices
are not necessarily consistent throughout the recent history: e.g., Belgian court in
72
German Federal Constitutional Court, 14 December 1977, 65 ILR 146 (1984), at 166
SOCOBEL v. Greece73 (“Le pouvoir d’ exécution est la consequence du pouvoir de

jurisdiction”). Switzerland is a well-known instance of not drawing a distinction
between two immunities. In Kingdom of Greece v. Julius Bär & Co, the Swiss
Federal Court held:
. . . [the appellant] raises the question whether a distinction should not be drawn between
the exercise of jurisdiction and measures of execution, and whether an absolute immunity
should not be accorded to foreign States in respect of measures of execution. This question
must be answered in the negative . . . As soon as one admits that in certain cases a foreign
State may be a party before Swiss court to an action designed to determine its rights and
obligations under a legal relationship in which it had become concerned, one must admit
also that that foreign State may in Switzerland be subjected to measures intended to ensure
the forced execution of a judgment against it. If that were not so, the judgment would lack
its most essential attribute, namely, that it will be executed even against the will of a party
against which it is rendered. It would become a mere legal opinion. Moreover, while its
effect would be less directly felt than those of measures of execution, such an opinion
would also affect the sovereignty of the foreign States. If, therefore, measures of execution
against a foreign State were prohibited in order to safeguard its sovereignty, logically the
exercise of jurisdiction would likewise have to be prohibited. That would be contrary to
current practice. . . .
. . . Article 5 of the Resolution adopted by the Institute of International Law on April 30,
1954, prohibits the attachment of or measures of execution against the assets of foreign
States only if these assets are used in the exercise of a governmental activity which has no
relation to any commercial transaction. There is thus no reason to modify the case law of the
Federal Tribunal in so far as it treats immunity from jurisdiction and immunity from
execution on a similar footing.74
While there is a tension between the two conflicting lines of jurisprudence, such a
conflict is perhaps of less importance from a practical point of view for even the
Swiss approach recognizes that assets of the foreign States designated for sovereign
purpose are immune from execution. The Swiss court in United Arab Republic v.
Mrs X75 held:
When a State possesses funds in another State and allocates those funds for its diplomatic
service or for another mission incumbent upon it in its own capacity as a public power it may
oppose the subjection of such funds to attachment. In such circumstances the funds are in
actual fact designed for the performance of acts of sovereignty. Like such acts, the funds are
protected by immunity from jurisdiction and consequently by immunity from enforcement.
Immunity from execution, of course, admits exceptions. The ICJ in the Jurisdic-
tional Immunities Case observed:
. . . it suffices for the Court to find that there is at least one condition that has to be satisfied
before any measure of constraint may be taken against property belonging to a foreign State:
73
Supra, fn. 6
74
Supra, note 7, at 198–199
75
Federal Tribunal of Switzerland, 10 February 1960, 65 ILR 385 (1984) at 391)
1522 A. Lai
that the property in question must be in use for an activity not pursuing government non-
commercial purposes [the “commercial property” exception], or that the State which owns
the property has expressly consented to the taking of a measure of constraint [i.e. the
“waiver” exception”], or that that State has allocated the property in question for the
satisfaction of a judicial claim [i.e. the “earmarked property” exception]. . .76
The “Waiver” Exception
Like immunity from suit, a debtor State may waive immunity from execution with
respect to its property located in the forum State. In fact, Articles 18(a) and 19(a) of
UNCSI can be broadly categorized as waivers, whether such waivers are made prior
to, or after, commencement of execution proceedings before the forum State.
Waiver by International Agreement

Although Articles 18(a)(i) and 19(a)(i) provide that a State may waive its immunity
from execution by its express consent made by an international agreement, such
provision cannot be invoked against a debtor State with respect to an ICSID award
due to express exclusion of such implied waiver by Article 55 of the ICSID
Convention. For the reasons discussed in the context of immunity from suit, this
argument is even weaker in the context of the New York Convention.
Contractual Waiver
Articles 18(a)(ii) and 19(a)(ii) of UNCSI permit contractual waiver.
A question frequently comes up is whether the debtor State’s agreement to
arbitrate constitutes a waiver from execution.
In Canada, in Collavino Inc v. Yemen, the Court quite adamantly took the view
that the State organ must have waived the immunity from execution by agreeing to
arbitrate:
. . . I have no doubt that the TDA [i.e. the State organ] waived immunity for enforcement
purposes pursuant to s.12 of the State Immunity Act [concerning immunity from execution].
It did so by agreeing to international commercial arbitration. Otherwise, the effect of an
Award could be thwarted by successfully claiming state immunity in jurisdictions where the
TDA has exigible assets.77
Similar view was expressed by the US Court of Appeal (5th Circuit) in Walker
International Holdings Ltd. v. Congo.78
It is also interesting to note the change of stance of the French courts. In
Yugoslavia v. SEEE, the court of Paris held:
76
77
Supra, note 60, para 139
78
(2004) 395 F 3d 229
Waiver of jurisdictional immunity did not in any way imply waiver of immunity from
execution. The order granting an exequatur for the award did not, however, constitute a
measure of execution but merely a preliminary measure prior to measures of execution. The
pronouncement of such a measure, affirming the validity of the award for all purposes,
constituted merely the necessary sequel of the award and did not violate in any way the
immunity from execution enjoyed by the Yugoslav State.79
This orthodox stance, however, was reversed by the Cour de cassation in

Creighton v. Qatar,80 in which the Court upheld the order to seize the State of
Qatar’s assets in France as a result of the ICC awards and held:
In ordering the vacation of all these attachments, the Court of Appeal of Paris held that it has
not been established by Creighton Ltd that the State of Qatar has renounced its immunity
from execution and that the acceptance of an arbitration clause does not lead to a presump-
tion of waiver of such immunity, which is distinct from jurisdictional immunity.
By ruling in this manner, even though an undertaking entered into by a State signing an
arbitration clause, to comply with the award in accordance with the provision of Article 24 of
the Arbitration Rules of the International Chamber of Commerce implies waiver by that
State of its immunity from execution, the Court of Appeal violated both the provisions of
international law governing State immunity and Article 24.
It is considered that an agreement to arbitrate, without more, cannot by itself be

deemed to be a waiver of immunity from execution, and this has been made loud and
clear by Article 55 of the ICSID Convention: see also, e.g., In re Suarez,81 The
“Cristina,”82 and the FG Hemisphere case (HKCFA).83 The decisions holding
otherwise have been said to be “[logically] difficult to follow”84 because “an
undertaking to carry out [an award] is not the same thing as [the debtor State]
surrendering an immunity.”85 Such decisions are also not adopted in the UK: see
Orascom Telecom Holding SAE v. Chad.86
Contrast can be made to another decision of the US Court of Appeal (5th Circuit)
in Atwood Turnkey Drilling Inc. v. Petroleo Brasileiro,87 in which the court found
79
See also Benevenuti & Bonfant v. Congo, supra, note 18
80
ch civ.1, 6 July 2000; 127 ILR 154 (2005)
81
[1917] 2 Ch 131, at 131–139
82
[1938] AC 485, at 490–491
83
Supra, note 19, at paras 378–379
84
The majority judgment of the Hong Kong Court of Appeal in FG Hemisphere Associates LLC v.
D.R. Congo (supra, note 22 at paras 155–163)
85
FG Hemisphere Associates LLC v. D.R. Congo [2009] 1 HKLRD 410 (Hong Kong Court of First
Instance), at paras 108–113
86
[2009] 1 All ER (Comm) 315
87
875 F.2d 1174 (5th Cir. 1989). The relevant provision reads: “The Borrower . . . expressly and
irrevocably waives any such right of immunity (including any immunity from the jurisdiction of any
court or from any execution of attachment in aid of execution prior to judgment or otherwise) or
claim thereto which may now or hereafter exist, and agrees not to assert any such right or claim in
any such action or proceeding, whether in the United States or otherwise.”
1524 A. Lai
that the State agent had waived the immunity from execution by reason of the
contract it entered into with the plaintiff. The decision of Walker International
(which heavily relied on Atwood) perhaps could be better explained by the fact
that Congo had by agreement waived its immunity in “any procedure relating to any
arbitration decision . . .” and such the garnishee proceeding therein fell within the
scope of such procedure.88 On such premises, the two US cases were not exceptions
but instances falling within Articles 18(a)(ii) and 19(a)(ii) in that the relevant debtor
States not only expressed consent to arbitrate but also to waiver of immunity from
execution.
As to whether a waiver can be validly made prior to the proceedings commenced
before the forum State, UNCSI allows such a possibility while the traditional
common law (which is subject to criticism) takes a different view – see the discus-
sion above.
The “Earmarked Property” Exception
UNCSI provides that property earmarked or allocated for the satisfaction of a claim
which is the object of that proceedings are liable to be subject to the forum State’s
measures of constraint: Articles 18(b) and 19(b). In Creighton v. Qatar,89 the French
Cour d’ appel held:
Goods destined by a State for the satisfaction of the claim in question or reserved by it to
this end may be seized, instead of all other goods of the foreign State situated in the forum
State or intended to be used for commercial purposes, without it being necessary to
establish that such goods were destined for the entity against which the proceedings had
been brought.90
A distinction has to be drawn between property allocated or earmarked to satisfy

the claim which is the object of the proceeding on one hand and property earmarked
to meet commercial liabilities owed to creditors in general. It is considered that
property falling within the latter category are not property referred to in Articles 18
(b) and 19(b) of UNCSI for such property are not earmarked or allocated to satisfy a
specific claim. The property concerned should be more appropriately analyzed under
the “commercial” exception.
88
The relevant provision reads: “[t]he Congo hereby irrevocably renounces to claim any immunity
during any procedure relating to any arbitration decision handed down by an Arbitration Court. . ..”
The court held that the garnishee proceeding “relates to the ‘arbitration decision’ since Walker seeks
to garnish funds owed to [Congo] to collect on the ICC’s judgment.”
89
Cour d’ appel, Paris, 12 December 2001 [2003] Revue de l’arbitrage 417
90
Reinisch A (2006) European Court practice concerning state immunity from enforcement mea-
sures. Eur J Int Law 17(4):803, at 820–821 (English translation of the excerpt of the judgment
extracted from footnote 115 thereof)
The “Commercial Property” Exception
The “commercial property” exception is a result of the distinction between acta iure
imperii and acta iure gestionis adopted by States practicing “restrictive” immunity.
Traditionally, a dichotomy is maintained in that a State’s property is divided into
property serving governmental purpose and those serving commercial purpose: e.g.,
the Brussels Convention 1926.91 The dichotomy was not controversial in drafting
the UNCSI and the ILC finally adopted the formulation of “other than governmental
non-commercial purposes.”92 UKSIA allows execution against the debtor State’s
property “for the time being in use or intended for use for commercial purposes.”93
USFSIA allows execution against the debtor State’s property in the US used for a
commercial activity.94
In determining whether a particular property is a “commercial property,” the
current States’ practice and academic opinions favor the “purpose test.” It is because
even under the restrictive approach, the defendant State’s ability to carry out its
governmental functions remains protected. Accordingly, in the context of immunity
from execution, the focus is not on how such property came about but whether the
deprivation the defendant State of such property would prejudice its current or future
carrying out of its governmental function.
The aforesaid proposition was reinforced by the ICJ in the Jurisdictional Immu-
nities Case, in which the ICJ found that Italy had violated its international law
obligation owed to Germany by allowing a legal charge to be registered on Villa
Vigoni and held:
It is clear in the present case that the property which was the subject of the measure of
constraint at issue is being used for governmental purposes that are entirely non-commercial,
and hence for purposes falling within Germany’s sovereign functions. Villa Vigoni is in fact
the seat of a cultural centre intended to promote cultural exchanges between Germany and
Italy. This cultural centre is organized and administered on the basis of an agreement
between the two Governments concluded in the form of an exchange of notes dated 21
April 1986. Before the Court, Italy described the activities in question as a ‘centre of
excellence for the Italian-German co-operation in the fields of research, culture and educa-
tion’, and recognized that Italy was directly involved in ‘its peculiar bi-national . . . manag-
ing structure’. . . ..95
91
International Convention for the Unification of Certain Rules Concerning the Immunity of State-
Owned Ships 1926
92
ILC Report (supra, note 8), at 51
93
S.13(4) of UKSIA. The term “commercial purposes” is defined as, amongst others, any transac-
tion or activity into which a State enters or in which it engages otherwise than in the exercise of
sovereign authority”.
94
The term “commercial activity” is defined by reference to the nature of the course of conduct or
particular transaction or act, rather than by its purpose: s.1603(d) of USFSIA
95
Supra, note 4, at para 119. See also the judgment of Tribunal de grande instance de Paris in
Hulley Enterprises Ltd. v. Russian Federation (28 April 2016), in which the court held that the
church and cultural center built by Russia were immune from execution.
1526 A. Lai
A natural follower of the “purpose” test is that a property’s character does not
depend on how it came about (i.e., the origin) but on the present or future use to
which the State has chosen to put it: AIC Ltd. v. Nigeria (UK),96 SerVaas Inc v.
Radfidain Bank (UK),97 Connecticut Bank of Commerce v. Congo (USA),98 and FG
Hemisphere (the Hong Kong SAR).99 It is therefore not to say, that “the fact that an
act iure gestionis is at stake makes that also all objects of the foreign State should be
labelled as intended for commercial purposes.”100 The ILC also commented that the
property is classified as “commercial property” if it is in use or intended for use by
the defendant State for such purpose “at the time the proceeding for attachment or
execution is instituted.”101
The States’ practice have generally placed the burden of proof on the creditor to show
that a particular asset is a “commercial property” liable for execution.102 Many States
have in their legislation provided for a mechanism through which the defendant State
can issue a statement or certificate with respect to the use of the property concerned.103
While it has been suggested that general international law does not prohibit the forum
State from asking the defendant State to substantiate the fact claimed in the statement or
certificate, forum States,104 however, generally defer to statements or certificates issued
by the defendant States, or at least accept as prima facie evidence, unless the creditor can
prove to the contrary: e.g., Alcom Ltd v. Colombia (UK),105 SerVaas Inc v. Radfidain
Bank (UK), and Iran v. Eurodif (France).106
This incidence of burden of proof has been subject to fierce criticism. Award
creditors complain about the difficulty, if not impossibility, in discharging the burden
and argue that “in practical terms . . . it will be tantamount to a return to the absolute
nature of immunity from execution.”107 The Belgian court, however, in Iraq v. Vinci
Constructions justified this incidence of burden of proof:
. . . To require the State in question to justify the use of its bank account for all its diplomatic
activities or activities affecting the proper functioning of its mission would constitute
unacceptable interference with that State and an infringement of its sovereignty. . . .
96
Supra, note 25
97
[2014] 1 AC 595 (SC)
98
(2002) 309 F 3d 240 (US Court of Appeal, 5th Circuit)
99
Supra, note 22, paras 179 and 277
100
van Woudenberg N (2012) State immunity and cultural objects on loan. Martinus Nijhoff,
Leiden, p 56 citing Spiegel J (2001) Vreemde staten voor de Nederlandse rechter [Foreign States
in Dutch courts], Amsterdam, at 105–106
101
102
Ss.32(3)(b) and 41 of the Australia Foreign State Immunities Act 1985 (“AFSIA”)
103
E.g., s.13(5) of UKSIA, s.41 of the AFSIA. Also Article 16(6) of UNCSI
104
See Philippine Embassy Bank Account Case (supra, note 72, at 189)
105
[1984] AC 580 (HL); 74 ILR 170 (1987)
106
Cour de cassation, 14 March 1984; 77 ILR 513 (1980) at 515. See also the case law of the
continental Europe referred to in the article of REINISCH A. (supra, note 89, at 829–833)
107
Submissions of Advocate General Gulphe in Iran v. Eurodif (Id., at 520)
To require proof of the allocation of funds to be the responsibility of the State against
which the attachment is sought would be contrary to the very principle of immunity that, by
definition, establishes a presumption in favour of the State that enjoys immunity. The
imposition of a duty on a State to prove systematically and at any moment that it is indeed
entitled to rely on its immunity would in practice exclude reliance on its immunity.108
On the other hand, the approach taken by Switzerland is more preferential to

creditors. In United Arab Republic v. Mrs X,109 the court not only placed the burden
on Egypt to prove that the attached property was designated for sovereign purpose
but also tested (and consequently rejected) Egypt’s assertion against other evidence.
Also, Australia reverses the burden of proof on the defendant State with respect to
property which is apparently vacant or apparently not in use, though it admits the
defendant State’s certificate of use as prima facie evidence: ss.32(3)(b) and 41 of
AFSIA.
Another complicity in applying the “purpose” test is mixed funds. The require-
ment that the property must be “specifically” in use or intended use for commercial
purpose under Articles 18(1)(c) and 19(1)(c) suggests that mixed funds should be
immune from execution.110 This accords with the State practices: Alcom v. Colombia
(UK), Benamar v. Embassy of the Democratic and Popular Republic of Algeria
(Italy),111 Philippine Embassy Bank Account Case,112 and Liberian Eastern Timber
Corp v. Liberia (USA).113 On the other hand, there are instances where national
courts allow segregation of funds and afford immunity only to the funds segregated
for governmental purpose: Republic of “A” Embassy Bank Account Case114 (Austria
– placing the burden on the creditor); and Libya v. Actimon115 (Switzerland – placing
the burden on the defendant State).
Article 21(1) of UNCSI provides a list of categories of property of a State which
shall fall outside the scope of “commercial property,” of which includes property
which is used or intended for use for the purposes of the State’s diplomatic functions.
It reinforces Article 3(1)(a) that UNCSI is without prejudice to the privileges and
immunities enjoyed by a State under international law in relation to the exercise of its
108
Belgian Court of Appeal, Brussel (9th Chamber), 4 October 2002, 127 ILR 101 (2005) at 105–
106
109
Supra, note 74
110
111
Corte di Cassazione, plenary session, 4 May 1989, in which the Italian Supreme Court held that
the main approach to the issue of immunity from execution as to the bank accounts of the defendant
State or its diplomatic mission is that the sums in question were destined for public purposes and
that an enquiry by a court as to the precise destination of these funds by diplomatic mission would
amount to an interference in the activities of that mission: RUBINO-SAMMARTANO M., Inter-
national Arbitration Law and Practice, 3rd ed. (2014), at 1415
112
Supra, note 72, at 188
113
659 F Supp 606 (DDC 1987, 16 April 1987)
114
Austrian Supreme Court, 3 April 1986; 77 ILR 489 (1980) at 494
115
Swiss Federal Tribunal, 24 April 1985; 82 ILR 30 (1990), at 35
1528 A. Lai
diplomatic function, and such protection is also afforded by the Vienna Convention
of Diplomatic Relations 1961 and Vienna Convention on Consular Relations 1963
etc. It is said that a general waiver or a waiver in respect of all property of the
defendant State is insufficient to waive immunity with respect to the property
referred to in Article 21(1),116 and that was also the position of France in Russian
Federation v. NOGA117 as later codified in Sapin II Law.118
Property of central bank of the State, like assets of diplomatic missions, are
generally deemed not to be “commercial assets” and are immune from execution:
e.g., Article 19(1) of UNCSI, s.14(4) of UKSIA, Article 1 of China’s Law on
Immunity of the Property of Foreign Banks from Compulsory Judicial Measures,119
etc. On the other hand, in Switzerland, the Federal Court refused to take this blanket
approach and held it was incumbent on the defendant State to prove the funds held
by the Central Bank of Lybia were designated for governmental purpose.120
Finally, it is worth discussing whether assets of State-owned entities (“SOE”) are
liable to be seized to satisfy arbitral awards made against the State. Under the
“commercial property” exception of Article 19(1)(c) of UNCSI, the property
intended to be subject to post-judgment measures must “[have] a connection with
the entity against which the proceeding was directed.”121 An issue arises therefrom is
whether an investor State can seize the assets of an SOE to satisfy the award rendered
against the debtor State, and the focal point is whether the corporate veil of an SOE
can be lifted so that an investor creditor can lay hands on the SOE’s assets to satisfy
the award against the debtor State.
UNCSI leaves this matter to be decided by the forum States – in the United
Nations Judicial Yearbook 2004, at 254, it is stated “Article 19 does not prejudge the
question of ‘piercing the corporate veil relating to a situation where a State entity has
deliberately misrepresented its financial position or subsequently reduced its assets
to avoid satisfying a claim, or other related issues.”
Generally speaking, a State cannot be deemed to own the assets of an SOE simply
because it owns or controls it: doctrine of separate legal entity.122 In La Générale des
116
ILC Report on draft Article 19(2) (which has now become Article 21(2) of UNCSI), supra, note
8, at 59
117
Paris Cour d’ appel, 10 August 2000
118
Article L.111-1-3 of the French Civil Enforcement Procedure Code requires a waiver of
immunity to be express and specific if it is to apply to diplomatic assets. See also Commisimpex
v. Congo (French Cour d’cassation, 10 January 2018, overturning its own decision of 13 May 2015,
in which it held that customary international law required nothing more than an express waiver.)
119
This Law was added to Annex III of the Hong Kong SAR Basic Law, and accordingly is to be
brought into force in the Hong Kong SAR through executive promulgation or local legislation.
120
The Actimon Case, supra note 114
121
Similar requirement can be found in domestic law: e.g., the French SAPIN II Article L.111-1-1(3).
122
See First National City Bank v. Banco Para el Comercio Exterior de Cuba 462 US 611 (1983).
However, a statutory exception is created under s.1605(g) of USFSIA, pursuant to which assets of
SOE can be seized to satisfy judgment entered against a foreign State under s.1605A thereof with
respect to terrorist acts.
Carrières et des Mines (Gecamines) v. FG Hemisphere Associates LLC,123 Lord

