2011-Foster-Striking A Balance Between Investor Protections and National Sovereignty - The Relevance of Local Remedies in ISA

Lewis & Clark Law School
Legal Research Paper Series
Paper No. 2011- 15
Striking a Balance Between Investor

Protections and National Sovereignty:
The Relevance of Local Remedies in
Investment Treaty Arbitration
George K. Foster
Lewis & Clark Law School
49 Columbia Journal of Transnational Law 201
(2011)
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5. Foster - Striking a Balance (49.201) - 4.19.11 4/19/2011 4:32 PM
Articles
Striking a Balance Between Investor

Protections and National Sovereignty:
The Relevance of Local Remedies in
Investment Treaty Arbitration
GEORGE K. FOSTER*
Investment treaty arbitration is a relatively recent in-

novation designed to allow foreign investors to bring
claims against host States without having to seek re-
dress in the host State’s own courts. Yet a trend has
emerged that some have characterized as inconsistent
with this purpose: several tribunals have rejected
treaty claims based on their impression that the
claimants had not adequately pursued local remedies
prior to initiating arbitration. Moreover, some of
these tribunals have suggested that if an investor does
pursue local remedies, it may be effectively prevented
from later rearguing issues addressed by national
courts. The combined effect of these holdings is to
place investors in a Catch-22, encouraging them to
pursue local remedies, while warning them that doing
so may foreclose success at the international level.
This Article highlights the tension between these dis-
* Associate Professor of Law, Lewis & Clark Law School. I would like to thank
Professor William Dodge of U.C. Hastings College of the Law, Professor Tai-Heng Cheng
of New York Law School and Professors Edward Brunet, Janet Steverson, William Funk
and Jeffrey Jones of Lewis & Clark Law School for their comments on earlier versions of
this paper. I would also like to thank my fellow panelists and participants at the Public
International Law workshop at the Southeastern Association of Law Schools (SEALS)
Annual Meeting, held on July 31, 2010 in Palm Beach, Florida, for their questions and
comments. Finally, I would like to thank Ariel Blackthorne, Joseph Terrenzio and Rohit
Kapuria for their research assistance. The views expressed in this paper are not necessarily
shared by my colleagues or my former law firm.
202 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201
tinct aspects of this line of authority and evaluates

each by reference to treaty language, principles of in-
ternational law, domestic analogs under U.S. constitu-
tional law and policy considerations. This analysis
reveals that there is a sound basis for treating local
remedies as relevant to the merits of certain treaty
claims, but that tribunals should give more limited
deference to national court decisions. The modified
approach outlined in this Article promises to strike a
better balance between investor protections and na-
tional sovereignty, and thereby promote the long-term
viability of investment treaty arbitration.
INTRODUCTION .................................................................................204
I. THE EXHAUSTION OF LOCAL REMEDIES RULE AND ITS
GENERAL INAPPLICABILITY IN TREATY-BASED
ARBITRATION .........................................................................209
A. The Nature and Purpose of the Rule ..............................209
B. The Rule’s Abrogation by Modern Investment
Accords ..........................................................................211
II. THE LOCAL REMEDIES CASES .....................................................215
A. Loewen ...........................................................................216
B. Generation Ukraine .......................................................219
C. Waste Management II ....................................................221
D. EnCana ..........................................................................223
E. MCI .................................................................................225
F. Parkerings ......................................................................226
G. Helnan ............................................................................228
H. Jan de Nul ......................................................................231
I. Saipem .............................................................................233
J. Pantechniki ......................................................................234
K. Chevron-Texaco .............................................................236
評價
III. A CRITICAL APPRAISAL OF THE LOCAL REMEDIES CASES .........238
A. Local Remedies Are Potentially Relevant to the
Merits of Treaty Claims Challenging Judicial
Conduct ..........................................................................239
2011] STRIKING A BALANCE 203
1. International Law and Domestic Analogs Confirm

the Substantive Relevance of Local Remedies to
Denial of Justice and Similar Claims .......................239
a. Denial of Justice Claims Have a Substantive
Local Remedies Element, and Applying It in
Treaty Cases Does Not Defeat the Abrogation
of the Procedural Exhaustion Rule ....................240
b. The Relevance of Local Remedies Cannot Be
Avoided by Re-Framing the Claim Under a
Different Treaty Obligation ...............................244
i. A Fair and Equitable Treatment Claim
Will Not Succeed if the Investor Has
Declined To Appeal an Impugned Judicial
Decision .......................................................244
ii. A Tribunal Cannot Assess the
“Effectiveness” of the Means Provided for
Asserting Claims and Enforcing Rights if
the Claimant Has Not Invoked Those
Means ...........................................................247
iii. An Expropriation Claim Is Not Ripe if the
State Has Provided a Mechanism for
Providing Prompt, Adequate and Effective
Compensation, Which the Investor Has
Not Invoked .................................................248
2. Policy Considerations Also Support Encouraging
Recourse to Local Remedies ....................................249
B. Local Remedies Are Also Potentially Relevant to
Treaty Claims Challenging Reviewable
Administrative Conduct .................................................251
C. Local Remedies Are Sometimes (But Not Always)
Relevant to Claims Predicated on a Breach of
Contract by the Host State .............................................255
D. If the Investor Has Pursued Local Remedies, a Treaty
Tribunal Should Show Only Limited Deference to
Adverse Findings of National Courts ............................259
E. Fork-in-the-Road Clauses Should Be Interpreted
Narrowly, So That They Would Rarely Be Triggered
by the Pursuit of Local Remedies ..................................265
CONCLUSION ....................................................................................266
INTRODUCTION
Of the many issues that remain unsettled in the relatively

young field of investment treaty arbitration, the relevance, if any, of
local remedies is among the most important and controversial.1
It has long been an established procedural rule of customary
international law that a State may not espouse the claim of one of its
nationals against another State unless the national has exhausted local
remedies: a principle known as the “exhaustion of local remedies”
rule.2 There is wide agreement, however, that modern investment
accords—including Chapter 11 of the North American Free Trade
Agreement (NAFTA),3 the Convention on the Settlement of Invest-
ment Disputes Between States and Nationals of Other States (ICSID
Convention),4 and most bilateral investment treaties (BITs)—have
eliminated that rule in arbitrations arising under them.5 If this view is
correct, then investors should be free to file treaty-based arbitrations
without having to first pursue, let alone exhaust, local remedies.
Yet a trend has emerged that seems at first blush inconsistent
with this proposition. Several tribunals have either rejected treaty
claims based on their impression that the claimants had not adequate-
ly pursued local remedies, or have acknowledged that they would
have dismissed the claims had local remedies been available.6 (I re-
1. By the term “local remedies,” I refer to any forms of redress available to an

aggrieved foreign investor under the host State’s domestic legal framework.
2. Interhandel (Switz. v. U.S.), 1959 I.C.J. 6, 27 (Mar. 21); C. F. AMERASINGHE,
LOCAL REMEDIES IN INTERNATIONAL LAW 4 (2d ed. 2004).
3. North American Free Trade Agreement, U.S.-Can.-Mex., Dec. 17, 1992, 32 I.L.M.
289 (1993) [hereinafter NAFTA].
4. Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States, Mar. 18, 1965, 17 U.S.T. 1270, 575 U.N.T.S. 159 [hereinafter
ICSID Convention].
5. See, e.g., Hans Smit, Note & Comment, The Forum Selection Clause in Arbitration
Under a Bilateral Investment Treaty, 16 AM. REV. INT’L ARB. 339, 340 (2005) (“Those
treaties [BITs] permit ‘investors’ to go to arbitration without exhausting their remedies in the
(local) courts. They substitute BIT arbitration for domestic court litigation and permit the
investor to bypass the latter in favor of the former. They eliminate the usual exhaustion of
local remedies prerequisite to international adjudication.”). Authorities expressing similar
views regarding the ICSID Convention and NAFTA are discussed infra Part II.B.
6. Decisions in this line of authority include Pantechniki S.A. Contractors & Eng’rs v.
The Republic of Alb., ICSID Case No. ARB/07/21, Award (July 30, 2009), http://ita.law.
uvic.ca/documents/PantechnikiAward.pdf; Jan de Nul N.V. v. Arab Republic of Egypt,
ICSID Case No. ARB/04/13, Award (Nov. 6, 2008), http://ita.law.uvic.ca/documents/
JandeNulNVaward.pdf; Duke Energy Electroquil Partners v. Republic of Ecuador, ICSID
fer to these cases herein collectively as the “Local Remedies Cases.”)

These tribunals based their holdings on the substance of the treaty
claims at issue, and not on any procedural requirement to exhaust lo-
cal remedies, but the results were the same as if they had applied the
traditional rule: if local remedies were available, the claimants were
sent home empty-handed.
The initial cases in this vein received a chilly reception from
scholars, with several dismissing them as misguided attempts to rein-
state the exhaustion of local remedies rule in a different guise.7 Nev-
ertheless, this trend has not gone away and has gathered momentum
Case No. ARB/04/19, Award (Aug. 18, 2008), http://ita.law.uvic.ca/documents/

DukeEcuadorAward_003.pdf; Helnan Int’l Hotels A/S v. Arab Republic of Egypt, ICSID
Case No. ARB/05/19, Award (July 3, 2008), http://ita.law.uvic.ca/documents/
HelnanAward.pdf; Parkerings-Compagniet AS v. Republic of Lith., ICSID Case No.
ARB/05/8, Award (Sept. 11, 2007), http://ita.law.uvic.ca/documents/Pakerings.pdf; M.C.I.
Power Group L.C. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award (July 31,
2007), http://ita.law.uvic.ca/documents/MCIEcuador.pdf; Waste Mgmt., Inc. v. United Mex.
States (Number 2), ICSID Case No. ARB(AF)/00/3, Final Award (April 30, 2004),
43 I.L.M. 967 (2004); Generation Ukr., Inc. v. Ukraine ICSID Case No. ARB/00/9, Award
(Sept. 16, 2003), 44 I.L.M. 404 (2005); The Loewen Group, Inc. v. United States, ICSID
Case No. ARB(AF)/98/3, Award on the Merits (June 26, 2003), 7 ICSID Rep. 442 (2005);
and EnCana Corp. v. Republic of Ecuador, LCIA Case No. UN3481, Award (Feb. 3, 2006)
(London Ct. of Int’l Arb.), http://ita.law.uvic.ca/documents/EncanaAwardEnglish.pdf. In
two other cases the tribunals acknowledged that local remedies are relevant to the substance
of at least some treaty claims but held either that there were no local remedies available to
the claimant or that the claimant had adequately pursued what remedies were available. See
Saipem S.p.A. v. The People’s Republic of Bangl., ICSID Case No. ARB/05/07, Award
(June 30, 2009), http://ita.law.uvic.ca/documents/SaipemBangladeshAwardJune3009_
002.pdf; Saipem S.p.A. v. The People’s Republic of Bangl., ICSID Case No. ARB/05/07,
Decision on Jurisdiction and Recommendation on Provisional Measures (Mar. 21, 2007),
http://ita.law.uvic.ca/documents/Saipem-Bangladesh-Jurisdiction.pdf; Chevron Corp. v. The
Republic of Ecuador, UNCITRAL Arbitration, Partial Award on the Merits (Mar. 30, 2010),
http://ita.law.uvic.ca/documents/ChevronTexacoEcuadorPartial Award.pdf. Finally, in yet
another case the tribunal directed the claimant to pursue local remedies prior to the
adjudication of its treaty claims and stayed the treaty-based arbitration while the claimant
did so, rather than dismissing the treaty claims outright. SGS Société Générale de
Surveillance S.A. v. Republic of the Phil., ICSID Case No. ARB/02/6, Decision of the
Tribunal on Objections to Jurisdiction, (Jan. 29, 2004) 8 ICSID Rep. 518 (2005). For
purposes of this Article I treat all of the foregoing decisions as “Local Remedies Cases.”
7. See, e.g., CAMPBELL MCLACHLAN, LAURENCE SHORE & MATTHEW WEINIGER,
INTERNATIONAL INVESTMENT ARBITRATION: SUBSTANTIVE PRINCIPLES 233 (Loukas Mistelis
et al. eds., 2007); Bradford K. Gathright, Comment, A Step in the Wrong Direction: The
Loewen Finality Requirement and the Local Remedies Rule in NAFTA Chapter Eleven, 54
EMORY L. J. 1093, 1127–29 (2005); Christoph Schreuer, Calvo’s Grandchildren: The
Return of Local Remedies in Investment Arbitration, 4 L. & PRACT. OF INT’L CTS &
TRIBUNALS 1, 14 (2005).
of late, producing at least seven decisions within the past three years
alone. There is clearly something about this approach, therefore, that
has strong appeal to arbitrators. Could there be something they un-
derstand that their critics do not?
In addition, apart from treating local remedies as relevant to
the merits of treaty claims, some of these tribunals have suggested
that if an investor does pursue local remedies, that investor will be
effectively prevented from re-arguing, in a treaty-based arbitration,
issues addressed by national courts. Some have signaled that such an
attempt at re-litigation would likely fail because treaty tribunals gen-
erally must defer to the determinations of national courts, and avoid
acting like “courts of appeal.”8 Others have suggested that if the
treaty contains what is known as a “fork-in-the-road” clause,9 the in-
vestor could effectively waive the right to treaty arbitration by pursu-
ing local remedies.10
The combined effect of these holdings can place investors in a
Catch-22, encouraging them to pursue local remedies (lest they risk
having their treaty claims deemed substantively unripe), while warn-
ing them that doing so may effectively foreclose relief at the interna-
tional level.11
8. See, e.g., Helnan Int’l Hotels A/S v. Arab Republic of Egypt, ICSID Case No.
ARB/05/19, Award, ¶ 106 (July 3, 2008), http://ita.law.uvic.ca/documents/Helnan
Award.pdf; Waste Mgmt., Inc. v. United Mex. States (Number 2), ICSID Case No.
ARB(AF)/00/3, Final Award, ¶¶ 130–32 (Apr. 30, 2004), 43 I.L.M. 967 (2004) (citing
Azinian, Davitian, & Baca v. Mex., ICSID Case No. ARB(AF)/97/2, Award, ¶ 103 (Nov. 1,
1999) 5 ICSID Rep. 272 (2002)).
9. A fork-in-the-road clause is a provision in a treaty that requires an investor to make
an irrevocable election among the fora available to hear a dispute and precludes the investor
from thereafter re-litigating the dispute in a different forum. See MCLACHLAN, SHORE &
WEINIGER, supra note 7, at 54–55; Christoph Schreuer, Investment Treaty Arbitration and
Jurisdiction over Contract Claims—The Vivendi I Case Considered, in INTERNATIONAL
INVESTMENT LAW AND ARBITRATION: LEADING CASES FROM THE ICSID, NAFTA, BILATERAL
TREATIES AND CUSTOMARY INTERNATIONAL LAW 281, 301–02 (T. Weiler ed., 2005).
10. Pantechniki Award, ¶¶ 61–67. See also Mytilineos Holdings SA v. The State
Union of Serb. & Montenegro, UNCITRAL Arbitration, Partial Award on Jurisdiction,
¶ 221 (Sept. 8, 2006), http://ita.law.uvic.ca/documents/MytilineosPartial Award.pdf (“[T]he
fork-in-the-road clause obliges an investor to choose whether to pursue remedies before
domestic or international fora. Once the choice is made in favor of domestic remedies,
international arbitration is no longer available.”). Fork-in-the-road clauses are discussed in
greater detail infra Part III.E.
11. See William S. Dodge, National Courts and International Arbitration: Exhaustion
of Remedies and Res Judicata Under Chapter Eleven of NAFTA, 23 HASTINGS INT’L &
COMP. L. REV. 357, 370 (2000) (“[I]f a claimant were required to exhaust local remedies and
This Article undertakes the first comprehensive examination

of this line of authority,12 considering the interplay between the key
holdings of these cases, and the extent to which each is defensible.
The analysis reveals that certain propositions of law articulat-
ed in the Local Remedies Cases are in fact well-grounded, including
the basic notion that local remedies are relevant to the merits of cer-
tain specific treaty claims. Support for this approach is found in the
relevant treaty language, by drawing analogies to substantive princi-
ples developed in U.S. constitutional jurisprudence and by reference
to policy considerations.
The analysis also reveals, however, that other propositions ar-
ticulated in the Local Remedies Cases are inherently questionable or
should be narrowed. While national court decisions should be ac-
corded significant respect (and, indeed, I propose that tribunals reject
such decisions only upon a showing of clear and convincing evidence
that they were erroneous), they are entitled to less deference than
some tribunals have suggested. I also recommend interpreting fork-
in-the-road clauses narrowly, so as to preclude only attempts to re-
litigate the exact same claim against the exact same opponent—
something most investors are not so brazen as to attempt.
Such an approach would arguably strike a better balance be-
tween investor protections and national sovereignty. If tribunals as-
sign too much significance to local remedies, or local court decisions,
it could discourage the pursuit of meritorious treaty claims. Yet, as-
signing too little significance could unduly hinder a host State’s ef-
forts to regulate companies operating in sensitive sectors within its
borders, and lead to a political backlash against investment treaties.
The latter prospect is of particular concern in light of the fact that
several countries have recently repudiated investment accords in re-
sponse to flurries of investor claims against them.13 Even in the
the decision of the local courts were then binding on a subsequent international tribunal, the
claimant would be denied meaningful access to an international forum.”).
12. Other scholarly articles written to date focused only on the NAFTA cases, see, e.g.,
Dodge supra note 11, or on discrete aspects of the earliest BIT cases. Such commentary on
the Local Remedies Cases is discussed infra Part III.
13. Bolivia has formally denounced the ICSID Convention based on its assertion that
ICSID arbitration is an infringement of national sovereignty and is biased in favor of foreign
investors. Fernando Mantilla-Serrano, The Effect of Bolivia’s Withdrawal From the
Washington Convention: Is BIT-Based ICSID Jurisdiction Foreclosed?, 22 MEALEY’S
INT’L. ARB. REP. 39, 39 (2007); Tipping PRI Upside Down, TRADE FIN., June 1, 2007.
Ecuador likewise formally denounced the ICSID Convention in July 2009, citing similar
sovereignty concerns. See Fernando Carbrera Diaz, Ecuador Continues Exit from ICSID,
INVEST. TREATY NEWS, June 8, 2009, http://www.iisd.org/itn/2009/06/05/ecuador-continues-
United States, some have called for a withdrawal from NAFTA or

have otherwise criticized that treaty based on the risk that investor
claims would have a chilling effect on environmental or other regula-
tory prerogatives, or the impression that investor claims are incon-
sistent with U.S. sovereignty.14 If investment treaty arbitration is to
be viable as a means of dispute resolution in the long run it will be
essential to address these concerns. According appropriate signifi-
cance to local remedies and national court decisions is one step in
that direction.
The structure of this Article is as follows. Following this In-
troduction, Part I describes the exhaustion of local remedies rule in
customary international law and considers whether it has indeed been
abrogated by modern investment accords. Part II summarizes the
facts and holdings of the principal Local Remedies Cases, explains
how the tribunals have distinguished their approach from the tradi-
tional procedural rule and distills from these cases several distinct
propositions of law. Part III provides a critical examination of each
such proposition, identifying the reactions it has generated to date in
commentary and investment treaty jurisprudence, and offering my
own independent assessment and proposals for its further refinement.
exit-from-icsid; News Release, ICSID Publications, Ecuador Submits a Notice Under Article
71 of the ICSID Convention (June 9, 2009), available at http://www.iareporter.com/
downloads/20100107_27. In addition, Venezuela formally terminated the Venezuela-
Netherlands BIT—under which numerous investor claims had recently been filed against
it—when the treaty’s term expired in 2008. See Venezuela Surprises the Netherlands with
Termination Notice for BIT; Treaty Has Been Used by Many Investors To “Route”
Investments into Venezuela, 1 INV. ARB. REP. 1 (2008), available at http://www.iareporter.
com/downloads/20100107_27.
14. See David A. Gantz, The Evolution of FTA Investment Provisions: From NAFTA
to the United States—Chile Free Trade Agreement, 19 AM. U. INT’L L. REV. 679, 741 (2004)
(observing that non-governmental organizations have been critical of NAFTA investor
protections because they have been used to challenge environmental laws and administrative
decisions, thereby hindering regulators in the performance of their duties); Noah Rubins,
Loewen v. United States: The Burial of an Investor-State Arbitration Claim, 21 ARB. INT’L
1, 32–33 (2005) (noting that the Loewen case generated an outpouring of negative sentiment
while it was pending, and that “many opponents [of NAFTA] insist that the investor-state
dispute resolution provisions contained in Chapter 11 of NAFTA threaten to sap the
foundations of national sovereignty in the United States, and prevent national governments
from taking the steps necessary to protect vital public goods for their populations . . . .”);
Andrew J. Shapren, NAFTA Chapter 11: A Step Forward in International Trade Law or a
Step Backward for Democracy?, 17 TEMP. INT’L & COMP. L.J. 323, 343 (2003) (asserting
that, in light of the Loewen case, “[n]ow, foreign corporations could attempt to evade
verdicts rendered against them through due process in a U.S. court, by filing a suit to be
heard by a three-person tribunal, behind closed doors. In essence, the United States is
surrendering its control . . . .”).
In Part III I conclude that the Local Remedies Cases have been justi-
fied in assigning substantive relevance to the availability of local
remedies when they have done so, but that certain tribunals have ac-
corded excessive deference to national court decisions, or have indi-
cated that they would have done so, if local remedies had been pur-
sued.
I. THE EXHAUSTION OF LOCAL REMEDIES RULE AND ITS GENERAL

