A Guide to Investment Arbitration

Investment arbitration takes place on a different scale from traditional ADR, tackling disputes between individuals or organisations and the states that host their investments.

Lawyer Monthly has spoken with Teynier Pic partner and international arbitration specialist Sara Nadeau-Séguin to learn more about investment arbitration, its purpose and the process involved.

To give a general overview, what is investment arbitration and what parties does it concern?

Investment arbitration is a dispute resolution mechanism for disputes that arise between an investor and the state that hosted its investment.

The jurisdiction of the tribunal arises from an international treaty concluded between the host state and the state of which the investor is a national. Very often, investment arbitrations are brought under a Bilateral Investment Treaty (“BIT”), which not only obligate host countries to provide certain protections for foreign investments, but also create a private right of action for investors against a host government if it falls short of those obligations. Investment arbitrations can also rise out of a multilateral treaty, like the now almost defunct North American Free Trade Agreement or the controversial Energy Charter Treaty.

All in all, the idea is that the foreign investor can bypass the national jurisdictions, which might be perceived to be biased, and resolve the dispute in accordance to the different protections afforded under the applicable treaty.

What is the typical process involved?

The specific process, or indeed the procedural rules that will apply to a dispute, depend on the forum of the arbitration.

Investment arbitration is a dispute resolution mechanism for disputes that arise between an investor and the state that hosted its investment.

The leading institution in terms of international investment dispute settlement is the International Centre for Settlement of Investment Disputes (“ICSID”), an institution which is part of and funded by the World Bank. The most frequent alternative to ICSID proceedings is “ad hoc” (or non-administered) arbitration in accordance with the stand-alone set of arbitration rules drafted by the United Nations Commission for International Trade Law (“UNCITRAL”), which can allow greater flexibility to the parties and tribunal.

The main procedural steps are the following:

The arbitration is commenced by the filing of a request for arbitration by the investor. Then the next stage is the nomination of the arbitral tribunal: in most cases, each party appoints one arbitrator and the arbitrators nominated by the parties then designate a president of the arbitral tribunal. Once the arbitral tribunal has been constituted, the proceedings can begin.

In some cases, there will be a separate jurisdictional and merits phase. These are what we call bifurcated proceedings, in which the arbitral tribunal will first rule on its jurisdiction before turning to the merits and the quantum.

During the proceedings, the parties will exchange memorials containing their legal and factual arguments. There are typically two exchanges of briefs, the memorial, the counter memorial, the reply and the rejoinder, all accompanied by witness statements, expert reports and documentary evidence.

In addition, the parties commonly agree to have a document disclosure phase during which each party may make a request for documents.

Finally, the tribunal will hold a hearing. It may then require post hearing submissions in lieu of, or in addition to, closing arguments at the evidential hearing.

Ultimately, the tribunal will take all of these elements into consideration during its deliberation and issue its award. On average, ICSID tribunals take around 14 months after the final hearing on the merits before issuing their award. Overall, from the request to arbitration to the final award, ICSID proceedings typically last around 3,5 years.

On average, ICSID tribunals take around 14 months after the final hearing on the merits before issuing their award.

What rules typically apply in investment arbitration?

Most investment treaties will require compensation to be paid in the event an investment is being expropriated. Typically, investment treaties will also include provisions calling for the “fair and equitable treatment” and for “full and constant protection and security” of investments. They also commonly provide for the right of investors to repatriate funds derived from the capital and returns of their investment.

The most protective treaties may also include additional substantive protections. They may require states to comply with their contractual undertakings as regards investment or require transparency of local rules and regulations, as well as prompt approval of administrative authorisations, or even the admission of investments into the country.

What factors distinguish this from other forms of arbitration?

The main difference lies in the legal framework in which the different arbitrations function. In commercial arbitration, the parties generally agree that a domestic law will apply to their dispute. National law plays a different role in investment arbitrations, where the dispute is primarily governed by the international treaty at stake. That is not to say that the national laws of the host state play no role at all; the foreign investment is ruled by the laws of the host state, but states cannot, in principle, invoke their national laws to justify breaching their international obligations under treaties – not an easy balance to strike for international tribunals!

Have you noted any significant trends in this area of law over the past year?

One key trend is that states are increasingly using their drafting powers to remedy what they see as inappropriate treaty interpretations by arbitral tribunals by amending existing text or using different language in new treaties in order to address their concerns. It has become a lot more common for states to spell out in their treaties how certain obligations are to be construed, and what the extent of the protections afforded to foreign investors is.

It has become a lot more common for states to spell out in their treaties how certain obligations are to be construed.

On a more practical level, the COVID-19 pandemic and the push for greener arbitrations have encouraged both the users of investment arbitrations and the main arbitral institutions to rethink their way of conducting cases. No more voluminous boxes of documents sent across the globe; ICSID went completely paperless last year, as electronic filings have become the default option.

How are investment arbitration awards enforced?

Generally speaking, enforcing an investment arbitration award requires two steps. The award must first be “recognised” as binding before it can be enforced through domestic procedures governing the execution of judgments. However, the specific rules that apply to the recognition of investment awards depend on the regime in question.

Under the ICSID Convention, contracting states have agreed to enforce ICSID awards unless annulled by a self-contained ICSID annulment regime. Appeal or review of ICSID awards other than through the self-contained mechanism provided for in the ICSID Convention is expressly excluded.

For non-ICSID cases, there are international treaty-based enforcement regimes that may be used to enforce investment treaty awards, the most popular one being the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In broad terms, the New York Convention calls upon each contracting state to recognise and enforce foreign arbitral awards unless the award exhibits one or more enumerated defects. This means that national courts can only reject enforcement of an award on limited grounds, for instance breach of international public policy or because the arbitral tribunal did not have jurisdiction.

Once the award has been recognised, the actual process of execution can begin. When dealing with investment awards rendered against states, sovereign immunity issues often arise.

What advice would you offer to an up-and-coming lawyer who is interested in specialising in investment arbitration?

Keep reading, keep learning! It is no longer difficult to gain access to the decisions of investor-state tribunals, particularly on the ICSID website, which is a gold mine for anyone interested in investment arbitration. As investment arbitrations often turn on similar questions of treaty interpretation, it is key to keep abreast of new development and new decisions.


Sara Nadeau-Séguin, Partner

Teynier Pic

2, rue Lord Byron, 75008 Paris, France

Tel: +33 1 53 45 97 05

Fax: +33 1 40 15 01 08

E: sara.nseguin@teynier.com



Sara NadeauSéguin

I am a partner with law firm Teynier Pic in Paris. Founded in 2004, we are the first independent French boutique dedicated to dispute resolution in all its dimensions. My own practice is split between commercial arbitration and investment arbitration, both as counsel and as arbitrator.

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