International Arbitration Between Foreign Investors and Host States (Investor-State Arbitration)

Hernando Otero is an international investment, arbitration and mediation attorney with experience as counsel of record and as arbitrator in international arbitrations between foreign investors and host States under the ICSID Convention, ICSID Additional Facility and the UNCITRAL Arbitration Rules.

1. Introduction

International arbitration between a foreign investor and a host State (Investor-State Arbitration) results from their agreement to solve their disputes in this manner. That agreement may take the form of a contractual provision or a subsequent arbitration agreement, but increasingly it is the result of a foreign investor accepting a State’s standing offer to arbitrate disputes arising from international investment agreements; primarily bilateral investment treaties (BITs) and free trade agreement with investment protection provisions.

2. Where to Find International Investment Agreements (IIAs)

There are several free online databases that offer a good starting point to determine which IIAs have been entered into and are in force. They include the United Nations Conference on Trade and Development (ICSID) International Investment Treaties Navigator and those of the International Centre for Settlement of Investment Disputes. A more recent service is the Electronic Database of Investment Treaties.

3. Where to Find Institutional and Arbitration Rule Information

International contracts, national legislation and IIAs that provide for international arbitration between foreign investors and host States identify an arbitral institution or rules for the proceedings. IIAs often provide the Claimant with two or more arbitral institutions and/or rules to choose from.

3.1. The International Center for Settlement of Investment Disputes

A common institutional choice is the World Bank’s International Centre for Settlement of Investment Disputes or ICSID. The ICSID is an arbitral forum in which independent arbitral tribunals, conciliation commissions and fact-finding committees resolve international investment disputes.

ICSID arbitration most often takes place under the Convention on the Settlement of Investment Disputes between States and National of other States (or ICSID Convention). A claimant may only submit an arbitral claim under the ICSID Convention when both the country of nationality of the investor and the host State to the investment are parties to it. An ICSID Convention arbitral award may not be appealed or subjected to other recourse except to an Annulment request for limited grounds under the Convention. In addition, a final ICSID Convention arbitral award shall be recognized and its pecuniary obligations enforced by every ICSID Convention party as a final judgment of one of its courts.

ICSID arbitration may also take place pursuant to the ICSID Additional Facility Rules when either the country of nationality of the investor or the host State (but not both) is not a party to the ICSID Convention. In contrast to awards issued under the ICSID Convention, a party may seek to set aside an ICSID Additional Facility award (or one issued in other arbitral fora) in the seat of arbitration or attempt to challenge it in the jurisdiction where enforcement is sought.

3.2. The United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules

Another common choice provided in IIAs is to submit an arbitral claim under the United Nations Commission on International Trade Law Arbitration Rules (or UNCITRAL Arbitration Rules). The Rules provide for a non-institutional framework for proceedings. The parties to the dispute however often resort to arbitral institutions such as ICSID or the Permanent Court of Arbitration to assist in the administration of proceedings.

3.3. Permanent Court of Arbitration, Stockholm Chamber of Commerce, International Chamber of Commerce and Others

The Permanent Court of Arbitration, the Arbitration Institute of the Stockholm Chamber of Commerce and the International Chamber of Commerce International Court of Arbitration are increasingly common fora with their own set of arbitral rules. Other arbitral centers have occasionally been used (e.g., London Court of International Arbitration) or are positioning themselves as attractive regional alternatives.

4. Where to Find International Arbitration Awards and Decisions and New Developments

Keeping up with the increasing number of awards, decisions and developments is challenging. Investment Arbitration Reporter and Global Arbitration Review are both subscription services but offer free email news alerts that even experienced practitioners rely upon. In order to consult the actual awards and decisions, italaw and the UNCTAD’s Investment Dispute Settlement Navigator are good starting points with searchable databases. Arbitration institution websites such as that of ICSID and the PCA provide further information on procedural details. For its part, the Energy Charter Secretariat maintains its own database of claim arising out of the Energy Charter.

5. Where to Find More Information

Several organizations provide in-depth analyses of trends and developments, including the following:

• UNCTAD’s Division on Investment and Enterprise
• Columbia Center on Sustainable Investment
• The International Institute for Sustainable Development

The ICSID provides helpful descriptions of the arbitral process under the ICSID Convention, its Additional Facility and pursuant to other “non-ICSID rules. The ICSID has also published “Practice Notes for Respondents in ICSID Arbitration” detailing practical aspects of the arbitral proceedings and highlighting further sources of information.

Finally, the following books are helpful and practical (and importantly recent) primers on the law and practice of international Investor-State arbitration:

• Borzu Sabahi, Noah D. Rubins & Don Wallace, Jr., Investor-State Arbitration. Oxford University Press 2d ed. 2019.
• Umerov, Marat. et. al. Business Guide to Trade and Investment: Volume 2 – International Investment. ICC and International Law Institute, 2018.
• McLachlan, Campbell, Laurence Shore, and Matthew Weiniger. International investment arbitration: substantive principles. Oxford University Press, 2017.
• Redfern, Alan, and Martin Hunter. Law and practice of international commercial arbitration. Oxford University Press, 2015,
• Giorgetti, Chiara, ed. Litigating International Investment Disputes: A Practitioner’s Guide. Martinus Nijhoff Publishers, 2014.
• Schreuer, Christoph H., et. al. The ICSID Convention: A Commentary. Vol. 2. Cambridge University Press, 2010.