INAPPLICABILITY IN TREATY-BASED ARBITRATION
A. The Nature and Purpose of the Rule
In the words of the International Court of Justice (ICJ), “[t]he

rule that local remedies must be exhausted before international pro-
ceedings may be instituted is a well-established rule of customary in-
ternational law.”15 This rule developed in the context of “diplomatic
protection,” a process by which a national’s home State espouses the
national’s claim in an international proceeding against another
State.16 Prior to the advent of the modern investment treaty, diplo-
matic protection was typically a foreign investor’s sole avenue for
pursuing redress against a host State at the international level.
The term “local remedies” as used in this context refers to any
redress available from the governmental apparatus in the host State,
including relief that may be available from a court, administrative
agency or other authority.17 As a general matter the rule requires a
complete exhaustion of local remedies, meaning that the investor
must make any available appeals and obtain a final decision from the
highest court in the host State, at least where the relevant local reme-
dies are judicial ones.18
Certain exceptions to the exhaustion requirement have been
recognized. A given remedy need not be pursued if it would be “in-
15. Interhandel (Switz. v. U.S.), 1959 I.C.J. 6, 27 (Mar. 21).

16. AMERASINGHE, supra note 2, at 4.
17. IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW 475 (6th ed. 2003).
See also Draft Articles on Diplomatic Protection with Commentaries, ch. III, pt. 3, art. 14,
cmt no. 2, Sept. 16, 2003–Oct. 3, 2003, U.N. DOC. A/61/10, available at http://untreaty.
un.org/ilc/texts/instruments/english/commentaries/9_8_2006.pdf [hereinafter Draft Articles
on Diplomatic Protection].
18. Finnish Ships Arbitration (Fin. v. U.K.), 3 R.I.A.A. 1479, 1495 (1934). See also
Draft Articles on Diplomatic Protection, supra note 17, ch. III, pt. 3, art. 14, cmt. no. 4.
effective,” or if its pursuit would be “obviously futile,”19 such as if

there is a well established line of adverse precedent or if legislation
expressly provides for the result of which the investor complains.20
Professor Don Wallace, Jr. has emphasized that the rule must be ap-
plied reasonably, and not treated as “a rule of infinite pursuit by pla-
tonically ideal parties with bottomless wallets to pay for legal fees, or
professors wishing to create new legal theories . . . .”21
Most modern authorities describe the exhaustion of local
remedies rule as procedural in nature, because it has the effect of bar-
ring the admissibility of a claim even if it is valid on the merits.22 In
other words, the respondent State may have already committed an in-
ternational delict at the time the claim is brought, but the claim would
nevertheless be dismissed if the aggrieved national has not exhausted
local remedies, because a mandatory precondition for the espousal of
the claim has not been satisfied.23
An illustration of this point can be found in the Phosphates in
Morocco Case.24 This was a case brought by Italy against France be-
19. AMERASINGHE, supra note 2, at 206. See also Draft Articles on Diplomatic
Protection, supra note 17, ch. III, pt. 3, art. 15, cmt. no. 2.
20. AMERASINGHE, supra note 2, at 207–08. See also Draft Articles on Diplomatic
Protection, supra note 17, ch. III, pt. 3, art. 15, cmt. no. 3.
21. Don Wallace, Jr., Fair and Equitable Treatment and Denial of Justice: Loewen v.
U.S. and Chattin v. Mexico, in INTERNATIONAL INVESTMENT LAW AND ARBITRATION:
LEADING CASES FROM THE ICSID, NAFTA, BILATERAL TREATIES AND CUSTOMARY
INTERNATIONAL LAW 669, 684 (T. Weiler ed., 2005).
22. See The Loewen Group, Inc. v. United States, ICSID Case No. ARB(AF)/98/3,
Award on the Merits, ¶ 149 (June 26, 2003) (“The local remedies rule which requires a party
complaining of a breach of international law by a State to exhaust the local remedies in that
State before the party can raise the complaint at the level of international law is procedural in
character.”); AMERASINGHE, supra note 2, at 416 (“[T]he evidence conclusively favours the
view that the rule of local remedies is procedural and neither substantive nor a combination
of the two. Judges or states may have made statements supporting the view that the rule is
substantive, but the practice of judicial bodies relating to the rule leads overwhelmingly to
the conclusion that the rule has not been treated as substantive or as both substantive and
procedural but as solely procedural in character.”); BROWNLIE, supra note 17, at 472–73
(describing the exhaustion of local remedies rule as procedural because “it is a question of
admissibility and not of substance.”); MOHSEN MOHEBI, THE INTERNATIONAL LAW
CHARACTER OF THE IRAN-U.S. CLAIMS TRIBUNAL 240 (1999) (“[B]earing the real and final
function of the rule in mind, it is generally viewed as a rule of procedural law.”).
23. GEORG SCHWARZENBERGER, INTERNATIONAL LAW 603 (1957) (“The rule does not
mean that, until it has been complied with, no international tort has been committed.
Clearly, at this stage, an international obligation has been broken.”).
24. Phosphates in Morocco Case (It. v. Fr.), 1938 P.C.I.J. (ser. A/B) No. 74, at 10–48
(June 14).
fore the Permanent Court of International Justice (PCIJ), alleging that

France violated a 1911 international convention pursuant to which
France had agreed to permit foreign nationals to invest in Morocco
on an “open-door” or non-discriminatory basis. Specifically, Italy
claimed that, in 1925, a French administrative authority improperly
rejected an application by an Italian company to operate a phosphate
mining concession in Morocco, despite permitting mining by French
interests. As a threshold matter, the PCIJ had to determine the date
of the alleged violation, because the PCIJ’s jurisdiction was limited
to violations occurring after 1931, when France declared its ac-
ceptance of the PCIJ’s compulsory jurisdiction (the Declaration). Ita-
ly contended that the violation in this case could not be deemed com-
pleted until after the affected Italian national had exhausted local
remedies (which, favorably for Italy, occurred after the date of the
Declaration). By contrast, France argued that the alleged violation, if
it occurred, was completed in 1925 when the administrative authority
rejected the application and committed the alleged discrimination
(which, favorably for France, was before the date of the Declaration).
The PCIJ sided with France and dismissed the claim. As Professor
Chittharanjan Amerasinghe has pointed out, the PCIJ’s decision in
this case “gives the most cogent and even, indeed, conclusive support
to the view that the rule of local remedies is procedural.”25
The purpose of the rule is to give the respondent State the op-
portunity to redress the alleged injury before having to defend an in-
ternational claim.26 This benefits the respondent State by allowing it
to avoid the costs and adverse publicity associated with international
proceedings,27 but may also benefit the State whose national has al-
legedly suffered injury by relieving it of the need to espouse claims
that could be resolved through other means.28
B. The Rule’s Abrogation by Modern Investment Accords
Although the exhaustion of local remedies rule is well estab-

lished in the context of diplomatic protection, many have interpreted

26. Interhandel (Switz. v. U.S.), 1959 I.C.J. 6, 27 (Mar. 21) (“Before resort may be had
to an international court in such a situation, it has been considered necessary that the State
where the violation occurred should have an opportunity to redress it by its own means,
within the framework of its own domestic legal system.”).
28. Id.
NAFTA, the ICSID Convention and most BITs as eliminating it in

cases arising under them, at least as a general matter.
With regard to the ICSID Convention, commentators have as-
cribed particular significance to Article 26, which provides:
Consent of the parties to arbitration under this Con-
vention shall, unless otherwise stated, be deemed con-
sent to such arbitration to the exclusion of any other
remedy. A Contracting State may require the exhaus-
tion of local administrative or judicial remedies as a
condition of its consent to arbitration under this Con-
vention.29
It has been pointed out that this effectively eliminates the ex-
haustion of local remedies rule in cases subject to the Convention,
provided the respondent Contracting State has not explicitly required
exhaustion as a condition of its consent to arbitration.30 Such a con-
dition would typically be imposed—if at all—in a contract between
the investor and the State, in domestic legislation, or in a BIT.31 This
reading is supported by the Convention’s travaux préparatoires.
These reveal that the drafters understood Article 26 as signifying that
the traditional procedural exhaustion of local remedies rule would not
apply in ICSID arbitration, at least as a general matter, but that Con-
tracting States would be free to impose such an exhaustion require-
ment in their instruments of consent.32
It is nevertheless important to note that Article 26 does not
necessarily preclude the pursuit of local remedies prior to initiating
ICSID arbitration. While the first sentence states that the parties give
29. ICSID Convention, supra note 4, Art. 26.

30. See, e.g., Saipem S.p.A. v. The People’s Republic of Bangl., ICSID Case No.
ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures, ¶ 151
(Mar. 21, 2007), http://ita.law.uvic.ca/documents/Saipem-Bangladesh-Jurisdiction.pdf;
Compañia de Aguas del Aconquija S.A. v. Arg. Republic, ICSID Case No. ARB/97/3,
Decision on Annulment, ¶ 52 (July 3, 2002) 41 I.L.M. 1135 (2002); Lanco International Inc.
v. Argentina, ICSID Case No. ARB/97/6, Decision on Jurisdiction, ¶¶ 35–39 (Dec. 8, 1998)
40 I.L.M. 457 (2001); CHRISTOPH SCHREUER, THE ICSID CONVENTION: A COMMENTARY
348, 388–89 (2001); Dodge, supra note 11, at 363, 373.
31. The ICSID Model Clauses for contracts between investors and States contain
optional language requiring an exhaustion of local remedies before initiating arbitration.
SCHREUER, supra note 30, at 351–52. In addition, some BITs make the exhaustion of local
remedies a condition of consent to arbitration. Id. at 352–53; see also Lanco Jurisdictional
Decision, ¶ 39.
32. SCHREUER, supra note 30, at 389.
their consent to ICSID arbitration “to the exclusion of any other rem-
edy,”33 this is best read to suggest only that, once the parties have
perfected their consent to arbitrate a particular dispute before
ICSID, the investor may not pursue any other remedy in relation to
that specific dispute. Depending on the circumstances, this language
may or may not preclude an investor from making recourse to do-
mestic courts prior to bringing an ICSID claim. If the relevant “con-
sent” to arbitration is found in a contract between the investor and the
State, and the claim the investor desires to assert domestically is a
contract claim, then the investor would be precluded from pursuing
local remedies by the first sentence of Article 26 (if not also by the
arbitration agreement in the parties’ contract itself).34 If, however,
the investor has obtained access to ICSID arbitration via an invest-
ment treaty, then it generally would not have “consented” to ICSID
arbitration before it submits its request for arbitration, or otherwise
commits, in writing, to bring the particular dispute to ICSID arbitra-
tion.35
Moreover, several authorities have recognized that if the
claims asserted in a local forum are of a different nature from those
asserted before ICSID, then Article 26 is not a bar, even if the claims
arise from the same basic set of facts.36 Of course, the investor could
33. ICSID Convention, supra note 4, Art. 26.

34. An example is the MINE v. Guinea case, in which a foreign investor pursued a
contract claim against Guinea before the American Arbitration Association (AAA) and
obtained an award in its favor, and thereafter sought to assert the same claim before ICSID,
while simultaneously seeking to enforce the AAA award in various national courts. The
ICSID tribunal directed MINE to cease and desist from pursuing further attachments in
national courts based on the AAA award. SCHREUER, supra note 30, at 349–50, 369, 372–
73.
35. Id. at 218 (“[A] provision on consent in a BIT can be no more than an offer that
must be accepted. The treaty provision cannot replace the need for consent by the foreign
investor . . . . It is established practice that an investor may accept an offer of consent
contained in a BIT by instituting ICSID proceedings.”).
36. See, e.g., Sempra Energy International v. Arg. Republic, ICSID Case No.
ARB/02/16, Decision on Objections to Jurisdiction, ¶ 102 (May 11, 2005),
http://ita.law.uvic.ca/ documents/sempra-en.pdf (noting that the investor’s local affiliate was
participating in domestic administrative proceedings while the ICSID arbitration was
pending); Impregilo S.p.A. v. Islamic Republic of Pak., ICSID Case No. ARB/03/3,
Decision on Jurisdiction, ¶¶ 286–89 (April 22, 2005), http://ita.law.uvic.ca/documents/
impregilo-decision.pdf (noting that arbitral proceedings were underway in Pakistan on a
contract dispute between a Pakistani State entity and the consortium of which the claimant
was a party while the ICSID treaty arbitration was pending, without suggesting that this was
in any way improper in light of Article 26); Azurix Corp. v. Arg. Republic, ICSID Case No.
ARB/01/12, Decision on Jurisdiction, ¶¶ 33, 101 (December 8, 2003) 43 I.L.M. 262 (2004)
(same); SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pak., ICSID Case
not obtain double recovery for the same loss, but an ICSID tribunal
could craft its award so as to avoid such a result.37
Several tribunals and commentators have concluded that
NAFTA similarly dispenses with the exhaustion of local remedies
rule. They base this conclusion on Article 1121 of that treaty, which
provides that an investor and any enterprise it controls may not bring
a claim before an international tribunal pursuant to NAFTA unless
they first
waive their right to initiate or continue before any ad-
ministrative tribunal or court under the law of any Par-
ty, or other dispute settlement procedures, any pro-
ceedings with respect to the measure of the disputing
Party that is alleged to be a breach . . . .38
The tribunals and scholars in question have noted that the re-
quirement to waive the right to “initiate or continue” proceedings in
domestic court implies that the investor may not yet have filed, let
alone exhausted, domestic proceedings at the time its NAFTA claim
is initiated.39 Professor William Dodge has noted further that
No. ARB/01/13, Award on Jurisdiction, ¶ 190 (Aug. 6, 2003) 8 ICSID Rep. 406 (2005)
(noting that a domestic arbitration was in progress between the parties while the ICSID
arbitration was underway, with the former involving contract claims, and the latter involving
treaty claims)
37. Camuzzi Int’l. S.A. v. Arg. Republic, ICSID Case No. ARB/03/2, Decision on
Jurisdiction, ¶ 91 (May 11, 2005), http://ita.law.uvic.ca/documents/camuzzi jurisdiction.pdf
(holding that the tribunal was not precluded from deciding treaty claims simply because
local proceedings relating to the same investment were pending: “The Argentine Republic
has rightly expressed its concern about the fact that this approach could lead to double
recovery for the same harm, one as a result of domestic contract-based action and the other
as the outcome of an international arbitral award. . . . This is a real problem that needs to be
discussed in due course, but again it is an issue belonging to the merits of the dispute. In any
event, international law and decisions offer numerous mechanisms for preventing the
possibility of double recovery.”).
38. NAFTA, supra note 3, arts. 1121(1)(b), 1121(2)(b).
39. Metalclad Corporation v. Mex., ICSID Case No. ARB(AF)/97/1, Award, ¶ 97 n.4
(Aug. 30, 2000) 5 ICSID Rep. 212 (2002) (expressing the conclusion that an investor is not
required to exhaust local remedies in a NAFTA arbitration in light of Article 1121(2)(b),
without explaining how that provision leads to that result); Andrea K. Bjorklund, Waiver
and the Exhaustion of Local Remedies Rule in NAFTA Jurisprudence, in NAFTA
INVESTMENT LAW & ARBITRATION: PAST ISSUES, CURRENT PRACTICE, FUTURE PROSPECTS
253, 261 (Todd Weiler ed., 2004) (arguing that “[i]f an investor must not, after bringing a
NAFTA claim initiate or continue to pursue its local remedy, it is likely that the state party is
not requiring the investor to exhaust local remedies before bringing its NAFTA claim.”
(emphasis in original)); Dodge, supra note 11, at 374 (“[T]he express mention of domestic
NAFTA Chapter 11 claims carry a three-year statute of limitations,

which is not expressly tolled while local remedies are pursued.40
Consequently, were investors required to exhaust local remedies be-
fore filing a NAFTA arbitration, they would effectively be barred
from bringing treaty claims if the local proceedings took more than
three years41—a result that would be decidedly unfair.
These arguments are persuasive, but it may not even be nec-
essary to refer to Article 26 of the ICSID Convention, Article 1121 of
NAFTA or NAFTA’s three-year limitations period to conclude that
the exhaustion of local remedies rule is inapplicable in cases gov-
erned by those accords. If a State has agreed in a written instrument
to arbitrate a category of disputes directly with covered investors on
specified conditions, then an investor should be able to arbitrate such
a dispute as soon as the conditions have been met. If exhaustion of
local remedies is not stated as a condition, then it should not be treat-
ed as one. There is simply no need to import a procedural require-
ment that applies in a specific context (diplomatic protection) into a
different one (investor-State dispute resolution) that is precisely de-
fined by agreement.42
II. THE LOCAL REMEDIES CASES
If one accepts that the ICSID Convention, NAFTA and most