Mance held:
What then is the correct approach to distinguishing between an organ of the state and a
separate legal entity? And is this distinction relevant not only to questions of immunity, but
also to questions of substantive liability and enforcement? . . . In the board’s opinion, it is
now appropriate in both contexts to have regard to the formulation of the more nuanced
principles governing immunity in current international and national law. These . . . express
the need for full and appropriate recognition of the existence of separate juridical entities
established by states, particularly for trading purposes. They do this, even where such
entities exercise certain sovereign authority jure imperii, providing them in return (as already
noted) with a special functional immunity if and so far, as they do exercise such sovereign
authority. A similar recognition of their existence and separateness would be expected for
purposes of liability and enforcement.
Separate juridical status is not however conclusive. An entity’s constitution, control
and functions remain relevant . . . But constitutional and factual control and the exercise
of sovereign functions do not without more convert a separate entity into an organ of the
State. Especially where a separate juridical entity is formed by the State for what are on
the face of it commercial and industrial purposes, with its own management and budget,
the strong presumption is that its separate corporate status should be respected, and that it
and the State forming it should not have to bear each other’s liabilities. It will in the
Board’s view take quite extreme circumstances to displace this presumption. The pre-
sumption will be displaced if in fact the entity has, despite its juridical personality, no
effective separate existence. But for the two to be assimilated generally, an examination
of the relevant constitutional arrangements, as applied in practice, as well as of the
State’s control exercised over the entity and of the entity’s activities and functions would
have to justify the conclusion that the affairs of the entity and the State were so closely
intertwined and confused that the entity could not properly be regarded for any signif-
icant purpose as distinct from the State and vice versa. The assets which are . . . protected
by State immunity should be the same as those against which the State’s liabilities can be
enforced . . .
There may also be particular circumstances in which the state has so interfered with or
behaved towards a state-owned entity that it would be appropriate to look through or past the
entity to the state, lifting the veil of incorporation. But any remedy should in that event be
tailored to meet the particular circumstances and need. That is the position under domestic
law . . . It must equally be so in the board’s view under international law. Merely because a
state’s conduct makes it appropriate to lift the corporate veil to enable a third party or creditor
of a state-owned corporation to look to the state does not automatically entitle a creditor of
the state to look to the state-owned corporation. Lifting the veil may mean that a corporation
is treated as part of the state for some purposes, but not others.
China shares a similar view and has repeatedly stated that SOEs enjoying
independent capacity to sue or to be sued and independent right to own property
123
[2013] 1 All ER 409 (PC), at 422f-423f, applied in Estate of Michael Heiser v. Iran [2019]
EWHC 2074. Compare Kensington International Ltd. v. Congo [2006] 2 BCLC 296 (UK QBD), in
which the forum State found that the corporate veil was purely a sham and a façade, pierced the
corporate veil and held that the property of the SOE were those of the defendant State. That said,
Lord Neuberger in VTB Capital Inc v. Nutritek International Corp [2013] 2 AC 337 (SC) (at para
127) doubted the correctness of Kensington.
1530 A. Lai
are not part of the State.124 For instance, in the statement of the Chinese Ministry of
Foreign Affairs made on 28 October 2003, it was stated:
With regard to the relationship between a State and State enterprise, the Chinese Delegation
maintained that in principle a State enterprise or any other entity set up by a State should not
enjoy State immunities, so long as the State enterprise or the other entity has independent act
and the capacity to sue or be sued and has the capacity to acquire, possess or own or dispose
property, including the property they operate and manage authorized by the State. At the
same time, the Chinese Government maintained that it was necessary to differentiate clearly
a State and a State enterprise or any other entity set up by a State and that a State enterprise or
any other entity set up by a State should independently bear civil liabilities and a State, in
principle, should not bear joint and several liabilities for commercial acts and liabilities of
debts of a state enterprise or any other entity.
With regard to state immunities from compulsory measures, the Chinese Government was
of the opinion that once the Court enforces compulsory measures on the property of a
defendant state, it must strictly satisfy the following requirements: (1) The property is in the
territory of the country where the Court is located; (2) It is specifically used for the purpose that
may be intended for uses other than the non-commercial uses of the government. (3) It is
related to the demand of the object of proceeding or the institutions or departments of the sued.
Among them, the third requirement is particularly important. The debt of a state can only be
cleared off with the property which is demanded by the object of the proceeding and used by
the institution of the sued for the purpose other than non-commercial purpose, and cannot be
cleared off with the property of a state enterprises or any other entity. If the property for
compulsory measure to be compulsorily enforced is not strictly defined, there will exist the
possibility of misuse of compulsory measure by the court against the state property of the
defendant state or the property of a state enterprise or entity not related to the litigation.125
Conclusion
While the international law has provided for certain exceptions to immunity from
execution, States’ practice shows that forum States tend to apply those exceptions
narrowly and has swayed towards the direction of upholding immunity: e.g., the
recent legislation of Belgium and France which has made judicial authorization a
requirement before measures of constraint can be imposed.126 Even waiver is a
124
See also the letter of the Hong Kong and Macao Affairs Office of the State Council of China issued
with respect to TNB Fuel Services Sdn Bhd v. China National Coal Group Corp [2017] 3 HKC 588
125
It is worth adding a caveat that although China’s statement seems to be adopting a position closer to
the “restrictive” State immunity approach, China, which has not yet ratified UNCSI, still practices
absolute immunity: see the English translation of the letter of the Office of the Commission of the
Ministry of Foreign Affairs of the People’s Republic of China dated 21 May 2009, referred to in the
decision of the Hong Kong Court of Final Appeal in the FG Hemisphere case (supra, note 19), at para
46. The original version can be found at the same case but reported in (2011) 14 HKCFAR 266.
126
E.g., Belgium (Article 142quinquies of the Belgian Judicial Code); France (Sapin II Law adding
Articles L.111-1-1 to 111-1-3 to the Code of Civil Enforcement Proceedings), both requiring
judicial authorization to be granted before measures of constraint can be made over the debtor
State’s property, and such judicial authorization will be granted only if the creditor can show either
(i) express waiver of the State, (ii) the property concerned has been earmarked to satisfy the claim;
possible way to tackle the assertion of immunity, an investor still bears an onerous
burden to prove the purpose of the property and encounters difficulty in cases with
complications, such as mixed funds and assets not directly owned by States.
In enforcing an investment arbitral award against the debtor State, State immunity
is engaged in both the recognition stage (immunity from suit) and at the execution
stage (immunity from execution). While forum States are more prepared to withhold
immunity at the recognition stage, whether by waiver or otherwise, State immunity
from execution remains to be the thorny issue standing in the investor’s way to
collect the award. That said, the author considers that immunity from execution
being the “Achilles’ heel” of the investor-State arbitration system is an over-state-
ment, in particular when the 2017 ICSID’s survey suggested that States generally
complied with awards made in favor of investors.127
In fact, waiver remains an important exception to both types of immunity and
forum States generally accept contractual waiver. While “caveat emptor” may still
apply in cross-border investment involving a State,128 the risk can be reduced
(though not eliminated) by an agreement with a properly drafted waiver clause.
or (iii) the property concerned are used or are intended for use for other than non-governmental
purposes. Insofar as France is concerned, it is further provided that assets intended to be used in
diplomatic functions, military property and property forming part of the cultural heritage etc. are
immune from execution.
127
See ICSID’s Survey for ICSID Member States on Compliance with ICSID Awards
128
Dautaj Y. Sovereign immunity from execution – caveat emptor. http://arbitrationblog.kluwerar
bitration.com/2018/06/04/sovereign-immunity-execution-caveat-emptor/
ISDS Control Mechanisms (Annulment and
Setting Aside) 59
Lin Jacobsen
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1534
Annulment Under the ICSID Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1535
Finality v. Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1535
Article 52 and the Specified Grounds of Annulment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1537
Development and Trend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1543
Problems and Reform? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545
Non-recognition Under the New York Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1548
Resisting Enforcement of Non-ICSID Arbitral Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1548
Grounds for Refusing Enforcement Under the New York Convention . . . . . . . . . . . . . . . . . . . 1549
Delaying Enforcement Under the New York Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1555
The New York Convention and State Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1556
Conclusion: Choice Between the ICSID Convention and the New York Convention . . . . . . . 1559
Abstract
International investment arbitration may take place within or outside of the
delocalised system of the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (ICSID Convention). An ICSID
arbitral award is automatically enforceable within a contracting State, whereas the
prevailing party with a non-ICSID award will likely resort to the New York
Convention to have its award recognised and enforced by a State court. Corre-
spondingly, the challenge to an ICSID award and a non-ICSID award will also
take on different forms. This chapter compares such challenges by reviewing the
The article is contributed by the author in her personal capacity and does not represent the view of or
constitute any legal advice by Ogier, where the author is a managing associate.
L. Jacobsen (*)
Ogier Law Firm, Hong Kong, People’s Republic of China
e-mail: Lin.Jacobsen@ogier.com; lin.jacobsen@gmail.com

https://doi.org/10.1007/978-981-13-3615-7_108
1534 L. Jacobsen
annulment mechanism under the ICSID Convention and the grounds for non-
enforcement under the New York Convention.
Keywords
ICSID Convention · Delocalised · Annulment · Article 52 of the ICSID
Convention · New York Convention · Set-aside · Recognition and enforcement ·
Article V of the New York Convention · Seat of arbitration · Enforcement court ·
Harmonisation
Introduction
International investment arbitration may take place within or outside of the

decentralised and delocalised system of the Convention on the Settlement of Invest-
ment Disputes between States and Nationals of Other States (the ICSID Convention
or the Convention).1 One major difference between the two systems would be that
whereas the ICSID system is self-contained, arbitration outside of the ICSID system
will inevitably interact with State law. While an ICSID award is automatically
enforceable in a contracting State, a party seeking to enforce a non-ICSID award
will likely rely on the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (New York Convention), which requires each contracting State to
recognise and enforce arbitral awards rendered in the other contracting States.2 A
party challenging an ICSID award will only be able to find remedies within the
ICSID system, the most drastic of which is annulment under Article 52 of the ICSID
Convention. A party resisting enforcement of a non-ICSID award can ask a State
court at the seat of arbitration to set it aside, and/or ask the State court where the
enforcement is sought to not recognise the award under Article V of the New York
Convention and/or at least delay the enforcement if a set-aside application is pending
under Article VI of the New York Convention. The grounds for annulment under
Article 52 of the ICSID Convention and the grounds for non-recognition
1
International Centre for Settlement of Investment Disputes. “About ICSID”. World Bank Group.
https://web.archive.org/web/20120610184851/http://icsid.worldbank.org/ICSID/FrontServlet?
requestType¼CasesRH&actionVal¼ShowHome&pageName¼AboutICSID_Home. For a com-
mentary, see Fouret J et al (2019) The ICSID convention, regulations and rules: a practical
commentary. Edward Elgar, London, 1504 p.; Supnik KM (2009) Making amends: amending the
ICSID convention to reconcile competing interests in international investment law. Duke Law J 59
(2):343–376
2
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
(the “New York Convention”), The Convention entered into force on 7 June 1959 (Article XII).
https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards. For a commentary,
see Quigley LV (1961) Accession by the United States to the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. Yale Law J 70(7):1049–1082; van R
Springer J (1969) The United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards. Int Lawyer 3(2):320–331
59 ISDS Control Mechanisms (Annulment and Setting Aside) 1535
under Article V of the New York Convention share some commonalities. The
self-contained nature of the ICSID Convention, the restrictive jurisdiction of
ICSID ad hoc committees and the significant role played by State courts in the
application of the New York Convention may lead to the speculation that non-ICSID
awards are more vulnerable to enforcement challenges than ICSID awards. How-
ever, this may not necessarily be the case. With further harmonisation of State laws
related to international arbitration, any discrepancy between the finality of ICSID
awards and non-ICSID awards may be further diminished.
Annulment Under the ICSID Convention
Finality v. Legitimacy
The ICSID Convention prides itself on being an independent and self-contained

system for international investment arbitration. A cornerstone for the self-contained
and delocalised structure is the finality of an ICSID arbitral award which is enshrined
in Article 53 of the ICSID Convention. Article 53 provides that an award handed
down by an ISCID tribunal shall be “binding on the parties and shall not be subject to
any appeal or to any other remedy except those provided for in this Convention”.3 In
other words, any challenge to any aspect of an ICSID award can only be carried out
and will only be resolved in accordance with the mechanisms found within the
ICSID Convention; a review by State courts is strictly off the limits.
To ensure the legitimacy of the system, it would be imperative for the ICSID
Convention to provide for proper channels of review and sufficient remedies in
respect of challenged awards. In fact, the ICSID Convention strives to strike a
balance between the sacred finality of awards and the indispensable mechanism of
review.
On the one hand, the ICSID Convention does not allow appeal but provides for
other remedies such as rectification, interpretation, revision and annulment. A party
may request an arbitration tribunal to decide any question which it has omitted to
decide in the award, and the tribunal shall rectify any clerical, arithmetical or similar
error in the award.4 If there is a dispute as to the meaning or the scope of an award,
either party may request interpretation of the award.5 Either party may request
revision of the award on the ground of discovery of some formerly unknown fact
of such a nature as to decisively affect the award.6
On the other hand, the remedy of annulment seems antithetical to the concept of
finality. Either party may request annulment of the award by an ad hoc committee on
3
The ICSID Convention, Art. 53.
4
5
6
1536 L. Jacobsen
one or more of the specified grounds in Article 52(1) of the ICSID Convention.7
Thus within Article 52 is another delicate dance of balance between respecting the
finality of arbitral awards and providing for an adequate review mechanism to ensure
the legitimacy of the ICSID system. On a close inspection, the ICSID Convention’s
emphasis on finality seems paramount. In fact, Article 53 specifically states that the
final and binding award shall include any annulment decision by an ad hoc com-
mittee.8 Assuring the finality of ICSID arbitration awards is a fundamental goal for
the ICSID system, as illustrated by the drafting history of the ICSID Convention, and
as a result the annulment mechanism has purposefully been given a limited scope to
safeguard against only violations of fundamental principles of law governing the
arbitral proceedings.9 Annulment is not an appeal which would call for a review of
the merits of the case; mistake in fact or misapplication of law is not a ground for
annulment.10 If an ad hoc committee decides to annul any part of an award, it cannot
substitute its own decision for the annulled decision; the reopened dispute can only
be resolved by a new tribunal constituted in accordance with the ICSID
Convention.11
According to the ICSID Background Papers for the Administrative Council
prepared by the ICSID Secretariat, decisions by the ad hoc committees over the
years are consistent with these principles and have established that: “(1) the grounds
listed in Article 52(1) are the only grounds on which an award may be annulled; (2)
annulment is an exceptional and narrowly circumscribed remedy and the role of an
ad hoc committee is limited; (3) ad hoc committees are not courts of appeal,
annulment is not a remedy against an incorrect decision, and an ad hoc committee
cannot substitute [its reasoning for] the tribunal’s determination. . .; (4) ad hoc
committees should exercise their discretion not to defeat the object and purpose of
the remedy [of annulment] or erode the binding force and finality of awards; (5)
Article 52 should be interpreted in accordance with its object and purpose, neither
narrowly nor broadly; and (6) an ad hoc committee’s authority is circumscribed by
the Article 52 grounds specified in the application for annulment, but an ad hoc
committee has discretion with respect to the extent of an annulment, i.e. either partial
or full.”12
7
8
The ICSID Convention, Art. 53(2).
9
Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 72;
Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para.
71. See also Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E,
Banifatemi Y (eds) Annulment of ICSID Awards, p 35.
10
Updated Background Paper on Annulment for the Administrative Council of ICSID (2016),
para. 72.
11
The ICSID Convention, Art. 52(6).
12
para. 74.
Article 52 and the Specified Grounds of Annulment
Article 52 sets out how a party may seek to annul an ICSID arbitral award. Either the
State or the investor of another contracting State may initiate the process by filing an
application for annulment with the ICSID Secretary General within 120 days after
the date on which the award is rendered (where annulment is requested on the
grounds of corruption, within 120 days after discovering the corruption and in any
event within 3 years after the date of the award).13 The application will be decided by
an ad hoc committee consisting of three members appointed by the Chairman of the
Administrative Council from the ICSID Panel of Arbitrators.14 Among other things,
a member of an ad hoc committee cannot be of the same nationality as any member
of the original tribunal which decided the case, cannot have the same nationality as
either party to the dispute, cannot have been designated to the Panel of Arbitrators by
either State and cannot have acted as a conciliator in the same dispute.15 The ICSID
Convention Arbitration Rules apply, mutatis mutandis, to an annulment proceed-
ing.16 In addition, Article 52(4) provides that Articles 41–45, 48, 49, 53 and 54 of the
ICSID Convention apply mutatis mutandis to proceedings before an ad hoc com-
mittee.17 Upon an application for annulment, the ad hoc committee may stay the
enforcement of the award pending its decision; an applicant may also request a stay
in its application in which case the enforcement of the award will be stayed
provisionally until the ad hoc committee rules on the request.18 If the award is
annulled, the dispute shall at the request of either party be submitted to a new ICSID
tribunal.19 The fact that the ad hoc committee cannot amend or replace the award
with its own decision is an important feature that distinguishes annulment under
Article 52 from appeal.20 The annulment decision per se, however, is not subject to
any further review within the ICSID system.
Unlike the tribunal proceedings, the applicant in an annulment application is
solely responsible for making all advance payments requested by ICSID.21 The
13
The ICSID Convention, Article 52(2).
14
15
Ibid.
16
The ICSID Convention Arbitration Rules, Rule 53.
17
The ICSID Convention, Article 52(4). Such specific references have led some people to argue that
other provisions of the ICSID Convention may not apply to proceedings before an ad hoc
committee. See Background Paper on Annulment for the Administrative Council of ICSID
(2012), para. 51 and Updated Background Paper on Annulment for the Administrative Council of
ICSID (2016), para. 48.
18
19
20
Marboe I (2010) Introductory note to Sempra energy Int’l v. Argentine Republic (ICSID). Int Leg
Mater 49:1441.
21
para. 53.
1538 L. Jacobsen
payments are made without prejudice to the right of the ad hoc committee to decide
how and by whom the costs will be ultimately paid.22
It has been universally recognised that an application for annulment can only be
based on one of the five specified grounds under Article 52(1), namely:
(a) that the original tribunal was not properly constituted

(b) that the tribunal manifestly exceeded its powers
(c) that there was corruption on the part of a member of the tribunal
(d) that there has been a serious departure from a fundamental rule of procedure
(e) that the award has failed to state the reasons on which it is based23
The interpretation and application of these grounds by various ad hoc committees

also prove to be a careful balancing act. Annulment is viewed as a remedy for
procedural errors in an arbitral proceeding rather than an enquiry into the substance.
Ad hoc committees should only scrutinise the legitimacy of the decision-making
process, not the correctness of the tribunal’s reasoning.24 However, in practice the
line between procedures and substance may not be so clear-cut. This section will try
to demonstrate this point by looking at each ground for annulment, in particular the
grounds under (b), (d) and (e) of Article 52(1) as the grounds under (a) and (c) are
rarely invoked by the applicants. Most applications cite the grounds under (b), (d)
and (e) cumulatively and often an applicant cites the same facts to support multiple
grounds for annulment, which may create an impression that the grounds are
interchangeable.25
(a) Improper constitution of the tribunal
This ground is intended to cover situations where the tribunal’s constitution

diverges from the parties’ agreement or where an arbitrator has failed to meet
applicable requirements.26
According to the Updated Background Paper on Annulment for the Administra-
tive Council of ICSID (2016), this ground had only been raised in five annulment
applications up to the time of the paper.27 In four cases the challenge on this ground
was rejected and in the fifth case this ground was not addressed as the ad hoc
22
Ibid.
23
24
Marboe I (2010) Introductory note to Sempra Energy Int’l v. Argentine Republic (ICSID). Int Leg
Mater 49:1441
25
Schreuer C (2004) Three generations of ICSID annulment proceedings. In: Gaillard E, Banifatemi
Y (eds) Annulment of ICSID Awards, p 23
26
para. 77.
27
para. 79.
committee annulled the award on other grounds.28 Applications based on this ground
may be unlikely to succeed because in practice the parties would have been able to
raise this objection during the arbitration as tribunals would usually ask the parties
whether they have any objection to the constitution of the tribunal or to any
individual arbitrator when they deal with procedural matters of the arbitration.29
(b) Manifest excess of powers
A tribunal may exceed its powers either in its exercise of jurisdiction or application
of law. To make an award annullable, the excess must also be “manifest”, which has
been interpreted by most ad hoc committees to mean obvious, clear or self-evident,
discernible without the need for an elaborate analysis.30 However, the determination of
whether the “manifest” threshold has been met may require an analysis dangerously
close to a review of substance. Tellingly, some committees have determined that for an
excess to be “manifest” it must have been so serious or material that it actually affected
the outcome of the case.31 One cannot help but wonder whether it is possible to make
such a determination without reviewing the merits.
Regarding a tribunal’s jurisdiction, given that an important premise of the ICSID
system is the States’ consent to submit themselves to the system, it is imperative that
the tribunal does not go beyond the scope of the parties’ arbitration agreement.32 In
addition, a tribunal must decline jurisdiction where any jurisdictional requirement in
Article 25 is not met even if the parties do not raise any objection.33 Ad hoc
committees have held that an excess of power may exist if a tribunal has exercised
jurisdiction that it does not have, has exceeded its jurisdiction or has rejected
jurisdiction where jurisdiction actually exits.34 This seems very clear in principle.
However, to determine the existence and extent of a tribunal’s jurisdiction, a review
of the substance of the matter may be unavoidable, for example where the
28
Ibid.
29
para. 78.
30
para. 83.
31
Ibid.
32
Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 86; Updated
Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 85.
33
As an example, Article 25(1) sets outs certain mandatory requirements that must be satisfied in
relation to the dispute before an ICSID tribunal can accept jurisdiction. Namely, there must be a legal
dispute arising directly out of an investment between a contracting State and a national of another
contracting State which the parties to the dispute have consented in writing to submit to ICSID
arbitration. Not surprisingly, whether the national has made an “investment” is often an issue of
contention.
34
Background Paper on Annulment for the Administrative Council of ICSID (2012), para. 88; Updated
Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 87.
1540 L. Jacobsen
determination involves the interpretation of the relevant bilateral investment treaty

(BIT). One may argue that the requirement that any excess be “manifest” should help
avoid the need for a substantive analysis. However, to determine whether the
“manifest” threshold has been reached may itself perilously border on a review of
the substance. In any case an applicant seeking to annul an award on this jurisdic-
tional ground may have a high hurdle to overcome because it is a generally accepted
principle under the ICSID Convention that a tribunal is the judge of its own
competence.35 According to the Updated Background Paper (2016), the issue of
lack of jurisdiction or excess of jurisdiction had been ruled on in 30 annulment
decisions and had led to one full annulment and one partial annulment, whereas the
non-exercise of jurisdiction where it actually exists had been ruled on in 13 decisions
and had led to one full annulment and two partial annulments.36
Regarding a tribunal’s application of law, Article 42(1) of the ICSID Convention
stipulates that an ICSID tribunal must decide a dispute in accordance with such rules of
law as agreed by the parties.37 The ad hoc committees have generally held that a
tribunal’s failure to apply the proper law or acting ex aequo et bono without the parties’
agreement could constitute a manifest excess of powers.38 Difficult questions arise
where a tribunal may have erroneously applied the correct law. Annulment is not an
appeal and in the drafting history of the ICSID Convention the Legal Committee
confirmed that even a manifestly incorrect application of the correct law would not be
a ground for annulment.39 However, some ad hoc committees have taken the view that
gross or egregious misapplication or misinterpretation of the proper law may amount
to non-application and therefore constitute a ground for annulment, whereas others
deem this approach to be bordering on an appeal.40 Again the line between procedures
and substance seems blurred. According to the Updated Background Paper (2016), the
failure to apply proper law had been ruled on in 52 annulment decisions and had led to
two partial annulments and two full annulments.41
35
The ICSID Convention, Article 41(1); Background Paper on Annulment for the Administrative
Council of ICSID (2012), para. 89; Updated Background Paper on Annulment for the Administra-
tive Council of ICSID (2016), para. 88.
36
para. 89.
37
The ICSID Convention, Article 41(1). The Article provides that in the absence of the parties’
agreement the tribunal shall apply the law of the contracting State party and such rules of
international law as may be applicable.
38
Updated Background Paper on Annulment for the Administrative Council of ICSID (2016), para. 93.
39
para. 72.
40
para. 93.
41
para 94.
(c) Corruption of a member of the tribunal
According to the Updated Background Paper (2016), this ground had not yet been
dealt with in any annulment decision.42 However, it is worth noting that the drafters
of the ICSID Convention decided not to replace “corruption” with suggested alter-
natives such as “misconduct”, “lack of integrity” or “a defect in moral character” and
they also decided not to subject this ground to the requirement that corruption be
evidenced by a court judgement or reasonable proof that corruption might exist.43
(d) Serious departure from a fundamental rule or procedure
The ground of “a serious departure from a fundamental rule or procedure” has a

wide connotation including principles of justice, but excludes a tribunal’s failure to
observe ordinary arbitration rules.44 The drafting history shows that “fundamental
rules of procedures” were intended to be references to principles and the drafters
specifically named the parties’ right to be heard as one such principle.45 Fundamen-
tal rules of procedures identified by the ad hoc committees include: (i) the equal
treatment of parties; (ii) the right to be heard; (iii) an independent and impartial
tribunal; (iv) the treatment of evidence and proof; and (v) deliberations among
members of the tribunal.46 Despite the right to be heard being recognised as a
fundamental rule or procedure, the tribunal is not bound by the parties’ arguments:
a party’s failure to anticipate or address an argument relied on by the tribunal does
not constitute a deprivation of a party’s right to be heard.47
Once the fundamentality of a rule is established, the departure from it must be
“serious” in order for it to constitute a ground for annulment. Such a determination
will probably involve a close inspection of the facts and the conduct of the tribunal,
42
para 97.
43
95. It should also be noted that an arbitrator agreeing to serve on an ICSID tribunal must sign a
declaration that he/she will not accept any instruction or compensation with regard to the proceed-
ing from any source except as provided in the ICSID Convention. See the ICSID Convention Rules,
Rule 6(2). If an arbitrator breaches this declaration, it may lead to annulment. See Background
Paper on Annulment for the Administrative Council of ICSID (2012), para. 97; Updated Back-
ground Paper on Annulment for the Administrative Council of ICSID (2016), para. 96.
44
para. 98.
45
Ibid.
46
para. 99.
47
1542 L. Jacobsen
where the line between procedures and substance may again be less clear-cut than
expected. Some ad hoc committees have required the departure to have a material
impact on the outcome of the award for the annulment application to succeed.48
According to the Updated Ground Paper (2016), this ground had been ruled on in
41 annulment decisions and had led to one full annulment, two partial annulments
and the annulment of one decision on supplemental decisions and rectification.49
(e) Failure to state the reasons on which the award is based
This ground is closely linked to the requirement in Article 48(3) of the ICSID
Convention that arbitral awards deal with every question submitted to the tribunal
and state the reasons upon which they are based.50 Given the requirement under
Article 48(3) to state reasons, it is probably unlikely to come across a tribunal award
without any explanation of its reasoning. The requirement to state reasons is
intended to ensure that the parties can understand the reasoning of the tribunal,
that is, how the tribunal has come to its conclusion, going from point A to point B,
whereas the correctness of the reasoning or whether it is convincing is not relevant.51
The ad hoc committees have generally held that “frivolous” and “contradictory”
reasons are equivalent to no reasons and could lead to annulment.52 However, where
the reasons are deemed insufficient or inadequate, the extent of insufficiency and
inadequacy required to justify annulment is open to debate.53 Some ad hoc commit-
tees have taken the approach that as long as they can infer the tribunal’s reasoning
from what is submitted to the tribunal, annulment is not warranted.54 Any analysis
required to determine whether a tribunal’s reasoning is insufficient or inadequate and
if so whether the insufficiency or inadequacy is to such a degree that it warrants
annulment may call for a review of the facts and merits of the case. Indeed, one
criticism levelled against the so-called first-generation annulment decisions is that
the ad hoc committees engaged in a review of the quality and correctness of the
48
49
para. 101.
50
102. A failure to deal with a question submitted to a tribunal is not an annullable ground specified
under the ICSID Convention and under Article 49(2) in such case a party may request the same
tribunal to make the decision concerning the neglected question after the award is rendered.
51
52
53
para. 106.
54
Ibid.
tribunal’s reasoning, thus wading into the forbidden waters of appeal.55 Tellingly,
although the failure to address a particular question is not a ground for annulment,
some ad hoc committees have found that if such failure might have affected the
tribunal’s ultimate decision it would amount to a failure to state reasons, in which
case the award may be annullable.56 It thus seems that even if a defect in a tribunal’s
reasoning does not fall squarely under any of the specified grounds under Article 52
(1), it may still result in annulment if in an ad hoc committee’s reasoning this error
amounts to a failure to state reasons. Again the line between procedures and
substance is blurred.
According to the Updated Background Paper (2016), this ground had been ruled
on in 50 proceedings and led to two full annulments and six partial annulments.
Development and Trend
In his seminal paper entitled “Three Generations of ICSID Proceedings”, Mr

Schreuer identified three generations of ICSID annulment decisions: (i) the first
two ICSID annulment cases, Klöckner I and Amco I,57 are in Mr Schreuer’s view
problematic because the ad hoc committees “reviewed the merits of the cases” and
“improperly cross[ed] the line between annulment and appeal”; (ii) the second
generation of annulment decisions alleviated such concern; and (iii) the third gen-
eration of annulment decisions, epitomised by WENA and Vivendi,58 demonstrates
that “the ICSID annulment has found its proper balance”.59 For Mr Schreuer one
demonstration of such proper balance is the decision of these ad hoc committees to
forego the approach that the finding of an annulment ground would automatically
lead to annulment and opt for a material violation approach instead.60 Under the so-
called material violation approach, the ad hoc committee needs to consider the
55
Y (eds) Annulment of ICSID Awards, p 35. See also Chaisse J, Donde R (2018) The state of
investor-state arbitration – a reality check of the issues, trends, and directions in Asia-Pacific. Int
Lawyer 51(1):47–67
56
Such failure may also amount to a serious departure from a fundamental rule of procedure.
para. 104.
57
Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société
Camerounaise des Engrais, Decision annulling the award, May 3, 1985; Amco Asia Corporation
and others v. Republic of Indonesia, Decision annulling the award, May 16, 1986.
58
Wena Hotels Ltd. v. Arab Republic of Egypt, Decision on application for annulment, February 5,
2002; Vivendi Universal, S.A. v. Argentine Republic, Decision on application for annulment, July
3, 2002.
59
Y (eds) Annulment of ICSID Awards, pp 17–19
60
1544 L. Jacobsen
significance of the annullable error relative to the rights of the parties and in order for
a violation to lead to annulment it must be so serious and manifest that it is capable of
making a difference to the arbitral award.61 According to Mr Schreuer, the third
generation of annulment decisions abandoned the activist approach used by some
earlier ad hoc committees and established annulment as what it is meant to be: an
unusual remedy for unusual circumstances.62
Following a string of annulment decisions (including Sempra and Enron63) in the
summer of 2010, the question was raised whether a fourth generation of ICSID
annulment jurisprudence arrived.64 In Sempra v Argentina and Enron v Argentina,
ad hoc committees based their annulment decisions on the determination that the
tribunals had not properly understood and applied the necessity defence advanced by
Argentina.65 In the former, the ad hoc committee found that the tribunal had wrongly
equated the necessity defence under customary international law and the relevant
BIT. In the latter, the committee found that the tribunal had not applied some
essential legal elements of the necessity defence under customary international law
in its analysis. These decisions reinforce the impression that erroneous interpretation
and application of law by a tribunal could form a basis for annulment. This
seemingly expansive approach led to the criticism that the ad hoc committees in
these decisions reviewed the substance of the case like a court of appeal, exceeding
the restricted scope of Article 52.66
Did these decisions indeed spearhead a fourth generation of ICSID annulment
cases? If that were the case, we would expect a more activist approach by the ad hoc
committees to produce a higher rate of annulments. The statistics seem to suggest
otherwise. According to the Updated Background Report (2016), there had been an
increase in annulment applications in the recent period, but the increase was a
reflection of the vastly increased number of arbitration proceedings and awards
under the ISCID Convention in the same period.67 In the meantime the rate of
annulment had seen a trend of decrease: the rate of annulment was 13% in the period
of 1971–2000, 8% in the period of 2001–2010 and 3% in the period of 2011–2016.68
61
Y (eds) Annulment of ICSID Awards, pp 19–20
62
63
Sempra Energy International v. The Argentine Republic, Decision on application for annulment,
29 June 2010; Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Decision on
application for annulment, 30 July 2010.
64
Nair P, Ludwig C (2010) ICSID annulment awards: the fourth generation? Glob Arbitr Rev 5(5),
October
65
Ibid.
66
Nair P, Ludwig C (2010) ICSID annulment awards: the fourth generation? Glob Arbitr Rev 5(5),
October
67
para. 112.
68
Ibid.
The statistics based on cases registered or administered by ICSID as of 30 June 2019

seem to confirm the trend.69 From 2011 to such time in 2019, there were 181 ICSID
awards; there were 44 decisions rejecting the application for annulment; 19 annul-
ment proceedings were discontinued; and there were 6 decisions annulling the award
in part or in full, making the annulment rate for the new decade 3%.70 The rare
instances of annulment seem to be consistent with its nature of being an unusual
remedy for unusual situations.
Problems and Reform?
If the statistics give the reassurance that there is no trend of an ever-increasing

number of interventionist ad hoc committees with an expansive approach, the
annulment mechanism under Article 52 of the ICSID Convention still faces several
challenges.
First of all, as shown above, in the reasoning of ad hoc committees, the line
between procedures and substance is sometimes blurred. The annulment mechanism
is meant to rectify significant flaws of the procedures and ad hoc committees are
prohibited from taking on the mantle of a court of appeal. However, as observed by
the Solicitor General of the Philippines, whose request in the wake of Fraport71 that
ICSID issue guidelines for ad hoc committees to follow prompted the Administrative
Council to issue the Background Report (2002), an ad hoc committee may, under the
guise of a procedural ground under Article 52, effectively apply an appellate
standard to annul an award for what constituted in the committee’s view a mistaken
interpretation and application of the relevant law.72 Whatever guidelines the Admin-
istrative Council may issue, the blurred line between procedures and substance may
subsist as a creative ad hoc committee may always find a way to subsume an
argument based on misinterpretation or misapplication of law under a procedural
ground.
69
The ICSID Caseload – Statistics, Issue 2019–2, available at: https://icsid.worldbank.org/en/
Pages/ICSIDSearch.aspx?k¼caseload%20statistics
70
Ibid.
71
Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, Decision on
annulment, 23 December2010. In Fraport, the tribunal found that it lacked jurisdiction because it
found that Fraport’s investment had violated a Philippine law and therefore would not be protected
by the Germany-Philippines BIT which would only apply to investments that are legal under the
host State’s law at the initiation of investment. The ad hoc committee annulled the award on the
ground that, among other things, the tribunal seriously violated a fundamental rule of procedure by
failing to invite submissions from the parties on a crucial later legal development, that is, a
resolution issued by a Philippine State Prosecutor to dismiss private criminal complaints relating
to alleged violations of the relevant Philippine law by Fraport officials.
72
Letter from Mr. Jose Anselmo I. Cadiz, Solicitor General, Republic of the Philippines, to the
ICSID Administrative Council (June 27, 2011).
1546 L. Jacobsen
Secondly, true to the decentralised reputation of the ICSID system, different ad

hoc committees may reach different conclusions based on the same or similar facts.73
As an illustration of this issue, the committees in Sempra,74 Enron75 and CMS76
dealt with similar issues based on the same BIT yet came to different conclusions.
All three cases concerned proceedings brought by investors against Argentina in
relation to the measures it took following a financial and economic crisis and in all
three cases Argentina raised the defence of necessity. The ad hoc committee in
Sempra annulled the award because it found that the tribunal applied customary
international law in its interpretation of the defence and did not identify or apply the
primary applicable law, that is, the relevant provisions in the BIT, which failure
constituted a manifest excess of powers.77 The ad hoc committee in Enron also
annulled the entire award. However, unlike the ad hoc committee in Sempra, it found
no fault in the tribunal’s treatment of the customary international law as applicable
law, but found that the tribunal had failed to apply a number of the essential legal
elements of the necessity defence under customary international law, which consti-
tuted a manifest excess of powers and therefore a ground for annulment.78 In CMS,
which preceded Sempra and Enron by a few years, the ad hoc committee criticised
the tribunal’s failure to distinguish between the primary law of the BIT and the
secondary customary international law, but found no manifest excess of powers after
noting that as an ad hoc committee it had limited jurisdiction under Article 52 and
that it could not substitute its own view for that of the tribunal.79 Such divergent
reasoning may have an adverse impact on the legitimacy and credibility of the ICSID
system, especially considering that there is no review mechanism in respect of
annulment decisions within the system. One can only hope that the guidance given
by Administrative Council can help minimise such discrepancy.
Thirdly, the grounds for annulment are limited to those specified under Article 52
(1). It may be problematic if an obvious error by the tribunal does not fall squarely
under any of the five grounds. In Tidewater, Venezuela asked the ad hoc committee
to annul the tribunal’s calculation of compensation because, after having affirmed in
73
Mater 49:1443
74
Sempra Energy International v. The Argentine Republic, Decision on application for annulment,
29 June 2010
75
Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Decision on application for
annulment, 30 July 2010.
76
CMS Gas Transmission Company v. The Republic of Argentina, Decision on application for
annulment, 25 September 2007.
77
Mater 49:1443
78
Y (eds) Annulment of ICSID Awards, pp 17–42; Marboe I (2010) Introductory note to Sempra
Energy Int’l v. Argentine Republic (ICSID). Int Leg Mater 49:1442
79
Mater 49:1442
step 1 of its reasoning the elements to be used in calculating the market value, the
tribunal did not do so in its calculation.80 Based on this fact, Venezuela sought
annulment on the three grounds commonly invoked: manifest excess of power,
serious departure from a fundamental rule of procedure and failure to state reasons.
Although the tribunal made an obvious error in its calculation, the ad hoc committee
found that it could not annul the tribunal’s calculation on the ground of manifest
excess of power because Venezuela’s claim of non-application of proper law was not
established given that the tribunal correctly identified and applied the relevant BIT as
applicable law. The ad hoc committee said that Venezuela erred in deeming the
tribunal’s interpretation of the term “market value” under the relevant provision of
the BIT as applicable law as this amounted to treating as applicable law what in
reality was step 1 of the tribunal’s application of law. Neither did the ad hoc
committee find a serious departure from a fundamental rule of procedure as there
were no procedural shortcomings during the proceeding. The ad hoc committee
finally annulled the compensation which was the result of the tribunal’s obvious
calculation mistake on the ground of contradictory reasons. The committee found
that the tribunal “contradicted its own analysis and reasoning by quantifying its
estimation using one concrete criterion. . .which it has rejected as unreasonable”.81
However, one is left wondering whether it is possible for a different ad hoc
committee to refuse annulment on the last ground by finding that there was no
contradictory reasoning, rather the tribunal made a mistake in applying its reasoning.
In light of the potential issues, should the ICSID annulment mechanism be
reformed? Any reform would need to take into account the ICSID Convention’s
dual goals of finality and legitimacy. The ICSID system prides itself on the finality
of its awards and the speedy resolution of disputes that is expected to accompany such
finality provided by a self-contained system. However, to ensure the legitimacy of
such a self-contained system, sufficient review mechanism may be indispensable. On
the other hand, if annulment proceedings unnecessarily protract investment disputes at
the expense of finality and/or speediness of the proceeding or if annulment decisions
are perceived as too arbitrary to perform an adequate review function, the legitimacy of
the system will also suffer. To address such competing goals, it may be desirable to
implement a more expansive review mechanism inside the ICSID system.
The 1953 United Nations International Law Commission Draft Convention on
Arbitral Procedure, from which the ICSID Convention derived its grounds for
annulment, actually contemplated having an independent body, the International
Court of Justice, rule on annulment applications.82 An independent judiciary body
will likely create a more consistent jurisprudence of annulment, in contrast with
situations where different ad hoc committees may reach different conclusions based
80
Tidewater Investment SRL and Tidewater Caribe, C.A. v. Venezuela, Decision on annulment,
December 27, 2016.
81
Ibid, para. 193.
82
1548 L. Jacobsen
on the same or similar facts or reach the same or similar conclusions based on
divergent reasoning. However, giving the annulment power to an independent body
will undoubtedly undermine the self-contained character of the ICSID system.
Should any reform proceed in this direction, it is likely that the scope of annulment
will remain as (if not more) restricted.
Alternatively, the ICSID system may consider giving ad hoc committees more
grounds for annulment and/or the power to substitute its own reasoning if in its view
the tribunal has erred. Despite the current consensus that the remedy of annulment
should be reserved for procedural errors, some ad hoc committees seem to never-
theless review the merits of the case under the guise of a procedural review. One may
wonder if it is more efficient to specifically accept serious misapplication of law as a
permissive ground for annulment. Similarly, if an ad hoc committee can substitute its
own reasoning, it may be easier for it to correct obvious mistakes by the tribunal and
the parties can save the cost and time of going through a new arbitration to obtain a
new award. Of course, such proposals are not without risks. Allowing ad hoc
committees to engage in a review of substance (even if it is limited to a serious
misapplication of law) may open the Pandora box and turn the annulment mecha-
nism into an appellate review, thus seriously undermining the finality of ICSID
arbitral awards. Giving an ad hoc committee the power to substitute its own
reasoning may create an incentive for different ad hoc committees to turn the
annulment process into a venue for them to advance their own interpretation and
application of the law especially if their view differs from that of the original
tribunal.
According to Stephen Hawkins, one of the basic rules of the universe is that
nothing is perfect. The ICSID system with all its virtues is no exception. But it can
try, with constant reform and adjustment, to achieve a balance between “the Scylla of
complete fairness and the Charybdis of absolute finality”.83
Non-recognition Under the New York Convention
Resisting Enforcement of Non-ICSID Arbitral Awards
For arbitration conducted outside the self-contained ICSID system, the prevailing
party is likely to rely on the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (1958), also known as the New York Convention, to give
effect to the arbitral award.
The New York Convention applies to the recognition and enforcement of foreign
arbitral awards, that is, arbitral awards made in the territory of a contracting State
other than the contracting State where the recognition and enforcement of such
83
Van Houtte H (2004) Article 52 of the Washington Convention – A brief introduction. In: Gaillard
E, Banifatemi Y (eds) Annulment of ICSID Awards.
awards are sought and arbitral awards not considered as domestic awards in the
enforcement State.84 Each contracting State shall recognise such arbitral awards as
binding and enforce them.85 The party seeking to enforce the award must present the
enforcement court with a duly authenticated original award and the original arbitra-
tion agreement or a duly certified copy of such documents.86
As its name may suggest, the New York Convention advocates recognition and
enforcement of arbitral awards. However, Article Vof the New York Convention sets
out an exhaustive list of exceptions where a court may refuse to enforce an award. By
requiring the party resisting enforcement to prove its case, Article V seems to place
the burden of proof on that party.87 The word “may” gives the enforcement court
discretion to grant enforcement even if one or more exceptions under Article V are
established.88 However, an enforcement court may preclude a party from invoking
an objection if it fails to raise it promptly during the arbitration or has participated in
the arbitration despite the objection.89
Grounds for Refusing Enforcement Under the New York Convention
The grounds for refusing enforcement of a foreign arbitral award under Article V of
the New York Convention are as follows.
(a) Incapacity or invalid arbitration agreement
Under Article V(1)(a), the court may refuse to enforce an award if the party
resisting the award can prove that the parties were under the law applicable to them,
under some incapacity or the arbitration agreement is not valid under the law to
which the parties have subjected it or, failing any indication on such law, under the
law of the country where the award was made.90
84
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article I.
85
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article III.
86
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article IV.
87
US courts have uniformly held that the burden of proof is on the party resisting enforcement. See:
Strub MH Jr (1990) Resisting enforcement of foreign arbitral awards under Article V(1)(e) and
Article VI of the New York Convention: a proposal for effective guidelines. Texas Law Rev 68
(5):1031–1072
88
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958),
Article V(1).
89
See: Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards:
Grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/
knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-
grounds-to-refuse-enforcement
90
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article
V(1)(a).
1550 L. Jacobsen
Pieter Sanders, the Dutch lawyer who prepared the first draft of the New York
Convention, compared international arbitration to a young bird that rises in the air
but from time to time falls back to its nest.91 The nest is made of State law. Several
grounds for non-recognition of the award under the New York Convention are linked
to State law, including this one under Article V(1)(a). The incapacity of the parties is
determined by the law applicable to them. The validity of the arbitration agreement is
determined by the law governing the agreement, and if the agreement does not
specify a governing law, the law of the seat of arbitration.
The requirement for a valid arbitration agreement underscores the importance of
the parties’ consent to arbitration. However, a party may be estopped from invoking
this ground if it fails to raise it promptly during the arbitration and/or willingly
participates in the arbitration despite the alleged invalidity.92 The enforcement court,
with the authority to determine whether such preclusion is warranted, may undertake
an independent analysis of the validity of the arbitration agreement.93 The US
Supreme Court has held that courts may independently review whether the parties
have agreed to arbitrate a dispute’s merits.94
It is also worth noting that Article II(1) of the New York Convention requires
the arbitration agreement to be in writing whereas Article II(2) defines the term
“agreement in writing” to include an arbitral clause in a contract or arbitration
agreement, signed by the parties or contained in an exchange of letters or tele-
grams.95 Different jurisdictions may have different interpretation of this term,
which may lead to inconsistency and uncertainty.96 Professor Albert Jan van den
Berg suggests that proper exercise of residual discretion by the enforcement court
(e.g. to refute a party’s objection of no or defective written agreement if it willingly
participated in the arbitration despite the objection) and a progressive interpreta-
tion of Article II(2) (e.g. interpreting it to impose a minimal requirement) may be
useful in avoiding non-enforcement in circumstances where it would be appropri-
ate to grant enforcement.97
91
Sanders P (1999) The making of the convention, in Enforcing Arbitration Awards under the New
York Convention, United Nations Publication, Sales E.99 V.2.
92
See in general Albert Jan van den Berg (1996) Residual discretion and validity of the arbitration
agreement in the enforcement of arbitral awards under the New York Convention of 1958. Current
Legal Issues in International Commercial Litigation, SICBL Publications, Vol. VIII.
93
Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: grounds to
refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/knowledge/pub
lications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-
refuse-enforcement
94
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).
95
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article II.
96
See in general van den Berg AJ (1996) Residual discretion and validity of the arbitration
agreement in the enforcement of arbitral awards under the New York Convention of 1958. Current
Legal Issues in International Commercial Litigation, SICBL Publications, Vol VIII.
97
Ibid.
(b) Procedural defects
Under Article V(1)(b), the court may refuse to enforce an award if the party
resisting enforcement can prove that it was not given proper notice of the appoint-
ment of the arbitrator or of the arbitration proceedings or was otherwise unable to
present its case.98
However, the party resisting enforcement on this ground may have difficulty
proving its case if the enforcement court believes that the irregularity did not affect
the outcome of the arbitration.99 In addition, the enforcement courts are likely to
defer to arbitrators’ procedural decisions.100 Active participation in arbitration,
notwithstanding the procedural defects, may result in the enforcement court to
deem the objection waived.101
The objection under Article V(1)(b) of the New York Convention is similar in nature
to the ground for annulment under Article 52(d) of the ICSID Convention, that is, a
serious departure from a fundamental rule of procedure. “Fundamental rules of pro-
cedures” under the ICSID Convention refer to principles, such as the right to be heard.
Article V(1)(b) of the New York Convention also focuses on the right to be heard. Under
the ICSID Convention, ad hoc committees’ interpretation of fundamental rules of
procedures in annulment proceedings forms part of the ICSID jurisprudence. Under
the New York Convention, the law for determining procedural defects is not specified.
However, the generally accepted view is that the standard of due process for the purpose
of Article V(1)(b) of the New York Convention should be that of the enforcing court,
while it should also give due regard to the international character of arbitration.102
(c) Excess of powers
Under Article V(1)(c), the court may refuse to enforce an award if the party
resisting enforcement can prove that the award deals with a difference not contem-
plated by or not falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration (although the
decisions on matters submitted to arbitration may still be recognized and enforced).103
This provision is similar to the ground for annulment under Article 52(b) of the
ICSID Convention, that is, a manifest excess of power by the arbitral tribunal, in
98
V(1)(b).
99
refuse-enforcement
100
Ibid.
101
Ibid.
102
Ibid.
103
V(1)(c).
1552 L. Jacobsen
particular in relation to the tribunal’s exercise of jurisdiction. Article V(1)(c) can be

invoked in circumstances where the arbitrators have exceeded their mandate as
prescribed by the arbitration agreement. However, although under the interpretation
of some ad hoc committees a tribunal declining jurisdiction where jurisdiction
actually exists may trigger a ground for annulment under Article 52(b) of the
ICSID Convention, Article V(1)(c) of the New York Convention does not specify
this ground as a basis for the court to refuse enforcement. It may not be necessary as
there would be no award to be enforced under the New York Convention if the
arbitral tribunal has declined jurisdiction.
In an ICSID arbitration, in addition to the parties’ agreement, the ICSID Con-
vention also imposes certain mandatory requirements which must be satisfied before
a tribunal can accept jurisdiction, such as Article 25(1) of the ICSID Convention.
Article V(1)(c) of the New York Convention does not contain similar provisions and
does not specify which law should govern the interpretation of the arbitrators’
jurisdictional scope. If the arbitration agreement is silent on this point, there may
be conflicts of law issues. As with other jurisdictional objections, the enforcement
court may find that a party has waived the claim under Article V(1)(c) if it has failed
to promptly raise the objection.104
(d) Improper composition of the panel or arbitral procedure
Under Article V(1)(d), the court may refuse to enforce an award if the party
resisting enforcement can prove that the composition of the arbitral authority or the
arbitral procedure was not in accordance with the agreement of the parties, or, failing
such agreement, was not in accordance with the law of the country where the
arbitration took place.
ICSID has a similar ground for annulment: under Article 52(a) of the ICSID
Convention, a party may seek to annual an award on the ground that the original
tribunal was not properly constituted. As consent is essential to all international
arbitration, it is not surprising to see both systems grant supreme importance to the
parties’ agreement in respect of the constitution of the arbitral authority and other
procedural matters. The ICSID system also imposes additional requirements such as
nationality requirements. As for the New York Convention, the parties’ agreement is
paramount in regulating the composition of the tribunal and the arbitral procedure
and failing such agreement the law of the seat of arbitration will come into play.
(e) Award not binding or having been set aside
Under Article V(1)(e), the court may refuse to enforce an award if the party
resisting enforcement can prove that the award has not yet become binding on the
104
refuse-enforcement
parties, or has been set aside or suspended by a competent authority of the country in
which, or under the law of which, that award was made.105
One of the most important improvements of the New York Convention over the
1927 Geneva Convention, its predecessor, is its elimination of the so-called double
exequatur requirement under which the party seeking enforcement of an award had
to prove that it had become final in both the country it was issued, and the country in
which enforcement was sought.106 This progress is understood to be the result of a
compromise between two competing concerns: eliminating the need for judicial
proceedings in both the rendering jurisdiction and the enforcement jurisdiction,
and avoiding enforcement if the award has been set aside by a court in the rendering
jurisdiction.107 However, if the award is not binding, it may still be a ground under
Article V(1)(e) for the enforcement court to refuse enforcement. The New York
Convention does not give specific guidance on how to interpret “binding”. The fact
that an award is the subject of a set-aside application should not be conclusive
evidence that the award is not binding. If that were the case, the finality of arbitral
awards would be an illusion and the very raison d’être of international arbitration
would be in question. Given the importance of consent to international arbitration,
one suggestion is that whether an award is binding for the purpose of Article Vof the
New York Convention should depend on whether the parties intended to enter into a
binding arbitration.108
If an application to set aside an award in the seat of arbitration (or, if different, the
country under the law of which the award was made) is successful, it will become a
basis on which the enforcement court may refuse enforcement. The significance of
the seat of arbitration is evident. It supervises and enforces the arbitration process. If
an award is annulled at the seat, under the classical approach deference should be
given to the seat and the award should not be enforced in any jurisdiction including
that of the enforcement court.109 However, this approach is not universally adopted:
under the internationalist approach, of which France is a major proponent, every
105
V(1)(e).
106
See: Sanders P (1999) The making of the convention, in Enforcing Arbitration Awards under the
New York Convention. United Nations Publication, Sales E.99 V.2; Fulbright NR (2019) Issues
relating to challenging and enforcing arbitration awards: grounds to refuse enforcement, August.
Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/ee45f3c2/issues-
relating-to-challenging-and-enforcing-arbitration-awards-grounds-to-refuse-enforcement
107
(5):1047
108
(5):1058–1061
109
Nolan M, Aitelaj K (2019) Jurisdictional challenges. In: J William Rowley QC (general ed),
Gaillard E, Kaiser GE (eds) Global Arbitration Review, The guide to Challenging and Enforcing
Arbitration Awards, p 48
1554 L. Jacobsen
court where enforcement is sought can carry out independent assessment.110 Despite
the divergent views, given the New York Convention’s pro-enforcement stance,
most jurisdictions impose an increasingly high burden of proof on the party seeking
to enforce an award annulled at the seat.111 That being said, Article V does allow a
court to grant enforcement despite an award having been set aside by a court at the
seat of arbitration. Courts have enforced annulled awards under unusual circum-
stances such as where the set-aside procedure is tainted by serious irregularity, the
annulment is based on local public policy standards or other local standards of
review, or the annulment is the result of a substantive review which was contractu-
ally prohibited by the parties.112
(f) Arbitrability and public policy
Under Article V(2) of the New York Convention, the court where enforcement of
the award is sought may also refuse enforcement if it finds that the subject matter of
the difference is not capable of settlement by arbitration under the law of the country
in which the court sits or that the recognition or enforcement of the award would be
contrary to the public policy of that country.113
As a nod to the importance of State laws, the interpretation of arbitrability and
public policy under Article V(2) is governed by the law of the country in which the
enforcement court sits. There is no universal standard of non-arbitrability, but
common examples of non-arbitrable matters include certain categories of criminal
disputes and family law matters.114 There are few instances of enforcement being
refused on this ground probably because arbitrability is an issue that would usually
be resolved during the arbitration.115
110
Arbitration Awards, p 49
111
Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: Grounds to
refuse-enforcement
112
See: Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards:
Grounds to refuse enforcement, August. Available at: https://www.nortonrosefulbright.com/en/
knowledge/publications/ee45f3c2/issues-relating-to-challenging-and-enforcing-arbitration-awards-
grounds-to-refuse-enforcement; Petit S, Grant B (2018) Awards set aside or annulled at seat,
Zombies, ghosts and buried treasures. International Arbitration Report, Issue 10, pp 21–22
113
Article V(2).
114
refuse-enforcement
115
Ibid.
The notion of public policy may vary from jurisdiction to jurisdiction. According
to a report compiled by the International Bar Association in 2015 based on a survey
of more than 40 jurisdictions, it is impossible to precisely define this concept, but
“public policy as a ground for refusing the recognition or enforcement of foreign
awards under Article V(2)(b) of the [New York] Convention is overwhelmingly
considered to include only a very limited number of fundamental rules or values”.116
This shows that despite the potentially diverse interpretation by various States of the
public policy exception, there is a consensus among different jurisdictions that this
concept should be narrowly interpreted for the purpose of Article V(2)(b) of the New
York Convention. Consistent with the pro-enforcement policy of the New York
Convention, even jurisdictions traditionally reputed to take an expansive view of
public policy have been aligning themselves with the international consensus on
narrow interpretation.117 A corollary of the narrow interpretation is that the violation
must be sufficiently serious for the award not to be recognised and enforced,118 for
example, where giving effect to the award would be repugnant to fundamental
notions of what is decent and just in the enforcement State.119 In fact, an objection
to enforcement on the ground of public policy seldom succeeds and may give the
enforcement court the impression that the party invoking it has an extremely weak
case.120
Delaying Enforcement Under the New York Convention
In addition to the grounds for refusing enforcement under Article V, Article VI of the
New York Convention gives the party resisting enforcement a way to delay enforce-
ment. Under Article VI, if an application for setting aside the award has been made in
the seat of arbitration (or, if different, the country under the law of which the award
was made), the court where recognition or enforcement is sought may, if it considers
it proper, adjourn the decision on the enforcement of the award and may also, on the
116
See International Bar Association (2015) Report on the public policy exception in the New York
Convention, p 18, October. Available at: https://www.ibanet.org/LPD/Dispute_Resolution_Section/
Arbitration/Recogntn_Enfrcemnt_Arbitl_Awrd/publicpolicy15.aspx
117
Stothard P, Biscarro A (2018) Public policy as bar to enforcement. International Arbitration
Report, Issue 10, pp 23, 24
118
Fulbright NR (2019) Issues relating to challenging and enforcing arbitration awards: Grounds to
refuse-enforcement
119
TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007).
120
van den Berg AJ (1996) Residual discretion and validity of the arbitration agreement in the
enforcement of arbitral awards under the New York Convention of 1958. Current Legal Issues in
International Commercial Litigation, SICBL Publications, Vol VIII.
1556 L. Jacobsen
application of the party seeking enforcement of the award, order the party resisting
enforcement to give suitable security.121
Whether the enforcement court uses discretion to determine the propriety of
adjournment is of particular significance. Without such analysis, Article VI could
act as an automatic stay of enforcement once the party resisting enforcement files a
set-aside application at the seat (or, if different, the country under the law of which
the award was made). This would run counter to the goal of the New York
Convention to expedite the enforcement of foreign awards.
The New York Convention does not offer guidance on how the enforcement court
should exercise its discretion. To foster consistency among jurisdictions, one sug-
gestion is that enforcement courts use a standard similar to that they use in deciding
preliminary injunctions. In other words the enforcement will be stayed only if the
party resisting enforcement can prove that it is likely to prevail; that it will be
irreparably harmed by enforcement; and that the previous two factors combined
outweigh the harm that the other party would suffer from the stay.122 The fact that
Article VI provides for both imposing a stay and posting security does make it look
like an operative clause for granting interim remedies. However, the suggestion that
the standard used in deciding preliminary injunctions should be used for the purpose
of Article VI to promote consistency is based on the assumption that different
jurisdictions use similar standards in deciding preliminary injunctions. It will also
require the enforcement court to evaluate the set-aside application in a foreign
jurisdiction under foreign law. Whether this approach would help achieve the New
York Convention’s purpose of making it easier to enforce foreign arbitral awards
would probably depend on the degree of harmonisation of State laws.
The New York Convention and State Law
As illustrated by Pieter Sanders’ bird-nest metaphor, State law is indispensable to the

