Investor Protection AND Legal Security IN International Arbitration

By Cremades, Bernardo M. | Dispute Resolution Journal, May-July 2005 | Go to article overview

Investor Protection AND Legal Security IN International Arbitration


Cremades, Bernardo M., Dispute Resolution Journal


Adapted from the author's presentation at the 24th annual meeting of the ICC Institute of World Business Law, in Paris on November 15, 2004, this article considers the issue of multiple arbitral proceedings relating to the same or similar issues in the context of investment arbitration. It examines how this problem has arisen and how it threatens the legal security of international arbitration. It also offers some practical approaches to resolving this problem.

Investment arbitration has brought enormous changes to the field of international arbitration. It has expanded the dispute resolution choices available to investors, but it has also enabled investors to commence parallel investment arbitration proceedings relating to the same subject matter. Such parallel proceedings could give rise to awards with inconsistent conclusions, or even scandalously contradictory awards. The question is: Will this problem tarnish the high regard in which international arbitration is held? This article highlights the importance of flexibility in order to maintain international arbitration's well-deserved reputation in the brave new world of investment arbitration.

Enforceability of Treaty Obligations

It is now widely accepted in arbitral jurisprudence that an offer, made by a sovereign State party to a multilateral or bilateral investment treaty (BIT), to submit disputes to arbitration, if accepted by a foreign investor, establishes an enforceable arbitration agreement.1 The undertakings made by Host States (i.e., states where foreign investments are made) under these treaties, such as an agreement to provide "just and equal treatment," "non-discriminatory treatment," or "most-favored-nation treatment," are binding and enforceable.

Investment protection treaties also impose obligations on Host States not to directly or indirectly expropriate an investor's property. As a result, in investment arbitration, arbitral tribunals often must assess the legal consequences of actions by a Host State that affect a foreign investment and determine whether, for example, the State's fiscal framework constituted an indirect expropriation of an investment for treaty purposes.

The Expanding Meaning of "Investment" and the Effect on Treaty and Contract Claims

Initially, the investment-treaty regime focused on investments in natural resources (such as natural gas and petroleum) and mining. However, Over time, the range of foreign investments has broadened to include all manner of commercial enterprises. With this development, the meaning of the term "investment" for investment-treaty purposes has similarly expanded. As a result, foreign investors have come to possess both treaty rights under multilateral treaties and BITs with Host States, and contractual rights under concession and construction contracts with Host States or their agencies and instrumentalities.

However, not every contract claim gives rise to a treaty claim. Treaty claims arise only when there has been a violation of the Host State's promise to protect investments made by investors from the other contracting State. But some investment-protection treaties arguably elevate contract claims to the category of treaty claims through an "umbrella clause" in which the Host State undertakes, through the treaty, to respect its contractual commitments.

The line between contract and treaty claims is not clearly defined and there are colorful cases addressing whether tribunals established pursuant to investment-protection treaties have jurisdiction over contract claims by reason of an umbrella clause.2 In one case, an arbitral award was annulled because the tribunal accepted jurisdiction over treaty claims but did not exercise it for various reasons. The tribunal annulled the award because it was infra petita.3

The ability to make claims under both a contract and a treaty has created an opportunity for forum shopping. Investors can now decide whether the forum cited in their concession or construction contract is strategically better than the forum for investment claims designated in the investment-protection treaty. …

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