BITs do not require the exhaustion of local remedies as a precondi-
tion to arbitration, one might expect that an investor could proceed
straightaway to arbitration under one of those instruments after a dis-
pute arises, without any potential adverse consequence from the deci-
sion to forego local remedies. That is not necessarily the case, how-
ever, in light of the Local Remedies Cases.
courts in Article 1121 without any express requirement of exhaustion suggests by negative
implication that exhaustion is not required.”).
40. William S. Dodge, Loewen v. United States: Trials and Errors Under NAFTA
Chapter Eleven, 52 DEPAUL L. REV. 563, 568 (2002).
41. Id.
42. The ICJ held in ELSI that the procedural exhaustion of local remedies requirement
applied in that case notwithstanding the fact that the Friendship Commerce and Navigation
Treaty that conferred jurisdiction on the ICJ contained no reference to the requirement.
Elettronica Sicula SpA (ELSI) (U.S. v. It.), 1989 I.C.J. 15, 42 at ¶ 50 (July 20). ELSI is
distinguishable from the context presently under discussion, however, because it involved
diplomatic protection, rather than direct investor-State arbitration.
In the Subparts below I summarize the facts and holdings of

eleven representative Local Remedies Cases. The discussion follows
the chronological order in which the merits awards were issued.
A. Loewen43
The claimants in this case included a Canadian company, the

Loewen Group, and one of its owners (collectively “Loewen”).
Loewen invested in a chain of funeral homes in the United States via
a U.S. subsidiary, LGII. LGII entered into a transaction with an
American owner of a funeral home in Mississippi, Jeremiah O’Keefe.
When a dispute arose, O’Keefe brought an action against the Loewen
Group and LGII in a Mississippi state court, alleging breach of con-
tract, various tortious acts and violations of state antitrust laws. The
case went to a jury trial, which featured prejudicial comments by the
plaintiff and his counsel about Loewen’s foreign nationality44 and
unsubstantiated accusations that LGII’s owners had engaged in racial
bias against members of the ethnic community to which the jurors
belonged.45
The jury awarded the plaintiff $500 million in damages, in-
cluding $75 million for emotional distress and $400 million in puni-
tive damages46—even though the plaintiff’s actual monetary losses
were at most a few million dollars.47 The defendants sought to ap-
peal the judgment, but could not have obtained a stay of execution
during the appeal without posting a supersedeas bond for 125% of
the amount of the judgment, due to a Mississippi rule of appellate
procedure.48 The trial court refused to lower the bond requirement (it
had the discretion to do so), and the Mississippi Supreme Court up-
held the decision.49 Unable to raise the money for the bond and fac-
43. The Loewen Group, Inc. v. United States, ICSID Case No. ARB(AF)/98/3, Award
on the Merits (June 26, 2003).
44. Id. ¶¶ 56–64.
45. Id. ¶¶ 65–67.
46. Id. ¶¶ 4, 101.
47. Wallace, supra note 21, at 686 (describing the Mississippi litigation as “an action
for breach of contract involving, at most, a few million dollars and whose damages might
very well have been zero”).
48. Loewen Merits Award, ¶¶ 180–84.
49. Id. ¶¶ 181–84, 196.
ing the imminent seizure of their assets and a possible bankruptcy,

the defendants agreed to settle with O’Keefe for $175 million.50
Subsequently, Loewen brought a NAFTA claim against the
United States, alleging that the conduct of the Mississippi state courts
violated several substantive provisions of that treaty, including the
national treatment obligation (which requires NAFTA Parties to re-
frain from discrimination against investors from other Parties), the
obligation to provide “fair and equitable treatment” and the obliga-
tion to refrain from expropriation without adequate compensation.51
After reviewing the facts relating to the Mississippi court pro-
ceedings, the tribunal concluded that “the whole trial and its resultant
verdict were clearly improper and discreditable and cannot be
squared with minimum standards of international law and fair and
equitable treatment.”52 Nevertheless, the tribunal rejected Loewen’s
treaty claims on various grounds, one of which was that Loewen had
not exhausted local remedies.53 Specifically, the tribunal found that
Loewen had not adequately explained why it entered into a settle-
ment rather than filing a petition for writ of certiorari to the U.S. Su-
preme Court seeking to overturn the denial of the request to lift the
bond requirement.54 The tribunal made this finding even though
Loewen presented evidence that the prospects for success of such a
50. Id. ¶¶ 7, 48.

51. Id. ¶ 39.
52. Id. ¶ 137.
53. The tribunal rejected the national treatment claim on the basis that the claimants
had failed to demonstrate that the Mississippi courts treated similarly situated U.S.
companies any more favorably than Loewen. In the words of the tribunal, “[w]hat Article
1102(3) requires is a comparison between the standard of treatment accorded to a claimant
and the most favourable standard of treatment accorded to a person in like situation to that
claimant. There are no materials before us which enable such a comparison to be made.” Id.
¶ 140. Among the grounds cited to dismiss the fair and equitable treatment and
expropriation claims was that the Loewen Group had changed nationality during the
proceedings after it declared bankruptcy and most of its assets were transferred to a U.S.
company. The tribunal felt that this deprived the Loewen Group of standing as a Canadian
investor capable of bringing claims against the United States under NAFTA. Id. ¶¶ 220,
232.
54. Id. ¶ 217 (“[O]ur conclusion is that Loewen failed to pursue its domestic remedies,
notably the Supreme Court option and that, in consequence, Loewen has not shown a
violation of customary international law and a violation of NAFTA for which Respondent is
responsible.”).
petition would have been miniscule,55 and that Loewen would have
faced imminent seizure of assets had it not settled.56
To understand why the tribunal considered local remedies rel-
evant to the merits of Loewen’s claims, it is necessary to follow a
complicated chain of reasoning.
To begin with, the tribunal asserted that an act or omission of
a national court is actionable under NAFTA only if it qualifies as a
“denial of justice” as that term is understood in customary interna-
tional law, no matter how the claim is framed.57
The concept of denial of justice has been ascribed many dif-
ferent meanings over time, and continues to have no generally-
accepted definition.58 One of the most frequently cited definitions,
however, is that offered by researchers at Harvard Law School in
1930 in connection with an early attempt to codify the law of State
responsibility:
Denial of justice exists when there is a denial, unwar-
ranted delay or obstruction of access to courts, gross
deficiency in the administration of judicial or remedial
process, failure to provide those guaranties which are
generally considered indispensable to the proper ad-
ministration of justice, or a manifestly unjust judg-
ment. An error of a national court which does not
produce manifest injustice is not a denial of justice.59
55. Rubins, supra note 14, at 18–19.

56. Loewen Merits Award, ¶ 7.
57. See id. ¶ 128 (observing that a binding interpretation of Article 1105 by the
NAFTA Free Trade Commission provides that “fair and equitable treatment” is not a free
standing obligation, but is simply an expression of customary international law, and
asserting that customary public international law deals with judicial failures through the
concept of “denial of justice”); see also id. ¶ 141 (asserting that in a case involving judicial
acts or omissions, an expropriation may not be found within the meaning of NAFTA Article
1110 unless the claimant has established a denial of justice).
58. AMERASINGHE, supra note 2, at 85 (referring to the “variety of usages and manifold
meanings given to the term [denial of justice]”); Wallace, supra note 21, at 671 (describing
denial of justice as a “protean jellyfish” to emphasize how difficult it is to pin down its
precise meaning).
59. Research in International Law at Harvard Law School, The Law of Responsibility
of States for Damage Done in Their Territory to the Person or Property of Foreigners, 23
AM. J. INT’L L. SPEC. SUPP. 131, 134 (1929) (cited in Andrea K. Bjorklund, Reconciling State
Sovereignty and Investor Protection in Denial of Justice Claims, 45 VA. J. INT’L L. 809, 841
(2005)).
For its part, the Loewen tribunal asserted that a denial of jus-
tice may be found if the treatment experienced by the investor
amounts to “[m]anifest injustice in the sense of a lack of due process
leading to an outcome which offends a sense of judicial propriety . . .
.”60 It added that denial of justice has an element of “finality,” which
requires the claimant to have appealed the allegedly wrongful judicial
decision “to the highest level” before bringing an international
claim,61 assuming that any such appeals would not have been “obvi-
ously futile.”62 The tribunal emphasized that this is a substantive
rule, and argued that even if Article 1121 dispenses with the proce-
dural exhaustion of local remedies rule, there remains a separate sub-
stantive local remedies requirement in denial of justice cases.63
The tribunal sought to justify this requirement by asserting
that “it would be very strange if a State were to be confronted with
liability for a breach of international law committed by its magistrate
or low-ranking judicial officer when domestic avenues of appeal are
not pursued, let alone exhausted.”64
Having found that such a local remedies element existed, and
that Loewen had not adequately explained why it failed to pursue po-
tential remedies in the United States, the tribunal dismissed the
case.65
B. Generation Ukraine66
Only a few months after the merits award in Loewen, a tribu-

nal chaired by Jan Paulsson, a prominent arbitration practitioner and
scholar, issued the decision in Generation Ukraine. Extending the
basic logic of Loewen to claims involving a particular form of non-
judicial conduct—administrative acts and omissions—this decision
has been very influential on subsequent Local Remedies Cases.67
60. Loewen Merits Award, ¶ 132.

61. Id. ¶ 161.
62. See id. ¶ 165.
63. Id. ¶ 161.
64. Id. ¶ 162.
65. Id. ¶¶ 217, 240.
66. Generation Ukr., Inc. v. Ukr. ICSID Case No. ARB/00/9, Award (Sept. 16, 2003),
44 I.L.M. 404 (2005).
67. See, e.g., Robert Benton Love, Potential Local Remedies Issues in Venezuelan
Investment Treaty Disputes, Special Issue on Venezuela: The Battle of Contract Sanctity vs.
Resource Sovereignty, 5 TRANSNAT’L DISP. MGMT. 2 (2008) (“The Generation Ukraine
The claimant in Generation Ukraine was a U.S. company that

made an investment in a Ukrainian construction project.68 The
claimant alleged that the Ukrainian State breached the U.S.-Ukraine
BIT through a series of acts and omissions by various local adminis-
trative authorities, which cumulatively made the project untenable
and amounted to an expropriation.69
In considering this expropriation claim, the tribunal observed
that the claimant could have brought proceedings in local courts to
compel the relevant agencies to correct the impugned acts and omis-
sions, but had failed to do so. The tribunal concluded that this failure
rendered the claimant’s treaty claims defective on the merits.70 In
reaching this conclusion, the tribunal noted that none of the conduct
of which the claimant complained was a per se violation of the BIT.71
The tribunal seems to have meant in this regard that the existence of
a treaty breach was not manifestly apparent; rather, whether or not
the conduct was tantamount to an expropriation turned on technical
issues of Ukrainian law.72 The tribunal felt that under the circum-
stances it would have been appropriate for the investor to seek a rul-
ing on these issues from a Ukrainian court.73
The tribunal made clear that it did not believe there was any
procedural requirement under the BIT or the ICSID Convention to
pursue local remedies, but it nevertheless felt that the investor could
not succeed on the merits without an attempt at local redress:
[I]t is not enough for an investor to seize upon an act
of maladministration . . . without any effort at over-
turning the administrative fault; and thus to claim an
international delict. . . . . In such instances, an interna-
decision is perhaps the most prominent of the suite of decisions suggesting a need to
reasonably pursue local remedies when alleging an investment treaty violation.”) (on file
with author).
68. Generation Ukraine Award, ¶ 1.I.
69. Id. ¶ 1.2.
70. Id. ¶¶ 20.30, 20.33.
71. Id. ¶ 20.33.
72. Id. It bears noting that another tribunal on which Paulsson sat similarly observed
that a claim of “maladministration” will be considered ripe, notwithstanding the availability
of local remedies, if it was manifestly contrary to the standards of the treaty. In particular,
the tribunal asserted that “[a] claim of maladministration would likely violate [the fair and
equitable treatment standard] if it amounted to an ‘outright and unjustified repudiation’ of
the relevant regulations.” GAMI Invs., Inc. v. Mex., UNCITRAL Arbitration Final Award,
(Nov. 15, 2004), http://ita.law.uvic.ca/documents/Gami.pdf.
73. Generation Ukraine Award, ¶ 20.33.
tional tribunal may deem that the failure to seek re-

dress from national authorities disqualifies the interna-
tional claim, not because there is a requirement of ex-
haustion of local remedies but because the very reality
of conduct tantamount to expropriation is doubtful in
the absence of a reasonable—not necessarily exhaus-
tive—effort by the investor to obtain correction.74
The tribunal asserted, moreover, that had the claimant pur-

sued local remedies but failed in the attempt, it would thereafter have
been able to state a valid treaty claim only if it could show that local
courts committed a denial of justice in handling the claims.75
C. Waste Management II76
This case was brought by another U.S. investor, Waste Man-

agement, whose wholly-owned subsidiary, Acaverde, entered into a
concession agreement with the City of Acapulco to provide waste
disposal services.77 Waste Management contended that the Mexican
State effectively expropriated its investment and violated NAFTA’s
fair and equitable treatment provision. These claims arose out of al-
legations that the City failed to enforce a key exclusivity right and
failed to pay certain amounts due to Acaverde and that Mexican
courts failed to enforce Acaverde’s rights vis-à-vis a State-owned en-
terprise, Banobras, under a separate guarantee agreement.78
Before Waste Management initiated the NAFTA arbitration,
Acaverde commenced arbitration against the City before a Mexican
arbitration institution pursuant to an arbitration clause in the conces-
sion agreement.79 Acaverde did not, however, pursue that arbitration
to a ruling.80 Acaverde also sought relief in two separate proceedings
in Mexican courts to enforce Banobras’ guarantee, but the courts
dismissed those claims on technical grounds, as well as on the ground
74. Id. ¶ 20.30 (emphasis added).

75. Id.
76. Waste Mgmt., Inc. v. United Mex. States II, ICSID Case No. ARB(AF)/00/3, Final
Award (Apr. 30, 2004), 43 I.L.M. 967 (2004).
77. Id. ¶ 40.
78. Id. ¶¶ 74, 86–87, 155–56.
79. Id. ¶¶ 120–23.
80. Id.
that the claims would not be ripe unless and until the City’s underly-
ing liability had been determined by the Mexican arbitration institu-
tion.81
When considering the City’s conduct in relation to Acaverde,
the NAFTA tribunal concluded that it could not amount to an expro-
priation or a denial of fair and equitable treatment so long as Aca-
verde had the opportunity to seek redress in the forum specified in
the concession agreement:
[T]he normal response by an investor faced with a
breach of contract by its governmental counter-party
(the breach not taking the form of an exercise of gov-
ernmental prerogative, such as a legislative decree) is
to sue in the appropriate court to remedy the breach.
It is only where such access is legally or practically
foreclosed that the breach could amount to a definitive
denial of the right . . . and [the treaty’s expropriation
provision] be called into play.
. . . Non-compliance by a government with contractual

obligations is not the same thing as, or equivalent or
tantamount to, an expropriation. In the present case
the Claimant did not lose its contractual rights, which
it was free to pursue before the contractually chosen
forum. . . . [I]t is necessary to show an effective repu-
diation of the right, unredressed by any remedies
available to the Claimant, which has the effect of
preventing its exercise entirely or to a substantial ex-
tent. 82
The tribunal added that the Mexican courts’ treatment of

Acaverde’s claims would constitute a treaty breach only if it amount-
ed to a denial of justice, but that it did not, in fact, rise to that level.83
The tribunal gave considerable deference to the courts’ conclusion
that Acaverde’s claims were unfounded under Mexican law, empha-
sizing that NAFTA’s investment chapter is not “a novel form of am-
paro [appeal] in respect of the decisions of the federal courts of
NAFTA parties.”84
81. Id. ¶¶ 129, 132.

82. Id. ¶¶ 174–75.
83. Id. ¶¶ 130–32.
84. Id. ¶ 129.
In concluding that it would go against the determination of a

national court only if it amounted to a denial of justice, the tribunal
was relying on earlier decisions by other NAFTA tribunals. For ex-
ample, the tribunal in Mondev v. United States asserted that “[u]nder
NAFTA, parties have the option to seek local remedies. If they do so
and lose on the merits, it is not the function of NAFTA tribunals to
act as courts of appeal.”85 In addition, the tribunal in Waste Man-
agement II expressly followed Azinian v. Mexico,86 which held that a
claimant may not prevail at the international level after pursuing local
remedies unless it can show that it suffered either a denial of justice
or “pretence of form to achieve an internationally unlawful end.”87
The Azinian tribunal defined “denial of justice” as encompassing sit-
uations in which the relevant courts (i) “refuse to entertain a suit,” (ii)
“subject it to undue delay,” (iii) “administer justice in a seriously in-
adequate way,”88 or (iv) commit a “clear and malicious misapplica-
tion of the law.”89
D. EnCana90
This was a case brought by a Canadian oil company, EnCana,

under the Canada-Ecuador BIT.91 EnCana’s claims were based on a
decision by the Ecuadorian tax authority to cease granting certain
value-added tax (VAT) reimbursements to EnCana’s Ecuadorian
subsidiaries—a decision that EnCana sought to characterize as an ex-
propriation.92
In considering this expropriation claim, the majority deemed
it significant that a mechanism, which EnCana had not invoked, was
available under Ecuadorian law to challenge the decision before an
administrative court:
85. Mondev Int’l v. U. S., ICSID Case No. ARB(AF)/99/2, Award, ¶ 126 (Oct. 11,
2002), 6 ICSID Rep. 192 (2004).
86. Waste Management II Final Award, ¶ 130 n.84.
87. Azinian, Davitian, & Baca v. Mex., ICSID Case No. ARB(AF)/97/2, Award, ¶ 99
(Nov. 1, 1999), 5 ICSID Rep. 272 (2002).
88. Id. ¶ 102.
89. Id. ¶ 103.
90. EnCana Corp. v. Republic of Ecuador, LCIA Case No. UN3481, Award (Feb. 3,
2006), (London Ct. of Int’l Arb.), http://ita.law.uvic.ca/documents/EncanaAward
English.pdf.
91. Id. ¶ 1.
92. Id. ¶¶ 1, 107.
In terms of the BIT the executive is entitled to take a

position in relation to claims put forward by individu-
als, even if that position may turn out to be wrong in
law, provided it does so in good faith and stands ready
to defend its position before the courts. . . . An execu-
tive agency does not expropriate the value represented
by a statutory obligation to make a payment or refund
by mere refusal to pay, provided at least that (a) the
refusal is not merely willful, (b) the courts are open to
the aggrieved private party, (c) the courts’ decisions
are not themselves overridden or repudiated by the
State.93
In a partial dissent, co-arbitrator Horacio Grigera Naón criti-

cized this reasoning, arguing that the majority was applying the pro-
cedural “exhaustion of local remedies rule” in a different guise, even
though that rule was inapplicable in this case.94
The majority responded with a footnote in which it sought to
distinguish the substantive principles it was articulating from the pro-
cedural exhaustion of local remedies rule:
[T]he Tribunal’s holding on this narrow point does
not, in our view, amount to reimposing the require-
ment of the exhaustion of local remedies which the
BIT does not as a general matter require. The ques-
tion is not whether the claim is admissible but whether
the relevant rights have been expropriated as a matter
of substance. Neither the taxpayer nor the tax collec-
tor can determine definitively whether certain rights
exist, and in the circumstances set out . . . it cannot be
said that the mere position of an executive agency,
whether it is right or wrong at local law (and provided
it is unaccompanied by any collateral abuse of authori-
ty or exercise of undue prerogative) perfects an expro-
priation.95
93. Id. ¶ 194 (Grigera Naón, dissenting in part) (emphasis added).

