DISPUTE RESOLUTION IN

INTERNATIONAL INVESTMENT
 State Vs. State Disputes:-
• Diplomatic Protection :-
• Traditional international law --- investors --- did not have
direct access to --- international remedies --- to pursue
claims against foreign states for violation of their rights.
• Investors --- depended on Diplomatic Protection by their
home states.
• In Mavrommatics Palestine Concessions Case --- PCIJ --- held
--- A State is entitled to protect its subjects, when injured by
acts contrary to international law committed by another
State, from whom they have been unable to obtain
satisfaction through the ordinary channels. By taking up the
case of one of its subjects and by resorting to diplomatic
action or international
Judicial proceedings on his behalf, a State is in reality
asserting its own rights - its right to ensure, in the
person of its subjects, respect for the rules of
international law”.
• Diplomatic Protection --- depends --- factors like :-
1) The investor, whether it is an individual or a
corporation, must be a national of the protecting
state.
2)The bond of nationality --- must have existed
continuously from the time of the injury until the
claim is presented, or until the claim is settled.
 3) The investor must have exhausted --- local remedies
in the State that has allegedly committed the violence.
• Usefulness of Diplomatic Protection --- limited --- to
investor as --- no right to Diplomatic Protection, but
depends on the political discretion of his govt.
• Investor may discontinue Diplomatic Protection at
any time.
• Investor may waive the national’s claim or agree to a
reduced settlement.
• The investor ---- never in control of the process.
• Barcelona Traction Case --- held --- “The State
 must be viewed as the sole judge to decide
whether its protection will be granted, to what
extent it will be granted, and when it will cease.
It retains in this respect a discretionary power
the exercise of which may be determined by
considerations of a political or other nature,
unrelated to the particular case. Since the claim
of the State is not identical with that of the
individual or corporate person whose cause is
espoused, the State enjoys complete freedom of
action.”
• Diplomatic protection --- disadvantage --- can
seriously disrupt the international relations of
the States concerned, leading to protracted
disputes.
• Where investor’s state of nationality decides to
exercise D.P.---- negotiation is the primary
method of dispute settlement.
• If negotiations --- turns fruitless --- protecting
state may resort to international adjudication,
including the ICPJ. Eg :- Barcelona Case, the
Diallo Case,etc.
• Right to exercise diplomatic protection --- may
be curtailed by treaty provisions.
• Art. 27 (1) of ICSID Convention ---- provides
--- “where consent to investor --- state
arbitration under the Convention exists, a
contracting state may not give D.P. or bring an
international claim.
• But, under Art. 27 (2) od ICSID Convention ---
doesnot exclude informal diplomatic
exchanges for the sole purpose of facilitating a
settlement of the dispute.
• Any violation of the prohibition to exercise D.P. under
Art. 27 (1) of ICSID Convention would not affect the
jurisdiction of the ICSID tribunal.
• Under ICSID --- Rt. To D.P. continues to exist in favour
of an investor who has prevailed in investor – state
arbitration if the host state fails to comply with the
award.
• Art. 64 of ICSID Convention --- A dispute between
parties to the Convention concerning its interpretation
or application is to be referred to the ICJ unless it can
be settled by negotiation, or the States concerned
agree to another method of settlement.
 DIRECT DISPUTES BETWEEN STATES
• Nearly --- all BITs contain arbitration clauses for settlement of
disputes arising from their application between the contracting
states.
• Arbitration clause --- often require --- negotiations and
consultations.
• BITs --- provides 2 types of dispute settlement:
a) One provides arbitration between the host state and an investor.
b) Another provides for arbitration between the contracting parties
to the treaty.
• In Lucchetti Vs. Peru --- the tribunal in the investor – state
proceedings declined the request for the suspension of the
proceedings.
 INVESTOR Vs. STATE DISPUTE
• Role of domestic courts :-
 Limited usefulness of domestic courts:-
--- In absence of an agreement – an
investment dispute between a State and a
foreign investor – have to be settled by the host
state’s courts.
 Requirement to resort to domestic courts.
ARBITRATION AND CONCILIATION
• Advantages for both investor and host state .
• Investor gains access to an effective international remedy.
• Advantage to host state is 2 fold –
a)by offering an international procedure for dispute settlement it
improves its investment climate and attracts more foreign
investment.
b)by consenting to international arbitration, the host state shields
itself against other processes.
• Arbitration – less costly and more efficient than litigation
through regular courts.
• ICSID --- treats conciliation and arbitration as equivalent
alternatives.
 ARBITRAION INSTITUTIONS
• It is open to parties that subject themselves to its
jurisdiction in certain cases that are outside ICSID’s
jurisdiction.
• Non – ICSID Investment arbitration :-
 Not all states have become parties to ICSID Convention.
 BITs leave the investor with a choice between ICSID and
other kinds of arbitration.
 International Chamber of Commerce or the London
Court of International Arbitration.
 UNCITRAL Arbitration Rules of 1976.