operation of the New York Convention. The discussion of the grounds for refusing or
delaying enforcement in the section above has already touched upon the importance
of both the jurisdiction where the award is issued and the jurisdiction where the
enforcement is sought.
In particular, if an award is set aside by a court at the seat of arbitration (or, if
different, the country under the law of which the award was made), the court where
enforcement is sought may refuse to grant enforcement pursuant to Article V(1)(e).
This shows deference to the seat of arbitration. However, empirical evidence shows
121
VI.
122
Michael H. Jr. Strub (April 1990) Resisting enforcement of foreign arbitral awards under Article
V(1)(e) and Article VI of the New York Convention: A proposal for effective guidelines. Texas Law
Rev 68(5):1064
that arbitral awards are rarely set aside by the courts in the rendering jurisdiction.123
Creating a new annulment authority within the New York Convention, similar to the
ad hoc committee in ICSID annulment proceedings, may make the review process
look more objective, but such a move would be impractical and unlikely as it would
involve a major revamp of the New York Convention. Another option would be
giving the enforcement court the power to set aside the award, but such an arrange-
ment would be antithetical to the New York Convention’s mission to facilitate the
recognition and enforcement of foreign arbitral awards. Therefore, the key to
enhancing the effectiveness of the New York Convention and ensuring its legitimacy
may lie in further harmonisation of State laws in relation to international arbitration.
If the courts in different jurisdictions review set-aside applications with similar
criteria, the actual or perceived differences among State laws would become less
and less important as a factor of consideration when the parties select the seat of
arbitration. As important as the seat is to the arbitration process, the
internationalisation and harmonisation of State laws related to international arbitra-
tion will reduce the risk of seat shopping based on State law.124
The New York Convention has been interpreted to leave the enforcement courts
with a discretion to enforce annulled awards. The approaches taken by different
courts in exercising the discretion may not be consistent.125 As Chromalloy and
TermoRio illustrate, even courts within the same country may reach different con-
clusions as to whether an award set aside at the seat can be enforced.126 The
divergence is also on a global scale as illustrated by the split between the classical
approach and the so-called internationalist approach.127
The exercise of such residual discretion by enforcement courts should be assessed
in the light of Article VII of the New York Convention. Article VII, widely known as
the more-favourable-right provision, stipulates that the New York Convention shall
not deprive an interested party of its right to rely on a more favourable treaty or
domestic law concerning recognition or enforcement instead of the New York
Convention.128 The word “shall” seems to imply that it is mandatory to allow the
123
Michael H. Jr. Strub (April 1990) Resisting enforcement of foreign arbitral awards under Article
V(1)(e) and Article VI of the New York Convention: A proposal for effective guidelines. Texas Law
Rev 68(5):1064
124
See Chaisse J (2015) The issue of treaty shopping in International Law of Foreign Investment –
structuring (and restructuring) of investments to gain access to investment agreements. Hast Bus
Law Rev 11(2):225–306
125
See in general Bird RC (2011) Enforcement of annulled arbitration awards: a company perspec-
tive and an evaluation of a New York Convention. NC J Int Law Commer Regul 37:1013–1058
126
Chromalloy Aeroservices v. Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C 1996); TermoRio
S.A. E.S.P. v. Electranta S.P., 487 F.3d 928 (D.C. Cir. 2007).
127
Arbitration Awards, pp 43–51
128
Article VII.
1558 L. Jacobsen
parties to enjoy the more favourable domestic law. This is the position taken by the
French court in Hilmarton v OTV, where the court permitted enforcement of an
arbitral award in favour of OTV which had been set aside in Switzerland, the seat of
arbitration.129 Since annulment of an award is not one of the grounds for refusing
enforcement under French law, the court held that the permissive language of Article
V(1)(e) in conjunction with the mandatory language of Article VII meant that the
French court must apply the more liberal domestic regime and enforce the award
even though it had been annulled at the seat of arbitration.130 However, Hilmarton
also sought to enforce the Swiss court’s annulment in France and another French
court recognised the annulment.131 The dispute was re-submitted for arbitration in
Switzerland and Hilmarton obtained a favourable result this time.132 Hilmarton then
sought to enforce its award in France, which meant that at one point there were two
conflicting awards in the French legal system.133 This saga shows the dilemma
which could arise if enforcement courts give themselves full discretion in determin-
ing whether to enforce annulled awards with no regard for the set-aside by a court at
the seat despite it being a permissive ground for non-enforcement under the New
York Convention.134
In response, scholars such as Professor Albert Jan van den Berg have proposed
amending the New York Convention to, for example, give more weight to the courts
at the seat of arbitration within the context of set-aside.135 However, given that there
are over 160 contracting State parties to the New York Convention,136 it is probably
very difficult and time consuming to build consensus among the different States on a
new draft of the convention. A prolonged (or failed) attempt to amend the New York
Convention may undercut the effectiveness of the existing convention.137
As with the review of set-aside applications by the court at the seat of arbitration,
the consistency in the exercise of residual jurisdiction by enforcement courts to
enforce annulled award may be better achieved by harmonisation and
internationalisation of relevant State laws. Although cases like Chromalloy,
TermoRio and Hilmarton show that courts have adopted different approaches in
129
Petit S, Grant B (2018) Awards set aside or annulled at seat, Zombies, ghosts and buried
treasures. International Arbitration Report, Issue 10, pp 20–22
130
Ibid.
131
Bird RC (2011) Enforcement of annulled arbitration awards: a company perspective and an
evaluation of a New York Convention. NC J Int Law Commer Regul 37:1037
132
Ibid.
133
Ibid.
134
Ibid.
135
van den Berg AJ (2008) Hypothetical draft convention on the international enforcement of
arbitration agreements and awards. International Council for Commercial Arbitration, May. Avail-
able at http://www.arbitrationicca.org/media/0/12133674097980/hypotheticaldraftconventionajbre
vO6.pdf.
136
See: http://www.newyorkconvention.org/countries
137
See Stewart K, Matthews J (2002) Online arbitration of cross-border, business to consumer
disputes. Univ Miami Law Rev 56:1111–1138
this area, courts have generally used discretion to enforce an annulled award mainly
in two situations: (1) there is a de minimis ground for refusing enforcement (e.g. a
minor violation of the applicable arbitration rules); and (2) a party resists the
enforcement of an award on the basis of an objection which it did not raise in the
arbitration.138 Such commonality should send a reassuring message that it is possible
for enforcement courts to apply generally consistent standards in exercising their
discretion to enforce annulled awards through further harmonisation of State laws
related to international arbitration.
In summary, as the operation of State courts is intertwined with the operation of
the New York Convention, a key to the continued success of the New York
Convention is the harmonisation and internationalisation of State laws related to
international arbitration. This would be the case for both the courts at the seat of
arbitration and the courts of enforcement. Harmonisation of State laws in this area
will decrease the likelihood of conflicts of law in the enforcement process and make
it less problematic if a State court needs to analyse foreign law in the process. It is
also worth noting that the grounds for denying enforcement of foreign arbitral
awards under Article V of the New York Convention are almost identical to the
grounds for set-aside under Article 34(2) of the UNCITRAL Model Law on Inter-
national Commercial Arbitration,139 which has been adopted in 80 States in a total of
111 jurisdictions.140 Therefore, when an enforcement court ponders whether to grant
enforcement to an award which has been set aside by, or which is the subject of a set-
aside proceeding before, a court at the seat of arbitration, it is likely that the latter
jurisdiction has adopted an arbitration law which requires its court, in deciding
whether to set aside the award, to consider the same or similar factors as the
enforcement court in its deliberation of whether to grant enforcement. Arguably,
there is already a solid foundation for State courts to achieve harmonisation in their
interpretation and application of relevant State laws in the context of set-aside and
non-recognition of foreign arbitral awards.
Conclusion: Choice Between the ICSID Convention and the New

York Convention
After having looked at both annulment under the ICSID Convention and the non-
recognition under the New York Convention, a logical question may be which
system is more desirable to a party to a potential international investment arbitration.
138
van den Berg AJ (1996) Residual discretion and validity of the arbitration agreement in the
enforcement of arbitral awards under the New York Convention of 1958. Current legal issues in
International Commercial Litigation, SICBL Publications, Vol VIII; Petit S, Grant B (2018) Awards
set aside or annulled at seat, Zombies, ghosts and buried treasures. International Arbitration Report,
Issue 10, pp 20–22
139
See: UNCITRAL Model Law on International Commercial Arbitration, Article 34(2).
140
See: https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration/status
1560 L. Jacobsen
As the section headed “Non-recognition Under the New York Convention” has
shown, the two systems share some common grounds for annulment and non-
recognition such as serious procedural defects, improper constitution of the tribunal
and excessive exercise of powers by the tribunal. Under both systems, the grounds
for annulment and non-recognition are exhaustive. Under both systems, the
reviewing body (the ad hoc committee for the ICSID Convention and a State court
under the New York Convention) has the discretion to give effect to the award even
if one or more grounds for annulment or non-recognition are met. However, the
review is not an appeal and the reviewing body cannot substitute its own reasoning
for that of the arbitral tribunal under either system. Both systems provide for an
interim stay on enforcement while the challenge to the award is pending, with the
possibility of requesting the party resisting enforcement to post security.
One major difference between the ICSID Convention and the New York Con-
vention is that the former is a self-contained and delocalised system, whereas the
operation of the latter is not independent of State law.
This difference may translate into a more definitive finality for an ICSID award in
the sense that the only challenge faced by such an award is an annulment application
before an ad hoc committee within the ICSID system. After the ad hoc committee’s
ruling, there would be no further review possible. In contrast, a foreign arbitral award
enforceable under the New York Convention not only may be subject to a set-side
proceeding in the court at the seat of arbitration, but also faces the danger of not being
recognised by an enforcement court. An enforcement court may enforce an annulled
award, while it is also possible for the enforcement court to grant enforcement to an
award which is the subject of a set-aside proceeding only to have the court in the
rendering jurisdiction set it aside later. In addition, assuming enforcement proceedings
could be brought in more than one jurisdiction, even if the party resisting enforcement
succeeds in one jurisdiction, in theory it is always possible for the other party to try
another bite at the apple by initiating a new enforcement proceeding in another
jurisdiction. Such dilemma would not occur in the ICSID system.
The ICSID Convention may provide for higher finality also because only a final
award can be the subject of an annulment proceeding, whereas for arbitration outside
the ICSID system interim decisions such as one relating to the tribunal’s jurisdiction
may also become the subject of set-aside proceedings.141
Last and not the least, an ICSID award, if not annulled, is automatically enforce-
able in all contracting States. This would seem to offer stronger finality in terms of
enforcement than a foreign award under the New York Convention which may have
to navigate the labyrinth of the court system of the enforcement State.
However, the flip side of the finality is that, if annulled, an ICSID award would
have no hope of being enforced. In contrast, even if a non-ICSID award has been set
aside, under the New York Convention an enforcement court may still exercise it
discretion to enforce it.
141
Steindl BH (2015) ICSID annulment vs. set aside by State courts. In: Yearbook on International
Arbitration, vol 4, p 198
Given the ICSID Convention’s focus on finality and the importance of State
courts to the operation of the New York Convention, it is not surprising that State
courts seem to have wider powers of review than ad hoc committees within the
ICSID system. State courts reviewing set-aside or non-enforcement applications are
not subject to the same restrictions that apply to the ICSID ad hoc committees, who
are told to only scrutinise procedural errors and the legitimacy of the tribunal
proceedings, but not the correctness of the tribunal’s reasoning. The public policy
ground for non-recognition under the New York Convention, which does not
constitute a ground for annulment under the ICISD Convention, seems to also
give State courts more leeway in making their decision. It would seem a logical
conclusion that the set-aside rate of non-ICSID awards would be higher than the
annulment rate of ICSID awards. However, by comparing the limited data available
on non-ICSID awards with the available data on ICSID awards, Ms Steindl casts
doubt on that conclusion.142 This may have something to do with both State courts’
general deference to arbitration awards and the expansive approach taken by some
ICSID ad hoc committees despite their restrictive mandate.143 A creative ad hoc
committee may always find a way to subsume a review of substance under a
procedural ground whereas a State court, especially one bound by the principle of
stare decisis, may be reluctant to set aside an arbitral award if the established
jurisprudence favours enforcement.
For an investor deciding between the two systems, the costs of the proceedings
should also be relevant. According to the Updated Background Paper (2016), the
costs of ICSID annulment proceedings concluded since July 2020 till the time of the
report had averaged US$388,000.144 While the costs of set-aside and/or non-recog-
nition proceedings may vary from State to State, it is possible that the costs of ICSID
annulment proceedings are higher than the costs of challenging arbitral awards in
some State courts.
In conclusion, although the ICSID Convention seems to offer a higher degree of
finality, in practice the risk of non-enforcement faced by a non-ICSID arbitral award
may not be much higher than the risk of annulment faced by an ICSID award. As
harmonisation and internationalisation of State laws relating to international arbitra-
tion continues, the discrepancy if any between the operation of the two systems in
this respect should be further diminished. Ultimately, the choice between the two
systems may depend as much on the financial implications of annulment and set-
aside proceedings under the respective system.145
142
Arbitration, vol 4, pp 195–200
143
Arbitration, vol 4, pp 181–208, 188, 202–203
144
para.53.
145
Arbitration, vol 4, p 203
The Importance of Transparency for
Legitimizing Investor-State Dispute 60
Settlement
Flavia Marisi
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1564
Investment Arbitration and the Perceived Crisis of Legitimacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1565
The Main Arguments Questioning the Legitimacy of Investment Arbitration . . . . . . . . . . . . . . . . 1567
Protection of Public Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1568
Constitutional Rights of Citizens and Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1569
Advantages of Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1570
Advantages of Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1572
Encouraging Public Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1574
Increasing Outcome Predictability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1575
Creating Confidence and Enhancing Legitimacy in Investment Arbitration . . . . . . . . . . . . . . 1575
Initiatives in Favor of Greater Transparency in Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . 1576
Expanding the Scope of Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1580
The Voices of the International Bar Association Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1580
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1581
Abstract
Investment arbitration has been at the center of both strong support and vivid
debate: many praise its efficient process for dispute resolution, whereas others
lament the lack of transparency and raise doubts about its legitimacy and consis-
tency, due to, respectively, the possible contrast between democratically issued
laws and investment protection and the lack of predictability of the outcome of
awards. In fact, not only did voices of criticism emerge from civil society: they
originated also within the framework of the UNCITRAL Working Group III
negotiations on ISDS reform. The chapter reflects on the advantages that confi-
dentiality offers to both parties and on the close connection between transparency
F. Marisi (*)
Faculty of Law and Criminology, Ghent University, Ghent, Belgium
e-mail: flavia.marisi@gmail.com

https://doi.org/10.1007/978-981-13-3615-7_20
1564 F. Marisi
demand and the perceived crisis of legitimacy of investment arbitration emerged

from a multiplicity of stakeholders. In particular, the chapter highlights the main
arguments currently questioning the legitimacy of investment arbitration, and
finds that a proper balance between transparency and confidentiality can protect
the arbitration proceedings from external pressure and at the same time create
confidence among all stakeholders.
Keywords
Investment arbitration · ISDS · Predictability of outcomes · Public interest ·
Public participation · Constitutional rights
Introduction
Investment arbitration provides a neutral forum for the resolution of disputes

between foreign investors and host States. The consent to arbitrate is given by the
host State in the International Investment Agreement (IIA): this grants the right to the
foreign investor to commence arbitration proceedings. Investment agreements come
in the shape of Bilateral Investment Treaties (BITs) as well as Free Trade Agree-
ments (FTAs) and multilateral agreements, such as the Energy Charter Treaty (ECT).
Investment arbitration has attracted both support and criticism: proponents argue
that, by contrast to court proceedings, it provides a more streamlined process for
dispute resolution, reducing duration and costs. On the other hand, critics claim that
the ad hoc arbitration system fosters a general lack of transparency and raises
significant questions about legitimacy because it is not coherent when it comes to
awards.1 Provided that a particular IIA confers protection to investors’ rights, the
opponents of investment arbitration argue that the democratically issued State rules
may be challenged by foreign investors, putting legitimacy at risk. The critics
maintain that the system should be closely inspected and certain aspects re-evaluated
or even changed.2 Indeed, voices from civil society consider the matter of coherence
and consistency to be particularly important and perceive the ISDS regime as less
reliable, predictable, and credible than national courts. These aspects emerged from
the speeches made by the representatives in the UNCITRAL Working Group III
sessions regarding the concerns that States have in relation to ISDS.3 They claimed
1
Bühring-Uhle C, Kirchhoff L, Scherer G (2006) Arbitration and mediation in international
business, 2nd edn. Kluwer Law International; O’Kane R (2010) Proportional pragmatism: a defense
of international arbitration agreements in the face of asymmetrical paternalism. Northwestern J Int
Law Bus 30(1):263, 277
2
Alvarez JE (2011) Public international law regime governing international investment. Martinus
Nijhoff Publishers, 451
3
Dispute Settlement Reform) Thirty-fourth session Vienna, 27 November-1 December 2017 Possible
reform of investor-State dispute settlement (ISDS) Note by the Secretariat, A/CN.9/WG.III/WP.142
(18 September 2017), http://undocs.org/A/CN.9/WG.III/WP.142
60 The Importance of Transparency for Legitimizing Investor-State. . . 1565
that, if there is no consistent case law, States might not be able to understand whether
the measures they plan to issue will be considered in breach of specific IIA
provisions.4
Indeed, from a structural perspective, investment arbitration displays a pluralistic
configuration due to the multiplicity of IIAs, the presence of earlier arbitral cases, the
different applicable treaties, laws and procedural rules, and the limited possibility to
annul or set aside the award: this setting is perceived as favoring inconsistencies in
arbitration cases, even when the facts are similar. On the other side, in the view of
many scholars and experts, “legitimacy, transparency and a consistent jurisprudence
are the benchmarks for an arbitration system”.5
The chapter aims to provide an overview of the connection between transparency
and legitimacy in investment arbitration: it retraces the voices of criticism calling for
greater transparency and public participation; discusses the latest initiatives in favor
of a greater transparency; and recalls that a high degree of transparency is often
linked to an increased predictability of outcomes. The chapter is structured as follows:
the first section presents the perceived crisis of legitimacy in investment arbitration;
the second section analyzes the main underlying arguments and articulates them in
the protection of public interest and constitutional rights of citizens and residents. The
third section describes the advantages of confidentiality, whereas the fourth section
outlines the benefits of transparency, grouping them as encouraging public participa-
tion, increasing the predictability of outcomes, and creating confidence in the dispute
settlement system. The fifth section presents the initiatives in favor of a greater
transparency; the sixth section explains the proposals for expanding the scope of
transparency to further fields; the seventh section presents the voices of the Interna-
tional Bar Association Survey; and the last section draws the conclusions of the
chapter, finding that an appropriate balance is the goal to satisfy all stakeholders.
Investment Arbitration and the Perceived Crisis of Legitimacy
The perceived crisis of legitimacy started when contradictory results were generated
by two distinct arbitration cases originating from identical circumstances. The Dutch
company CME Czech Republic BV (CME), controlled by Ronald Lauder, a US
citizen, made investments in a television company established in the Czech Repub-
lic. Alleging that a State measure had a negative impact on the investment value,
Ronald Lauder submitted an arbitration claim against the Czech Republic based on
the right granted by the USA-Czech Republic BIT. A different arbitration claim
against the Czech Republic was subsequently filed by CME under the Netherlands-
4
Roberts A, Bouraoui Z (2018) UNCITRAL and ISDS reforms: concerns about consistency,
predictability and correctness (EJIL: Talk!, 5 June 2018), https://www.ejiltalk.org/uncitral-and-
isds-reforms-concerns-aboutconsistency-predictability-and-correctness
5
Hess B (2015) Legitimacy, transparency and a consistent jurisprudence are the benchmarks for an
arbitration system (Max-Planck-Gesellschaft, 10 December 2015), https://www.mpg.de/9789900/
ttip-interview-arbitrationsystem
1566 F. Marisi
Czech Republic BIT. The first tribunal ruled in favor of the State on grounds that
Ronald Lauder did not demonstrate how the Czech Republic’s measures were
correlated to the incurred damages. By contrast, the second tribunal held the host
State accountable and ruled that the investor was entitled to receive compensation
amounting to USD 269,814,000.6 Similarly, contradictory results were issued by
cases focused on an identical State measure, decided under an identical IIA and with
plaintiffs working in the same industry – the so-called four Argentina Gas Cases –
LG&E,7 CMS,8 Enron,9 and Sempra.10
Under these circumstances, critics challenge the foundations of the investment
arbitration system. Indeed, the concept of “legitimacy crisis” has been lately at the
core of a vivid debate. In fact, opinions on the perceived legitimacy of the system
are, in practice, expressed not only by those that make use of it but also by those who
are somehow affected by it, such as professionals and potential parties in future
arbitration cases, as well as civil society.
Doubtlessly, the opinion of the parties is essential: according to Gary Born, “busi-
nesses perceive international arbitration as providing a neutral, speedy and expert
dispute resolution process, largely subject to the parties’ control, in a single, centralized
forum, with internationally enforceable dispute resolution agreements and decisions.
While far from perfect, international arbitration is, rightly, regarded as generally suffer-
ing fewer ills than litigation of international disputes in national courts and as offering
more workable opportunities for remedying or avoiding those ills which do exist.”11
However, if it is apparent for the parties who choose – even though they do so in
separate moments – to make use of investment arbitration that the system is legitimate,
since the right to choose the method of dispute resolution is part of party autonomy, the
implications of cases may not be limited to the disputing parties. In fact, conceiving
investment arbitration legitimacy solely based on the parties’ perspective would not
acknowledge that norms that are independent of the disputing parties have an important
role to play in the legitimacy of the system as perceived by various stakeholders.12
6
Lauder v Czech Republic (2001) Final Award, 3 September 2001, para. 313, https://www.italaw.
com/cases/documents/611; CME Czech Republic BV v Czech Republic (2001) Partial Award, para.
575 (13 September 2001), https://www.italaw.com/sites/default/files/case-documents/ita0178.pdf,
and Final Award, 14 March 2003, paras. 446–47, https://www.italaw.com/sites/default/files/case-
documents/ita0180.pdf
7
LG&E Energy Corp. v Argentine Republic (2006) ICSID case no. ARB/02/1, Decision on
Liability, 3 October 2006) 21 ICSID Rev.-FILJ 269
8
CMS Gas Transmission Company v Argentine Republic (2005) ICSID case no. ARB/01/8, Award,
12 May 2005, 44 ILM 1205
9
Enron Creditors Recovery Corp. v Argentine Republic (2007) ICSID case no. ARB/01/3, Award,
22 May 2007
10
Sempra Energy Int’l v Argentine Republic (2007) ICSID case no. ARB/02/16, Award, 28
September 2007
11
Born G (2009) International commercial arbitration, vol I, 2nd edn. Wolters Kluwer, 70
12
Schill SW (2015) Conceptions of legitimacy of international arbitration. In: Caron DD, Schill SW,
Smutny AC, Triantafilou EE (eds) Practising virtue inside international arbitration. Oxford Univer-
sity Press, 106, 118
In order to remedy this understanding of legitimacy from a single, monist

perspective, research has identified further dimensions of legitimacy: the circum-
stances of arbitration being perceived as legitimate by a particular nation and its
society are identified as national legitimacy,13 whereas the circumstances of arbitra-
tion being perceived as legitimate by global society and its interests are designated as
global legitimacy. Such a perspective encompasses every actor throughout the world
who is impacted by investment arbitration.14
In fact, following the widening of the matters eligible for arbitration, the latter has
“increased its social reach”15; moreover, investment arbitration covers nearly all
countries, and it is considered the main method of dispute resolution for transna-
tional disputes under investment treaties, having increasingly substituted domestic
courts.16 It follows that the ramifications of the decisions made by arbitral tribunals
and the operations of arbitration institutions are not limited to the parties to the
dispute who have explicitly acknowledged the authority of arbitrators and an
arbitration institution.17 National populations may be affected by the outcome of
an arbitration in which their government is involved. This happens because invest-
ment arbitration may relate to public matters object of a State measure and the
arbitral tribunal decides whether the measure breached the investment protection
obligations of the State toward foreign investors and whether the State is liable to
pay compensation.18 Several stakeholders expressed their views on the perceived
legitimacy of investment arbitration: their assessment relates also to the possibility to
intervene as amicus curiae in an investment arbitration where they are not a party but
from whose outcome they will be affected. It follows that it is not enough to consider
the notion of legitimacy solely in connection with disputing parties; rather, its
multidimensionality must be given due consideration.
The Main Arguments Questioning the Legitimacy of Investment