94. Id. ¶¶ 9, 28–36.
95. EnCana Award, ¶ 200 n.138.
E. MCI96
This was an arbitration filed by two U.S. companies under the

U.S.-Ecuador BIT.97 The dispute arose from contracts between the
claimants’ subsidiary, Seacoast, and an Ecuadorian state-owned enti-
ty, INECEL, providing for Seacoast to construct and operate power
plants and sell the electrical power to INECEL.98 The claimants al-
leged that INECEL failed to pay certain invoices, leading Seacoast to
suspend operations and file a contract claim before the local courts.99
The claimants also contended that an Ecuadorian administrative
agency subsequently canceled Seacoast’s operating permit on the
ground that Seacoast was no longer actively involved in business in
Ecuador.100 Although the cancellation could have been appealed be-
fore an administrative court, Seacoast made no such appeal.101 In
addition, the claimants alleged that the relevant court dismissed Sea-
coast’s contract claim based on the fact that its operating permit had
been canceled.102
The claimants asserted that the conduct of the relevant admin-
istrative and judicial officers denied them fair and equitable treat-
ment, constituted arbitrary and discriminatory impairment of their in-
vestment and represented an uncompensated expropriation.103
The ICSID tribunal rejected these claims in their entirety.
Although the tribunal did not suggest that local remedies were rele-
vant to the claim for arbitrary and discriminatory impairment, it did
consider them relevant to Seacoast’s fair and equitable treatment and
expropriation claims, to the extent those claims were based on re-
viewable administrative and judicial conduct. In particular, the tri-
bunal held that those claims were defective on the merits because
“Seacoast acquiesced in cancellation of the [operating] permit by not
96. M.C.I. Power Grp. L.C. v. Republic of Ecuador, ICSID Case No. ARB/03/6,
Award (July 31, 2007), http://ita.law.uvic.ca/documents/MCI Ecuador.pdf.
97. Id. ¶¶ 27, 39.
98. Id. ¶ 29.
99. Id. ¶ 30.
100. Id. ¶ 294.
101. Id. ¶ 296.
102. Id. ¶¶ 326, 329–32, 337–38.
103. Id. ¶ 232.
seeking an administrative review of the decision,”104 and did not ap-

peal the court order that dismissed its claim.105
F. Parkerings106
The claimant in this case, Parkerings, was a Norwegian com-

pany whose subsidiary, Baltijos Parkingas UAB (BP), entered into a
concession agreement with the City of Vilnius in Lithuania to con-
struct and maintain parking facilities in the historic Old Town.107 A
dispute arose after the City terminated the agreement, on the basis of
allegations that (i) certain aspects of the agreement violated Lithuani-
an law, and (ii) BP had failed to perform certain of its obligations.108
Parkerings brought a claim before the ICSID under the Nor-
way-Lithuania BIT, alleging, inter alia, that the termination of BP’s
concession agreement was an expropriation and a violation of the
BIT’s fair and equitable treatment clause.109 Parkerings alleged fur-
ther that the City had discriminated against BP, in violation of the
BIT’s national treatment clause.110
As a preliminary matter, the tribunal confirmed that it had ju-
risdiction over Parkerings’ treaty claims, and suggested that it would
have had jurisdiction over contractual claims as well, in light of a
BIT provision authorizing the arbitration of “any dispute . . . in con-
nection with the investment.”111 Parkerings framed its claims solely
as treaty claims, however, presumably because it was not a party to
the concession agreement.112
After concluding that it had jurisdiction over Parkerings’ trea-
ty claims, the tribunal rejected them on the merits.113 With regard to
the fair and equitable treatment and expropriation claims, the tribunal
based its decision in large part on the fact that BP had not challenged
104. Id. ¶ 302.

105. Id. ¶¶ 349–50.
106. Parkerings-Compagniet AS v. Republic of Lith., ICSID Case No. ARB/05/8,
Award (Sept. 11, 2007), http://ita.law.uvic.ca/documents/Pakerings.pdf.
107. Id. ¶¶ 81–82.
108. Id. ¶¶ 187, 190.
109. Id. ¶ 197.
110. Id. ¶ 199.
111. Id. ¶¶ 261–66.
112. Id. ¶ 264.
113. Id. ¶ 465.
the City’s termination of the concession agreement before Lithuanian

courts, the forum specified in a forum selection clause.114
Specifically, the tribunal felt that it was impossible to deter-
mine whether the termination was denial of fair and equitable treat-
ment without knowing whether the City had a proper basis for it un-
der the concession agreement and its governing law. When discuss-
discussing Parkerings’ fair and equitable treatment claim, the tribunal
stated:
In most cases, a preliminary determination by a com-
petent court as to whether the contract was breached
under municipal law is necessary. This preliminary
determination is even more necessary if the parties to
the contract have agreed on a specific forum for all
disputes arising out of the contract
However, if the contracting-party is denied access

to domestic courts, and thus denied opportunity to ob-
tain redress of the injury and to complain about those
contractual breaches, then an arbitral tribunal is in a
position, on the basis of the BIT, to decide whether
this lack of remedies had consequences on the invest-
ment and thus whether a violation of international law
occurred.115
With regard to Parkerings’ expropriation claim, the tribunal

expressed the view that a State’s termination of an investor’s contract
cannot be characterized as an expropriation unless the following ele-
ments are met: (i) in effectuating the termination, the State acted as a
sovereign authority, rather than as a contracting party;116 (ii) the in-
vestor had been “deprived, legally or practically, of the possibility to
seek a remedy before the appropriate domestic court”;117 and (iii) the
breach or termination had given rise to a substantial decrease in the
value of the investment.118 The tribunal felt that this standard was
not satisfied, because the City did nothing more than terminate the
114. Id. ¶ 318.

115. Id. ¶¶ 316–17.
116. Id. ¶ 443.
117. Id. ¶ 449.
118. Id. ¶ 455.
concession agreement in its capacity as a contracting party,119 and BP

was free to pursue redress in Lithuanian courts.120
The tribunal did not discuss local remedies in the context of
Parkerings’ national treatment claim. Rather, its rationale for reject-
ing that claim was that there were valid reasons for the disparate
treatment accorded to BP as compared to other companies alleged to
have received more favorable treatment.121
G. Helnan122
The claimant in this case, Helnan, was a hotel management

company that contracted with an Egyptian State-owned company,
EGOTH, to manage a five-star hotel in Cairo owned by EGOTH.123
In 2003, following a series of inspections by the Egyptian Ministry of
Tourism, the Ministry downgraded the hotel to four-star status.124 At
that point EGOTH initiated an arbitration against Helnan before an
Egyptian arbitration institution—the forum specified in the parties’
contract—seeking to terminate the contract based on the Ministerial
downgrade.125
The arbitrators in the contractual arbitration held that neither
party had breached the contract, but that continued performance of
the contract was impossible by virtue of the downgrading of the hotel
by the Ministry.126 They therefore ordered the termination of the
119. Id. ¶ 445.

120. Id. ¶ 453. The tribunal’s remarks regarding the claimant’s fair and equitable
treatment and expropriation claims echoed the observations of the tribunal in an earlier case,
SGS v. Philippines, which held that the claimant would have to pursue a contract claim in
Philippine courts (the forum specified in a contractual forum selection clause) before its
claims for fair and equitable treatment and expropriation could ripen. See SGS Société
Générale de Surveillance S.A. v. Republic of the Phil., ICSID Case No. ARB/02/6, Decision
of the Tribunal on Objections to Jurisdiction, ¶¶ 162, 175 (Jan. 29, 2004) 8 ICSID Rep. 518
(2005).
121. Parkerings-Compagniet, ¶¶ 396, 430.
122. Helnan Int’l Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19,
Award (July 3, 2008), http://ita.law.uvic.ca/documents/HelnanAward.pdf.
123. Id. ¶ 3.
124. Id. ¶ 5.
125. Id. ¶ 6.
126. Id.
contract.127 Helnan petitioned an Egyptian court to annul the award,

but the court upheld it.128
Helnan then brought an ICSID claim under the Denmark-
Egypt BIT, alleging that the Egyptian State had been complicit in a
conspiracy with EGOTH, whereby the two had cooperated to down-
grade the hotel and terminate Helnan’s contract, with a view toward
eliminating Helnan as an obstacle to a plan by the State to privatize
the hotel.129 Helnan contended that these actions amounted to an ex-
propriation and otherwise violated various substantive protections in
the BIT, including fair and equitable treatment.130
The ICSID tribunal rejected all of Helnan’s claims.131 As part
of its analysis, it emphasized that Helnan had not made any effort to
challenge the Ministry’s conduct before Egyptian administrative
courts: “The ministerial decision to downgrade the hotel, not chal-
lenged in the Egyptian administrative courts, cannot be seen as a
breach of the Treaty by EGYPT. It needs more to become an interna-
tional delict for which EGYPT would be held responsible under the
Treaty.”132
The tribunal added that if Helnan had brought a local court
proceeding, the tribunal would not have “review[ed] matters of do-
mestic law in the manner of a court of higher instance.”133 Rather, it
would have “accept[ed] the findings of local courts as long as no de-
ficiencies, in procedure or substance, [we]re shown in regard to the
local proceedings which [we]re of a nature of rendering these defi-
ciencies unacceptable from the viewpoint of international law, such
as in the case of a denial of justice.”134
After the tribunal issued its award, Helnan brought a petition
to annul the award, and an ICSID ad hoc Committee partially granted
the petition.135 The Committee concluded that the tribunal placed
improper significance on Helnan’s failure to pursue local remedies,
127. Id.
128. Id.
129. Id. ¶ 61.
130. Id. ¶ 51.
131. Id. ¶¶ 152, 169–70.
132. Id. ¶ 148.
133. Id. ¶ 106.
134. Id.
Annulment Decision (June 14, 2010), ¶ 73, http://ita.law.uvic.ca/documents/Helnan
AnnulmentDecision.pdf.
and that, in so doing, the tribunal manifestly exceeded its powers.136

This Committee was comprised of three members,137 one of whom,
Professor Campbell McLachlan QC, had previously criticized the
holdings and rationales of certain early Local Remedies Cases.138
The Committee asserted in its Annulment Decision that the
tribunal in Helnan was misguided in according substantive relevance
to the claimant’s failure to pursue local remedies, and labeled this an
attempt “to do by the back door that which the [ICSID] Convention
expressly excludes by the front door” (i.e., through Article 26’s abro-
gation of the procedural local remedies rule).139 The Committee add-
ed that “it would empty the development of investment arbitration of
much of its force and effect, if, despite a clear intention of States par-
ties not to require the pursuit of local remedies as a pre-condition to
arbitration, such a requirement were to be read back in as part of the
substantive cause of action.”140
Significantly, however, the Committee went on to recognize
that the availability of local remedies may be relevant to the merits of
an investment treaty claim in some cases. To begin with, it observed
that “a claimant’s prospects for success [on the merits] in pursuing a
treaty claim based on the decision of an inferior official or court,
which has not been challenged through an available appeal process,
should be lower, since the tribunal must in any event be satisfied that
the failure is one which displays insufficiency in the system, justify-
ing international intervention.”141 Elsewhere the Committee com-
mented:
To be sure, the Treaty standard of fair and equitable
treatment is concerned with consideration of the over-
all process of the State’s decision making. A single
aberrant decision of a low-level official is unlikely to
breach the standard unless the investor can demon-
strate that it was part of a pattern of state conduct ap-
plicable to the case or that the investor took steps
within the administration to achieve redress and was
136. Id. ¶¶ 39–55.

137. The Committee consisted of Judge Stephen M. Schwebel (President), Judge Bola
Ajibola, and Professor Campbell McLachlan QC. Id., caption.
138. MCLACHLAN, SHORE & WEINIGER, supra note 7, at 233. McLachlan’s comments in
this regard are discussed infra Part III.A.1.a.
139. Helnan Annulment Decision, ¶ 47.
140. Id.
141. Id. ¶ 48.
rebuffed in a way which compounded, rather than

cured, the unfair treatment.142
Furthermore, the Committee described as “understandable”

and “unsurprising” the substantive relevance that the tribunal in Gen-
eration Ukraine assigned to the claimant’s failure to pursue local
remedies in response to the administrative decisions at issue in that
case. Yet the Committee sought to distinguish the facts of Genera-
tion Ukraine from those of Helnan. It emphasized that the former
case involved decisions of an “inferior official” in a city administra-
tion, whereas the latter involved a “Ministerial decision,”143 which
was, according to the Committee, “taken at the highest level of gov-
ernment within the host State.”144 The Committee suggested that such
a decision “at the highest level” is one “for which the State is un-
doubtedly responsible at international law, in the event that it breach-
es the international obligations of the State.”145 Consequently, the
Committee asserted, the tribunal manifestly exceeded its powers in
treating the Ministry’s decision as one from which an appeal should
have been taken, and the Committee annulled that portion of the
award.
Nevertheless, the Committee did not deem it necessary to an-
nul the award as a whole, and left standing the tribunal’s dismissal of
Helnan’s claims. The Committee pointed out that the local remedies
issue was one of two alternative grounds upon which the dismissal
was based, and there was no basis to annul the tribunal’s holding on
the other ground.146
H. Jan de Nul147
This case was filed by Belgian investors under a BIT between

the Belgo-Luxembourg Economic Union and Egypt.148 The dispute
arose from a contract between the investors and the Egyptian State,
142. Id.
143. Id. (emphasis in original).
144. Id. ¶ 53.
145. Id. ¶ 51.
146. Id. ¶ 57.
147. Jan de Nul N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award
(Nov. 6, 2008), http://ita.law.uvic.ca/documents/JandeNulNVaward.pdf.
148. Id. ¶¶ 1–5, 8.
pursuant to which the investors were obliged to dredge the Suez Ca-
nal.149 The claimants alleged that Egypt fraudulently induced them
to enter the contract by withholding material information about pre-
vious tests conducted by Egypt, which indicated that the dredging
would be more time-consuming and costly than claimants be-
lieved.150 The claimants asserted further that when they initiated
proceedings in Egyptian courts to have the contract declared null and
void, the courts subjected their claims to undue delay and otherwise
denied them due process, and then rejected the claims without justifi-
cation, in violation of the BIT’s fair and equitable treatment clause.151
As a threshold matter, the tribunal rejected the claimants’ as-
sertion that judicial conduct could be challenged under the fair and
equitable treatment standard even if it did not amount to a denial of
justice per se.152 In the view of the tribunal, to permit the claimants
to challenge judicial conduct as something other than a denial of jus-
tice “would allow [the claimants] to circumvent the standards of de-
nial of justice.”153
The tribunal went on to consider the standard that should be
applied to a denial of justice claim, concluding that the standard ar-
ticulated in Loewen—including its exhaustion of local remedies ele-
ment—“constitutes good guidance.”154 Applying that standard to the
facts before it, the tribunal held that the Egyptian courts had not
committed a denial of justice. Even though the proceedings had last-
ed more than a decade, the tribunal did not consider this excessive
delay, given the complexity of the case.155
The tribunal added, however, that its holding might have been
different if the claimants had proved “discrimination or severe im-
propriety” in the court proceedings.156 The tribunal also rejected the
claimants’ assertion that the lower court judgment that ultimately is-
sued was substantively improper, being unconvinced by the claim-
ants’ fraud allegations.157 The tribunal also observed that the claim-
ants had not yet exhausted local remedies, as certain appeals
149. Id. ¶ 43.

150. Id. ¶¶ 43, 112, 210.
151. Id. ¶ 112.
152. Id. ¶¶ 178, 191, 259.
153. Id. ¶ 191.
154. Id. ¶ 192.
155. Id. ¶ 204.
156. Id. ¶ 206.
157. Id. ¶ 254.
remained pending.158 For all these reasons, the fair and equitable
treatment claim failed.
I. Saipem159
Saipem, an Italian company, brought this case against Bang-

ladesh under the Italy-Bangladesh BIT.160 Saipem alleged that Bang-
ladesh violated the treaty when Bangladeshi courts refused to enforce
and declared invalid an arbitral award that Saipem had obtained in an
International Chamber of Commerce (ICC) arbitration against the
Bangladeshi State energy company, Petrobangla.161
The underlying ICC arbitration arose from a dispute between
Saipem and Petrobangla over the latter’s performance under a con-
tract for the construction of a natural gas and condensate pipeline.162
After Saipem initiated the ICC arbitration, Petrobangla petitioned
Bangladeshi courts to halt the arbitration, and obtained an injunction
restraining Saipem from continuing with the arbitration, as well as an
order purporting to revoke the tribunal’s authority.163 The arbitration
went forward nevertheless, and the tribunal ultimately issued a dam-
ages award in Saipem’s favor.164
At that point, Petrobangla again turned to Bangladeshi courts,
requesting the annulment of the ICC award.165 The High Court Divi-
sion of the Bangladeshi Supreme Court held that there was no award
capable of being annulled, because the ICC tribunal had lacked juris-
diction and had conducted the arbitration unlawfully.166 Faced with
that decision, and the refusal of Petrobangla to comply with the ICC
award, Saipem filed an arbitration before ICSID under the Italy-
Bangladesh BIT, claiming that Bangladesh (via the actions of its
158. Id. ¶ 260.

159. Saipem S.p.A. v. The People’s Republic of Bangl., ICSID Case No. ARB/05/07,
Award, (June 30, 2009), http://ita.law.uvic.ca/documents/SaipemBangladeshAwardJune
3009_002.pdf; Saipem S.p.A. v. The People’s Republic of Bangl., ICSID Case No.
ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures (Mar.
21, 2007), http://ita.law.uvic.ca/documents/Saipem-Bangladesh-Jurisdiction.pdf.
160. Saipem Award, ¶¶ 2, 52.
161. Id. ¶ 84.
162. Id. ¶¶ 7, 25.
163. Id. ¶¶ 34–41.
164. Id. ¶ 48.
165. Id. ¶ 49.
166. Id. ¶ 50.
courts) had effectively expropriated Saipem’s rights under its con-

tract with Petrobangla.167
Bangladesh raised various arguments in opposition to Sai-
pem’s claim, including that the claim was defective because Saipem
had not exhausted its appeals in relation to certain of the impugned
court decisions.168 The ICSID tribunal (on which Professor Chris-
toph Schreuer sat as one of the arbitrators), accepted that exhaustion
of local remedies is a substantive element of a claim for denial of jus-
tice, but noted that Saipem had framed its claim as one for expropria-
tion, not denial of justice.169 The tribunal expressed skepticism that
there is a local remedies element to an expropriation claim, but con-
cluded that it did not need to determine the issue because, in its view,
Saipem had adequately pursued local remedies and therefore would
have satisfied any local remedies requirement.170 Specifically, Sai-
pem had litigated the relevant issues before several different courts
over a lengthy period of time, and even though further appeal would
have been available, a favorable outcome was “improbable.”171 Un-
der these circumstances, Saipem had “exerted reasonable local reme-
dies.”172 The tribunal found further that the other elements of an ex-
propriation claim were met as well, and therefore issued a damages
award in Saipem’s favor.173
J. Pantechniki174
The claimant in this case, a Greek construction company that

contracted with the Albanian State to build a road, suffered extensive
167. Id. ¶ 52.

168. Saipem Award, ¶ 174; Saipem S.p.A. v. The People’s Republic of Bangl., ICSID
Case No. ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional
Measures, ¶ 150 (Mar. 21, 2007), http://ita.law.uvic.ca/documents/Saipem-Bangladesh-
Jurisdiction.pdf.
169. Saipem Jurisdictional Decision, ¶ 151.
170. Saipem Award, ¶¶ 181–82.
171. Id. ¶ 183. For a similar view, see JAN PAULSSON, DENIAL OF JUSTICE IN
INTERNATIONAL LAW 113–15 (2005) (“The victim of a denial of justice is not required to
pursue improbable remedies.”).
172. Saipem Award, ¶ 183.
173. See id. ¶¶ 170, 201, 216.
174. Pantechniki S.A. Contractors & Eng’rs v. The Republic of Alb., ICSID Case No.
ARB/07/21, Award (July 30, 2009), http://ita.law.uvic.ca/documents/PantechnikiAward.pdf.
damage to its equipment during anti-government riots.175 A provi-

sion in the relevant contracts stated that the State accepted the risk of
loss due to civil disturbances,176 but when the claimant requested
compensation for the damage, the State offered to pay a mere fraction
of the amount demanded. 177 The claimant accepted this offer and the
parties entered into a settlement agreement,178 but the State failed to
pay. The claimant therefore brought an action on the settlement
agreement in Albanian courts.179
A court of appeal dismissed the claim based on a finding that
the contractual provision placing the risk of loss for civil disturbances
on the State was null and void under Albanian law.180 The claimant
filed an appeal before the Albanian Supreme Court but later aban-
doned the appeal in favor of proceeding exclusively in arbitration be-
fore ICSID under the Greece-Albania BIT.181
The claimant asserted several claims in the ICSID arbitration.
These included a claim for the violation of a “full protection and se-
curity” clause—which, according to the claimant, required the State
to provide adequate protection to prevent physical damage to the in-
vestment.182 The claimant also asserted a fair and equitable treatment
claim, based on the theory that the Albanian courts had committed a
denial of justice.183 Finally, the claimant asserted a claim for failure
to honor the settlement agreement.184
The sole arbitrator in the case, Jan Paulsson, rejected all of
these claims.185 With regard to the full protection and security claim,
Paulsson did not appear to consider local remedies relevant to its
substance. Rather, he rejected the claim based on his conclusion that
the State had lacked the resources necessary to prevent damage to the
claimant’s equipment.186 With regard to the fair and equitable treat-
175. Id. ¶¶ 1, 12–13.

176. Id. ¶ 2.
177. Id. ¶¶ 2, 14, 15.
178. Id.
179. Id. ¶¶ 3, 21.
180. Id. ¶¶ 3, 23.
181. Id. ¶¶ 3–4, 25–27.
182. Id. ¶¶ 28, 71.
183. Id. ¶¶ 28, 93.
184. Id. ¶¶ 28, 90.
185. Id. ¶¶ 28–29.
186. Id. ¶ 82.
ment claim, however, Paulsson clearly did consider local remedies

relevant. In particular, he concluded that the claimant prematurely
abandoned its appeal to the Albanian Supreme Court and that the
claim was therefore defective on its merits for failure to adequately
pursue local remedies.187 As for the claim based on the State’s fail-
ure to honor the settlement agreement, Paulsson concluded that it was
barred by a “fork-in-the-road” clause in the treaty.188 As noted in the
Introduction, such clauses require an investor to make an election
among the fora specified in the treaty as one available to hear any
given investment dispute, and preclude the investor from thereafter
re-litigating the dispute in a different forum. Paulsson concluded that
the investor had already submitted a breach of contract claim on the
settlement agreement to Albanian courts and that the claim it was at-
tempting to assert before ICSID had the same “fundamental basis.”189
K. Chevron-Texaco190
This case was brought by U.S. oil giant Chevron and its whol-
ly owned subsidiary, Texaco Petroleum (TexPet), under the U.S.-
Ecuador BIT.191 TexPet operated an oil field in Ecuador from the
1960s to the 1990s, during which period massive pollution occurred
in its area of operations, resulting in severe harm to the Ecuadorian
rainforest and local communities.192 When the Ecuadorian State and
187. Id. ¶¶ 101–02.

188. Id. ¶¶ 61–67.
189. Id. Paulsson emphasized, however, that this particular BIT did not contain an
“umbrella clause.” He suggested that if it had contained such a clause, this could have been
used to “leverage” the contract claim (i.e., by converting it into a treaty claim that could be
pursued before ICSID notwithstanding the prior submission of the contractual claim to local
courts). Id. ¶ 64.
190. Chevron Corp. v. The Republic of Ecuador, UNCITRAL Arbitration, Partial
Award on the Merits (Mar. 30, 2010), http://ita.law.uvic.ca/documents/ChevronTexaco
EcuadorPartialAward.pdf.
191. Id. ¶ 118.
192. See Sukanya Pillay, Absence of Justice: Lessons from the Bhopal Union Carbide
Disaster for Latin America, 14 MICH. ST. J. INT’L L. 479, 510 (2006) (referring to claims
brought against TexPet for alleged “environmental harms causing suffering to tens of
thousands of plaintiffs . . . for the release of highly toxic petroleum wastes into the drinking
water supply of the region, [and for] damaging the environment, health, and ability to carry
on traditional cultural practices . . . .”); see also Cortelyou Kenney, Comment, Disaster in
the Amazon: Dodging “Boomerang Suits” in Transnational Human Rights Litigation, 97
CALIF. L. REV. 857, 868–69 (2009) (summarizing allegations against TexPet, including that
the company “deliberately dumped over eighteen billion gallons of crude oil and toxic
local citizens threatened to bring claims against TexPet relating to

that pollution, TexPet filed several lawsuits of its own in Ecuadorian
courts against the Ecuadorian State, alleging various breaches of con-
tract.193
As of 2006, each of TexPet’s Ecuadorian lawsuits was still
pending or had been dismissed, while other lawsuits were pending in
Ecuador seeking damages against Chevron and TexPet for pollution-
related harms.194 At that point, Chevron and TexPet initiated a BIT
arbitration against Ecuador, contending that the Ecuadorian courts’
handling of TexPet’s breach of contract claims violated various sub-
stantive treaty protections, including fair and equitable treatment and
the obligation to “provide effective means of asserting claims and en-
forcing rights with respect to investment, investment agreements, and
investment authorizations.”195
Among the arguments raised by Ecuador in its defense was
that the treaty claims were defective on the merits because TexPet
had not adequately pursued local remedies. Specifically, Ecuador
contended that TexPet should have litigated the lawsuits to a conclu-
sion or taken certain procedural steps that would have expedited the
courts’ adjudication of its claims.196
On March 30, 2010, the tribunal issued a Partial Award on the
Merits, holding in favor of Chevron and TexPet on their claim for
breach of the treaty’s “effective means” clause.197 The tribunal as-
serted that the obligation imposed by that clause “overlaps signifi-
cantly with the prohibition of denial of justice under customary inter-
national law,”198 but that “a distinct and potentially less-demanding
test is applicable under this provision as compared to denial of jus-
tice.”199 The tribunal added that, to fulfill the “effective means” ob-
ligation, a State must adjudicate claims brought in local courts by a
covered investor without “indefinite or undue delay.”200 The tribunal
‘produced water’ into unlined pits known . . . to drain into surrounding streams and rivers
used for bathing, cooking, and drinking”).
193. Chevron-Texaco Partial Award, ¶¶ 134–35.
194. Id. ¶¶ 145, 149.
195. Id. ¶ 205. Such “effective means” clauses are relatively rare, being found only in
certain U.S. BITs, the Energy Charter Treaty and a handful of other BITs. Id. ¶ 241.
196. See id. ¶¶ 34, 295–96, 305, 308, 325.
197. Id. ¶¶ 253–56, 270.
198. Id. ¶ 242.
199. Id. ¶ 244.
200. Id. ¶ 250.
ultimately concluded that the relevant courts had not adjudicated cer-
tain lawsuits with “reasonable dispatch,” and therefore found a viola-
tion.201
Significantly, however, the tribunal accepted Ecuador’s ar-
gument that a claim based on the effective means clause has a sub-
stantive local remedies element. It observed that “a qualified re-
quirement of exhaustion of local remedies applies under the
‘effective means’ standard,”202 meaning that a claimant must “make
use of all remedies that are available and might have rectified the
wrong complained of.”203 The tribunal explained further that “a high
likelihood of success of these remedies is not required in order to ex-
pect a claimant to attempt them.”204 The tribunal nevertheless found
that this requirement did not disqualify the claim, because it was not
convinced that TexPet had any mechanism available to it that could
have accelerated the resolution of its lawsuits.205
The tribunal did not go on to consider the merits of the claim-
ants’ other treaty claims, because they would not have increased the
quantum of damages, even if successful.206
III. A CRITICAL APPRAISAL OF THE LOCAL REMEDIES CASES
Several distinct propositions of law are distillable from the

Local Remedies Cases, including:
1. An investor cannot establish a treaty breach
based on judicial conduct if there exists a rea-
sonably available domestic legal mechanism
for having such conduct reviewed and correct-
ed, which the investor failed to invoke.
2. The same may also be true with regard to
claims based on reviewable administrative
conduct.
3. A treaty claim may be defective on the merits
if it is predicated in part on a breach of con-
tract by the host State but the investor has not
201. Id. ¶ 256.

202. Id. ¶ 323.
203. Id. ¶ 326.
204. Id.
205. Id. ¶¶ 269, 332.
206. Id. ¶ 275.
sought a ruling on the contractual issues in a

domestic forum.
4. If the investor does pursue a local remedy, the
tribunal in a subsequent treaty-based arbitra-
tion should defer to the findings of the local
court absent a “denial of justice.”
5. The pursuit of local remedies may preclude the
investor from asserting a treaty claim having
the same “fundamental basis,” if the relevant
BIT contains a “fork-in-the-road” clause.
In this Part, I evaluate each of these propositions from the

standpoints of both law and policy, while taking into account reac-
tions offered by other tribunals and scholars to date.
A. Local Remedies Are Potentially Relevant to the Merits of Treaty

Claims Challenging Judicial Conduct
As discussed in Part III, several Local Remedies Cases reject-

ed claims based on the claimants’ failure to pursue local remedies in
response to impugned judicial conduct, or indicated that they would
have rejected the claims had local remedies been available. For the
reasons explained more fully below, these tribunals were fully justi-
fied in according such substantive significance to local remedies.
1. International Law and Domestic Analogs Confirm the Substantive

Relevance of Local Remedies to Denial of Justice and Similar
Claims
Of the Local Remedies Cases that address judicial conduct,

Loewen and Waste Management II are the only ones that have at-
tracted significant scholarly attention to date. Most scholars have not
questioned the view that denial of justice claims have a substantive
exhaustion of local remedies element, even in investment treaty cas-
es. Some have suggested, however, that this element could be avoid-
ed by framing the claim as something other than denial of justice. As
discussed below, I agree that denial of justice claims have such an el-
ement but am not convinced that this element could be avoided in the
manner posited.
a. Denial of Justice Claims Have a Substantive Local Remedies

Element, and Applying It in Treaty Cases Does Not Defeat the
Abrogation of the Procedural Exhaustion Rule
In his seminal treatise on denial of justice, Paulsson endorses

the view that denial of justice claims have an exhaustion of local
remedies element:
[I]t is in the very nature of the delict [of denial of jus-
tice] that a state is judged by the final product—or at
least a sufficiently final product—of its administration
of justice. A denial of justice is not consummated by
the decision of a court of first instance . . . [A] trial
judge who misconducts himself simply does not
commit a fully constituted international delict imputa-
ble to the State.207
Professor Christoph Schreuer also agrees that denial of justice

claims have a substantive local remedies element:
The idea that a violation of substantive international
standards has occurred only after redress has been
sought exhaustively through the local courts is hardly
surprising in the context of an alleged denial of jus-
tice. Denial of justice is committed typically by the
judiciary and is completed only if the incriminated de-
cision has been appealed unsuccessfully.208
Indeed, Schreuer appears to accept that this substantive local

remedies element applies to denial of justice claims even when filed
under an investment treaty. A tribunal on which he sat as arbitrator
in a treaty-based arbitration observed that “[i]t is true that such [an
207. PAULSSON, supra note 171, at 108–09 (emphasis in original).

208. Schreuer, supra note 7, at 14; see also Rubins, supra note 14, at 15 (“The [Loewen]
tribunal’s basic premise, that the acts of a court of first instance do not normally rise to the
level of an international wrong, is open to some debate but solidly grounded in customary
law. Judicial systems in most countries are normally structured precisely to rectify court
misconduct at the lower level, and therefore until available higher levels of domestic review
have had the opportunity to correct a given miscarriage of justice, it cannot normally be said
that there has been a state act capable of triggering international liability.”).
exhaustion of local remedies] requirement does apply to claims based

on denial of justice.”209
By contrast, some have argued that such a substantive ele-
ment should never be applied in a treaty-based arbitration, even with
regard to denial of justice claims. Specifically, McLachlan and his
treatise co-authors argued in 2007:
[I]t would surely empty the development of invest-
ment arbitration of much of its force and effect, if, de-
spite a clear intention of State parties not to require the
pursuit of local remedies as a pre-condition to arbitra-
tion, such a requirement were to be read back as part
of the substantive cause of action.210
These comments were subsequently echoed verbatim by the ad hoc
Committee that heard the annulment petition in Helnan (on which
panel McLachlan sat as a member).211 McLachlan and his co-authors
argued further in their 2007 treatise that the standard articulated by
the Loewen tribunal fails to take into account the fact that lower judi-
cial officers are officers of the State, and that States are liable for the
acts of all their officers and agencies, because the State has a single
legal personality.212
These criticisms are unpersuasive. It is not clear why the de-
cision to eliminate the procedural exhaustion of local remedies re-
quirement would necessarily imply the elimination of substantive el-
ements implicating local remedies. It might be necessary to draw
such an inference if every treaty claim had a substantive local reme-
dies element, because then there would have been no point in elimi-
nating the procedural requirement. Refusing to draw such an infer-
ence in that event would run contrary to a well-established principle
Decision on Jurisdiction and Recommendation on Provisional Measures, ¶ 151 (Mar. 21,
2007), http://ita.law.uvic.ca/documents/Saipem-Bangladesh-Jurisdiction.pdf.
210. MCLACHLAN, SHORE & WEINIGER, supra note 7, at 233; see also Wallace, supra
note 21, at 685.
Annulment Decision, ¶ 47 (June 14, 2010), http://ita.law.uvic.ca/documents/Helnan
AnnulmentDecision.pdf.
212. MCLACHLAN, SHORE & WEINIGER, supra note 7, at 233. See also Bradford K.
Gathright, Comment, A Step in the Wrong Direction: The Loewen Finality Requirement and
the Local Remedies Rule in NAFTA Chapter Eleven, 54 EMORY L.J. 1093, 1127–29 (2005)
(arguing that in a case involving a wrongful act committed by a judicial officer, there should
be no substantive requirement to pursue a final judgment because liability on the part of the
State arises from the moment the act is committed due to the single legal personality of the
State).
of treaty interpretation, which disfavors any reading that would ren-

der a feature of a treaty nonsensical or meaningless.213 Yet the Local
Remedies Cases do not suggest that local remedies are relevant to
every claim. The only claims to which these tribunals have found lo-
cal remedies relevant are fair and equitable treatment, expropriation
and effective means. Accordingly, the decision to eliminate the pro-
cedural rule is by no means rendered pointless or inconsequential by
these tribunals.
As for the notion that the conduct of a lower judicial officer
necessarily attaches responsibility to the State the moment it occurs
because States have a single legal personality, this seems to confuse
the concepts of attribution, on the one hand, and breach, on the other.
Even if the act of a lower official (including a judicial one) is at-
tributable to the State, a separate analysis must be undertaken to de-
termine whether that act violates an international obligation of the
State. The distinction between attribution and breach is reflected in
the Draft Articles on Responsibility of States for Internationally
Wrongful Acts adopted by the International Law Commission
(“ILC”), which deal separately with the two concepts.214 As Profes-
sor James Crawford has pointed out in his capacity as Special Rap-
porteur to the ILC, a decision by a lower official that would be
wrongful in the absence of an available local remedy does not attach
responsibility to the State (even if attributable to the State) if such a
remedy is available: “[A]n aberrant decision by a lower official in
the hierarchy, which is capable of being reconsidered, does not of it-
self amount to an unlawful act.”215
213. See IAN SINCLAIR, THE VIENNA CONVENTION ON THE LAW OF TREATIES 120 (1984);
see also Eureko B.V. v. Republic of Pol., UNCITRAL Arbitration, Partial Award, ¶¶ 246–48
(Aug. 19, 2005), http://ita.law.uvic.ca/documents/Eureko-PartialAwardandDissenting
Opinion.pdf (“It is a cardinal rule of the interpretation of treaties that each and every
operative clause of a treaty is to be interpreted as meaningful rather than meaningless. It is
equally well established . . . that treaties, and hence their clauses, are to be interpreted so as
to render them effective rather than ineffective.”).
214. Articles on Responsibility of States for Internationally Wrongful Acts, art. 38, in
Report of the International Law Commission, Fifty-Third Session, U.N. GAOR, 56th Sess.,
Supp No. 10, U.N. Doc. A/56/10 (2001), ch. IV.E.1, available at http://untreaty.un.org/
ilc/texts/instruments/english/draft%20articles/9_6_2001.pdf. See id. art. 2 (“There is an
internationally wrongful act of a State when conduct consisting of an action or omission: (a)
is attributable to the State under international law; and (b) constitutes a breach of an
international obligation of the State.”). Also compare Chapter II (“Attribution of Conduct to
a State”) with Chapter III (“Breach of an International Obligation”).
215. Special Rapporteur on State Responsibility, Second Rep. on State Responsibility,
Int’l Law Comm’n, ¶ 75, U.N. Doc. A/CN.4/498 (Mar. 17, 1999) (by James Crawford). See
also Christopher Greenwood, State Responsibility for the Decisions of National Courts, in
This does not mean, however, that the Loewen tribunal was
correct in its ultimate determination that the claimants in that case
failed to adequately pursue local remedies. Many have expressed the
view that the tribunal should have taken a more realistic and flexible
approach—crediting the extreme pressures the claimants were under
and the slim prospects for success presented by the options availa-
ble—and therefore should have found the United States in breach of
NAFTA.216
I share that view, and would point to the merits award in Sai-
pem as a more appropriate application of the local remedies element.
As noted previously, the Saipem tribunal observed that the claimant
had litigated the relevant issue before several different courts in the
host State, and that even though further appeals were available, a fa-
vorable outcome was “improbable.”217 The tribunal concluded that,
under these circumstances, the claimant had “exerted reasonable lo-
cal remedies.”218
ISSUES OF STATE RESPONSIBILITY BEFORE INTERNATIONAL JUDICIAL INSTITUTIONS 55, 61

(Malgosia Fitzmaurice & Dan Sarooshi, eds., 2004) (“[T]he responsibility of the State for a
denial of justice arises only if the system as a whole produces a denial of justice. Where
there is a manifestly defective judgment by a lower court, this will not amount to a denial of
justice—and thus will not constitute a violation of international law by the State—if there is
available to the foreign national an effective means of challenging the judgment.” (emphasis
added)).
216. See, e.g., PAULSSON, supra note 171, at 124 (questioning the tribunal’s conclusion
that Loewen had not provided adequate evidence as to why it had entered into the settlement
rather than filing a petition to the U.S. Supreme Court, and noting that there was evidence
that the prospects for success of such a petition were “exceedingly remote”); Rubins, supra
note 14 at 18–19 (“Within the community of arbitration practitioners around the world . . .
many quickly expressed disappointment and disagreement with the Loewen tribunal’s
decision. Many wondered how a complaint that the arbitrators themselves recognized was
substantively well founded, arising out of governmental measures that were clearly
egregious, could be wholly dismissed.”); Wallace, supra note 21, at 687 (arguing that that
the claimants were under “duress” at the time they decided to enter into their settlement, and
that “under, and, notwithstanding, the shock of the grotesque trial court result and the seven
day sword of Damocles that hung over them, Loewen’s lawyers did examine all these routes
but concluded, as reasonable counsel may, that they were futile.”).
Decision on Jurisdiction and Recommendation on Provisional Measures, ¶ 183 (Mar. 21,
2007), http://ita.law.uvic.ca/documents/Saipem-Bangladesh-Jurisdiction.pdf. For a similar
view, see PAULSSON, supra note 171, at 113–15 (“The victim of a denial of justice is not
required to pursue improbable remedies.”).
b. The Relevance of Local Remedies Cannot Be Avoided by Re-

Framing the Claim Under a Different Treaty Obligation
The question arises whether an investor can avoid the local

remedies element of denial of justice claims by challenging judicial
conduct as something other than a denial of justice. The tribunals in
Loewen and Jan de Nul answered that question in the negative,219
while the tribunal in Saipem suggested—without actually determin-
ing—that if the investor frames their claim as one of expropriation,
then local remedies are simply irrelevant.220
In my view, it is largely moot whether or not any claim based
on judicial conduct must be viewed as, in effect, a denial of justice
claim, because local remedies are likely to remain relevant no matter
how the claim is characterized.
To demonstrate why this is so, I shall examine each of the al-
ternative claims (apart from denial of justice) that investors asserted
in the Local Remedies Cases in relation to judicial conduct: (i) fair
and equitable treatment, (ii) effective means of asserting claims and
enforcing rights and (iii) expropriation. As will be seen, each of
these arguably has a substantive local remedies element, every bit as
much as denial of justice.
i. A Fair and Equitable Treatment Claim Will Not Succeed if the

Investor Has Declined To Appeal an Impugned Judicial
Decision
Tribunals have generally interpreted the fair and equitable

treatment obligation rather expansively.221 Notably, Professor Much-
linski has asserted:
[I]t is now reasonably well settled that the standard
requires a particular approach to governance on the
part of the host country that is encapsulated in the ob-
219. See supra Parts III.A and H.

