Procedures for Investor-State Dispute Settlement

13 Dec 2023, 43 mins ago

In our previous blog we discussed the circumstances in which a foreign investor can sue a foreign state if the latter expropriates the investor’s investment, and criteria for qualified foreign investors and investments under the treaty. If you believe that, as a foreign investor, you have a case against the hosting state, what step should you take next to solve the dispute?

In addition to specifying criteria for foreign investors and investments as well as laying out different protection treatments guaranteed by the States, most of the bilateral investment treaties (BITs) would also include the Investor-State Dispute Settlement (ISDS) clause, which is a provision specifically dedicated to agreed dispute settlement mechanisms for solving disputes between a foreign investor and the host State.

A typical ISDS process is kicked off by a trigger letter (a written notification of dispute) sent by the investor to the host State notifying the latter that there is an investment treaty dispute. The letter also engages the State to amicably negotiate with the investor to reach a settlement within a minimum period of time, often 3-6 months, required by the treaty. This mandatory negotiation period is also called the “cooling-off” period in practice.

Depending on the provision in the treaty, if a settlement cannot be reached within the cooling-off period, the investor has the right to submit the dispute either before a national court, or an international arbitration tribunal for a final decision. A lot of treaties specifically provide that the choice of forum shall be final, i.e. a “fork-in-the-road”, which means that the parties will be unable to switch from a national court to an international arbitral tribunal, or from one international arbitral tribunal to another tribunal in the middle of proceedings, or after obtaining an unfavourable judgment or award. A typical example is Article IX (9) of UK-Columbia BIT (2010).

If you decide to pursue international arbitration, you will have to refer to the ISDS clause in the specific treaty to figure out the international arbitration forum acceptable by the State. Usually, there will be three routes of arbitration:

  1. ICSID arbitration: the International Centre for Settlement of Investment Disputes (ICSID) is an international arbitration institution established in 1966 for legal dispute resolution and conciliation between international investors and States. ICSID is one of the five organisations of the World Bank Group.
  2. UNCITRAL ad hoc arbitration: this refers to an international arbitrator or ad hoc arbitration tribunal which is appointed by a special agreement or established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL); or 
  3. Other institutional arbitration, such as the Institute of Arbitration of the Chamber of Commerce of Stockholm (SCC) available under Article 8(3)(b) of UK-Russia BIT (1989), the Court of Arbitration of the International Chamber of Commerce (ICC) available under Article 8(2)(b) of UK-Ukraine BIT (1993), etc.

As mentioned in the previous blog, not every dispute arising from the treaty can be submitted to international arbitration. Investors must be prudent when assessing the ISDS clause. For example, Article 8 (1) of UK-Russia BIT (1989) specifies that only disputes “concerning the amount or payment of compensation” under Article 4 (Compensation for Losses) or 5 (Expropriation), or “concerning any other matter consequential upon an act of expropriation” or “concerning the consequences of the non-implementation, or of the incorrect implementation” of Article 6 (Repatriation of Investments and Returns) can be submitted to international arbitration after the cooling-off period.

In addition, some treaties may add an extra mandatory procedure phase between the cooling-off period and the arbitration or litigation proceedings. For instance, Article 13.2 of China-Tanzania BIT (2013) specifies that the State has the right to require the investor concerned to exhaust the domestic administrative review procedures before submitting a claim to international arbitration.

Last but not least, many contemporary BITs may have an explicit time bar for a dispute. Article 12.4 of China-Uzbekistan BIT (2011) stipulates that a dispute shall not be submitted to arbitration when more than 3 years elapsed from the date that the investor first acquired or should have first acquired knowledge of the events which gave rise to the dispute.

How Gherson can assist

Gherson’s Litigation and Arbitration Team are highly experienced in advising on international investor-state disputes. Please do not hesitate to contact us for further advice, send us an e-mail, or, alternatively, follow us on Twitter, Facebook, or LinkedIn to stay up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

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