Arbitration
Among the main issues questioning the legitimacy of investment arbitration, some
relate to the duties of the respondent State, among which there are the protection of
public interest and constitutional rights of citizens and noncitizens. Such elements
pertain to national legitimacy. Other elements pertain to the features of the procedure
13
Ibidem, at 120
14
Ibidem, at 121
15
Youssef K (2009) The death of inarbitrability. In: Mistelis LA, Brekoulakis SL (eds) Arbitrability:
international and comparative perspectives. Wolters Kluwer, 47
16
Paulsson J (2013) Universal arbitration – what we gain, what we lose, Alexander Lecture, 29
November 2012. Arbitration 79:184
17
von Bogdandy A, Dann P, Goldmann M (2010) Developing the publicness of public international
law: towards a legal framework for global governance activities. In: von Bogdandy A, et al. (eds)
The exercise of public authority by international institutions. Springer, 3, 11
18
Schill, supra note 12, at 112
1568 F. Marisi
itself, among which the possibility, for those affected by the outcome, to have
knowledge of proceedings while they are still pending, the possibility to file an
amicus curiae brief, and the predictability of outcomes, which would ensure a
greater trust in investment arbitration overall, contributing to its legitimacy. These
elements are all affecting global legitimacy.
Protection of Public Interest
The respondent State is called before an investment tribunal because of its measures.
However, as intended by the State, the implementation of such measures can have
the purpose of safeguarding the general interests of different stakeholder groups, or
the general population.19 In fact, the protection of the interests of the entire State and
its population are often the underlying purpose of the issuance and implementation
of its measures: an example thereof is the Reform to the Ecuadorian Tax Regime of
30 April 1999, which sought to ensure that resources were more equally distributed
at the national level.20 Instead, measures issued by the suburban local administration
may be intended to safeguard the interests of particular communities and groups. The
United States 3809 Regulations can be considered an example thereof: they impose
constraints on open-pit mining activities to prevent the sacred Native American site
from being adversely affected.21 A further example is represented by the water
permit restrictions, provided for by the Hamburg Urban Development and Environ-
ment Authority in 2008.22
IIAs grant to foreign investors the right to file a request for arbitration against the
host State for an alleged violation of the applicable investment agreement. As a
consequence, some experts argued, it is quite usual that investment disputes “involve
a multitude of different issues, some concerning (. . .) matters of mainly public
interest, e.g., human rights (. . .) or the environment”.23 It is therefore possible, and
it has, in fact, occurred in several occasions, that a measure issued by the State aimed
at protecting the public interest, and more specifically, the environment, has been
found as diminishing the value of the investment. Already in 2013 UNCTAD
highlighted that: “In many cases foreign investors have used ISDS claims to
19
Adeleke F (2014) Investor-state arbitration and the public interest regulation theory. In: Fourth
Biennial global conference of the society of international economic law (SIEL) working paper no.
2014/12
20
EnCana Corporation v Ecuador, LCIA Case No UN3481 (formerly EnCana Corporation v
Government of the Republic of Ecuador), https://www.italaw.com/cases/393
21
Glamis Gold Ltd. v United States of America, UNCITRAL, https://www.italaw.com/cases/487
22
Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v Federal Republic of
Germany (I) (ICSID Case No. ARB/09/6) (formerly Vattenfall AB, Vattenfall Europe AG, Vattenfall
Europe Generation AG & Co. KG v The Federal Republic of Germany), https://www.italaw.com/
cases/1148
23
Kulick A (2012) Global public interest in international investment law. Cambridge University
Press, 1
challenge measures adopted by States in the public interest (for example, policies to
promote social equity, foster environmental protection or protect public health).”24
The major sphere to be reformed was discerned by the World Investment Report
of 2015 as being the protection of the right to regulate for public interest,25 while the
right to regulate investment for legitimate public policy aims was confirmed again by
the G20 governments, during the Hangzhou Summit in September 2016, in their
Guiding Principles for Global Investment Policymaking.26 Investment arbitration
was construed by some scholars as imposing restrictions on the States’ public
choice:19 they put in relief that “it would be difficult to deny the deeply public
nature of investor-State relations, at least when they set restrictions on the regulatory
powers of the State.”27
Constitutional Rights of Citizens and Residents
Some critics argue that, due to the protection afforded to their investments, investors
would privilege the company’s success over the interests of civil society.28 Other
scholars notice that low supervision from central government on local administrative
entities could put the State itself at risk for investment claims,29 and others consider
interference with the legislative iter as nondemocratic.30 Within this debate, the
participation of amicus curiae is often considered as an excellent instrument to
involve civil society and NGOs in disputes whose outcome will affect them.31
Scholars stress that representation32 and participation as reflected in citizens’ right
to be informed and involved in decisions impacting their interests33 constitute
24
UNCTAD, UNCTAD Report (2013) Reform of investor-state dispute settlement: in search of a
roadmap, IIA Issues Note No. 2, June 2013, 25–26
25
UNCTAD, World Investment Report 2015 (WIR2015) Reforming the international investment
regime: an action menu, chapter IV, http://unctad.org/en/PublicationChapters/wir2015ch4_en.pdf
26
G20 Guiding Principles for Global Investment Policymaking, http://www.oecd.org/daf/inv/
investmentpolicy/G20-Guiding-Principles-for-Global-Investment-Policymaking.pdf
27
Viñuales JE (2006) Human rights and investment arbitration: the role of amici curiae. Int Law:
Revista Colombiana de Derecho Internacional 8:231, 255
28
Eberhardt P, Olivet C (2012) Profiting from injustice. How law firms, arbitrators and financiers are
fuelling an investment arbitration boom. Corporate Europe Observatory and the Transnational
Institute, 7
29
Cotula L (2015) Democratising international investment law. Recent trends and lessons from
experience. IIED, 6
30
Choudhury B (2008) Recapturing public power: is investment arbitration’s engagement of the
public interest contributing to the democratic deficit? Vanderbilt J Transnational Law 41:775, 782
31
Pateman C (1975) Participation and democratic theory. Cambridge University Press
32
Kittrie NN (1993) Democracy: an institution whose time has come – from classical Greece to the
modern pluralistic society. Am Univ J Int Law Policy 8:375, 379
33
Pateman, supra note 31
1570 F. Marisi
important principles of democracy.34 Nevertheless, the regime of confidentiality

versus transparency depends on each case, where the applicable rules can greatly
vary, and the participation of amicus curiae or the publication of the notice of
arbitration are not necessarily granted in all cases.
Advantages of Confidentiality
Making sure that information concerning the dispute is accessible solely to the
parties, and that the nature of arbitration is preserved are the main motives in support
of confidentiality.35 Safeguarding classified business information and State sensitive
information ensures that media conjectures do not negatively affect the reputation of
either investors or States.36 Privacy is deemed a basic right by international law, but
procedural implementation is yet to become a reality.37
Concerning the first feature, it is well known that, in comparison to litigation,
arbitration better safeguards business information, which is one of the reasons why it
is the mechanism of dispute settlement that is often preferred by companies.38
Essentially, public exposure of the parties’ interests might be avoided by not
publishing awards and other information of sensitive nature, such as party behaviors
prior to arbitration commencement, conduct by the parties in the course of the
proceedings, as well as the findings achieved by the tribunal.
In turn, the State as well may pursue several ends in preferring to keep the
procedure confidential:
• Maintenance of an atmosphere attractive of foreign direct investment;

• Minimization of the likelihood of comparable claims being brought by other
investors against the host State;
• Obtaining stakeholders’ endorsement, which may be an especially delicate matter
when the rights of minorities are in question;39
• Keeping the possibility to settle by ensuring that the procedure is under as little
outside pressure and interference as possible;
34
Pateman, supra note 31
35
Ortino F (2013) Transparency of investment awards: external and internal dimensions. In:
Nakagawa J (ed) Transparency in trade and dispute settlement. Routledge, 119, 132
36
Knahr C, Reinisch A (2007) Transparency versus confidentiality in international investment
arbitration – the Biwater Gauss Compromise. Law Pract Int Courts Tribunals 6:97, 109
37
Bevilacqua D, Spagnuolo F (2015) Transparency and participation in the global polity: lessons
learned from food and water governance. Glocalism: J Culture Polit Innov, http://www.
glocalismjournal.net/ImagePub.aspx?id=239786
38
Ruscalla G (2015) Transparency in international arbitration: any (concrete) need to codify the
standard? Groningen J Int Law 3:1, 1, 6
39
Ortino, supra note 35, at 132
• Avoiding exposure of governmental and company authorities to any public

shame;40
• Protection of national information of a sensitive nature;41
• Allowing witnesses to depose and evidence to be gathered spontaneously, which
can be more challenging in the event of disclosure of confidential information.42
According to confidentiality proponents, not only the procedural stages, but even
the initiation of proceedings should be maintained confidential.43 Other scholars
highlighted that the tension between the parties can be alleviated, and the pace of the
arbitration can be intensified if an agreement is reached on specific facts.44 Conse-
quently, an amicable solution would be more likely to be reached by the parties.45
Besides contributing to the maintenance of positive relationships between the parties
in the long run,46 an amicable solution can also benefit economic exchanges.
Furthermore, in keeping with the aim of the ICSID Convention, confidentiality
might contribute to uphold the depoliticized character of arbitration.47
Other experts stressed that if documents and information are made more broadly
accessible, delays may increase, as may the duration and costs of the proceedings,48
while efficiency may diminish. For example, permission of public participation
through streaming of hearings and access to documents may translate to costly
software.49 Both parties may be damaged by protracted duration, high costs, and
40
Ortino, supra note 35, at 132; Buys CG (2003) The tensions between confidentiality and
transparency in international arbitration. Am Rev Int Arbitr 14:121, 123, 137; Schreuer CH,
Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID convention: a commentary. Cambridge
University Press, p 826; Delaney J, Magraw Jr. DB (2008) Transparency and public interest. In:
Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law.
Oxford University Press, 721, 762–763
41
Ortino, supra note 35, at 132; Buys CG (2003) The tensions between confidentiality and
transparency in international arbitration. Am Rev Int Arbitr 14:121, 123, 137; Schreuer CH,
Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID convention: a commentary. Cambridge
University Press, 826; Delaney J, Magraw Jr. DB (2008) Transparency and public interest. In:
Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law.
Oxford University Press, 721, 762–763
42
Horn N (2014) UNCITRAL transparency rules 2013 for investment arbitration. In: Sabahi B et al.
(eds) A revolution in the international rule of law: essays in honour of Don Wallace Jr. Juris
Publishing, Inc., 335, 339
43
Loquin E (2006) Les Obligations de Confidentialité dans l’Arbitrage. Revue de l’Arbitrage 2:323,
344
44
Knahr and Reinisch, supra note 36, at 109
45
46
The availability of conciliation under Articles 28–35 of the ICSID Convention stresses this aspect.
47
See Shihata IFI (1986) Towards a greater depoliticization of investment disputes: the roles of
ICSID and MIGA. ICSID Rev 1:1, 5
48
See Rubins N (2006) Opening the investment arbitration process: at what cost, what benefit?
Transnational Dispute Manag 3:3. http://www.transnational-dispute-management.com/article.asp?
key=798
49
Bevilacqua and Spagnuolo, supra note 37, at 21
1572 F. Marisi
greater susceptibility to political risk.50 Other commentators highlighted that the

reasons for confidentiality should be differentiated on the basis of the particular goals
that they pursue: the purpose of some of them is to protect the parties’ interests,
whereas others aim to protect the overall arbitration system.51
Significant stress has been laid by some researchers on the possible discrepancy
between the necessity of achieving justice and the overall necessity for coherence,
clarity, and certainty. Following this potential discrepancy, great importance has
been allocated to the creation of a coherent framework of norms.52 Moreover, there
is no appellate body for investment awards revision, so criticized decisions that have
been made public may have an impact on subsequent arbitration cases. Furthermore,
if the publication of awards is not obligatory, it may be done only partially and on the
basis of the agreement of the parties. Consequently, the disclosed awards may be the
only basis of a legal viewpoint in course of development, leading to an incomplete or
even misrepresented legal picture.53
By finding middle ground, it may be possible to foster support for some types of
transparency. For instance, in Germany, although the hearings can be observed,
written submissions are not published and video documentation is not allowed.
These provisions are intended to make sure that the arbitrators or the parties are
beyond manipulation by advocacy strategies and unjustified influence from pressure
groups.54
Advantages of Transparency
It is generally considered that transparency is a key attribute of effective gover-

nance.55 However, this consideration does not apply to dispute resolution; arbitration
is deemed by some scholars to be a replacement for the judicial resolution of
disputes, and the confidential character it exhibits is a notable characteristic rather
than a shortcoming. However, given the increase in the number of investor-State
arbitration cases, various actors including civil society have highlighted the neces-
sity for greater openness and transparency.56 It is a shared opinion that in their
50
Gómez KF (2012) Rethinking the role of amicus curiae in international investment arbitration:
how to draw the line favorably for public interest. Fordham Int Law J 35:510, 553
51
52
Blackaby N (2002) Public interest and investment treaty arbitration. In: Kaufmann-Kohler G,
Stucki BD (eds) Investment treaties and arbitration. Association Suisse de l’Arbitrage. Special
Series n. 19, 145, 149
53
54
Risse J (2015) A new ‘investment court system’ – reasonable proposal or nonstarter? Global
Arbitration News, http://globalarbitrationnews.com/investment-court-system-20150925/
55
See European Commission, White Paper on European Governance, COM (2001) 428 final,
[2001]OJ C 287/1; Harlow C (2006) Global administrative law: the quest for principles and values.
EJIL 17:187, 195, 202
56
Schreuer, Malintoppi, Reinisch and Sinclair, supra note 41, at 697–698
interaction with citizens, administrative and legislative governmental authorities

must display maximum transparency. This principle is also included in several
IIAs and provides for the obligation of the State to publish all norms that have
ramifications for investors.57 A comparable principle applies to investors as well:
within the context of corporate social responsibility, there is increasing pressure on
companies to guarantee or enhance the transparency of their operations.58
To assess the applicability of the principle of transparency to ISDS, it is important
to take into account the features of arbitration and even more specifically, those of
investor-State arbitration, considering that a public interest dimension exists. In
particular, companies providing public services are frequently involved in disputes
concerning public interest,59 which have implications for the parties as well as for
the general population or particular social groups.60 These wider implications raise
the interest of the general public in this form of arbitration rather than the commercial
one. The possibility that the liberty of maneuver for legislative and/or administrative
bodies will be restricted is feared by States, political parties, and NGOs.61
Well-known cases involve the cost and availability of public services (e.g., waste
management and electricity) and the management of key natural resources, such as
water, fisheries, forests, minerals, and oil.62 Examples of public policy measures
clashing with international investment rules include the refusal to grant an authori-
zation for a waste disposal in a town in Mexico, the measures issued by Argentina
following its fiscal crisis (over 35 cases have been filed under ICSID rules),63 as well
as the management of systems of drinking water in Cochabamba (Bolivia) and Dar
57
See, for example, Article 20 Energy Charter Treaty: “2. Laws, regulations, judicial decisions and
administrative rulings of general application made effective by any Contracting Party, and agree-
ments in force between Contracting Parties, which affect other matters covered by this Treaty shall
also be published promptly in such a manner as to enable Contracting Parties and Investors to
become acquainted with them. [. . .].” 34 ILM 360 (1995); See also UNCTAD, Transparency, Series
on Issues in International Investment Agreements (2004)
58
See Muchlinski P (2003) Human rights, social responsibility and the regulation of international
business: the development of international standards by intergovernmental organisations. Non-State
Actors Int Law 3:123; Tapscott D, Ticoll D (2003) The naked corporation: how the age of
transparency will revolutionize business. Free Press
59
See Johnson L, Sachs L, Sachs J (2015) Investor-state dispute settlement, public interest and US
domestic law. Columbia Center on Sustainable Investment. http://ccsi.columbia.edu/files/2015/05/
Investor-State-Dispute-Settlement-Public-Interest-and-U.S.-Domestic-Law-FINAL-May-19-8.pdf;
Kaj Hóber C (2008) Arbitration involving states. In: Newman LW, Hill RD (eds) The leading
arbitrators’ guide to international arbitration, 3rd edn, Juris, 927
60
This policy aspect was highlighted in the famous Australian case of Esso/BHP v Plowman, (1995)
128 ALR 391. See also Tweeddale A (2005) Confidentiality in arbitration and the public interest
exception. Arbitr Int 21:59, 61, http://corbett.co.uk/wp-content/uploads/Confidentiality-in-Arbitra
tion-The-Public-Interest-Exception1.pdf
61
See Mistelis L (2005) Confidentiality and third party participation. Arbitr Int 21:211
62
Plagakis S (2013) Transparency of investment awards: a tool to increase transparency in judicial
proceedings. In: Nakagawa J (ed) Transparency in international dispute settlement. Routledge, 84,
88–89
63
Ibidem
1574 F. Marisi
es Salaam (Tanzania). Such cases concerned public health, safety, and environment
protection policies.64 Furthermore, the extent of public policy concerns triggered by
investment arbitration is determined by the financial implications that those arbitra-
tions have.65 In fact, a compensation award can have an important effect on a State’s
budget, because the compensation is sourced from the State treasury. For example,
for both host States and investors, the sums of USD 500 million or USD 1 billion that
have been recently reported are considerable, not all States being able to pay this
kind of compensation.66
States, arbitral institutions, and international organizations are increasingly rec-
ognizing the public interest aspect and the significance of transparency in arbitration
and are accordingly adopting dedicated measures.67 In such circumstances, trans-
parent arbitral proceedings help make governance more efficient by allowing the
general public to have an idea of how public functions are performed. In a nutshell,
in order to “regulate the regulators,” national and international regulators can be held
accountable through important instruments such as transparency and participation.68
Encouraging Public Participation
As highlighted in the previous sections, the need to guarantee a certain degree of

public participation has been highlighted by various scholars. In effect, transparency
enhances pluralism and responsibility by encouraging stakeholders to get involved
in the arbitration proceedings,69 as shown by the participation of NGOs in ICSID
arbitration cases.70 Furthermore, access to data and information can attenuate or
dispel certain criticisms on the system overall. Moreover, participation demonstrat-
ing openness and transparency71 has a number of advantages, in particular better
acquaintance with the stakeholders, greater opposition to external pressures, and
better understanding of the ratio and suitability of the challenged measures.72
If civil society groups and the general public have the opportunity to participate,
they will be less likely to contest the decision in public fora.73 Amicus curiae
64
Ibidem
65
Delaney J, Magraw Jr. DB (2008) Transparency and public interest. In: Muchlinski P, Ortino F,
Schreuer C (eds) The Oxford handbook of international investment law. Oxford University Press,
721, 724
66
Delaney and Magraw, ibidem, at 724
67
Plagakis, supra note 62, at 88
68
69
Ruscalla, supra note 38, at 1
70
An example thereof is the case Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi
Universal S.A. (Claimants) and The Argentine Republic (Respondent) ICSID Case No. ARB/03/19.
71
Cassese S (2012) The global polity. Global dimensions of democracy and the rule of law. Global
Law Press, 160
72
73
participation is perceived as a genuine opportunity.74 Even a tiny improvement in

transparency can have a positive effect on substantial equality, highlighting interests
that are not properly represented.75 This can also be brought about by referencing to
third parties’ submissions in awards.
It should be added that instead of being portrayed as an obligation to disclose and
share information, transparency is frequently perceived as the ability to obtain informa-
tion for stakeholders and can also be considered as the application of the right to freedom
of opinion and expression enshrined in Article 19 of the Universal Declaration of Human
Rights (UDHR), which provides that “this right includes freedom (. . .) to seek [and]
receive (. . .) information and ideas through any media and regardless of frontiers.”76
Increasing Outcome Predictability
In the view of some researchers, the greater the accountability, the greater the
predictability of outcomes, the higher the trustworthiness of the system. Some
scholars argue that earlier decisions should be the basis of new decisions,77 which
would promote accuracy and precision in international law. The establishment of
generally accepted norms and principles helps to avoid redundant disputes78 or the
filing of particular claims or defenses necessitating argumentation against a powerful
body of law.79 An easier enforcement is an additional benefit of transparency.80
Creating Confidence and Enhancing Legitimacy in Investment

Arbitration
Transparency also promotes third-party participation. The awareness and interest of

the public may increase, leading to greater participation in investment disputes on
the part of local communities,81 with the benefit of helping consolidate the percep-
tion on ISDS legitimacy.82
Nonetheless, many commentators have highlighted that wide access to informa-
tion may not always ensure that the system is accepted and considered to be more
74
75
Bobbio N (2005) Prefazione. In: Kant I (ed) Per la pace perpetua. Editori Riuniti, 6
76
Balcerzak F, Hepburn J (2015) Publication of investment treaty awards: the qualified potential of
domestic access to information laws. Groningen J Int Law 3:1 147, 153
77
Magraw D, Amerasinghe NM (2008–2009) Transparency and public participation in investor-
state arbitration. ILSA J Int Comp Law 15:337, 345
78
79
80
Delaney and Magraw, supra note 41, at 761–762
81
Buys, supra note 41, at 134–135
82
1576 F. Marisi
legitimate. Actually, if the information made accessible is not to people’s liking, it

can lead to perceptions of the system as less legitimate.83 To sum up, regarding the
compromise between confidentiality and transparency, it must be borne in mind that,
as aptly expressed by some scholars, “[c]onfidentiality and transparency are (. . .)
competing values which need to be accommodated and adjusted one to the other in
specific cases.”84 In general, arbitral tribunals attempt to maintain a balance between
commitment to the one or the other principle. And, in fact, “an overall trend in this
field towards transparency”85 can be recognized. Thus, on the whole, transparency
generally brings more advantages than a strict confidentiality regime; however, in
cases where the two principles hold the same significance due to specific legal and
factual considerations, a dedicated effort to balance them effectively would be
necessary.
Initiatives in Favor of Greater Transparency in Investment

Arbitration
Greater transparency is associated with benefits such as the reinforcement of the rule
of law, effective governance, due process, equity, and right to access information.86
The publication of arbitral awards was mandated by certain parties to the
NAFTA,87 and further decisions promoting transparency were taken by NAFTA
tribunals under Chapter 11 disputes. Among them, we can recall: (i) Procedural
Order No. 2 in Ethyl Corporation v Canada, which decided that the notice of
arbitration, the statement of claim, and the statement of defense would be
published;88 (ii) the decision in SD Myers v Canada, which rejected the presumption
of confidentiality in investment arbitration, invoking the lack of a contractual basis
that could underpin an implicit notion of confidentiality;89 and (iii) the decision in
83
Mollestad CN (2014) See no evil? Procedural transparency in international investment law and
dispute settlement. PluriCourts Research Paper n 14–20, 13, http://www.jus.uio.no/pluricourts/
english/publications/2014/mollestad-transparency-investment.html
84
Feliciano FP (2012) The ordre public dimensions of confidentiality and transparency in interna-
tional arbitration. Philipp Law J 87:1 16, 20
85
Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania (2006) ICSID Case No. ARB/05/
22, Procedural order no.3, 29 September 2006, para. 122
86
UNCITRAL Report of Working Group II (Arbitration and Conciliation) on the Work of Its Fifty-
Third Session, A/CN.9/712, 7 (Vienna, October 4–8, 2010)
87
NAFTA, Annex 1137.4 Canada and the United States of America consented that the awards to
which they were parties could be published. A more restrained stance of deference was adopted by
Mexico regarding publication requirements of the arbitral rules that applied to each dispute.
88
Ethyl Corporation v Government of Canada, Procedural Order, 2 July 1998
89
SD Myers Inc v Government of Canada, Procedural Order No. 16, 13 May 2000, para. 8. See also
Nadkarni N, Lim Tse Wei (2018) Reimagining transparency: enhancing systemic governance and
actual legitimacy in investment arbitration. In: Hors Serie Volume XXII, Regional perspectives on
contemporary and future harmonization agenda in international trade law. Victoria University of
Wellington
Methanex v United States of America, which permitted the submission of amicus

curiae briefs for the first time in investment arbitration,90 commenting that decisions
in favor of transparency are meant to remedy the perceived lack of legitimacy.91
Other arbitration institutions were prompted to revise their procedural rules
following by the transparency advances made by the NAFTA regime. At the
moment, around 63% of investment arbitration proceedings that are known are
governed by the ICSID Arbitration Rules, so the 2006 Amendments were particu-
larly impactful.92 Improvement of transparency was one of the drivers for the 2006
Amendments to the ICSID Rules and Regulations. In particular, the changes brought
to Arbitration Rule 48 were intended to increase transparency on the publication of
the award. Pursuant to the revised Rule 48, the centre can still publish awards
only with the consent of the parties, but it shall publish excerpts of the award's
reasoning. In this way, the partial publication of all ICSID decisions is ensured.93
Moreover, Rule 32 now specifies that every hearing is open as long as neither party
objects.94 According to the previous rule, hearings could be open to any non-
disputing party only with the disputing parties’ approval.95
In October 2016, ICSID initiated the process of revision of its Arbitration Rules,
currently ongoing, encouraging Member States to put forth topics that are worth
taking into account. In January 2017, the public was also encouraged to contribute to
the discussion. The feedback provided was used by the ICSID Secretariat to formu-
late two Working Papers,96 the second of which, issued on 15 March 2019, gives
consideration to every recommendation received, moving the process toward final
approval. One of the most interesting points discussed concerns the proposed Rule
61, Publication of Awards and Decisions on Annulment. In this context, a number of
States advocated that disclosure of awards should be obligatory rather than depen-
dent on the parties providing their approval.
However, it became clear that such an approach was not feasible due to Rule
48(5) of the ICSID Arbitration Rules, which establishes that publication of an
award can only be done if the parties grant their approval. On the other hand, as
noted in Working Paper 1, proposed AR 48(5) allows the tribunal to order
production of case documents, but either party may object to such production.
In this way, parties can choose not to provide a non-disputing party with a
90
Methanex Corporation v United States of America (2001) Decision of the tribunal on petitions
from third persons to intervene as “amici curiae,” 15 January 2001.
91
Ibid para 49
92
United Nations Conference on Trade and Development (2016) Investor-state dispute settlement:
review of developments in 2015 (IIA Issues Note, No 2, 2016) (UNCTAD/WEB/DIAE/PCB/2016/
4); the relevant statistics have been conveniently compiled at United Nations Conference on Trade
and Development at http://investmentpolicyhub.unctad.org/ISDS/FilterByRulesAndInstitution
93
ICSID, Arbitration Rules, rule 48(4) dated April 2006
94
ICSID, Arbitration Rules, rule 32 (April 2006)
95
ICSID, Arbitration Rules, rule 32 (January 2003)
96
ICSID, Proposals for Amendment of the ICSID Rules – Working Paper, Vol. 3, August 2, 2018;
ICSID, Working Paper #2, Vol. 1, March 2019
1578 F. Marisi
confidential document.97 Similarly, proposed Arbitration Rule 46, Publication of

Documents Filed by a Party, provides that a party can request ICSID to publish its
written submissions, observations, or other documents, with redacted parts
agreed to by both parties. In this way, ICSID can make a document publicly
available without disclosure of confidential information. Arbitration Rule 41(1),
Observation of Hearings, allows public access to hearings unless either party
objects. Proposed Arbitration Rule 47(2) requires the tribunal to take necessary
steps to preserve confidentiality during a hearing, and proposed Arbitration Rule
47(3) suggests the publication of recordings or transcript of a hearing unless
either party objects.
In this manner, those who did not attend the hearing have access to its public
sections. The majority of comments to Arbitration Rule 48, Submission of Non-
Disputing Parties, acknowledged the value of non-disputing parties' participation. At
the same time, the comments converged to subjecting the sharing of documents with
non-disputing parties to the approval of the parties.
In 2013, UNCITRAL, whose rules are applicable to a proportion of around
26% of known investment arbitration proceedings,98 published the UNCITRAL
Rules on Transparency in Treaty-based Investor-State Arbitration (UNCITRAL
Transparency Rules). These are applicable to investment agreements signed on or
after 1 April 2014. Earlier IIAs may apply them when the disputing parties agree,
or when their application is accepted by the respondent State and the home State
of the investor after 1 April 2014.99 The Rules constitute a significant move in the
direction of transparency in UNCITRAL. Pursuant to Article 3, the publication of
the majority of information associated with the arbitration is compulsory, except
for protected information. The notice of arbitration, the disputing parties’ sub-
missions, amicus curiae’s submissions, transcripts of hearings, orders, decisions,
and awards are included in the list. The presumption of publicity of the hearings
is provided by Article 6, with the arbitral tribunal taking an active role
in facilitating public access.100 210 IIAs have been concluded after 1 April
2014, according to the UNCTAD International Investment Agreements Naviga-
tor. Forty-six of them afforded investors the option to commence arbitration
based on the UNCITRAL Arbitration Rules, which includes Article 1(4) as
adopted in 2013, providing for the application of the UNCITRAL Transparency
Rules.
However, the practical application of the UNCITRAL Transparency Rules could
have been rather narrow, due to its temporal limitations: this is why UNCITRAL
decided to draft the Mauritius Convention, aimed at enabling the application of the
UNCITRAL Transparency Rules to the high number of IIAs concluded before 1
97
ICSID, Proposals for Amendment of the ICSID Rules – Working Paper, Vol. 3, August 2, 2018
98
United Nations Conference on Trade and Development, supra note 92
99
UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration 2014, art 1(2).
100
Ibidem, article 6(3)
April 2014.101 In fact, the Mauritius Convention extends the application of the
UNCITRAL Transparency Rules, since signatory States agreed that they apply to
cases conducted under IIAs concluded before 1 April 2014, regardless of the
applicable arbitration rules, in two cases: (i) when the respondent State and the
home State of the claimant are parties to the Mauritius Convention and they have not
made any reservation; and (ii) when the respondent State is a party to the Mauritius
Convention and has not made a reservation and when the claimant agrees to the
application of the UNCITRAL Transparency Rules. In this way, the Mauritius
Convention marks the beginning of a departure from the prevailing presumption
of confidentiality.
Strives for a greater transparency have also been identified in the last meetings of
the UNCITRAL Working Group III. Among them, we can recall the EU submis-
sions, highlighting that: “A high level of transparency of the proceedings should be
ensured”;102 and the submission from the Dominican Republic, who stressed that:
“enhanced transparency, including publication of pleadings and awards, [is] a means
to promote consistency and correctness of decisions. [. . .] [T]ransparency would
allow for cases to be properly analysed. Such analysis was said to be an important
step to reach consistency and correctness. [On the contrary,] the lack of transparency
in treaty-based arbitration continues to be one of the most significant criticisms of
ISDS.”103 Finally, Morocco’s submission should be recalled, which underlined that,
since “arbitral tribunals lack the guarantees, accountability and transparency of
national judicial systems”104 it is necessary to improve “the functioning and trans-
parency of arbitral proceedings.”105 These discussions prove that States are actively
reflecting on the best way to apply a fair degree of transparency in investment
arbitration, considering that there can be matters of national interest or related
investment and commercial strategies that disputing parties might not want to be
brought to the knowledge of third parties.
101
Kaufmann-Kohler G, Potestà M (2016) Can the Mauritius Convention serve as a model for the
reform of investor-State arbitration in connection with the introduction of a permanent investment
tribunal or an appeal mechanism? Analysis and roadmap, Geneva Center for International Dispute
Settlement, 3 June 2016
102
United Nations Commission on International Trade Law Working Group III (Investor- State
Dispute Settlement Reform) Thirty-seventh session, Possible reform of investor-State dispute
settlement (ISDS) Submission from the European Union and its Member States, A/CN.9/WG.III/
WP.159/Add.1, 24 January 2019
103
Dispute Settlement Reform) Thirty-seventh session. Summary of the intersessional regional meet-
ing on investor-State dispute settlement (ISDS) reform submitted by the Government of the
Dominican Republic, A/CN.9/WG.III/WP.160, 27 February 2019
104
Dispute Settlement Reform) Thirty-seventh session, Possible reform of investor-State dispute
settlement (ISDS) Submission from the Government of Morocco, A/CN.9/WG.III/WP.161, 4
March 2019
105
Ibidem
1580 F. Marisi
Expanding the Scope of Transparency
The Mauritius Convention allows for a wider application of the UNCITRAL Trans-
parency Rules, and the UNCITRAL Working Group III negotiations lead to hypoth-
esize that a trend favoring a greater transparency is recognized. According to some
scholars, however, additional fields would benefit from transparency, such as the
outcomes of settlement agreements106 and third-party funding (TPF) agreements,
which are, for the time being, covered by confidentiality. In particular, although
third-party funders and the funded parties would prefer to keep their agreement
confidential, it could be maintained that these agreements deserve disclosure. They
involve sponsors who finance legal claims receiving a contingency fee and are
spreading swiftly in the field of investment arbitration.107 Indeed, the 39% of
respondents of the recent Queen Mary survey have encountered TPF in their
work.108 Investor-State arbitration has become a greatly promising market for TPF
due to the possibility of substantial damage awards, whose average amounts to USD
500 million per dispute.109
The Voices of the International Bar Association Survey
In 2014, a survey was carried out by the International Bar Association (IBA)
Subcommittee on Investment Treaty Arbitration in order to comprehend the criti-
cisms on investment arbitration and whether a reform was needed.110 5 out of 51
questions concerned transparency in investment arbitration: feedback was provided
by 109 people who already had experience with investment arbitration111 and had
very different backgrounds.112 A summary of the opinions was published by the
Subcommittee in 2016. It resulted that the majority of respondents believed that the
status quo should not be changed, in spite of the demand for improved transparency:
for instance, according to 88% of respondents, investment arbitration should require
106
Nadkarni and Wei, supra note 89
107
See generally Steinitz M (2011) Whose claim is this anyway? Third party litigation funding.
Minn Law Rev 95:1268.
108
Egerton Vernon J (2017) Taming the “Mercantile Adventurers”: third party funding and invest-
ment arbitration – a report from the 14th annual ITA-ASIL conference. Kluwer Arbitration Blog, 21
April 2017, http://arbitrationblog.kluwerarbitration.com/2017/04/21/taming-the-mercantile-adven
turers-third-party-funding-and-investment-arbitration-a-report-from-the-14th-annual-ita-asil-confer
ence/ (citing to the 2015 Queen Mary/White & Case International Arbitration Survey)
109
UNCTAD (2017) Special update on investor–state dispute settlement: facts and figures, IIA
Issues Note, UNCTAD, Issue 3, http://unctad.org/en/PublicationsLibrary/diaepcb2017d7_en.pdf
110
IBA Subcommittee on Investment Treaty Arbitration Report on the Subcommittee’s Investment
Treaty Arbitration survey May 2016 [hereinafter: the Survey]
111
The surveyed individuals belong to the following categories: counsels, arbitrators, academics,
expert witnesses, arbitration users, and non-governmental organizations. The Survey, ibidem, at 1
112
Ibidem
publication of partial and final awards, which is already practiced in numerous cases;
50% of respondents considered that pleadings should be kept confidential; and
according to the 57%, the current ability of non-disputing parties to participate in
arbitral proceedings is sufficient. It results from the conclusions of the survey that
heightened transparency was demanded by less than 50% of respondents.
Conclusions
Historical motives may to some extent explain why currently several IIAs are silent
on transparency issues113: transparency was not deemed a key matter in the booming
period of IIAs signing.114 Confidentiality has traditionally been considered as a
feature of arbitration and still has several advantages: these benefits include the
preservation of an attractive climate for investments, the alleviation of pressure on
the procedure, and the protection of national and business information of a sensitive
nature.
On the other side, the coordination of various regulatory systems, case law
evolution, and the promotion of precision in international law are all benefits of
transparency. Moreover, transparency helps better anticipate outcomes and encour-
ages public participation, thus promoting public perception of investment arbitration
as legitimate. As demonstrated by the recent renegotiation of several IIAs, the
traditional IIA format is undergoing modernization. In some commentators’ view,
a prudent and careful trend in the direction of transparency is reflected by the most
recently signed agreements.115 In any case, careful adjustment of a suitable level of
transparency is required to promote the interests of all stakeholders: investors, host
States, workers, and inhabitants of the host State. This can ensure that transparency
and confidentiality are optimally balanced, with prioritization of a higher transpar-
ency level when the applicable rules allow.
Cross-References

113
Echandi R (2011) What do developing countries expect from the international investment
regime? In: Alvarez JE, et al. (eds) The evolving international investment regime: expectations,
realities, options. Oxford University Press, 3, 3
114
Maupin JA (2013) Transparency in international investment law: the good, the bad and the
murky. In: Bianchi A, Peters A (eds) Transparency in international law. Cambridge University
Press, 142, 151–152
115
da Silva Martins AM (2016) Challenges to transparency and ethics in alternatives to arbitration in
the realm of international investments. Revista de Direito Internacional Economico e Tributario
11:1 321, 336
1582 F. Marisi

Ratione Temporis)
▶ Public Health in International Investment Law and Arbitration
▶ Resolving the Tension Between State Sovereignty and Liberalizing Investor-State
Disputes: China’s Dilemma
▶ The Environment, Human Rights, and Investment Treaties in Africa: A Constitu-
tional Perspective
▶ Third-Party Funding in Investment Arbitration
Part VII
Regimes Interactions: International Investment
Law and . . .
Regimes Interactions: International Law
Investment and . . . – An Introduction 61
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1586
The Evolving International Investment Regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1588
Regime Interactions in International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1590
Investment Treaties Interaction with Other International Law Regimes . . . . . . . . . . . . . . . . . . . . . . 1592
Barriers to Regime Interaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1594
Legal Consequences of Regime Interaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1595
Normative Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1595
Right to Non-investment and Investment Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1596
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1598
Abstract
Here is a fascinating aspect of contemporary international investment law, which
has often been understudied and underestimated in favor of more technical
considerations. From a natural interaction with general international law in
which, international investment law finds its roots, to human rights, labor,
environment, tax, or competition law, today’s investment regime is at the center
J. Chaisse (*)
L. Choukroune
S. Jusoh
Institute of Malaysian and International Studies, National University of Malaysia, Bangi, Selangor,
Malaysia
e-mail: sufianjusoh@ukm.edu.my

https://doi.org/10.1007/978-981-13-3615-7_73
of multiple legal spheres and networks. At the same time, what has often been
described as a “lex specialis,” is informing other regimes and certainly becoming
one of the most dynamic fields of international law often replacing trade law at the
center of scholarship discussions and global scrutiny. The attention and interest
generated by international investment law has much to do with these regime
interactions. FDI are virtually present at each and every level of our daily lives.
States have broadly open up their economies and authorized these interactions
with the foreign sometimes to the detriment of their own sovereignty, sometimes,
as well, to the benefit of their governments, and, possibly to a lesser extent, their
populations. In critically interrogating, these regime interactions on the basis of
precise enquiries and a variety of case studies, the “Regimes Interactions: Inter-
national Investment Law and . . .” part of our Handbook provides the reader with
a very comprehensive vision of one of the most pressing international legal issues
of our times.
Keywords
Transatlantic trade and investment partnership · Trans-pacific partnership ·
Comprehensive and progressive agreement for trans-pacific partnership · African
continental free trade area · Regional comprehensive economic partnership ·
APEC · ASEAN · Environmental, sustainability and governance (ESG) ·
Principles for responsible investment in agriculture · One stop centre ·
International investment agreements · Global action menu for investment
facilitation · Guiding principles for global investment policymaking
Introduction
The development and interest in international investment law relate to the contem-
porary worldwide expansion of globalization. In this era of enhanced economic
globalization – and the critique of the same, with rapidly increasing transnational
investment activities, “individual countries are becoming more and more dependent
on foreign investments.”1 The postcolonial world has seen a remarkable shift from
the “closed economy” model to the open embrace of economic liberalization and yet
again, more recently, a form of questioning of the benefits of globalization and
indeed Foreign Direct Investment (FDI) to the States and its populations.2 In the past
20 or so, the practice of attracting foreign investments has increasingly gained
traction amongst host States as a reliable method to develop their economy and
1
Guiguo Wang (2010) International investment law: an appraisal from the perspective of the new
haven school of international law. Asia Pac Law Rev 18(1):19–44.
2
Jonathan Bonnitcha, Lauge N. Skovgaard Poulsen, Michael Waibel (2017) Investment treaties,
foreign investment, and development. In: The political economy of the investment treaty regime.
61 Regimes Interactions: International Law Investment and . . . – An Introduction 1587
garner, as well, much needed cash inflow for growth.3 To investors, this shift
provides exciting avenues for development of the domestic industries, technology,
access to natural resources, while also fostering employment opportunities for the
State.4 This is visible from the exponential rise in the number of international
investment agreements (IIAs) and disputes arising from these IIAs in the past two
decades.5 IIAs are particularly beneficial for and attractive to foreign investors as
they indicate host States’ willingness to provide adequate standards of protection to
foreign investments from the vagaries of the domestic court system and uncertainty
of domestic policy reforms.6 At the same time, they also provide foreign investors
with the ability to invest in emerging jurisdictions7 with the added assurance of a
stable and conducive environment for their investment.8 Host States also benefit
greatly from IIAs, as the act of granting investment protection is often assumed to be
linked to increasing much-needed FDI.9 Thus, it cannot be disputed that investment
protection is a key consideration for foreign investors and host States alike today.
Worldwide, the flow of FDI has dramatically increased, leading it to become a
“major force in the worldwide allocation of funds and technology.”10 In terms of FDI
inflows, it is found that, with the exception of institutional quality in a few countries,
the presence of IIAs or adequate dispute resolution mechanisms has a positive effect
on FDI entering the host State.11 The need for investment protection, thus, becomes a
natural consideration for foreign investors seeking to invest in other countries due to
the aforementioned considerations.
IIAs may provide for investor-State arbitration, forming one of the more impor-
tant modes of dispute resolution in the Investor-State Dispute Settlement (ISDS)
system today.12 Tribunals addressing concerns arising from the breach of protection
guaranteed under IIAs will generally grapple with public and private interest
3
Chaisse J (2015) The shifting tectonics of international investment law – structure and dynamics of
rules and arbitration on foreign investment in the Asia-Pacific Region. Geo Wash Int’l L Rev 47.
4
Daniel R. Sieck (2010) Confronting the obsolescing Bargain: transacting around political risk in
developing and transitioning economies through renewable energy Foreign direct investment.
Suffolk Transnt’l L Rev 33:319, 326.
5
Chaisse J, Donde R (2018) The state of investor-state arbitration: a reality check of the issues,
trends and directions in Asia-Pacific. Int Law 51:47.
6
Sieck (n 4).
7
Ashurst, QuickGuides: International investment protection. https://www.ashurst.com/en/news-and-
insights/legal-updates/quick-guide-international-investment-protection/
8
Kenneth J. Vandevelde (2005) A brief history of international investment agreements. U.C. Dav
J Int’l L Pol’y 12(157):173–75.
9
Rudolf Dolzer, Christoph Schreuer (2012) Principles of international investment law, 2nd edn.
Oxford University Press, p 22.
10
Eric Neumayer, Laura Spess (2005) Do bilateral investment treaties increase foreign direct
investment to developing countries? World Dev 33(10):1567; Michael Frenkel, Benedikt Walter
(2018) Do bilateral investment treaties attract foreign direct investment? The role of international
dispute settlement provisions. World Econ 42:5.
11
Neumayer (n 10).
12
Bonnitcha (n 2).
considerations, the effect of which can often be felt by third parties.13 It is for this
reason that ISDS is currently subject to much debate,14 specifically due to concerns
that it is often at odds with other regimes in domestic and international law, including,
but not limited to, the protection of human rights, the environmental and sovereign
regulatory powers.15 The latter being a part of the umbrella term “non-investment
services” form important considerations in investor-Sate disputes but often do not
feature into tribunal analysis owing to the innate silence of IIAs in this regard.
It is within this context that this introduction to the “Regimes Interactions: International
Investment Law and . . .” part of this Handbook strives to explore the extent to which this
criticism holds true, by examining theoretical models of regime interactions and their
efficacy in the international investment law regime. ▶ Chap. 1, “Definitions, Standards of
Treatment, Promotion and Protection of International Investments: An Introduction” part
explains the features of and distinction between international treaties relevant to ISDS in
an attempt to set the tone for this discussion. ▶ Chap. 24, “Investor-State Dispute
Settlement (ISDS): An Introduction” part provides an overview on the concept of regime
interaction, while “Regimes Interactions: International Investment Law and . . .” part
contextualizes this discussion to highlight the legal basis behind requiring such interac-
tion. ▶ Chap. 83, “Contemporary Developments and New Trends in International
Investment Rulemaking and Investor-State Dispute Settlement: An Introduction” part lists
out barriers and normative responses to this concept, seeking to understand the feasibility
of such discussion in the context of international investment law. The ▶ Chap. 83,
“Contemporary Developments and New Trends in International Investment Rulemaking
and Investor-State Dispute Settlement: An Introduction” part of this chapter concludes to
raise broader questions on the interesting implications that regime interaction may have on
the future of investor-State arbitration and investment protection.
The Evolving International Investment Regime
Investment protection, assured through IIAs, is done through different instruments –

bilateral investment treaties (BITs), multilateral investment treaties (MITs), free
trade agreements (FTAs), etc. It is to be noted that the protection available is the
same, the differentiation is solely for the purpose of understanding the nature and
scope of the treaty, depending on the negotiated texts adopted by the parties. BITs are
13
Bonnitcha (n 2).
14
Asha Kaushal (2009) How the past matters for the present backlash against the foreign investment
regime. Harv Int Law J 50:491; Benedict Kingsbury and Stephen Schill (2010) Public law concepts
to balance investors’ rights with state regulatory actions in the public interest: the concept of
proportionality. In: Stephen Schill (ed) International investment law and comparative public law,
vol 75. Oxford University Press.
15
Catharine Titi (2018) Who’s Afraid of reform: beware the risk of fragmentation. In: Symposium
On Sergio Puig and Gregory Shaffer, “Imperfect Alternatives: Institutional Choice and the Reform
of Investment Law,” and Anthea Roberts, “Incremental, Systemic, and Paradigmatic Reform of
Investor-State Arbitration”.
generally entered into by two States, and an MIT can have more than two contracting
parties. A good example of MIT is the ASEAN Comprehensive Investment Agree-
ment (ACIA), which was signed by ASEAN Member States in 2009 and came into
force in 2012. 16 These are both entered into with the purpose of promotion of
foreign investment through the regulatory setup. On the other hand, FTAs seek to
liberalize trade and desire to eliminate discrimination against imports through the
removal of tariffs and other such measures. FTAs with investment chapters are
becoming a trend, where investment liberalization, investment promotion, invest-
ment protection, and investment facilitations are negotiated in detail. Examples of
FTAs with Investment Chapters include the North American Free Trade Agreement
(NAFTA) Investment Chapter, the Comprehensive and Progressive Agreement for
Transpacific Partnership (CPTPP), and the Regional Comprehensive Economic
Partnership (RCEP). Therefore, even though FTAs provide for investment protec-
tion, it can be said that FTAs are way broader in scope than BITs or MITs. The
Energy Charter Treaty (ECT), on the other hand, is a peculiar form of IIA, being
sector-specific and related only to energy.
Importantly, IIAs are instrumental in furthering international regulation and stabil-
ity what one may wish to call a “global rule of law.” Although they may appear to be
antithetical owing to their short-term aim to promote economic development, in the
long term, they may serve as substitutes for domestic rule of law. Furthermore, IIAs
also induce governments to improve domestic legal systems in order to avoid or
mitigate the risk of international claims for damages. In recent years, several countries
have strengthened their investment facilitation and aftercare services and introduced
dispute prevention measures such as investor grievance mechanisms.17 These mea-
sures are taken in response to investors’ needs and to reduce the risk of cases being
brought under the ISDS. Such goal is evident from tribunals’ interpretation of invest-
ment protection standards like the Fair and Equitable Treatment (FET) and the Full
Protection and Security (FPS) standards as being equivalent to standards commonly
understood in the public domestic law of States.18 In fact, this can be linked to the
broader object and purpose of investment treaties that are assured through a neutral
body, being the tribunal.19 This interplay is imperative in the context of our discussion,
as regime interactions are also motivated by the desire to give primacy to rule of law
through the acknowledgement of interlinked concerns present in disputes.
16
See Chaisse J, Jusoh, S (2016) The ASEAN Comprehensive Investment Agreement: The
Regionalisation of Laws and Policy on Foreign Investment, Elgar.
17
See S Jusoh (2019) Myanmar’s Investor-State Dispute Settlement Experience and Investor
Grievance Mechanism. In: Carlos Esplugues, Foreign Investment and Investment Arbitration in
Asia, Intersentia.
18
Stephen W Schill (2010) Fair and Equitable Treatment, the Rule of Law, and Comparative Public
Law. In: Stephen W Schill (ed) International Investment Law and Comparative Public Law, vol 151.
19
Stephen W Schill (2015) International Investment Law and the Rule of Law. In Lowell J, Thomas
JC, Zyl Smit J van (eds) Rule of Law Symposium 2014: The Importance of the Rule of Law in
Promoting Development. Academy Publishing, Singapore, pp 81–102.
Regime Interactions in International Law
The relationship between different branches of international law and international

