Author - Briti Das, Symbiosis Law School, Hyderabad
Akshay Dalvi, ILS Law College
Editor – Mohit Meena, Gujarat National Law University
The Court procedures are considered as the slow justice now a days. The stack of cases is increasing with every descending day. To minimize the burden on this system, different mechanism was set forth to settle the disputes; of which Arbitration was one of them. Arbitration is defined as the peaceful procedure to settle the dispute. The Arbitration is the outcome of Alternate Dispute Resolution, where the disputes are resolved outside the court.
Investment Arbitration usually arises out of Investment treaties that are entered into by the foreign investors and the Host States, with a view to make an investment by one party in the business ventures of the other. The core on which the Investment Arbitration is formed contains a) An Investment Treaty b) The National Law of the host state c) An independent Investment Agreement d) And the choice of Independent and Individual Arbitrators/Tribunal.
Consent of The Host States: -
The foreign industries while investing their shares in some particular company has to take consent from the Host State where the company or firm is situated. Consent to investment arbitration is most commonly given by host States in International Investment Agreements (IIA’s), including Bilateral Investment Treaties (BIT’s) as well as Free Trade Agreements (FTA’s) and multilateral agreements, e.g., The Energy Charter Treaty (ECT).
The advantage of access to investment arbitration to investors in obvious. It gains direct access with an effective international dispute forum, which is an important element.
Institutional Investment Arbitration v/s Ad Hoc Investment Arbitration: -
The International Centre for Settlement of Investment Disputes (ICSID) is considered the foremost institution for arbitration, based in Washington the parties which come to ICSID are from Europe and Asia with the proceedings being held at the Paris Headquarters of the World bank.
Besides the ICSID the Stockholm Chamber of Commerce (SCC), the Permanent Court for Arbitration (PCA) and the International Chamber of Commerce (ICC) also act as arbitration institutions administrating investment arbitrations.
Alongside the Institutional investment arbitration, the agreements also provide for ad-hoc proceedings which are basically held without the presence of the institutions who are responsible for the proceedings. The ad-hoc proceedings are usually governed by the UNCITRAL arbitration rules, it held that the proceedings under the rules cost less, however there is no concrete proof regarding the same.
The decision regarding which form of arbitration the investors choose depends solely on the terms of the arbitration agreement under which the dispute is brought.
Selection of Investment Arbitrators: -
In investment arbitration, the way the arbitrators are chosen is somewhat different. The usual issues in such disputes are more limited, since the bilateral as well as multilateral investment protection treaties contain very similar protective provisions dealing with expropriation, fair and equitable treatment, discrimination and sometimes contracts by umbrella clauses. In view of this, the typical expertise required from arbitrators is one of public international law and particularly its application to such protection.
Duration of Arbitrations: -
The average duration of an investment arbitration dispute is two to three years. The 2015 statistics of the ICSID held that the average of the entire length of the proceeding was about 39 months. Exceptions do occur where the longest dispute lasted about nineteen years which was due to external circumstances.
Investment arbitration does not entertain any appeals, however limited grounds for the annulment or setting aside the matter is provided under the rules.
The ICSID allows the annulment of the award under the following conditions:
a. The Tribunal is not properly constituted.
b. The tribunal has exceeded its power.
c. The member/s of the tribunal have been found to be corrupt.
d. There has been a serious deviation from the fundamental rules or principles and finally,
e. If the award is not based on any legitimate reason.
Costs of Arbitration: -
The costs of the arbitration are one that cannot be taken lightly, the average costs for the claimant is about USD 4,437,000 and the one for the respondents was about USD 4,559,000 averaging to about USD 746,000 according to a review. The parties are also to cover the tribunal costs, legal fees, institution fees and so forth, The parties who have issues gaining funding for the payment are often helped through third party funders who help out with the finances in exchange of a stake in the case’s financial outcome. However, obtaining a third-party funder is a time intensive process and is only provided in certain cases. These issues make investors wary of investment arbitration and keep them from relying on this remedy.
Above we have discussed what investment arbitration is and its basics moving on, we will be discussing few of the cases which are excellent examples of investment arbitration.
Tokios Tokelés v. Ukraine (ICSID Case No. ARB/02/18), [Decision on Jurisdiction], April 29, 2004
Tokios Tokelés a company established under the laws of Lithuania owned a publishing company under Ukraine. An issue rose when the publishing house published a book dissenting the party in power and favourably portrayed the opposition party, leading to the parent company being investigated by the Ukrainian government such as tax investigations and such. The investigations led to a hindrance in the parent company’s business transactions leading to the company praying for an arbitration to deal with the issues as the investigations had interfered with the Ukraine- Lithuania BIT. The Ukraine government upheld the issue that as the parent company was owned by majorly (99%) by Ukrainians and thus they would not fall under the definition of 'investor' as defined under the BIT and such would not fall under the protection under the BIT.
The arbitration tribunal held in the arbitral award that the parent company's nationality is not determined by the provisions under 25(2)(b) of the ICSID Convention but it depends on the respective BIT. Consequently, the tribunal stated that the discretion on who and what an investor is falls solely on the BIT where the word investment has been defined as “every kind of asset invested by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and regulations of the latter.” According to the above definition the tribunal determined that the investments of the company was protected under the BIT as long as the parent company was established under the Lithuanian law and the investments were made with Ukraine.
Romak S.A. v. Uzbekistan, UNCITRAL Arbitration Rules, PCA Case No. AA280, Switzerland-Uzbekistan BIT, Award, November 26, 2009.
Romsak was a swiss based company where a contract for the supply for wheat with the government of Uzbekistan, the company was not paid for the contract and the company requested arbitration for the breach of the contract however the award was it done smoothly and thus the company requested an arbitration based on the Switzerland-Uzbekistan BIT. The government of Uzbekistan objected stating that the contract did not fall under the ambit of investment as under the BIT which is defined under 1(2) of the relevant BIT and the scope was interpreted through the provisions under Vienna Convention on the Law of Treaties. Article 9(3) of the BIT provided the possibilities of resorting to ICSID arbitration, in addition to proceedings as based on UNCITRAL arbitration rules stating that “it is unreasonable and irrational to construe that the definition of the term “investment” as well as the scope of the protection under the BIT vary depending on where to submit the case and that such interpretation also contravenes the general rule that the same wording shall have the same meaning in the same context.”
In the above case the arbitral tribunal held that the arbitration award based on contractual breaches would not fall under the ambit of investment as under Article 1 of the relevant BIT as the company’s wheat delivery cannot be recognised as anything under the contribution in relation to that transaction unless it promotes investment. The tribunal also pointed out that the risks taken by the company would not fall under the ambit of investment risks which are unpredictable and the risks taken were the usual risk of non- performance which are to be assumed by the contracting parties.
Studies have held that the claimants of investment arbitration win some or all their claims about 41% of the time and the respondents win about 59% of the times with a fourth of their claims being dismissed due to lack of jurisdiction and such. The successful party of the claim recovers a part of the costs in half of all the cases.
The future of investment arbitration is one that is not very clear as many commentators feel that demise of investment arbitration is inevitable and fast approaching. However, due to the number of treaties that exist make it unlikely for investment arbitration to vanish into the woodwork in the near future.
 Section 5 Interpretation, Revision and Annulment of the Award, ICSID CONVENTION, REGULATIONS AND RULES. Icsid.worldbank.org. (2006). Retrieved 19 August 2020, from https://icsid.worldbank.org/sites/default/files/documents/ICSID%20Convention%20English.pdf.  (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention