By: Aisha Garba Yakasai, ACArb
Introduction
Today, the global market is dominated by ‘Cross-border investment and trade’ and as a result of these activities, the occurrence of disputes become inevitable. In order to maintain investor- state relationships, provision must be made prior to investments through International Investment Agreements/Treaties (with consent of both parties) for an amicable resolution of these disputes through an independent and impartial adjudicator.
The amicable settlement of international investment disputes does not only preserve investor- state relations but also brings about a peaceful co-existence between states on the international level which seeks to further the international rule of law.
Positive Effects of Investment Arbitration
A brief history on the previous methods of settling investment related disputes is relevant in order to appreciate the positive impact of investment arbitration on International rule of Law.
Historically, diplomatic protection was the only option available for an investor in relation to breaches of contractual rights by host state. This protection does not offer the investor any right to the claim, the home state is granted exclusive right to take up the claim or do otherwise. And there are no assurances that the host state might acknowledge such claims. Additionally, the investor has to go through domestic courts of the host state first before being entitled to seek for diplomatic protection, making the whole process tedious and costly. Diplomatic protection being discretionary in nature gives home state the liberty to neglect the claim due to political factors amongst others. The major disadvantage associated with this remedy is it tends to bring friction between states, which leads to unrest internationally.
The second alternative available to an investor for settling investment dispute is through host state’s courts (domestic court). These courts according to the author, Christoph Schreuer “are organs of the state and judges are its employees” therefore judges here lack independence being under direct control of their governments and thus cannot be regarded as being fully neutral or impartial.
Investment Arbitration has contributed to international rule of law in the following ways;
[i] Depoliticization of Investment Disputes: Investor-State Arbitration serves as a deterrent for host government’s conduct. Investment arbitration has eliminated political influence of investment agreements to the realm of administration of justice and this has paved way for good international relations.
[ii] Protection of Private Persons Rights; As mentioned earlier, under diplomatic protection only the home state has exclusive right over investor’s claim. Moreover, regarding diplomatic protection, it is only the home state, and not the investor (private person) that has exclusive right for claims against International Law. These claims in most cases are brought before an international court or arbitral tribunal. However, in many occasions, investors are not allowed to be heard before these courts and tribunals. Consequently, as a result of the flaws associated with diplomatic protection and host State courts, the evolution of “Contractual protection” and “Treaty protection” came into effect to protect investor’s rights. Bilateral Investment Treaties (BITs) are the most notable type of treaty protection, which are signed by two states (the national of the home state and the host state itself) in order to protect investments. These BITs grant a sufficient range of legal rights to investors covered by the protection which an investor can claim himself without going through his home state. Therefore with this development, private persons can directly lay claims against host state unlike under diplomatic protection, where a national (private person) is not given such rights.
Advantages of Investment Arbitration Over Domestic Court
The shortcomings associated with litigation and/or lack of efficient functional court systems in the host state is the reason Arbitration gained more confidence and acceptance. The advantages of Investment Arbitration are as follows;
Technical Expertise- Majority of International Arbitrators are top notch ‘experienced lawyers and/or experts in the field in which the dispute arises’. Arbitrators are therefore distinctive individuals with peculiar expertise in assessing multiplex business/contracts and the risk involved. For instance, in a regular court, a judge (being legal practitioner by profession) may not have knowledge in complex cases in other fields, however is left with no choice but hear and decide the matter. Thus, arbitrators are more competent in various fields compared to judges in domestic courts.
Confidentiality- Parties in arbitration are permitted to safeguard trade secrets and confidential matters.Therefore, parties enjoy confidentiality and non-disclosure of information during hearings. Arbitrators are under a duty to keep matters confidential. However, in domestic/ regular courts proceeding must be done in open court except in rare cases where the law requires otherwise.
Judicial Economy– Courts are often faced with frivolous court applications and processes. Investment Arbitration greatly minimizes the responsibility of host state’s court in handling many claims. Domestic courts will therefore be relieved from hearing Bilateral Investment Treaty (BITs) and other IIA claims which will in effect save the time of the court.
Quick Dispensation of Justice– Host state courts are often slow due to rigidity of court processes, strict adherence to rule of law, technicalities, formalities and unnecessary adjournments. On the other hand, arbitrators avoid the strict adherence to technicalities; only “general legal principles” are taken into consideration, thereby making the entire process faster than litigation. It is trite that justice delayed is justice denied.
Autonomy of Parties– Parties are given the freedom to make a choice of arbitrators and the quorum of arbitrators for Investment Arbitration depends on the agreement of the parties. The constitution of the tribunal for Arbitrators is provided by the International Centre for Settlement of Investment Disputes (ICSID) Convention, Regulations and Rules under Article 37 (2) (b) stating;
“where the parties do not agree upon the number of arbitrators and the method of their appointment, the tribunal shall consist of three arbitrators, one arbitrator appointed by each party and the third, who shall be the President of the tribunal, appointed by agreement of the parties.”
This ensures neutrality of arbitrators and often leads to a win-win situation for both parties, by fulfilling investor’s needs as well as protecting the interest of the host state.
Promotion of Foreign Direct Investment– Foreign direct investment (FDI) promotes economic development in states generally. A prospective foreign investor is more willing to consider investing where Investment Arbitration is available to settle disputes; a favourable investment climate increases more FDI.
Protection of Rights– Investment arbitration in general promotes accountability by ensuring rights to the investment agreement are protected. Investment treaties provide a set of standard rights in order to avoid varying decisions on what the rights entails, according to Susan Frank these include;
assurances of fair treatment, guarantees of appropriate compensation for expropriation, promises of freedom from unreasonable or discriminatory measures, guarantees of national treatment of the investment, assurances of fair and equitable treatment, promises that investments will receive full protection and security, undertakings that sovereign will honour its obligations, assurances that FDI will receive treatment no less favourable than that accorded under International Law.
Legal Stability– The existence of functioning effective adjudication system is an important factor that gives legal security to investors. Investors will feel safe regarding their investments knowing there is certainty and predictability in the legal system. However, according to Stephen Blythe, domestic courts are seen to have “deficient legal system” and therefore regarded as incompetent especially in developing countries. Moreover, the unnecessary delays attributed to domestic courts as well as corrupt malpractices defeats the purpose to make states liable.
Impartiality and Independence– The right of parties to choose their arbitrators ensures neutrality in the process. This is done to avoid impartiality, for instance an Arbitrator who is from the same country with one of the parties, might be prone to sentiments in the process as a whole. Thus, generally arbitrators ought to be selected from different roots distinct from the parties to the dispute. Also, arbitrators should not have any sort of relationships with any of the parties. On the other hand, domestic courts are under direct control of their governments, and investors in these courts are faced with the risk of domestic laws, that neglect to consider their rights under international law. On the other hand, arbitrators being independent achieve fair and amicable dispute settlement fostering international rule of law.
Promoting Good Diplomatic Ties– Investment arbitration has a positive impact on relationships between states concerned. Historically, seeking diplomatic protection has brought about recurrent disunity between states. However, with the emergence of investment arbitration, political influence is no longer attributed to investment disputes. Thus, investment arbitration has brought about good international relations restoring diplomatic ties.
CONCLUSION
As mentioned already, a foreign investor is prone to numerous risks at the hands of the state and other risks not necessarily commercial related, these include but not limited to change of administration, policy change, civil unrest, economic factors amongst other.
Thus, the rationale behind investment protection is that host states can enforce sanctions and other obligations that negatively affect foreign investors through their domestic laws, thus it is fair to also “unilaterally” protect foreign investors from host state abuse. This is an equitable approach, for it achieves accountability measures by ensuring host states are not above the rule of law. It is therefore furthering the rule of International law if host states are made to comply with terms of the Investment agreements. Additionally, when taking into consideration, the other alternative methods (diplomatic protection and host state courts) available to an investor to seek for protection, it is obvious that investment arbitration is the best option available to a foreign investor.
Today, International Investment Agreements (particularly BITs) are gaining momentum as legal norms and International Investment Arbitrators should be given credit for a detailed interpretation of these agreements. This position was pointed out by Kingsbury and Schill, that the Investment Tribunal has developed the contents of these treaties into “a body of global administrative law that guides states behaviour.”
Over all, the amicable settlement of investment disputes through investment arbitration has contributed in promoting peace between parties concerned and the international society at large.
References:
- Emanuel Castellarin, ‘Investment Arbitration and the International Rule of Law’ Rule of Law at the Beginning of the Twenty-First Century (2018) https://hal.archives-ouvertes.fr/hal-02490162
- Christoph Schreuer, ‘Do We Need Investment Arbitration’ in Reshaping the Investor- State Dispute, International Law Series Vol 4 (Published by Brill/Nijhoff 2015) ch 38, 879 <https://www.International-arbitration-attorney.com/wp-content/uploads/1do-we-need-investment-arbitrationby-christoph-schreuerinvestment-protection-general-and-i-pdf> accessed 24 September 2021
- Stephen Schill, ‘The Virtues of Investor-State Arbitration’ [2013] Blog of the European Journal of International Law <https://www.ejiltalk.org/the-virtues-of-investor-state-arbitration/> accessed 24 September 2021
- United Nations Conference on Trade and Development, International Investment Agreement: Key Issues [UNCTAD/ITE/IIT/2004/10] Vol 1 (United Nations Publications 2004) 17
- Lim and Jean Ho, ‘International Investment Arbitration’ (Oxford University Press 2016) <www.oxfordbibliographies.com/view/document/obo-9780199796953/obo-9780199796953-0135.xml> accessed 29 September 2021
- Farrar Brian, ‘To Legislate or to Arbitrate: An Analysis of US Foreign Investment Policy After FINSA and the Benefits of International of International Arbitration’ [2008] vol 7 Iss 1 9 Journal of International Business and Law 187 <https://www.scholarlycommons.law.hofstra.edu/jibl/vol7/iss1/9> accessed 3 October 2021
- Alexander Belohlavek, ‘Confidentiality and Publicity in Investment Arbitration: Public Interest and Scope of Powers Vested in Arbitral Tribunals’ in Czech Year Book of International Law Rights of the Host States within the System of International Investment Protection (Juris Publishing Inc 2011) 23-45
- Stephen Blythe, ‘The Advantages of Investor- State Arbitration as a Dispute Resolution Mechanism in Bilateral Investment Treaties’ [2013] 47 INT’L L Iss2 289 <https://scholar.smu.edu/til/vol7/iss2/7> accessed 3 October 2021