221. See, e.g., Waguih Elie George Siag v. The Arab Republic of Egypt, ICSID Case
No. ARB/05/15, Award and Dissenting Opinion, ¶ 450 (June 1, 2009), http://ita.law.
uvic.ca/documents/WaguihElieGeorgeSiag-AwardandDissentingOpinion_001.pdf
(describing the standard as “broad,” and collecting cases interpreting it as requiring States to
“act in good faith toward foreigners,” as well as embodying “such notions as transparency,
protection of legitimate expectations, due process, freedom from discrimination and freedom
from coercion and harassment”).
ligations to act in a consistent manner, free from am-

biguity and in total transparency, without arbitrariness
and in accordance with the principle of good faith. In
addition, investors can expect due process in the han-
dling of their claims and to have the host authorities
act in a manner that is non-discriminatory and propor-
tionate to the policy aims involved.222
Yet whatever types of governmental conduct are potentially

actionable under this standard, it remains necessary to keep the
standard tethered to the plain and ordinary meaning of the treaty lan-
guage in which it is expressed, i.e., the terms “fair” and “equita-
ble.”223
Muchlinski has pointed out that the Concise Oxford Diction-
ary defines the term “fair” as “just, unbiased, equitable, in accord-
ance with the rules.”224 He notes further that the term “equity” con-
notes “a balancing process and weighing up of what is right in all the
circumstances,” which, he says, “leaves open the possibility of look-
ing not only at the conduct of the person who must act fairly but also
the conduct of the person who is acted upon.”225 He concludes that
for a tribunal to assess whether a host State has satisfied the fair and
equitable treatment obligation, it should examine not only the host
State’s conduct, but also that of the investor, and should take into ac- 投資人的行為也要考慮在內
count the totality of the circumstances.226
This makes perfect sense. If the host State has created a
mechanism whereby an impugned court decision (such as one alleged
to have been rendered without due process) could be reversed on ap-
peal, then the State’s treatment of the investor, in its totality, is not
unfair or inequitable. In such a situation, it is incumbent upon the in-
222. Peter Muchlinski, “Caveat Investor”? The Relevance of the Conduct of the
Investor Under the Fair and Equitable Treatment Standard, 55 INT’L & COMP. L.Q. 527,
530–31 (2006) (footnotes omitted).
223. See Vienna Convention on the Law of Treaties of 1969 art. 31(1), May 23, 1969,
1155 U.N.T.S. 331 (“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.”). Numerous investment treaty tribunals have relied on this provision as
expressing customary international law on the interpretation of treaties. See, e.g., Siemens
A.G. v. Arg. Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, ¶ 80 (Aug. 3,
2004), http://ita.law.uvic.ca/documents/SiemensJurisdiction-English-3August 2004.pdf.
224. Muchlinski, supra note 222, at 531.
225. Id. at 532.
226. Id. at 556.
vestor to make any necessary appeals, and, if he neglects to do so, he

will not be able to bear his burden of proving that the State failed to
act “justly” and “in accordance with the rules.” This of course as-
sumes that the investor could have obtained redress from the im-
pugned decision without undue burden or delay.
Accordingly, even if judicial conduct that does not rise to the
level of a denial of justice stricto sensu could be challenged as a vio-
lation of fair and equitable treatment, the claim would be unlikely to
succeed so long as reasonably available local remedies exist, which
the investor has not invoked.
A domestic analog for this approach can be found in U.S. ju-
risprudence involving claims for violations of the Due Process
Clause of the Fourteenth Amendment to the U.S. Constitution. In
particular, the U.S. Supreme Court has held that a denial of procedur-
al due process by a state organ is not “complete” in the sense of
amounting to a constitutional injury unless and until the aggrieved
party has exhausted available state remedies.227 A claim for denial of
procedural due process is premised on the state’s failure to meet its
constitutional obligation to provide fair procedures, and this exhaus-
tion requirement is designed to ensure that the entire procedural
framework has been tested, so as to enable a federal court to assess
the fairness of that framework.228 In other words, one cannot know
whether the plaintiff received “due process” if the entire process has
not yet run its course.
It is worth noting that U.S. courts recognize exceptions to the
exhaustion requirement if the state fails to provide an adequate reme-
dy for the deprivation, or if the plaintiff can otherwise demonstrate
that the pursuit of state remedies would be futile (such as if the pro-
227. See Zinermon v. Burch, 494 U.S. 113, 125 (1990) (“In procedural due process
claims, the deprivation by state action of a constitutionally protected interest in ‘life, liberty,
or property’ is not in itself unconstitutional; what is unconstitutional is the deprivation of
such an interest without due process of law. . . . The constitutional violation actionable
under § 1983 is not complete when the deprivation occurs; it is not complete unless and until
the State fails to provide due process.” (internal citations and quotations omitted)); Wax ‘n
Works v. City of St. Paul, 213 F.3d 1016, 1019 (8th Cir. 2000) (“Under federal law, a
litigant asserting a deprivation of procedural due process must exhaust state remedies before
such an allegation states a claim under § 1983.”).
228. See Mora v. City of Gaithersburg, 519 F.3d 216, 230 (4th Cir. 2008) (“Procedural
due process is simply a guarantee of fair procedures . . . Mora [the plaintiff in this case] has
had, and continues to have, notice and an opportunity to be heard in Maryland, and he
cannot plausibly claim that Maryland’s procedures are unfair when he has not tried to avail
himself of them.” (internal citations and quotations omitted)).
cedural framework is biased).229 This accords nicely with the ap-

proach of the Local Remedies Cases, as well as with the traditional
exhaustion requirement under customary international law, both of
which acknowledge that local remedies need not to be pursued if they
would be futile or otherwise ineffective.230
ii. A Tribunal Cannot Assess the “Effectiveness” of the Means

Provided for Asserting Claims and Enforcing Rights if the
Claimant Has Not Invoked Those Means
Similar considerations apply to claims based on the obligation

to provide “effective means of asserting claims and enforcing rights.”
Just as a host State’s conduct is not necessarily “unfair” or “inequita-
ble” even if a lower court has issued a wrongful decision, provided
that an appeal is available, so the State should not be liable for failing
to provide effective means of asserting claims and enforcing rights if
there is a domestic mechanism available that could further the inves-
tor’s claims or the enforcement of the investor’s rights. It is incum-
bent upon litigants to be active participants in the judicial process,
and if a litigant fails to invoke available means for advancing its
claims, then it is impossible for a tribunal to assess the effectiveness
of the host State’s judicial system. As the tribunal in Chevron-
Texaco put it:
[I]n the consideration of whether the means provided
by the State to assert claims and enforce rights are suf-
ficiently “effective”. . . the Tribunal must consider
whether a given claimant has done its part by properly
using the means placed at its disposal. A failure to use
these means may preclude recovery if it prevents a
229. See Urban v. Jefferson County Sch. Dist. R-1, 89 F.3d 720, 724 (10th Cir. 1996)
(observing that administrative remedies need not be exhausted when, inter alia, they would
be futile or would fail to provide relief); Owsley v. Idaho Indus. Com’n, 106 P.3d 455, 461–
62 (Idaho 2005) (recognizing an exception to the exhaustion requirement “where bias or
prejudgment by the decision maker can be demonstrated” because due process entitles a
person to an impartial tribunal and requiring exhaustion before a biased decision maker
would be futile).
230. See The Loewen Group, Inc. v. U. S., ICSID Case No. ARB(AF)/98/3, Award on
the Merits, ¶ 165 (June 26, 2003); AMERASINGHE, supra note 2, at 206 (“In the law of
diplomatic protection the principle that local remedies need not be exhausted where they are
obviously futile seems to be established.”). Cf. Generation Ukr., Inc. v. Ukr., ICSID Case
No. ARB/00/9, Award, ¶ 20.30 (Sept. 16, 2003), 44 I.L.M. 404 (2005) (holding that the
investor need only make “a reasonable—not necessarily exhaustive—effort . . . to obtain
correction” of the impugned administrative conduct (emphasis added)).
proper assessment of the “effectiveness” of the system

for asserting claims and enforcing rights.231
iii. An Expropriation Claim Is Not Ripe if the State Has Provided a

Mechanism for Providing Prompt, Adequate and Effective
Compensation, Which the Investor Has Not Invoked
In considering whether an appealable (but unappealed) lower

judicial decision can constitute an actionable expropriation, it is
worth noting that investment treaties generally do not prohibit expro-
priation per se. Rather, they authorize expropriations but require
them to be undertaken for a public purpose, in a non-discriminatory
way and with due process, and to be accompanied by prompt, ade-
quate and effective compensation.232 Significantly, this standard
does not seem to prejudge the question of how the compensation is to
be provided, and arguably leaves room for States to provide the com-
pensation pursuant to an appropriate domestic legal mechanism, if
and when the investor invokes the same.
Once again, an analog for this reading can be found in U.S.
constitutional jurisprudence. Specifically, the U.S. Supreme Court
has held that a claim for violation of the Takings Clause of the Fifth
Amendment to the U.S. Constitution is premature if an adequate pro-
cedure exists for seeking just compensation for the property in ques-
tion, which the claimant has not yet invoked.233 This is because the
Takings Clause does not prohibit takings per se, but only takings
231. Chevron Corp. v. The Republic of Ecuador, UNCITRAL Arbitration, Partial

Award on the Merits, ¶ 324 (Mar. 30, 2010), http://ita.law.uvic.ca/documents/Chevron
TexacoEcuadorPartialAward.pdf.
232. RUDOLF DOLZER & CHRISTOPH SCHREUER, PRINCIPLES OF INTERNATIONAL
INVESTMENT LAW 89 (2008) (“Consistent with the notion of territorial sovereignty, the
classical rules of international law have accepted the host state’s right to expropriate alien
property in principle. Indeed, state practice has considered this right to be so fundamental
that even modern investment treaties . . . respect this position. Treaty law typically
addresses only the conditions and consequences of an expropriation, leaving the right to
expropriate as such unaffected.”). See also Waguih Elie George Siag v. The Arab Republic
of Egypt, ICSID Case No. ARB/05/15, Award and Dissenting Opinion, ¶ 428 (June 1,
2009), http://ita.law.uvic.ca/documents/WaguihElieGeorgeSiag-AwardandDissenting
Opinion_001.pdf. (“[E]xpropriation in and of itself is not an illegitimate act. It is well-
accepted that a State has the right to expropriate foreign-owned property.”)
233. Williamson Cnty Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 195
(1985), superseded by statute on other grounds, Telecommunications Act of 1996, Pub. L.
No. 104-104, 110 Stat. 56, as stated in Sprint Spectrum L.P. v. City of Carmel, 361 F.3d 998
(7th Cir. 2004).
without just compensation. Thus a constitutional violation does not

occur unless and until compensation has been sought and denied. In-
deed, the Court has held that the aggrieved property owner must ex-
haust state law remedies before its federal takings claim will rip-
en234—a requirement that, it has been pointed out, reduces the need
for federal intervention and protects state sovereignty.235
If a similar approach were applied in the investment treaty
context, an investor could not state a claim for unlawful expropria-
tion based on the wrongful decision of a lower court if the investor
had failed to invoke a domestic mechanism available for reversing
the decision or obtaining compensation from the deprivation it im-
posed (e.g., a right of appeal).236 Of course, to be consistent with the
treaty standard, any relief that could be obtained on appeal would
have to be truly prompt, adequate and effective.
2. Policy Considerations Also Support Encouraging Recourse to

Local Remedies
Dodge has observed that there are sound policy reasons for
encouraging (or even requiring) the pursuit of local remedies when
investors seek to challenge judicial conduct. In particular, he asserts
that if investors were required to pursue judicial appeals before filing
a NAFTA claim, “[m]ost trial errors . . . would be corrected in do-
mestic courts, through a process that is more determinate, more ac-
countable, more legitimate, and less intrusive upon sovereignty than
Chapter 11 review.”237
Professor Andrea Bjorklund has explained why many errors
are likely to be corrected by higher courts if investors pursue local
remedies:
[B]y the time an issue reaches an appellate court, it is
normally more crystallized and the chances of it being
decided correctly are greater. More people, judges
and attorneys alike, will have had a chance to evaluate
234. Id. at 195.

235. Jack M. Beermann, Government Official Torts and the Takings Clause:
Federalism and State Sovereign Immunity, 68 B.U. L. REV. 277, 332, 335 n.228 (1988).
236. This is not to suggest that local remedies are potentially relevant to the merits of an
expropriation claim only if the taking is effectuated via a judicial decision. To the contrary,
an investor arguably should be expected to seek compensation domestically prior to having a
ripe expropriation claim no matter the nature of the taking, so long as a domestic procedure
for obtaining prompt, adequate and effective compensation is indeed readily available.
237. Dodge, supra note 11, at 573.
the issue, to make more and different and better argu-

ments. Errors may be corrected, juries may be reined
in, and justice may be done.238
While investors may be reluctant to pursue appeals out of fear

that higher courts will be biased in favor of the State, or that appellate
proceedings will be unduly time-consuming or expensive, these con-
cerns can be mitigated by applying any local remedies element flexi-
bly. In other words, the investor can be excused from continuing an
appeal if it can point to evidence of bias or unreasonable delay or ex-
pense.
In fact, applying substantive local remedies elements can op-
erate to the benefit of investors in the long run. Because this ap-
proach would likely dispose of a significant number of claims and
reduce the incidence of claims brought to international arbitration, it
should have the beneficial effect of minimizing the ill will that is so
often generated in the host State when high-profile international pro-
ceedings are initiated. Such resentment is typically felt not only to-
ward the claimants who bring the cases, but also foreign investors
generally, and the very system of investor-State arbitration. Notably,
Bolivia, Venezuela and Ecuador have all cited the high volume of
treaty claims brought against them (and the perceived threat to na-
tional sovereignty that such claims posed) as motivations for their
decisions to denounce the ICSID Convention and/or decline to renew
BITs to which they were party.239
If more disputes were resolved domestically, it would be less
likely that a State would feel oppressed by its adherence to invest-
ment treaties. In the long run, countries would be more likely to sign
other similar treaties and renew existing ones when they expire.
Such a trend would ensure that more investors would have an ade-
quate venue for pursuing international claims against host States
when a genuine need arises.
238. Bjorklund, supra note 39, at 285.

239. Carbrera Diaz, supra note 13; Venezuela Surprises the Netherlands with
Termination Notice for BIT; Treaty Has Been Used by Many Investors to “Route”
Investments into Venezuela, supra note 13.
B. Local Remedies Are Also Potentially Relevant to Treaty Claims

Challenging Reviewable Administrative Conduct
Several of the Local Remedies Cases rejected treaty claims

based on administrative conduct, under circumstances in which the
claimants could have sought review of the conduct by a higher ad-
ministrative or judicial authority, but failed to do so. As explained
more fully below, these cases have received a mixed reception
among scholars, but in my view there is a sound basis in law and pol-
icy for treating local remedies as relevant to certain specific claims
challenging administrative conduct.
Schreuer is among the critics of Generation Ukraine and its
progeny. While he accepts that “a violation of substantive interna-
tional standards has occurred only after redress has been sought ex-
haustively through the local courts . . . in the [specific] context of an
alleged denial of justice[,]” he argues that it is inappropriate to fault
investors on the merits for not pursuing local remedies in response to
non-judicial conduct.240
Schreuer contends that cases like Generation Ukraine im-
properly “reintroduce[] the local remedies rule through the back
door.”241 He adds that while “[i]t is not inherently unreasonable to
require that the investor make some efforts domestically to obtain re-
dress before seizing an international tribunal . . . neither is the domes-
tic remedies rule inherently unreasonable[,]” and yet “[t]he decision
to do away with it in investor-State investment arbitration was made
consciously and for good reasons.”242
It is not clear, however, why it would be acceptable to apply a
substantive local remedies element to denial of justice claims brought
under investment treaties, but not in relation to other claims, such as
those for expropriation or fair and equitable treatment challenging
administrative conduct. If the elimination of the traditional exhaus-
tion of local remedies rule did not dispense with the substantive local
remedies element inherent in denial of justice claims, neither should
it do so with regard to other claims.
As a further critique of Generation Ukraine, Schreuer raises
the specter of a slippery slope, arguing that once a tribunal requires
investors to make some attempt at pursuing local remedies, “it is only
a small step to require that the attempt should not stop at the level of
240. Schreuer, supra note 7, at 14 (emphasis added).