economic law shows the interdependence of these branches.20 Any recommenda-
tions made to resolve “non-investment concerns” shall simultaneously also take into
consideration all applicable areas and factors. The elucidation by Cottier on the
interdependence of the various international legal fields under the WTO regime is
especially demonstrative, such as by following the Law of the Sea Convention alone,
which does not protect marine life and natural resources.21 The subordinate rules
relating to the WTO shall also be taken into account in the fisheries business.
Similarly, the World Health Organization’s health concerns, especially with regard
to intellectual property rights, cannot be understood alone from WTO law. Stake-
holders may have to refer not just to the Agreement on Trade-Related Intellectual
Property Rights (TRIPs) but also treaties under the World Intellectual Property
Organization (WIPO), such as the Paris Convention22 and many others. WIPO
Conventions deals with the broader issues of IP protection including registration,
protection systems, and international recognition, whereas WTO deals with IP rights
linked to trade. In addition, Burke-White discussed the connections between invest-
ment law and other international legal systems, such as human rights law, human-
itarian law, environmental legislation, intellectual property law, and various regional
laws.23 These interactions are approached in great details throughout a number of
chapters of the “Regimes Interactions: International Investment Law and . . .” part of
our Handbook. These include methodological interrogations as developed by Ernst-
Ulrich Petersmann around the question of “systemic interpretation.”24
From a jurisprudential viewpoint, it is indeed highly complex and yet fascinat-
ing to consider the relations between international investment law and other
regimes.25 This is important to research the continuum of interactions to demon-
strate where issues can still arise until we consider potential solutions emerging out
20
Timothy Meyer, Tae Jung Park (2018) Renegotiating International Investment Law. J.I.E.L
21:655–79.
21
Thomas Cottier, Maya Hertig Randall (2003) The Prospects of 21st Century Constitutionalism.
Max Planck Yearbook of United Nations Law 7:261.
22
The Paris Convention for the Protection of Industrial Property 1883 applies to industrial proper-
ties including patents, trademarks, and industrial designs.
23
See William W. Burke-White (2015) Inter-Relationships between the Investment Law and Other
International Legal Regimes. In: ICTSD Strengthening The Global Trade And Investment System
For Sustainable Development, available at https://www.ictsd.org/sites/default/files/research/E15-
Investment-Burke%20White-FINAL.pdf
24
See Ernst-Ulrich Petersmann (2020) Human Rights in International Investment Law and Adju-
dication: Legal Methodology Questions. In: Julien Chaisse, Leïla Choukroune, Sufian Jusoh (eds)
Handbook in International Investment Law and Policy, Springer.
25
See Xu Qian (2020) Water Disputes in International Arbitration: Reconsidering the Nexus of
Investment protection, Environment, and Human Rights. In: Stavros Brekoulakis, Julian D. Lew
(eds) International Arbitration Law Library Series, vol 415. Kluwer Law International.
of the relationship between investment legislation and other fields of law. 26 With
this in mind, this section takes into account Burke-White’s review of the two
relevant frameworks for scheme interactions, which will illustrate what effective
schemes should be taken into account in the regulation of non-investment services.
The law applicable to disputes is the first method. The second method is how the
courts interpret the law to refer to certain substantive coexisting requirements.
Further, in some circumstances, the court or tribunal will also need to address the
relationship of international law and domestic law, as adoption of international law
into the domestic legal system varies from one legal system to another.
In the legislative process, countries are presented with confusion and complexity
in terms of how current institutions engage in non-investment management formu-
lation and implementation. For this reason, States and researchers have made efforts
to promote the advancement of new disciplines to address these gaps in investment,
in non-investment, and in health services as demonstrated by Elizabeth Sheargold
and Andrew D. Mitchell in the chapter included in this “Regimes Interactions:
International Investment Law and . . .” part27.
In the context of the treaty, scholars have advised a draft specialization chapter on
investment and use of non-investor dispute mechanisms. In addition to this, the
different actors’ dedication has been discussed by ideas such as “global
non-investment governance” and “global administrative law”28. The development
of global administrative law (“GAL”), contributed to the implementation of these
principles in the form of normative structures and institutional engagement, and thus
may be viewed as a global non-investment governance.
McIntire states that only the development by all main multilateral develop-
ment banks of transparency mechanisms, or the broad involvement of NGO
participation and representation mechanisms in decision-making systems of
regulatory bodies need to be addressed. In many circumstances, multilateral
development banks provide advisory services and technical assistance that lead
to reforms of investment and non-investment related laws and regulations in
developing and least developed countries. These laws would be subject to public
consultations where international NGOs could be involved in providing com-
ments and proposals for improvements.
There are situations where national governments bring international treaties nego-
tiated and agreed between parties of the international organization into the domestic
legal system. These domestic laws are subject to the understanding and interpretation
and enforcement and compliance system by the international organization. The rele-
vant international organization and national governments will be interacting with each
26
Ralf Michaels, Joost Pauwelyn (2012) Conflict of Norms or Conflict of Laws? Different Tech-
niques in the Fragmentation of Public International Law. Duke J Comp Int Law 22:349.
27
See Elizabeth Sheargold, Andrew D. Mitchell (2020) Public Health in International Investment
Law and Arbitration. In Julien Chaisse, Leïla Choukroune, Sufian Jusoh (eds) Handbook in
International Investment Law and Policy. Springer, pp. . .
28
Benedict Kingsbury and Others (2005) The emergence of global administrative law. Law
Contemp Prob 68:15–61.
other through the multilayered governance system, where “different layers of gover-
nance assume, within the overall constitutional order, different functions. They share
common elements of legitimacy-outcome, the rule of law and representation, traits of
the libertarian, demos, and deliberative schools of legitimacy.”29
In fact, since various organizations seek common goals under different frame-
works and standards, problems become complicated in enforcing current legal
obligations. The common aim for non-investment management is to sustainably
grow non-investment resources “which covers the whole non-investment circle,
including non-investment management, non-investment waste and ecosystem
resources.”30 To achieve this goal, States also engage with non-State actors in
order to meet the interests of stakeholders. Many countries adopt the Regulatory
Impact Assessment (RIA), as part of the good regulatory practice, where stake-
holders views and consultations play a vital part on the law and regulation making
process.31 In general, different bodies have numerous powers to impose that are
based on the claim on soft law and hard law. For non-investment, an empirical
context is required to clarify the circumstances under which soft law and hard law are
supplements or even rivals32 and, more importantly, to determine whether the soft
law is to be used for the creation or determination of treaty obligations. In other
words, the study should not be made unnecessary.
Investment Treaties Interaction with Other International Law

Regimes
The most rigorous definition of a legal framework for regime interaction is by

membership, which allows all parties to have agreed principles before any State can
impact. The logic behind “parallel membership” emphasizes the positivistic commit-
ment based on the consent of the State. Therefore, where the parties in question are
representatives of one convention but not others, the tribunals are facing the problem
29
T. Cottier (2007) Book Reviews: Constitutionalism, Multilevel Trade Governance and Social
Regulation. (Studies in International Trade Law, vol 9), JIEL 10(424). T. Cottier, M. Hertig (2003)
The Prospects of 21st Century Constitutionalism. In: Armin von Bogdandy, Rudiger Wolfrum (eds)
Max Plank Yearbook on United Nations, vol 7, pp 300–301. See also T. Cottier (2000) The Impact
from Without: International Law and the Structure of Federal Government in Switzerland. In:
Knoepfel P, Linder W (eds) Vermaltung, Regeirung und Verfassung im Wandel, Gedachnisschrift
fur Raimund E. Germann.
30
United Nations (UN) Non-investment, Environmental Flows in the Indicator 6.4.2, News, 2019,
February 4 available at http://www.unnon-investment.org/sdgs/en
31
See discussion on regulatory coherence in ASEAN in Sufian Jusoh, Intan M. Ramli, and Yose
Rizal Damuri, Regional Regulatory Coherence in the Association of Southeast Asian Nation: The
Case of Competition Law and Intellectual Property, in ASEAN Vision 2040, Vol. IV, Integrated and
Connected Seamless ASEAN Economic Community, ERIA, 2019.
32
Gregory Shaffer, Mark Pollack (2010) Hard Law vs Soft Law: Alternatives, Complements and
Antagonists in International Governance. Minnesota Law Rev 94:709.
of interpretation of contradictory norms. International tribunals will have to make a

decision based on the specialized nature of the law and the treaty they are looking at.
An important example is the relationship between the Cartagena Protocol on
Biosafety and WTO law as discussed in the EC-Biotech case.33 In the EC-Biotech as
a non-Party to the Cartagena Protocol, the US argues that neither the Cartagena
Protocol nor the precautionary approach serves as a defense to the EC in this dispute,
to be relevant under Article 31(3) VCLT.
The US would not agree that the Panel would need to look to the Cartagena Protocol
in interpreting the WTO Agreement even in a dispute between WTO Members that were
both parties to the Protocol.34 The Panel interpreted the term “applicable in the relations
between the parties” to limit the relevant international law rules to those that are binding
on all parties to the treaty being interpreted.35 In other words, the Panel concluded that it
was “obligated to take into account only those international law rules applicable to all
WTO Members.”36 The Panel found that it would only be obliged to refer to non-WTO
law in interpretation where the rules of international law concerned were ones “appli-
cable in the relations between the WTO Members.”37
In principle, the non-member country will, more often in the case of
non-investment conflicts, have a national veto, theoretically, on the regulatory
power of one regime in situations where investment, human rights treaties, or
environmental regimes overlap, and States have such an overlap structure. However,
the situation does not seem to be any clearer in some States which are not parties of
particular treaties. The traditional principle often falls down to all States, even those
who have not been parties or have never signed this agreement . . . In this case, there
is practically no distinction between a State which is party to the Convention or vice
versa. The Convention has been recognized as a general rule of international law.
There is no distinction between a convention which is in place or not.
Likewise, Fischer-Lescno and Teubner claim that, in relation to international legal
obligations, one of the implications of this growth is Paulus’s assumption – an inter-State
33
WT/DS291, 292, and 293.
34
Rebuttal Submission of the US, EC- Biotech, (WT/DS291, 292, and 293), para. 18.
35
WT/DS291/R, para 7.68, 7.70.
36
WT/DS291/R, para 7.71.
37
WT/DS291/R, para 7.68. The decision was criticized by many scholars including
M Koskenniemi, “Fragmentation of International Law: Difficulties Arising from the Diversification
and Expansion of International Law,” ILC, UN Doc. A/CN.4/L. 682, 2006; C.G. Gonzalez,
“Genetically Modified Organisms And Justice: The International Environmental Justice Implica-
tions Of Biotechnology,” 19 Geo. Int’l Envtl. L. Rev. 583, (2007), 624; and M. Wu, “Small States,
Big Veto: Customary International Law In The WTO After EC-Biotech,” 32 Yale J. Int’l
L. 261 (2007), 261. This view is supported by the AB’s decision in Korea – Measures Affecting
Government Procurement WT/DS163/R where the AB states that Article 3 (2) of the DSU requires
the AB to seek within the context of a particular dispute to clarify the existing provisions of the
WTO agreements in accordance with customary international law rules of interpretation of public
international law. The AB noted that customary international law applies generally to the economic
relations between WTO Members but such international law applies to the extent that the WTO
agreements do not “contract out” from it.
agreement as a source of legal legitimacy. More importantly, however, it also prevents a

significant number of social phenomena from the denied legal dimensions of contact
between non-State actors. Therefore, it is fairly weak to argue that specific legal concepts
are a result of the consensus of the State in the fields of international law if research
concentrates only on the origins of global legal norms. States may also consent to permit
the “normative and institutional interplay” to establish legitimacy for engagement with
the regime and these institutional agreements can be informal as well.
As for adjudicative proceedings, investment tribunals are limited to clarifying the
“ordinary meaning” by the rules of Treaty interpretation, and even treaty clauses
have to be interpreted with respect to the purposes of the parties. The concept of
policy change leads to the tribunal’s need to analyze and evaluate the origins of
external regimes and external sources. In the works of scholars on “global
non-investment governance,” attempts can be found in the context of
non-investment regulation regimes to place specific stakeholders and market players
in a cohesive framework. In line with international law, it is increasingly important
for private bodies to operate in order to obtain a deeper understanding of the nature
and pluralism of non-investment regulations. The presence of these parties may also
enhance the different ways of managing non-investment capital.
Barriers to Regime Interaction
The biggest obstacle to regime interaction is to emphasize on the role of a regime

based exclusively on its function, as a result of the fragmentation of international
law, such as by the adoption of more lex specialis by various international bodies.
The danger is especially great if it forecloses the process of regime interactions or
alternatively treats the convergence of legal arrangements as inevitable. In addition,
it has shown that parceling of unique and exclusive abilities does not solve specific
complexities. No “solution” is correct.
International law has an inherent complexity and disparity, and new challenges
require different institutional and regulatory reactions. Interaction between regimes
may be impeded at foreign and domestic level. Young also considered the lack of
cooperation between the various international forums to be a main obstacle from an
international perspective. Another aspect that prevents cooperation between the
regime is the absence of domestic policy coordination. Inter-agency cooperation
shows that concerted and strategic national government activities and initiatives are
essential for establishing required interlinks and synergies in the different international
forums.38 The lack of clarity and accountability within a specific framework is another
barrier to interaction between the schemes. Submitting amicus curiae and addressing
committees with the IGOs would make it possible to engage with the regime interplay.
38
UN Doc A/55/274, Annex I, para. 15, available at http://www.un.org/documents/ga/docs/55/
a55274.pdf
Legal Consequences of Regime Interaction
The literature about regime interaction has concentrated largely on the start of the
relationship between conflicting norms when disputes occur or becomes custom-
ary.39 However, scant attention has been paid to other phases of legal growth and
implementation. It is therefore important to analyze the possible benefits of regime
engagement in the law-making, application, and enforcement process. This benefit
may be focused on a range of regulatory viewpoints and debate. This work can also
be seen as an attempt to redirect focus to settling regulatory conflicts, contributing to
an inquiry into the field of regime interaction. Some factors can affect the interaction
of the regime. Firstly, the relevant laws are changing dramatically in each of the
regimes. Secondly, various entities adopt these relevant laws, resulting in different
enforcement powers. Third, not every State is a member of one regime. While both
States belong to one government, they vary greatly from one another on their
different policies and simply on their level of growth. Faced with a global
non-investment crisis, other problems could also follow.
Normative Integration
Weil has clearly illustrated the philosophy of the international normative system, “its
nature to be an ‘aggregate of legal norms’ that indicate what subjects must do
(prescriptive norms), must not do (prohibitive norms), or may do (permissive
norms) and constitute them for a source of legal rights and obligations.”40 In other
words, performance consistency directly influences the ability to meet the goals of
the international legal system.
The exact definition of norms is not determined by any particular material, which
means that the substance of the rule is still very far from having a meaningful contribu-
tion to the entire international system. In addition, it is uncertain whether non-binding
treaties will become international agreements and facts will become a custom.
As Weil argues, the international norms can be divided into two categories: the
“summit ones” indicate that they can create obligations for the States;41 in other words,
they must contribute to the fundamental issues of international law as a whole. The
others, below them, are “the great mass” of norms that create obligations of lesser and
lesser general importance. Jus cogens theory characterizes the peremptory norms and
binding norms: the distinction made between norms that establish obligations, which
are important to protecting fundamental interests, and norms that establish less
necessary obligations all contributes to the fission of this unity. “Normativité” is
39
Joost Pauwelyn (2014) At the Edge of Chaos? Foreign Investment Law as a Complex Adaptive
System, How It Emerged and How It Can Be Reformed. ICSID Review 29(2):372–418.
40
Prosper Weil (1983) Towards Relative Normativity in International Law? Am J Int Law
77(3):419.
41
Weil (n40).
now a matter of “more or less”: certain norms are now considered to be more clearly
binding than others. The normative scale thus reappears in a new way, the classifica-
tion not merely between standards and non-standards but is now more clearly situated
on the positive side of the normative threshold. After its rise in the sub-normative
region, the size of the “normativité” has now been projected and expanded into the
regulatory domain itself, so that “norms and norms” are now visible.
There will undoubtedly be a major question about the role of human rights and
environmental protection in foreign investment security, in the sense of regime
interaction under non-investment laws. Obviously, the more divisive the various
definitions under the chosen regimes are, the more unclear and ambiguous would be
as they interact and influence each other.
Right to Non-investment and Investment Protection
Literature devoted a lot of attention to the connection between the noneconomic

rights and investment protection.42 The right to non-investments is seen as a possible
legal mechanism to protect the host country’s regulatory space, with the goal of
protecting and facilitating access to non-investment and hygiene services.
Several scholars have criticized investment tribunals for not taking the right to
non-investment in the adjudication of disputes. The point is also that the right to
non-investment conflicts with international investment laws and constitutes an
exclusive right under customary international law.43 As regards the investment
system itself, there are general issues and suggestions for changing the structure of
BITs. Such questions view international investment law more generally and take a
more systematic approach to public interests. Such amendments discuss the issue of
the duty of investors; they also include the implementation of: a more rational
preamble; provisions emphasizing host State regulatory autonomy; the creation of
a general exemption and justification clause; definition of concrete protection stan-
dards; State counter-claims; and the clause of carve-out and amicus curiae.
ICSID arbitration clauses are usually found in investment agreements between
States’ governments and investors from other Member Countries. In fact, many
investment agreements also allow for the advance consent of governments to refer
investment disputes to ICSID Arbitration. As described above, ICSID hear all
42
Susan L Karamanian (2012) Human rights dimensions of international law. In Erika De Wet, Jure
Vidmar (eds) Hierarchy in International Law: The Place of Human Rights. Oxford University Press,
Oxford, p 236; Owen Mclntyre (2011) Emergence of the human right to non-investment in an area
of globalization and its implications for international investment law. In: Jeffery F. Addicott, others
(eds) Globalization, International Law, and Human Rights. Oxford University Press, Oxford, p 175;
Tamar Meshel (2015) Human rights in investor-state arbitration: The human right to non-investment
and beyond. J Int Disputes Settlements 6:277–307.
43
Markus Krajewski (2017) Protecting the Human Right to Non-investment through the Regulation
of Multinational Enterprises. In: Chaisse J (ed) The Regulation of the Global Non-investment
Services Market. Cambridge University Press, pp 167–195.
investment disputes in non-investment and hygiene services. Some researchers argue

that this clause is viewed as the primary opportunity to draw foreign investment. A
tribunal’s ruling shall be binding on both parties and must be complied by each side.
If a party does not comply with that decision, a party may enforce the award in the
courts of any ICSID Member State, if any, and the ruling has the same force and
impact on the final judgment of that State. 44 The structural asymmetry in this regard
has contributed to divided powers of enforcement.
This system has become highly important in recent years because the explanations
for it are not clear. 45 One recurring topic, however, is that tribunals can strike an unfair
balance between investors’ rights and the State ‘s obligations in relation to the right of
individuals to non-investment in particular, and the right to regulate the public
interests. The theory of proportionality is a mechanism used by various domestic
and international courts to address conflicts between different interests and freedoms.
46
One interesting distinction is that the courts use proportionality analysis either in the
sense of the contours of the criteria themselves or in assessing the validity of
restrictions. For instance, in the WTO regime, the tribunals have employed this
principle in determining the cases under the general exceptions without explicitly
referring to it. Several scholars have argued that the basic concept of international law
is proportionality. Nonetheless, this argument is often problematic both in terms of
subjectivity and appropriate methods for defining and enforcing them.
44
Article 54(1), International Centre for Settlement of Investment Disputes (ICSID) Convention.
45
Michael Waibel, others (2010) The Backlash against Investment Arbitration: Perceptions and
Reality. In: Michael Waibel, others (eds) The Backlash against Investment Arbitration, xxxvii–li, at
xxxviii–xliv; José E. Alvarez, Kathryn Khamsi (2009) The Argentine Crisis and Foreign Investors:
A Glimpse into the Heart of the Investment Regime. In Karl P. Sauvant (ed) Yearbook on
International Investment Law & Policy 2008–2009, pp 379–478, at 462–3; Stephan W. Schill
(2010) International Investment Law and Comparative Public Law—an Introduction. In Stephan
W. Schill (ed) International Investment Law and Comparative Public Law, pp 3–35, at 4–7.
46
Laurence Boisson de Chazournes (2019) The Permanent Court of International Justice, The
International Court of Justice and International Non-investment Law: Versatility in Consistency.
In: Stephen C. McCaffrey, others (eds) Research Handbook on International Non-investment Law,
Research Handbooks in International Law series. Edward Elgar, London, pp 170–171; Benedict
Kingsbury, Stephan W. Schill (2010) Public Law Concepts to Balance Investors’ Rights with State
Regulatory Actions in the Public Interest – the Concept of Proportionality. In Stephan W. Schill
(ed) International Investment Law and Comparative Public Law, pp 75–104, at 88–103; Alec Stone
Sweet, Florian Grisel (2009) Transnational Investment Arbitration: From Delegation to Constitu-
tionalization? In: Pierre-Marie Dupuy, others (eds) Human Rights in International Investment Law
and Arbitration, pp 118–36, at 131–2; Jasper Krommendijk, John Morijn (2009) Proportional’ by
What Measure(s)? Balancing Investor Interests and Human Rights by Way of Applying the
Proportionality Principle in Investor–State Arbitration. In Pierre-Marie Dupuy, others (eds)
Human Rights in International Investment Law and Arbitration, pp 422–51, at 449–50; Anne van
Aaken (2009) Defragmentation of Public International Law through Interpretation:
A Methodological Proposal. Indiana J Glob Legal Stud 16:483–512, at 506–12; Caroline Henckels
(2015) Proportionality and Deference in Investor-State Arbitration: Balancing Investment Protec-
tion and Regulatory Autonomy. Cambridge University Press; Gebhard Bücheler (2015) Propor-
tionality in Investor-State Arbitration. Oxford University Press.
In any case, it is not necessary to conclude that proportionality was a general

principle of international law for the purposes of the arguments in this introductory
chapter. The crucial argument is that it is appropriate to look at how the investment
tribunals handle noneconomic issues related to non-investment investment disputes in
the absence of assistance under the Treaty interpretation regulations. In particular,
what is the legal basis for interpretation of the texts of the investment treaties with
relation to non-investment laws? And how is the wider society impacted by non-
investment-related interpretive decisions?
Conclusion
This introduction explains the interdependence of international law in the specific

context of international investment promotion and protection. Regime interac-
tions is pivotal to international law, as it is often found that treaties and conven-
tions on a particular subject matter are not, by themselves, comprehensive
enough to account for overlaps. Specifically, with respect to investment law,
this situation becomes problematic because equally important non-investment
concerns are not duly accounted for by tribunals. However, the problem persists
even in the event that tribunals are willing to account for such concerns, since
they are bound only to interpret treaty rules in the context of the dispute, more
specifically an investor’s claim for breach of treaty provisions. While resorting to
amici or third-party submissions may prove to useful, it does not remedy the
larger concern, being the power to adequately account for and address these
issues during demarcation of liability in the award. Thus, although it may be
argued that international investment law seeks to further a form of international
rule of law, the same does not fructify in practicality due to the absence of
successful avenues for regime interaction. There remains an urgent need to
revamp IIAs to account for, or acknowledge, non-investment dimensions of
investment disputes. Global administrative law may prove to be key in this
respect but requires a detailed investment law-specific study to be conducted
before any steps are taken. It will also become imperative to take into account the
nature of the host State (developing or developed, capital-importing or capital-
exporting) to increase accuracy of such studies on the possibility of regime
interaction.
While there are different types of IIAs, most of them broadly seek to satisfy the
same purpose with respect to ensuring that investors have a channel to seek enforce-
ment of any protection that they are rightfully entitled to. This distinction, therefore,
is not relevant during adjudication, but may assume importance to understand the
scope and possibility of regime interaction in international investment law. Since
FTAs account for broader obligations of State parties, they account for more
fragmented norms in international law, which is not the case with BITs or MITs
that are often entered into with a specific, often narrower objective of investment
protection. Therefore, they are not as amenable to non-investment concerns.
Similarly, concerns with respect to arbitrator bias, popularly called the “David
effect” may exist47 or concerns with respect to enforcement may exist.48
The growth of FDI with the advent of economic liberalization and the ISDS cannot
be denied. Investment protection is crucial to foreign investors who are taking risks by
investing in foreign jurisdictions, often afraid of the unstable government policies that
may follow and affect their investment. The presence of an IIA assures them an
unbiased and neutral mechanism to adjudicate such claims. However, the ISDS regime
is often criticized due to its inherent inability to naturally interact with and account for
other branches of international law. This is a particular cause of concern because issues
adjudicated by investment tribunals are a mixture of public and private interest
considerations. Thus, it is necessary to ensure that tribunals are provided an appropriate
mechanism, if not avenue, to consider these non-investment effects of disputes as well.
The Regimes Interactions: International Investment Law and . . . of our Hand-
book aims to offer a rigorous analysis of the above interrogations on the basis of
concrete case studies at the crossroad between different legal regimes and calling for
greater integration and coherence.
Cross-References

▶ Business and Human Rights in International Investment Law: Empirical Evidence
▶ Crime in International Investment Arbitration
▶ Critical Perspectives on International Investment Law
▶ General International Law and International Investment Law: A Systematic
Analysis of Interactions in Arbitral Practice
▶ Human Rights in International Investment Law and Adjudication: Legal
Methodology Questions
▶ Incorporating Investment in Services into the World Trade Organization
Framework
▶ Intellectual Property Rights in International Investment Agreements
▶ Interactions Between Taxation Measures and International Investment Agreements
▶ International Investment Issues Examined in Other International Adjudicatory
Bodies: Guidance from ICJ’s Observation?
▶ Investment in the European Union: Competences, Structures, Responsibility and
Policy
47
Sergio Puig, Anton Strezhnev (2017) The David Effect and ISDS. Eur J Int Law 28:3; See generally
Steffen Hindelang, Markus Krajewski (eds) (2016) Shifting Paradigms in International Investment
Law: More Balanced, Less Isolated, Increasingly Diversified. Oxford University Press, Oxford.
48
Henning Grosse Ruse – Khan, “Challenging Compliance with International Intellectual Property
Norms in Investor–state Dispute Settlement,” 19 J.I.E.L. 241–277; Henning Grosse Ruse – Khan
(2013) A Conflict-of-Laws Approach to Competing Rationalities in International Law: The Case of
Plain Packaging between IP, Trade, Investment and Health. J Priv Int Law 9(2):309.

▶ Protecting Cultural Heritage in International Investment Law: Tracing the
Evolution and Treatment of Cultural Considerations in Recent FTAs and Investor-
State Jurisprudence
▶ Public Health in International Investment Law and Arbitration
▶ Tax Incentives: From an Investment, Tax, and Sustainable Development Perspective
▶ The Environment, Human Rights, and Investment Treaties in Africa: A
Constitutional Perspective
▶ The Interactions of Competition Law and Investment Law: The Case of Chinese
State-Owned Enterprises and EU Merger Control Regime
▶ The Role of Competition Law in the Investment Policy in ASEAN
Part VIII
General International Law and International
Investment Law
General International Law and
International Investment Law: A Systematic 62
Analysis of Interactions in Arbitral Practice
D. Mejía-Lemos
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1604
The Relationship Between General and Particular Law in the Realm of
Foreign Investment: General Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1611
General and Particular Law in the Field of Foreign Investment as Public International
Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1611
General Law and the Operation of Particular Law on Foreign Investment . . . . . . . . . . . . . . . 1612
The Prevalence of Particular Law on Foreign Investment over General Law . . . . . . . . . . . . . 1615
The Systemic and Structural Features of Interactions of General and
Particular Law on Foreign Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1619
The Relationship Between General and Particular Law as Interactions . . . . . . . . . . . . . . . . . . . 1620
Regime, Its Various Conceptions, and the Particular Law on Foreign Investment . . . . . . . 1622
Systemic, Formal, and Structural Aspects of the Interactions of General and Particular
Law Norms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1625
The Various Aspects of the Prevalence of Particular Law on Foreign Investment over
General Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1630
General and Particular Law, as Characterized in “Whole” or in “Part” . . . . . . . . . . . . . . . . . . . 1631
Particular Law and Its Normativity in Light of Rights and Obligations Forming Its
Subject Matter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1633
General Law and Its Properties, Including the Required Degree of Generality . . . . . . . . . . . 1635
D. Mejía-Lemos (*)
National University of Singapore, Singapore, Singapore
Xi’an Jiaotong University, Xi’an, China
e-mail: d.ml@nyu.edu

https://doi.org/10.1007/978-981-13-3615-7_29
1604 D. Mejía-Lemos
The Categories of Conflicts Among Interacting Norms of General and

Particular Law in the Field of Foreign Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1642
Conflicts of Norm and Their Distinct Nature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1642
General and Particular Regime Sensu Lato, Subject Matter,
and Temporal Conflicts of Norms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1644
General and Particular Law, Hierarchization, Favorability, and
Substantive Conflicts of Norms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1647
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1650
Abstract
This chapter aims to offer a systematic analysis of interactions between general
and particular norms of international law in the realm of foreign investment.
Drawing chiefly on a survey of arbitral decisions addressing those interactions
from a general standpoint, the chapter shows the various ways in which arbitral
practice may elucidate the nature of those interactions and of general international
law in the field and beyond. The chapter, divided into six parts, examines various
matters, including: the relative places and limitations of general and particular law
in the field; systemic and structural features of interacting general and particular
norms, examining the concept of “regime” and bringing to the fore some novel
insights into the very structure of public international law at large; the prevalence
of particular law contained in international investment agreements over general
law; and the ways in which temporal and substantive conflicts among interacting
norms may be solved.
Keywords
General international law · Sources of international law · International investment
law · General principles of law · Customary international law · Bilateral
investment treaties · Regime · Fragmentation
Introduction
Treaties governing foreign investment, collectively referred to as “international

investment agreements” (IIAs), have proliferated in the form of primarily bilateral
investment treaties (BITs) and other treaties containing investment provisions, of
bilateral, plurilateral and multilateral scope.1 IIAs set out obligations whose
1
I am very grateful to Campbell McLachlan QC, Penelope Nevill and Dirk Pulkowski for their time and
comments on an earlier draft of the present chapter, commissioned while serving as a Post-Doctoral
Fellow at the National University of Singapore. Treaties partly concerned with foreign investment
62 General International Law and International Investment Law: A Systematic. . . 1605
alleged breach may give rise to disputes capable of submission to arbitration under
IIAs.2 In sum, as the International Court of Justice (ICJ) remarks in Ahmadou
Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo), “in
contemporary international law, the protection of the rights of companies and the
rights of their shareholders, and the settlement of the associated disputes, are
essentially governed by bilateral or multilateral agreements”.3
The prevalence of treaty-based norms, institutions, and procedures, often called
“treatification”, would seem to call into question the place and importance of general
international law in the field of foreign investment.4 And yet, the interactions
between general and particular law in this field, notwithstanding its prevailing
treatification, are receiving increasing attention.5 So is the concept of “general
international law”, at large6 and in its interaction with IIAs.7 This interest is justified,
contain investment provisions or sets of investment provisions, often grouped into “parts” or “chapters”,
alongside provisions on other subject matters. Bilateral and plurilateral treaties containing investment
provisions often take the form of free trade agreements (FTAs), such as the Central America–Dominican
Republic–United States FTA, 43 ILM 514 (2004) (DR-CAFTA) and the North American FTA, 32 ILM
289 (1993) (NAFTA). Paramount among multilateral treaties containing investment provisions is the
Energy Charter Treaty, 2080 UNTS 100 (ECT). Cf., Mejía-Lemos, D (2018) Promotion, protection and
treatment of investments: article 10. In Leal-Arcas, R (ed), Commentary on the Energy Charter Treaty.
Edward Elgar, Cheltenham, pp 150–204, para 10.04 (noting “the ECT has a special nature . . .
particularly as a treaty which is both multilateral and sectoral.”)
2
Treaty-based arbitrations may be conducted under the auspices of various arbitral institutions,
including equally treaty-based international organizations. Those institutions include, most prom-
inently, the International Centre for Settlement of Investment Disputes (ICSID), set up by the
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States,
575 UNTS 159 (ICSID Convention), and the Permanent Court of Arbitration (PCA), created by the
Convention for the Pacific Settlement of International Disputes, 1 Bevans 230.
3
Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo), Preliminary
Objections, Judgment, ICJ Rep 2007, p. 582, para. 88 (adding that such rights and disputes are
governed “also by contracts between States and foreign investors”, and “[i]n that context, the role of
diplomatic protection somewhat faded”.)
4
Hernández GI (2013) The interaction between investment law and the law of armed conflict in the
interpretation of full protection and security clauses. In: Baetens F (ed) Investment law within
international law: integrationist perspectives. Cambridge University Press, Cambridge, pp 21–50, p
28 (noting international investment law is essentially of a “treaty-based nature”); Álvarez JE (2011)
The public international law regime governing international investment. Brill, Leiden, p 238
(arguing treatification “has not displaced” general principles law and general customary law.)
5
Gattini A, Tanzi A, Fontanelli F (2018) Under the hood of investment arbitration: general
principles of law. In: Gattini A, Tanzi A, Fontanelli F (eds) General principles of law and
international investment arbitration. Brill, Leiden, pp 1–20, p 1
6
Cf., i.a., Gourgourinis A (2011) General/particular international law and primary/secondary rules:
unitary terminology of a fragmented system. Eur J Int Law 22:993–1026; Tomuschat C (2018) General
international law: a new source of international law. In: Pisillo Mazzeschi R, de Sena P (eds) Global
justice, human rights and the modernization of international law. Springer, Cham, pp 185–204
7
McLachlan C (2008) Investment treaties and general international law. Int Comp Law Q
57:361–401
among others, by the limitations in scope of IIAs, which govern only a subset of all
possible relations regarding foreign investment.8 Such limitations are compounded
by the paucity of BITs between capital-exporting States inter se,9 the dearth of IIAs
governing relations involving certain major capital-importing States10 and interna-
tional organizations like the European Union (EU), and terminations of or with-
drawals from various treaties.11
This chapter seeks to provide a systematic analysis of interactions between
general and particular norms of public international law in the field of foreign
investment. In particular, the analysis is confined to interactions occurring in
connection with the interpretation and application of interacting norms.12 The
analysis outlined in this chapter is chiefly based on a survey of decisions which
have been issued in publicly known treaty-based arbitrations in which “general
8
Those relations largely involve States hosting those investment (host States) and States whose
nationals make investments (home States). Certain international organizations may be involved, but
such involvement remains exceptional, as epitomised by the EU, the only regional economic
integration organization party to the ECT. Gazzini T (2008) The role of customary international law
in the field of foreign investment. J World Invest Trade 8:691–715, p 691 (estimating BITs cover 13%
of inter-State relations); Álvarez JE (2009) A BIT on custom. J Int Law Polit 42:17–80, p 23
9
BITs were initially concluded in a context where the separation between capital-exporting and
capital-importing roles was largely reflective of that between developed and developing economies.
Then, it was also assumed that measures in breach of BITs would normally be committed by
governments of the latter only. Nevertheless, as States increasingly play both roles, following
economic development across various economies, and measures by developed States are increas-
ingly challenged by investors from other developed States, as exemplified by many ECT and
NAFTA disputes, the paucity of IIAs binding capital-exporting States inter se is no longer
warranted.
10
Gazzini (2008) supra n 8, p 691
11
Álvarez (2011) supra n 4, pp 195–196 (arguing general international law is relevant to investors
where IIAs are terminated or withdrawn from, diplomatic protection is resorted to, or a claim is
pursued in domestic courts.)
12
The presence of limitations in the scope of an analysis, such as those adopted here, does not
necessarily render the analysis underinclusive, where the limitations are well justified. Some
commentators, nevertheless, dismiss scope limitations as necessary instances of
underinclusiveness. For instance, Young States that regime interaction occurs at various “stages
of international law”, including but not limited to, dispute settlement; as she notes, “regime
interaction occurs during the making, implementation and enforcement” stages. Young observes
that “the literature on fragmentation has so far concentrated mainly on the resolution of
conflicting norms, which occurs after laws are negotiated or have otherwise become custom”,
and goes on to dismiss accounts focusing on “conflicting norms before a tribunal . . .
underinclusive.” Young MA (2012b) Regime interaction in creating, implementing and
enforcing international law. In: Young MA (ed) Regime interaction in international law facing
fragmentation. Cambridge University Press, Cambridge, pp 85–110, pp 90–91
62 General International Law and International Investment Law: A Systematic. . . 1607
international law” and its relationship with IIAs are examined from a general
standpoint.13 The use of this body of arbitral decisions may be justified by their
13
As of March 7, 2020, thirty-two (32) decisions have fulfilled the above criteria for inclusion in
the survey. The surveyed decisions were issued in arbitrations conducted under the auspices of
the ICSID, the PCA, and the Arbitration Institute of the Stockholm Chamber of Commerce
(SCC). A list follows: Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No.
ARB/87/3, Final Award (27 June 1990, El-Kosheri, Goldman, Asante) (AAPL v Sri Lanka);
Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka, ICSID Case
No. ARB/00/2, Award (15 March 2002, Sucharitkul, Rogers & Suratgar) (Mihaly v Sri Lanka);
Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt, ICSID Case No.
ARB/08/4, Award (12 April 2002, Böckstiegel, Bernardini & Wallace) (Middle East Cement v
Egypt); Waste Management, Inc v United Mexican States, ICSID Case N ARB(AF)/00/3,
Award (30 April 2004, Crawford, Civiletti & Magallón Gómez) (Waste Management v Mexico);
AES Corporation v The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Juris-
diction (26 April 2005, Dupuy, Böckstiegel & Bello Janeiro) (AES v Argentina); Noble
Ventures, Inc v Romania, ICSID Case No. ARB/01/11, Award (12 October 2005, Böckstiegel,
Lever & Dupuy) (Noble Ventures v Romania); Pan American Energy LLC, and BP Argentina
Exploration Company v The Argentine Republic, ICSID Case No. ARB/03/13, and BP America
Production Company, Pan American Sur SRL, Pan American Fueguina, SRL and Pan American
Continental SRL v The Argentine Republic, ICSID Case No. ARB/04/8, Decision on Prelimi-
nary Objections (27 July 2006, Caflisch, Stern & van den Berg) (Pan American Energy v
Argentina and BP America Production Company v Argentina); ADC Affiliate Limited and
ADC & ADMC Management Limited Claimants v The Republic of Hungary, ICSID Case No.
ARB/03/16, Award (2 October 2006, Brower, van den Berg & Kaplan) (ADC v Hungary);
LG&E Energy Corp LG&E Capital Corp LG&E International Inc v Argentine Republic, ICSID
Case N ARB/02/1, Decision on Liability (3 October 2006, de Maekelt, Rezek & van den Berg)
(LG&E v Argentina); Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No.
ARB(AF)/99/1, Interim Decision on Preliminary Jurisdictional Issues (6 December 2006,
Covarrubias Bravo, Gantz & Kerameus) (Feldman v Mexico); MTD Equity Sdn Bhd and MTD
Chile SA v Republic of Chile, ICSID Case No. ARB/01/7, Decision on Annulment (21 March
2007, Guillaume, Crawford, Ordóñez Noriega) (MTD v Chile (Annulment Decision)); MCI
Power Group LC and New Turbine, Inc v Republic of Ecuador, ICSID Case No. ARB/03/6,
Award (31 July 2007, Vinuesa, Greenberg & Irarrázabal) (MCI v Ecuador); CMS Gas Trans-
mission Company v Argentine Republic, ICSID Case No. ARB/01/8, Decision of the Ad Hoc
Committee on the Application for Annulment of the Argentine Republic (25 September 2007,
Guillaume, Elaraby, Crawford) (CMS v Argentina (Annulment Decision)); Desert Line Projects
LLC v The Republic of Yemen, ICSID Case No. ARB/05/17, Award (6 February 2008, Tercier,
Paulsson & EI-Kosheri) (Desert Line v Yemen); The Rompetrol Group NV v Romania, ICSID
Case No. ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and
Admissibility (18 April 2008, Berman, Donovan & Lalonde) (Rompetrol v Romania); Phoenix
Action, Ltd v The Czech Republic, ICSID Case No. ARB/06/5, Award (15 April 2009, Stern,
Bucher & Fernández-Armesto) (Phoenix v Czech Republic); SAIPEM SpA v The People’s
Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (30 June 2009, Kaufmann-Kohler,
Schreuer & Otton) (Saipem v Bangladesh); Hussein Nuaman Soufraki v The United Arab
Emirates, ICSID Case No. ARB/02/7, Decision of the Ad Hoc Committee on the Application
for Annulment of Mr. Soufraki (27 August 2009, Feliciano, Nabulsi & Stern) (Soufraki v United
Arab Emirates (Annulment Decision)); Murphy Exploration and Production Company Inter-
national v Republic of Ecuador, ICSID Case No. ARB/08/4, Award on Jurisdiction (15
December 2010, Oreamuno Blanco, Grigera Naón & Vinuesa) (Murphy v Ecuador); Continen-
tal Casualty Company v The Argentine Republic, ICSID Case No. ARB/03/9, Decision on the
Application for Partial Annulment of Continental Casualty Company and the Application for
wider significance, beyond the proceedings in which they are issued.14 Further-
more, the use of arbitral decisions is without prejudice to the importance of State
Partial Annulment of the Argentine Republic (16 September 2011, Griffith, Söderlund &
Ajibola) (Continental Casualty v Argentina (Annulment Decision)); El Paso Energy Interna-
tional Company v The Argentine Republic, ICSID Case No. ARB/03/15, Award (31 October
2011, Caflisch, Bernardini & Stern) (El Paso v Argentina); Bernhard von Pezold and Others v
Republic of Zimbabwe, ICSID Case No. ARB/10/15, and Border Timbers Limited, Border
Timbers International (Private) Limited, and Hangani Development Co. (Private) Limited v
Republic of Zimbabwe, ICSID Case No. ARB/10/25, Procedural Order No. 2 (26 June 2012,
Fortier, Williams & Chen) (von Pezold v Zimbabwe and Border Timbers v Zimbabwe); Daimler
Financial Services AG v Argentine Republic, ICSID Case No. ARB/05/1, Award (22 August
2012, Dupuy, Brower & Bello Janeiro) (Daimler v Argentina); Hesham Talaat M. Al-Warraq v
The Republic of Indonesia, Final Award (15 December 2014, Cremades, Hwang & Nariman)
(Al-Warraq v Indonesia); Cem Cenzig Uzan v The Republic of Turkey, SCC Arbitration V 2014/
023, Award on Respondent’s Bifurcated Preliminary Objection (20 April 2016, Cremades,
Carreau & Sands) (Uzan v Turkey); Corona Materials LLC v Dominican Republic, ICSID
Case No. ARB(AF)/14/3, Award on the Respondent’s Expedited Preliminary Objections in
accordance with Article 10.20.5 of the DR-CAFTA (31 May 2016, Dupuy, Mantilla-Serrano &
Thomas) (Corona v Dominican Republic); WNC Factoring Ltd v The Czech Republic, PCA
Case No 2014-34, Award (22 February 2017, Griffith, Volterra & Crawford) (WNC v Czech
Republic); Fouad Alghanim & Sons Co. for General Trading & Contracting, WLL and Mr
Fouad Mohammed Thunyan Alghanim v Hashemite Kingdom of Jordan, ICSID Case No. ARB/
13/38, Award (14 December 2017, McLachlan, Fortier & Kohen) (Alghanim Sons & Alghanim v
Jordan); Mobil Investments Canada Inc v Government of Canada, ICSID Case No. ARB/15/6,
Decision on Jurisdiction and Admissibility (13 July 2018, Greenwood, Rowley & Griffith)
(Mobil v Canada); Cube Infrastructure Fund SICAV and Others v Kingdom of Spain, ICSID
Case No. ARB/15/20, Decision on Jurisdiction, Liability and Partial Decision on Quantum (19
February 2019, Lowe, Spigelman & Tomuschat) (Cube v Spain); Eskosol SpA In Liquidazione v
Italian Republic, ICSID Case No. ARB/15/50, Decision on Italy’s Request for Immediate
Termination and Italy’s Jurisdictional Objection Based on Inapplicability of the Energy Charter
Treaty to Intra-EU Disputes (7 May 2019, Kalicki, Stern & Tawil) (Eskosol v Italy); Rockhopper
Italia Spa, Rockhopper Mediterranean Ltd, And Rockhopper Exploration Plc v Italian Repub-
lic, ICSID Case No. ARB/17/14, Decision on the Intra-EU Jurisdictional Objection (26 June
2019, Reichert, Poncet & Dupuy) (Rockhopper v Italy).
14
Crawford and Nevill argue, more generally, in support of relying on decisions of international
courts and tribunals “concerning regime and rule conflict” in their analysis of regime interactions,
pointing to their “‘normative value’ – beyond the parties to which, legally, their binding authority is
confined.” Crawford J, Nevill P (2012) Relations between international courts and tribunals: the
‘regime problem’. In: Young MA (ed) Regime interaction in international law facing fragmentation.
Cambridge University Press, Cambridge, pp 235–260, p 236. Like regime accounts not inclusive of
interactions at a law-making stage, a focus on arbitral and judicial decisions, attendant upon
confining a regime account to the dispute settlement stage, has met with some criticism. For
instance, Dunoff critiques “[t]he methodological focus on judicial decisions” as leading to “an
inaccurate and incomplete model of regime interaction.” In particular, Dunoff considers such
models of regime interaction to be “‘transactional’ . . . partial and misleading”, as they rely on
“the narrowing of issues for authoritative resolution in one forum”. Dunoff J (2012) A new
approach to regime interaction. In: Young MA (ed) Regime interaction in international law facing
fragmentation. Cambridge University Press, Cambridge, pp 136–174, p 137. In her commentary on
an earlier draft of the present chapter (on file with the author), Nevill indicates that the approach
adopted in her 2012 co-authored work took into account “subsequent law-making by others”,
parti

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Julien Chaisse

With 17 Figures and 23 Tables

ISBN 978-981-13-3614-0 ISBN 978-981-13-3615-7 (eBook)

Geneva Georges Abi-Saab

Kowloon, Hong Kong SAR Julien Chaisse

Part I Definitions, Standards of Treatment, Promotion and

1 Deﬁnitions, Standards of Treatment, Promotion and Protection

Part II Definitions and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2 The Concept of “Investment”: Treaty Deﬁnitions and

3 The Deﬁnition of Investor in Investment Treaty Arbitration . . . . 45

4 Speciﬁc Approval Requirement in Investment Treaties:

5 Legitimate Expectations in Investment Treaty Law:

6 Good Faith in International Investment Law and Policy . . . . . . . 121

7 Investment Promotion Agencies: Investment Attraction,

8 Effects of BITs on FDI: The Role of Publication Bias ......... 181

9 Protection of Cross-Border Data Flows Under

Part III Standards of Treatment, Promotion, and Protection .... 233

10 The National Treatment Obligation: Law and Practice of

21 National Security: The Role of Investment Screening

22 National Security Exception in an Era of Hegemonic Rivalry:

23 Essential Security Interests in International Investment Law:

Part IV Investor-State Dispute Settlement (ISDS): Procedural

24 Investor-State Dispute Settlement (ISDS): An Introduction . . . . . 605

Part V ISDS Policy in Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . 623

25 Prevention of ISDS Disputes: From Early Resolution to Limited

26 The Politics of Investor-State Dispute Settlement:

27 Investor State Dispute Settlement and Host Country Regulation:

28 Model Instrument for Management of Investment Disputes . . . . 681

29 Investor-State Conﬂict Management Mechanisms (CMMs)

30 Mediation as an Alternative Method to Settle Investor-State

31 Past and Future of Mediation for Investment Disputes:

Part VI Procedural and Substantial Issues ................... 917

37 Arbitral Procedure: Case Management and Selecting the

43 Emerging Practice on Investor Diligence: Jurisdiction,

44 Relevance of Domestic Court Decisions to the Merits in

45 Applicable Law in Investment Arbitration . . . . . . . . . . . . . . . . . . 1123

46 Selection, Bias, and Ethics of Arbitrators in Investor-State

47 Managing Conﬂict of Interest in International Arbitration:

48 Drafting a Twenty-First-Century Code of Conduct for

49 Arbitration Clauses Limited to Compensation due to

50 Bilcon v. Canada: A New Paradigm for Causation in

51 Counterclaims Admissibility in Investment Arbitration . . . . . . . . 1277

52 Evidence in International Investment Arbitration . . . . . . . . . . . . 1327

53 Public Participation: Amicus Curiae in International Investment

54 Third-Party Funding in Investment Arbitration . . . . . . . . . . . . . 1397

55 Damages and Valuation in International Investment

57 Enforcement of Investment Arbitration Awards . . . . . . . . . . . . . 1475

58 State Immunity in the Context of Enforcement of

59 ISDS Control Mechanisms (Annulment and Setting Aside) . . . . . 1533

60 The Importance of Transparency for Legitimizing

Part VII Regimes Interactions: International Investment

61 Regimes Interactions: International Law Investment and . . . – An

Part VIII General International Law and International

62 General International Law and International Investment

63 International Investment Law: A Self-Proclaimed Ally in

64 The Notion and Development of International Investment

Part IX Human Rights, Sustainable Development, and

65 Human Rights in International Investment Law and

Part X International Economic Law and International

74 Intellectual Property Rights in International Investment

75 Tax Incentives: From an Investment, Tax, and Sustainable

76 Interactions Between Taxation Measures and International

77 The Interactions of Competition Law and Investment Law: