Applicable laws in Investment Treaty Arbitration

Author- Vanshika Gupta, VIPS, GGSIPU, New Delhi

Niharika Mukherjee, University of Calcutta

Editor- Rahul Kumar Roy, Manipal University Jaipur


The mechanism which resolves the discrepancy between foreign investors and host states is known as Investment Treaty Arbitration. It recommends the foreign investors the alternative of reinstating to non-discriminatory arbitrators to solve a conflict. The law significant to investment disputes is of supreme importance as it can be an antecedent of the consequence of the disagreement. Debating parties can select the law applicable to their disagreement. This is extracted from the key of party sovereignty in international arbitration. The treaty ally can put a clause on applicable law in investment treaty arbitration. At the point when an investor receives the host state's offer to arbitrate, then the option of applicable law also gets accepted by its solution of applicable law in the investment treaty.

This article endeavours to throw light on the choice of law in Investment Treaty Arbitration and the ICSID Convention, UNCITRAL applicable in the Investment Treaty Arbitration.


During the Investment Treaty Arbitration between the parties, the foreign investors have a choice to choose their law at the treaty. It was demonstrated that choosing a law in the arbitration should be done by following two propositions. Those propositions are as follows:-

· Firstly, if the agreement of the treaty is formed by a segment of a substantive contract then also the law formed will not be the same as the contract. A proper law must be formed on the footing of the treaty of Investment Arbitration.

· Secondly, the law which is to be made should be set on by assigning a three-stage examination. Those three stages are: (I) Express choice, (ii) Implied choice, and, (iii) Adjacent and most bonafide circumstances. To make the law proper, these three stages must be gone through individually and in the same order.

Since any decision made by the investors should be given importance, so during the examination stage if stage (ii) and (iii) is combined then the recognition of the system of law with which the agreement has the most adjacent and bonafide circumstances was possibly to be a foremost factor in determining whether the investors had made an implied decision of the law.

The choice of law is one of the specified feature of the Investment Treaty Arbitration, the participants to the international contrivance under deliberation namely the contracting states, are differentiated from the participants to the disagreement brought to arbitration on the ground of the instrument namely, one of those undertaking states and a supporter of the other undertaking state. This differentiation was done at play in AAPL v Sri Lanka[1], which is the first arbitration launched on the ground of an investment party. During this case, the Arbitral Tribunal appeared to have been struggling with the fact that the first choice of law could be created by the contracting states for the sake of their investors. Thus, it felt mandatory to give significance to the production of the group to the arbitration representing an agreement on the pertinent law during the process of arbitration.

In more tactile terms, the prior choice of law as mentioned in the first part of Article 42 of the ICSID convention could barely be predicted in a case of arbitration which is instated straight in the application of an international commission accepted amongst two states in support of their specific nationals pervading in the estate of the extra Contracting state. Under these specific circumstances, the process of choosing law would naturally materialize after the disclosure of the disagreement, by noticing and interpreting the result of the parties all through the arbitration proceedings.


ICSID, short for International Centre for Settlement of Investment Disputes is an international arbitration institution established for legal disputes and conciliation between international investors. 157 contracting member states have ratified the contract and have agreed to uphold arbitral awards in line with the ICSID Convention.

Article 42(1) of the ICSID ConventionArticle 42(1) provides:

The Tribunal shall resolve a dispute in line with the kind of rules of law as may be concurred by the parties. In the absence of agreement, the Tribunal shall bid a law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.

By the first sentence, it can be perceived that the parties can themselves choose the law governing the dispute. Only in the absence of like choice, the tribunal must apply two sources of law, which are a) the law of the host State and b) rules of international law as may be applicable. [2]

In the case of Antoine Goetz v. Burundi[3], the Tribunal had to determine whether the applicable law clause in the Burundi-Belgium investment treaty had to be considered as an express choice of law under Article 42 of the ICSID Convention, as the applicable law was not determined in the contract.

The UNCITRAL Arbitration Rules give a broad set of procedural rules upon which parties may concur for the conduct of arbitral proceedings arising out of their commercial relationship and are broadly used in ad hoc arbitrations as well as administered arbitrations.

· Article 33(1) of the UNCITRAL Arbitration Rules

Article 33(1) states that:

The arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

Under this provision, the arbitrators experience a less flexible conflict of laws strategy to figure out which system of law is appropriate instead of assigning legitimately explicit rules of law that may apply to explicit questions.


The examination into the law 'applicable' to a dispute can be done by identifying the law that will govern the resolution of the dispute. The disputing parties can choose the applicable laws, a concept derived from the principle of party autonomy in international arbitration. In the absence thereof, applicable laws will be determined by the tribunal. In cases of conflict between the applicability of domestic laws or international laws, it is often seen that the latter prevails.

[1] Asian Agriculture Products Ltd. v. Republic of Sri Lanka, ICSID Case No. ARB/87.3

[2] Aron Broches, "The Convention on the Settlement of Investment Disputes between States and Nationals of other States: Applicable Law and Default Procedure"

[3] ICSID Case No. ARB/95/3

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