241. Id. at 15.
242. Id. at 16.
the lowest court. Once we require that reasonable appeals be taken

we are close to demanding that these be exhaustive.”243 In other
words, Schreuer is concerned that arbitrators will be unable to apply
a substantive local remedies requirement with sufficient restraint and
flexibility, and will effectively require strict exhaustion.
This is a valid concern, particularly in light of the rigidity
with which the tribunal in Loewen applied the local remedies re-
quirement in that case. Nevertheless, Schreuer himself has demon-
strated that a more measured approach is possible in practice, given
that the tribunal on which he sat in Saipem concluded that the claim-
ant had adequately pursued local remedies despite having not fully
exhausted its appeals.244 Tribunals in future cases would be well ad-
vised to follow that example.
Other scholars have found some merit in the approach of
Generation Ukraine and similar cases. In an article that touches
briefly on some of the early Local Remedies Cases, Muchlinski ech-
oes the concerns expressed by Schreuer, but also acknowledges that
“the inclusion of the need to use local remedies can help to strike a
balance between the rights of the investor and the right of the host
country to regulate the investment[.]”245 He adds, moreover, that
“[p]rovided the host country can offer reliable and effective dispute
settlement systems it may be in the long-term interests of both parties
to have recourse to local courts and tribunals first.”246
In addition, Dodge has asserted that “there seems little reason
to distinguish court judgments from other measures with respect to
exhaustion[,]” given that local remedies are often available in re-
sponse to such measures.247
I agree with Dodge’s observation, at least to the extent it re-
lates to reviewable administrative decisions.248 In other words, I see
243. Id. at 15.

244. See supra Part IV.A.; see also Saipem S.p.A. v. The People’s Republic of Bangl.,
ICSID Case No. ARB/05/07, Award, ¶ 183, (June 30, 2009), http://ita.law.uvic.ca/
documents/SaipemBangladeshAwardJune3009_002.pdf.
245. Muchlinski, supra note 222, at 555.
246. Id.
247. Dodge, supra note 11, at 575–76.
248. It has been argued that certain types of governmental action (such as a decree of
the highest executive or a law enacted by the legislature) are properly distinguishable from
appealable judicial or administrative decisions, in the sense that any attempt to reverse or
overturn the former can be considered presumptively futile. See, e.g., AMERASINGHE, supra
note 2, at 208 (asserting that local remedies would be “obviously futile” and would not have
to be pursued “where it is clear that a national law justifying the acts of which the alien
no reason to distinguish between claims based on appealable judicial

decisions, on the one hand, and those based on appealable adminis-
trative decisions, on the other. To the contrary, there are several rea-
sons for treating these as essentially equivalent in this context.
First, in many countries administrative agencies serve func-
tions similar to courts of first instance. They may identify and adju- 功能很像
dicate alleged violations of regulations and take action adverse to the
investor if violations are found (as in Helnan).249 They may decide
whether the investor is entitled to a particular permit, tax refund or
other legal benefit, based on their interpretation of the law (as in
Generation Ukraine, EnCana and MCI). In the process of making
such decisions, administrative officials will typically collect evi-
dence, make findings of fact, interpret the law and apply the law to
the facts as they perceive them—just as a court does in proceedings
before it.
Second, the decisions of administrative officials are frequent-
ly subject to review by a higher authority, like the decisions of lower
courts. Just as “a trial judge who misconducts himself simply does
not commit a fully constituted international delict imputable to the
state[,]”250 so, arguably, an administrative official does not complete
a denial of fair and equitable treatment or similar treaty breach by
engaging in misconduct, so long as the decision is reviewable. This
could potentially include even a Minister, so long as the decision in
question is subject to readily available judicial review.
Third, the policy considerations that support encouraging re-
course to local remedies in response to judicial decisions apply equal-
ly in the context of administrative decisions. Specifically, it would
likely result in more administrative decisions being corrected domes-
tically, thereby reducing the incidence of claims brought to interna-
complains would have to be applied by the local organs or courts,” and giving as an example
a case seeking to challenge a taking explicitly authorized by statute); PAULSSON, supra note
171, at 113–15 (asserting that it would be inappropriate to require the pursuit of local
remedies if an executive decree forbids suits of that nature); Bryan W. Blades, The
Exhausting Question of Local Remedies: Expropriation Under NAFTA Chapter 11, 8 OR.
REV. INT’L L. 31, 109 (2006) (“Requiring appeal of non-judicial measures at the domestic
level may be further supported by the recognition that there is a substantive difference
between a decision made by, say, an administrative state environmental regulatory body that
is subject to appeal, and one made by executive fiat or through unappealable governmental
prerogative.”).
249. See Helnan Int’l Hotels A/S v. Arab Republic of Egypt, ICSID Case No.
ARB/05/19, Award, ¶ 148 (July 3, 2008), http://ita.law.uvic.ca/documents/Helnan
Award.pdf.
250. PAULSSON, supra note 171, at 109.
tional arbitration. Moreover, if investors routinely rushed to interna-

tional arbitration upon the issuance of administrative decisions, this
could have a chilling effect on administrative functions. An adminis-
trative official may be reluctant to find against a foreign investor (for
example, in a proceeding to determine whether the investor has vio-
lated a regulatory law, and, if so, what sanction should be imposed),
even if she genuinely believed that the investor violated the law.
Such reluctance could follow from the knowledge that any decision
adverse to the investor may trigger a high-profile international dis-
pute. Such an administrative official would likely feel more com-
fortable exercising her powers if she understood that the “safety net”
of review by a domestic authority was available. And there are obvi-
ous benefits to encouraging administrative officials to perform their
regulatory functions in a vigorous manner, particularly when those
functions are intended to protect the environment or public health.251
Encouraging recourse to local remedies in response to an im-
pugned administrative decision offers a further policy benefit as well:
it would give the tribunal in a treaty-based arbitration the benefit of
the conclusions of the higher domestic authority on issues of local
law.252 Local officials are generally the best equipped to resolve
complicated questions of local law, and their input may be extremely
helpful (even if, as explained in Part III.D, below, their rulings
should not be treated as binding on a treaty tribunal).
Similar policy considerations have been cited in the U.S. do-
mestic context to justify a limited requirement of exhaustion of ad-
ministrative remedies prior to seeking judicial review of an adminis-
trative act. Namely, the U.S. Supreme Court has observed that
benefits of the exhaustion requirement include (i) giving the relevant
agency “an opportunity to correct its own mistakes” and (ii)
produc[ing] a useful record for subsequent judicial consideration, es-
pecially in a complex or technical factual context.”253
251. See Feldman v. Mex., ICSID Case No. ARB(AF)/99/1, Award on the Merits, ¶ 103
(Dec. 16, 2002) 7 ICSID Rep. 341 (2005) (“[G]overnments must be free to act in the broader
public interest through protection of the environment, new or modified tax regimes, the
granting or withdrawal of government subsidies, reductions or increases in tariff levels,
imposition of zoning restrictions and the like,” without the threat of having to pay
compensation to investors when they do so.).
252. A related point was made in Case of Certain Norwegian Loans, (Fr. v. Nor.),
Judgment, 1957 I.C.J. 9, 97 (July 6) (dissenting opinion of Judge Read) (“It is important to
obtain the ruling of the local courts with regard to the issues of fact and law involved, before
the international aspects are dealt with by an international tribunal.”).
253. McCarthy v. Madigan, 503 U.S. 140, 145–46 (1992), superseded by statute on
other grounds, 42 U.S.C. § 1997e (1996); see also Liu v. Waters, 55 F.3d 421, 424 (9th Cir.
C. Local Remedies Are Sometimes (But Not Always) Relevant to

Claims Predicated on a Breach of Contract by the Host State
As discussed above in Parts II.C and F, the tribunals in Waste

Management II and Parkerings both held that fair and equitable
treatment and expropriation claims were defective on the merits be-
cause the claimants failed to adequately pursue contract claims do-
mestically before asserting, at the international level, the treaty
claims predicated on breaches of contract. These tribunals reasoned
that such claims could not be stated so long as the Respondent States
had acted in good faith in their capacity as contracting parties and
had in no way foreclosed the possibility of pursuing redress domesti-
cally. Thus, effectively, the only wrongdoing alleged was that the
States failed to fulfill their contractual obligations.
There is wide support in commentary and case law for this
approach. In Siemens v. Argentina, the tribunal cited a multitude of
cases that have addressed this issue, and have held consistently that
“for the behavior of the State as party to a contract to be considered a
breach of an investment treaty, such behavior must be beyond that
which an ordinary contracting party could adopt and involve State in-
terference with the operation of the contract.”254
To these authorities must be added the more recent decision
in Glamis Gold v. United States, in which the tribunal accepted the
United States’ position “that mere contract breach, without some-
thing further such as denial of justice or discrimination, normally will
not suffice to establish a breach of” the fair and equitable treatment
obligation.255
A similar notion is reflected in Section 712(2) of the Restate-
ment (Third) of the Foreign Relations Law of the United States,
which provides that a State’s breach of contract gives rise to interna-
tional responsibility only if additional wrongful elements are present:
1995) (“The exhaustion requirement avoids ‘premature interference with the agency’s
processes’ and helps to compile a full judicial record.” (quoting Rogue-Carranza v. I.N.S.,
778 F.2d 1373, 1374 (9th Cir. 1985))).
254. Siemens A.G. v. Arg. Republic, ICSID Case No. ARB/02/8, Award, ¶ 248 (Feb. 6,
2007), http://ita.law.uvic.ca/documents/Siemens-Argentina-Award.pdf. The tribunal went
on to hold that the respondent State in that particular case had violated the treaty because it
did more than simply breach the contract; it had issued executive decrees in its capacity as a
sovereign, at the highest levels of government, which declared a fiscal emergency and
terminated the contract. Id. ¶ 272.
255. Glamis Gold, Ltd. v. U. S., UNCITRAL Arbitration, Award, ¶ 620 (June 8, 2009).
A state is responsible under international law for inju-

ry resulting from:
...
(2) a repudiation or breach by the state of a con-
tract with a national of another state
(a) where the repudiation or breach is (i) discrimi-
natory; or (ii) motivated by noncommercial considera-
tions, and compensatory damages are not paid; or
(b) where the national is not given an adequate fo-
rum to determine his claim of repudiation or breach,
or is not compensated for any repudiation or breach
determined to have occurred.256
Schreuer has also endorsed the notion that a violation of fair

and equitable treatment requires something more than a simple
breach of contract:
A simple breach of contract is part of normal business
risk, and an investor may have to anticipate such an
occurrence without recourse to a treaty remedy . . . .
On the other hand, a wilful refusal by a government
authority to abide by its contractual obligations, abuse
of government authority to evade agreements with
foreign investors and action in bad faith in the course
of contractual performance may well lead to a finding
that the standard of fair and equitable treatment has
been breached.257
I concur in the view that an investor cannot establish a breach

of fair and equitable treatment or an expropriation simply by identify-
ing a contractual breach by the host State. If that were possible, then
host States would be effectively punished for their status as sover-
eigns, and would be hampered in their ability to protect the public in-
terest. This would unfairly discourage States from taking positions to
which they feel entitled under the contract, given that treaty-based
arbitrations have a higher profile than contractual disputes, and there
is arguably more stigma associated with a violation of international
law than with a mere breach of contract. Such a result would be per-
verse. From a policy standpoint, States should be encouraged to ex-
256. RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 712(2) (1986).

257. Christoph Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J.
WORLD INVEST. & TRADE 357, 380 (2005).
ercise their contractual rights vigorously in service of the public in-

terest, not discouraged. It follows that if the only wrongful conduct
by the host State that the investor can identify is a failure to fulfill
contractual obligations, it would generally behoove the investor to
pursue a claim in the contractual forum and to refrain from asserting
substantive treaty claims unless and until the pursuit of a claim in the
contractual forum has been stymied.
It is important to emphasize, however, that neither the Local
Remedies Cases nor the other authorities discussed above suggest
that an investor always has to assert a breach of contract claim in na-
tional courts before pursuing treaty-based arbitration if the investor
or its subsidiary has a contract with the host State that refers disputes
to such courts. That proposition was rejected by the ad hoc Commit-
tee in the Vivendi I Annulment Decision, and none of the above-
referenced authorities is in any way inconsistent with that decision.
In Vivendi I, the ad hoc Committee held that the claimants were free
to pursue claims for denial of fair and equitable treatment and expro-
priation in a treaty-based arbitration without prior recourse to nation-
al courts—despite the existence of a forum selection clause that re-
ferred disputes to such courts—because the claims to be asserted
internationally involved sovereign acts of a nature that no private par-
ty could have committed, and therefore could potentially be con-
strued as treaty breaches, as distinct from contractual breaches.258
For the reasons discussed above in Parts III.A and B, howev-
er, even in such cases the claimant may be unable to prevail on the
merits of its treaty claims if the extra-contractual conduct of which
the claimant complains consisted of a judicial or administrative deci-
sion that could have been appealed but was never appealed.
In addition, the Local Remedies Cases and the other authori-
ties discussed above have suggested that an investor need not pursue
a contract claim in national courts prior to initiating treaty-based arbi-
258. Compañia de Aguas del Aconquija S.A. v. Arg. Republic, ICSID Case No.
ARB/97/3, Decision on Annulment, ¶¶ 98–101 (July 3, 2002) 41 I.L.M. 1135 (2002) (“In a
case where the essential basis of a claim brought before an international tribunal is a breach
of contract, the tribunal will give effect to any valid choice of forum clause in the contract . .
. . On the other hand, where ‘the fundamental basis of the claim’ is a treaty laying down an
independent standard . . . the existence of an exclusive jurisdiction clause in a contract
between the claimant and the respondent state or one of its subdivisions cannot operate as a
bar to the application of the treaty standard.”). Specifically, the alleged acts included
incitement of citizens by governmental officials not to pay their water bills, unauthorized
changes by regulatory officials to tariff rates and unilateral changes by the government to the
parties’ agreement. Id. ¶ 106.
tration, even if the claim is predicated in part on a breach of contract,

if:
 The host State’s conduct was discriminatory;259

 The host State has failed to give the investor an
adequate domestic forum;260
 The relevant BIT authorizes the investor to pur-
sue contract claims before an international tri-
bunal notwithstanding any forum selection
clause that refers disputes to local courts;261
 The treaty contains an “umbrella clause,” i.e., a
provision pursuant to which the host State prom-
ises to observe obligations it has entered into
with respect to an investment.262
259. RESTATEMENT (THIRD) FOREIGN RELATIONS LAW, supra note 256, § 712(2).
260. Id.
261. The tribunals in Parkerings and Pantechniki both interpreted the applicable BIT as
providing such an option, even if it was not available in those particular cases because (i) the
claimant in Parkerings was not a party to the relevant contract, see supra Part III.F, and (ii)
the claimant in Pantechniki had already asserted its contract claim before a domestic forum,
see supra Part III.I.
262. The tribunal in Pantechniki asserted that if there had been an umbrella clause in the
BIT, the claimant may have been able to pursue redress for the alleged breach of contract
before an international tribunal, without having to pursue recourse first before national
courts. See supra Part III.I. Yet other tribunals have interpreted umbrella clauses more
narrowly, so as not to authorize the pursuit of contract claims before treaty tribunals, and the
nature of umbrella clauses, and their interplay with forum selection clauses, remain matters
of considerable controversy. See Stephan W. Schill, Enabling Private Ordering: Function,
Scope and Effect of Umbrella Clauses in International Investment Treaties, 18 MINN. J.
INT’L L. 1, 5–7 (2009) (noting that the application of umbrella clauses “has turned into one
of the most contentious issues of international investment law” and summarizing competing
interpretations). Considerations of economy prevent me from weighing in on these
controversies in this paper, but suffice it to say that in a given case, if the relevant BIT
contains an umbrella clause, the investor may take the position that it provides a basis to
assert contract-based claims before an international tribunal, without having first raised them
before a national court. For a general discussion of umbrella clauses, see DOLZER &
SCHREUER, supra note 232, at 153.
D. If the Investor Has Pursued Local Remedies, a Treaty Tribunal

Should Show Only Limited Deference to Adverse Findings of
National Courts
A fourth principle distillable from certain of the Local Reme-

dies Cases is that if an investor or its local affiliate has pursued local
remedies before initiating international arbitration, the tribunal
should give significant deference to any determinations made by na-
tional courts. Specifically, the tribunal should defer to those findings
unless the claimant has demonstrated that those courts committed a
denial of justice.
This proposition has drawn both criticism and praise in the
scholarly community. Dodge has argued that decisions like those in
Azinian and Waste Management II have effectively treated national
court decisions as res judicata, and that this is inappropriate because
it discourages investors from taking the laudable step of pursuing lo-
cal remedies:
A rule granting res judicata effect to the decision of a
domestic court is likely to deter foreign investors from
trying to resolve their disputes with the host State in
domestic court, since they can reasonably expect such
courts to be less impartial than a NAFTA tribunal.
Such a result would deprive the host State of an op-
portunity to redress the alleged injury before the dis-
pute is elevated to the international plane.263
He adds that the view that “domestic court decisions can only
be questioned if they constitute a denial of justice” should be rejected
“in favor of a rule that permits the relitigation of the same issues de-
cided by domestic courts.”264
Professor Robert Ahdieh has likewise identified the tendency
of NAFTA tribunals to defer to national court decisions absent a de-
nial of justice,265 but, unlike Dodge, is not troubled by it. To the con-
trary, he asserts that such deference serves to enhance the legitimacy
of treaty-based arbitration, by acknowledging the independence, au-
263. Dodge, supra note 11, at 381.

264. Id. at 383.
265. See Robert B. Ahdieh, Between Dialogue and Decree: International Review of
National Courts, 79 N.Y.U. L. REV. 2029, 2114, 2116–17 (2004).
tonomy and power of national courts.266 He does acknowledge, how-

ever, that at least in extreme cases a NAFTA tribunal could reject the
determinations of national courts and suggests that this could stimu-
late constructive innovation at the domestic level.267 Ahdieh de-
scribes the relationship between NAFTA tribunals and national
courts as one of “dialectical review,” involving “a pattern of judicial
review, yet one with dialogue at its core.”268 He adds that while the
decisions of NAFTA tribunals may prompt reform at the domestic
level, such tribunals may themselves be influenced, in turn, by the re-
sponses of national courts.269
I find merit in the observations of both Dodge and Ahdieh,
and would suggest an approach that takes into account points raised
by each. Specifically, I propose that tribunals treat the findings of
national courts as presumptively correct, and permit that presumption
to be overcome only if the claimant presents clear and convincing ev-
idence that the findings were erroneous. This would accord a degree
of deference to national courts when local remedies have been pur-
sued (thereby enhancing the legitimacy of treaty-based arbitration
from the perspective of host States, as sought by Ahdieh), but avoid
unduly discouraging the pursuit of local remedies in the first place
(as recommended by Dodge).
A “clear and convincing evidence” standard is employed in a
number of contexts in Anglo-American jurisprudence. The U.S. Su-
preme Court has described it as requiring the decision-maker to pos-
sess “an abiding conviction” that the correctness of a disputed propo-
266. Id. at 2093 (“Such intersystemic review may depend for its legitimacy—and
consequently its functionality—on some affirmation of the independence, autonomy, and
power of the system under review.” (italics omitted)). For a similar view, see Benjamin
Klafter, Comment, International Commercial Arbitration as Appellate Review: NAFTA’s
Chapter 11, Exhaustion of Local Remedies and Res Judicata, 12 U.C. DAVIS J. INT’L L. &
POL’Y 409, 437 (2006). In this Comment, Klafter asserts that if NAFTA tribunals could
readily reject the findings of national courts, this would carry a “political cost,” and invites
the reader to consider the adverse reaction that would follow in the United States if a
NAFTA tribunal rejected findings made by the U.S. Supreme Court. Klafter points out that
the NAFTA cases in which investors challenged the integrity of U.S. court decisions have
caused some “to fear for the sovereignty of the U.S. judiciary.” Klafter, supra at 409–10;
see also Rubins, supra note 14, at 31–32 (observing that when the Loewen tribunal criticized
Mississippi courts’ treatment of the Canadian claimants, this sparked outrage in the United
States and led some to call for a U.S. withdrawal from that treaty).
267. Ahdieh, supra note 265, at 2064, 2068.
268. Id. at 2034.
269. Id. at 2078–79 .
sition is “highly probable.”270 Other courts have said that this stand-
ard forbids the awarding of relief if the evidence proffered is loose,
equivocal or contradictory.271 If applied in the present context, such
a standard would call for an international tribunal to defer to findings
of a national court unless convinced, through reliable evidence, that it
was “highly probable” that they were erroneous.
To understand why such a standard would be appropriate in
this context, it is useful to consider the historical origin of the stand-
ard, and the manner in which it is employed today in U.S. litigation.
The clear and convincing evidence standard was developed
by the Court of Chancery in England during the eighteenth centu-
ry.272 That court was charged with adjudicating claims founded in
notions of fairness and equity rather than in law, and was empowered
to grant non-monetary forms of relief not available elsewhere—such
as injunctions, enforcement of trusts and specific performance—
which could have a more serious impact on the parties than a mere
award of money.273 Because of the looser standards associated with
such claims and the extraordinary nature of the relief available, the
court came to require a showing of “clear and convincing evidence,”
rather than the mere “preponderance of the evidence” required in
other contexts.274
270. Colorado v. New Mexico, 467 U.S. 310, 316 (1984).

271. See, e.g., Welles v. Acad. of Motion Picture Arts & Scis., 2004 U.S. Dist. LEXIS
5756 at *9 (C.D. Cal., Mar. 4, 2004) (contrasting “clear and convincing evidence” with
evidence that is “loose, equivocal or contradictory”); George Backer Mgmt. Corp. v. Acme
Quilting Co., 46 N.Y.2d 211, 220 (1978) (observing that the clear and convincing evidence
standard operates “as a weighty caution upon the minds of all judges, and it forbids relief
whenever the evidence is loose, equivocal or contradictory” (quoting Southard v. Curley,
134 N.Y. 148, 151(1892) (internal quotation marks omitted)).
272. Samir D. Parikh, The Improper Application of the Clear and Convincing Standard
of Proof: Are Bankruptcy Courts Distorting Accepted Risk Allocation Schemes?, 78 U. CIN.
L. REV. 271, 278 (2009).
273. Id. at 278–79.
274. See Note, Appellate Review in the Federal Courts of Findings Requiring More
Than a Preponderance of the Evidence, 60 HARV. L. REV. 111, 112 (1946) (“The
requirement in civil actions of more than a preponderance of the evidence was first applied
in equity to claims which experience had shown to be inherently subject to fabrication, lapse
of memory, or the flexibility of the conscience . . . . [T]he chancery courts compromised
between becoming a mecca for the trumped-up prayer for relief and refusing altogether to
mitigate the stern fulfillment of these policies in the law courts, by granting relief only in
cases where the evidence in support of this type of claim was ‘clear and convincing.’”
(footnotes omitted)). See also Herman & MacLean v. Huddleston, 459 U.S. 375, 389 n.27
(1983).
U.S. courts inherited this approach from their English prede-

cessors, and long applied this standard when acting as courts of equi-
ty.275 Even today, after the merger of law and equity, courts in the
United States continue to apply a clear and convincing evidence
standard in a variety of circumstances in which important interests
are implicated beyond a mere entitlement to a sum of money.276
Important non-monetary considerations similarly come into
play when an investor asks an international tribunal to reject the find-
ings of a national court. If the tribunal refuses to credit such a deci-
sion, this can be perceived as unseemly “second-guessing” of nation-
al courts and—as Ahdieh has noted277—this can undermine the
legitimacy of treaty-based arbitration within the host State. Such a
situation can therefore be said to implicate interests beyond the
claimant’s alleged entitlement to a sum of money, and warrants
heightened caution on the part of tribunals.
In addition, national courts are in the best position (at least as
a general rule) to interpret and apply their own laws. They may also
be better suited than an international tribunal to make findings of fact
if they have greater access to evidence (e.g., subpoena power over
witnesses not subject to an international tribunal’s jurisdiction) and
are able to review documents and examine witnesses in the local lan-
guage. These factors provide further reasons that tribunals should
not dismiss findings of national courts lightly.
275. See JOHN G. HENDERSON, CHANCERY PRACTICE 490 (1904) (observing at the
beginning of the twentieth century that “[t]here are many cases in which it is held that it is
insufficient for the party upon whom the burden of proof rests to prove his case by a bare
preponderance of the evidence” and identifying several circumstances under which a party
who “seeks the aid of a court of equity” must present “clear and convincing proof”).
276. See Addington v. Texas, 441 U.S. 418, 424 (1979) (explaining that the use of the
clear and convincing evidence standard in certain civil cases is justified because “the
interests at stake in those cases are deemed to be more substantial than mere loss of money”
or because the standard is necessary “to protect particularly important individual interests”).
Contexts in which the standard is applied by U.S. courts include, for example, claims for
civil fraud (which by their nature impugn the character of the defendant), Crigger v.
Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006); attempts to invalidate a patent or
trademark (which threaten to deprive the holder of a property right previously granted by the
government), Ultimax Cement Mfg. Corp. v. CTS Cement Mfg. Corp., 587 F.3d 1339, 1351
(Fed. Cir. 2009); claims to establish a physical disability (which would result in a perpetual
entitlement to governmental benefits), Tommasetti v. Astrue, 533 F.3d 1035, 1039 (9th Cir.
2008); and claims to revoke child custody rights (which threaten to sever the ties between
parent and child), Santosky v. Kramer, 455 U.S. 745, 748 (1982).
277. Ahdieh, supra note 265, at 2093.
Furthermore, many investment treaty standards are rather

vague, much like those employed by courts of equity in the Anglo-
American tradition. Indeed, the “fair and equitable treatment” obli-
gation expressly encompasses the amorphous concepts of “fairness”
and “equity” with which the Court of Chancery in England was grap-
pling when it devised the clear and convincing evidence standard in
the first place.
Finally, a heightened standard of proof would discourage at-
tempts by an investor to obtain a “second bite at the apple” by need-
lessly re-litigating issues previously adjudicated elsewhere.
Yet tribunals should take care in selecting a heightened stand-
ard of proof to apply. A clear and convincing evidence standard is
preferable to a denial of justice standard, for several reasons.
First, a clear and convincing evidence standard would avoid
the need for the tribunal to cast aspersions on the character of local
judicial officials, which they would be understandably reluctant to
do, and which could have an inflammatory effect in the host State.
Whereas a finding of denial of justice would require the tribunal to
conclude that local judicial officials acted with malice or otherwise
engaged in some form of misconduct or gross error, no such pejora-
tive finding would be necessary for a claimant to prevail under a
clear and convincing evidence standard.
Second, a clear and convincing evidence standard would give
a claimant much more realistic prospects for success in cases in
which it has pursued local remedies. So long as the claimant could
make a strong showing that the relevant court decision was errone-
ous, the tribunal would be free to disregard it. By contrast, denial of
justice (as interpreted by some tribunals) requires a finding that the
relevant court refused to entertain the investor’s suit, denied the in-
vestor fundamental due process or committed a clear and malicious
misapplication of the law.278 It will often be impossible to meet this
standard, because the court may have decided the investor’s case
with perfect dispatch and given it ample opportunity to present its
case, but simply issued a decision that was mistaken. Indeed, even if
malice did enter into a particular court decision, it would be excep-
tionally difficult to prove it. Accordingly, if the tribunal limits itself
to considering whether the national court committed a denial of jus-
tice, this will effectively insulate the host State from liability in most
cases. Such an approach arguably tips the balance of interests too far
in favor of host States and therefore risks undermining the legitimacy
278. See Azinian, Davitian, & Baca v. Mex., ICSID Case No. ARB(AF)/97/2, Award,
¶¶ 102–03 (Nov. 1, 1999), 5 ICSID Rep. 272 (2002).
of investment treaty arbitration from the perspective of investors and

capital-exporting States.
The above having been said, it is important to emphasize that
in many cases an international tribunal will be able to dispose of trea-
ty claims without rejecting or endorsing findings by national courts,
even when the investor has pursued local remedies. Imagine, for ex-
ample, that a country’s law authorizes discrimination against compa-
nies of the claimant’s nationality or ethnicity, or provides for expro-
priation without compensation, and a national court has upheld and
enforced the law in response to a challenge brought by the claimant.
In such a case, a subsequently-seized international tribunal could
hold the host State liable for breach of a BIT based on the content of
the law, without having to evaluate the propriety or bona fides of the
national court decision. Tribunals should readily take such opportu-
nities, and refrain from revisiting issues adjudicated by national
courts unless it is strictly necessary.
Such a revisiting of issues might be necessary if, for example,
an investor asserting an expropriation claim at the international level
first sought compensation in a national court, and that court adjudi-
cated a dispute over whether the claimant was the true owner of the
property at issue. In the subsequent treaty-based arbitration, the tri-
bunal would likely need to consider that issue (i.e., whether the
claimant was the true owner of the property), as a predicate to deter-
mining the expropriation claim. While the international tribunal in
such a situation should not consider itself bound by the findings of
the national court, some deference (in the form of a clear and con-
vincing evidence standard) would be appropriate, for the reasons ar-
ticulated above.
The Saipem award serves as an example of a decision that is
consistent with the approach recommended herein, even though the
tribunal did not purport to apply a clear and convincing evidence
standard. The tribunal treated the decisions of Bangladeshi courts
with respect and seems to have been prepared to give them the bene-
fit of the doubt in a close case, but found itself faced with evidence
“convincingly stressed by Saipem” that certain determinations
“lacked any justification” and were “unfounded.”279 With regard to
one particular determination, the tribunal avoided passing on its cor-
rectness as a matter of Bangladeshi law, and instead noted that while
the decision may have been “understandable under domestic law, the
Award, ¶¶ 155–73 (June 30, 2009), http://ita.law.uvic.ca/documents/Saipem
BangladeshAwardJune3009_002.pdf.
fact remains that under international law it is flawed.”280 In other

words, to the extent possible the tribunal avoided questioning nation-
al court decisions as accurate statements of local law, but, when re-
quired to reach an independent view on issues considered by national
courts, was prepared to reject the courts’ findings upon a showing of
“convincing” evidence that they were unfounded.
E. Fork-in-the-Road Clauses Should Be Interpreted Narrowly, So

That They Would Rarely Be Triggered by the Pursuit of Local
Remedies
The tribunal in Pantechniki rejected one of the claims assert-

ed by the investor (that for breach of contract) based on its conclu-
sion that it was barred by a fork-in-the-road clause in the relevant
BIT.281 That clause, like others of its kind, required the investor to
make an election among the fora available to hear the relevant in-
vestment dispute, and thereafter refrain from re-litigating the dispute
in a second forum.282
It is important to emphasize, however, that Pantechniki pre-
sented unusual facts, in that the claimant was seeking to submit the
very same claim that it had asserted domestically, against the very
same party. In most cases in which local remedies have been pur-
sued, investors are able to avoid the preclusive effect of a fork-in-the-
road clause because the claims they seek to assert at the international
level are distinct from those previously litigated. 283 In particular,
claims asserted domestically are usually founded in contract or na-
280. Id. ¶ 173 (emphasis added).

281. Pantechniki S.A. Contractors & Eng’rs v. The Republic of Alb., ICSID Case No.
ARB/07/21, Award, ¶¶ 67, 105 (July 30, 2009), http://ita.law.uvic.ca/documents/
PantechnikiAward.pdf.
282. See MCLACHLAN, SHORE & WEINIGER, supra note 7, at 54–55.
283. See CMS Gas Transmission Co. v. The Republic of Arg., ICSID Case No.
ARB/01/8, Decision on Jurisdiction, ¶ 80 (July 1, 2003) 7 ICSID Rep. 492 (2003) (“[A]s
contract claims are different from treaty claims, even if there had been or there currently was
a recourse to the local courts for breach of contract, this would not have prevented
submission of the treaty claim to arbitration.”); PAULSSON, supra note 171, at 127 (“Many
investment treaties make it clear that a foreign claimant must elect his remedy, and that such
an election is irreversible. This requirement does not prevent the complainant from pursuing
separate causes of action before different fora.”); Schreuer, supra note 9, at 304 (“If the
domestic proceedings concerned only claims under the contract and the international
tribunal’s jurisdiction was restricted to BIT claims there would be no overlap. In other
words, the domestic and the international proceedings would not concern the same
dispute.”).
tional law, whereas those asserted internationally are usually founded

in substantive provisions of the treaty or in international law general-
ly, which lays down an independent standard.284 For this reason,
even in Pantechniki only one of the claimant’s claims was rejected
based on the fork-in-the-road clause: that for breach of contract. The
other claims—for full protection and security and denial of fair and
equitable treatment—remained open, even if the tribunal ultimately
rejected them on other grounds.
Similarly, if an investor decides to invoke a domestic mecha-
nism for claiming compensation for expropriated property prior to
filing a treaty-based arbitration, this should not be viewed as identical
to an expropriation claim that might subsequently be asserted under a
BIT, because the former is founded in national law and the latter in
the treaty. Hence the pursuit of such a local remedy would in no way
preclude the subsequent filing of an expropriation claim under a trea-
ty.
The distinction between domestic law claims and treaty
claims is critical to the viability of the analytical framework endorsed
in this Article. Were the two types of claims conflated, or were fork-
in-the-road clauses interpreted expansively, then the decision to pur-
sue local remedies could be disastrous to the investor. At least one
tribunal has failed to understand this distinction, leading it to assume
that any pursuit of local remedies would preclude a subsequent treaty
arbitration by virtue of a fork-in-the-road clause. Fortunately, how-
ever, that case seems to be an anomaly, and that aspect of the deci-
sion was in any event obiter dictum.285
CONCLUSION
To summarize, there is a sound basis in law and policy for

several of the key propositions articulated in the Local Remedies
Cases, while others would benefit from further refinement.
Specifically, it is proper to consider local remedies as relevant
to the substance of certain treaty claims, including those for fair and
284. For a discussion of the substantive distinction between contract and treaty claims,
see Schreuer, supra note 9, at 301–08; see also Compañia de Aguas del Aconquija S.A. v.
Arg. Republic, ICSID Case No. ARB/97/3, Decision on Annulment, ¶ 101 (July 3, 2002) 41
I.L.M. 1135 (2002).
285. Mytilineos Holdings SA v. The State Union of Serb. & Montenegro, UNCITRAL
Arbitration, Partial Award on Jurisdiction, ¶ 221 (Sept. 8, 2006), http://ita.law.uvic.ca/
documents/MytilineosPartialAward.pdf.
equitable treatment, effective means and expropriation, at least to the

extent they concern appealable judicial or administrative decisions.
Yet even when local remedies are relevant to the merits in a
given case, international tribunals should never expect investors to go
to unreasonable lengths in pursuing them, as the tribunal in Loewen
arguably did. Nor should they give such extreme deference to the
findings of national courts that they will be accepted unless they rise
to the level of a denial of justice. When a tribunal is required to re-
visit in a treaty-based arbitration issues previously addressed by a na-
tional court, it should consider itself free to reach a different conclu-
sion, so long as the claimant presents clear and convincing evidence
that the national court’s decision was erroneous. Moreover, tribunals
should interpret fork-in-the-road clauses narrowly, so as to give in-
vestors maximum flexibility in pursuing local remedies without
waiving their right to treaty-based arbitration.
I submit that by following this approach tribunals would
strike a better balance between the investor protections enshrined in
investment treaties and the sovereignty of host States. This approach
would tend to discourage unnecessary recourse to international pro-
ceedings and afford the host State the opportunity to correct errors or
misdeeds that may have been committed by its lower agencies or of-
ficials in the performance of their governmental functions. It would
also encourage host States to establish effective and efficient means
for resolving investor complaints in the first place, while giving offi-
cials a freer hand in performing their judicial and administrative
functions. In addition, it would enhance the legitimacy of interna-
tional arbitration as a means of dispute resolution in cases arising
from foreign investments, and address some of the concerns that have
been expressed by critics of investor-State arbitration, particularly in
developing countries.
Importantly, however, this approach would also give inves-
tors ample opportunity to exit the domestic arena when the need aris-
es, in order to obtain an independent assessment of host States’ con-
duct against the standards of international law. This is, after all, a
central purpose of investment treaties, and one of which tribunals
should never lose sight.

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Lewis & Clark Law School

Legal Research Paper Series

Paper No. 2011- 15

Striking a Balance Between Investor

An index to the papers in the

Striking a Balance Between Investor

Investment treaty arbitration is a relatively recent in-

202 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

tinct aspects of this line of authority and evaluates

2011] STRIKING A BALANCE 203

1. International Law and Domestic Analogs Confirm

204 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

Of the many issues that remain unsettled in the relatively

1. By the term “local remedies,” I refer to any forms of redress available to an

2011] STRIKING A BALANCE 205

fer to these cases herein collectively as the “Local Remedies Cases.”)

Case No. ARB/04/19, Award (Aug. 18, 2008), http://ita.law.uvic.ca/documents/

206 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

2011] STRIKING A BALANCE 207

This Article undertakes the first comprehensive examination

208 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

United States, some have called for a withdrawal from NAFTA or

2011] STRIKING A BALANCE 209

I. THE EXHAUSTION OF LOCAL REMEDIES RULE AND ITS GENERAL

A. The Nature and Purpose of the Rule

In the words of the International Court of Justice (ICJ), “[t]he

15. Interhandel (Switz. v. U.S.), 1959 I.C.J. 6, 27 (Mar. 21).

210 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

effective,” or if its pursuit would be “obviously futile,”19 such as if

2011] STRIKING A BALANCE 211

fore the Permanent Court of International Justice (PCIJ), alleging that

B. The Rule’s Abrogation by Modern Investment Accords

Although the exhaustion of local remedies rule is well estab-

25. AMERASINGHE, supra note 2, at 411.

212 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

NAFTA, the ICSID Convention and most BITs as eliminating it in

29. ICSID Convention, supra note 4, Art. 26.

2011] STRIKING A BALANCE 213

33. ICSID Convention, supra note 4, Art. 26.

214 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

2011] STRIKING A BALANCE 215

NAFTA Chapter 11 claims carry a three-year statute of limitations,

II. THE LOCAL REMEDIES CASES

If one accepts that the ICSID Convention, NAFTA and most

216 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

In the Subparts below I summarize the facts and holdings of

The claimants in this case included a Canadian company, the

2011] STRIKING A BALANCE 217

ing the imminent seizure of their assets and a possible bankruptcy,

50. Id. ¶¶ 7, 48.

218 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

55. Rubins, supra note 14, at 18–19.

2011] STRIKING A BALANCE 219

Only a few months after the merits award in Loewen, a tribu-

60. Loewen Merits Award, ¶ 132.

220 COLUMBIA JOURNAL OF TRANSNATIONAL LAW [49:201

The claimant in Generation Ukraine was a U.S. company that