1. INTERNATIONAL INVESTMENT ARBITRATION: AN OVERVIEW
Anirudh Krishnan
Advocate, Madras High Court
Solicitor, England and Wales
Chief Editor – Justice R. S. Bachawat’s Law of Arbitration and Conciliation
Author – Law of Reservation and Anti-Discrimination

2. Need for investment arbitration
Company A, based in Country B wants to invest in Country C. Country C is known for its frequent changes in law and poor law and order situation.
This could act as a disincentive to invest in C.
To prevent this C provides a basis level guarantee to foreign investors by entering into “Bilateral Investment Treaties” with countries, providing the investors from those countries certain minimum protection.
BITs are treaties between countries where a country provides a basic level protection for investment from other countries.

3. HISTORICAL BACKGROUND
Principle of nationality of claims
Early attempts:
1948 Havana Charter
1959 Abs-Shawcross Draft Convention on Investments Abroad
1967 OECD Draft Convention on Protection of Foreign Property
First Effective Individual-State arbitration machinery for protection of foreign investments-1965 Washington Convention: Convention on the Settlement of Investment Disputes between States And Nationals of other States (ICSID)

4. FRAMEWORK IN INDIA India is not a Signatory of the ICSID
However, even as a non-signatory, India can avail of the ICSID Additional Facility.
However, India has signed 82 BITs which usually provide for arbitration using the ICSID Additional Facility.

5. TYPICAL ISSUES IN A BIT ARBITRATION
A. JURISDICTIONAL ISSUES
Issues to be dealt with would typically be:
Is it an Investment?
Is the Claimant an Investor?
Is there “fork in the road” Clause?

6. Is it an Investment?
In most cases, this question will be contained in the Treaty itself.
It usually covers:
Movable and Immovable property including property rights
Equity/ Debt Instruments
Claims to money, Contractual performance
IPR (Intellectual Property Rights)
Expressly conferred rights for carrying on commercial activity
Eg- India UK BIT, India- Jordan BIT. India- Russia BIT does not include last head.

7. Is the Claimant an Investor?
Includes all legal entities incorporated in a State [India-UK BIT, India-Mauritius BIT]
Some treaties provide that the seat of business must in the State
Piercing the Corporate Veil: Varied Approach
Article 25 (1) (b) of the Washington Convention
TSA Spectrum Argentina SA vs. Argentine Republic
Saluka Investments vs. Czech Republic
Tokios Tokeles vs. Ukraine

8. Is there a “fork in the road” Clause?
This means that the parties have an option of either seeking a local remedy or international investment arbitration
Earlier trends suggested that where local remedy was based on the contract and International investment arbitration was governed by a treaty, merely pursuing a local remedy cannot bar the Investment arbitration remedy even if such a “fork in the road” Clause was present
This was the rationale in Toto Costruzioni vs. Lebanon
Per contra Pantechniki SA Contractors & Engineers (Greece) vs. Republic of Albania – “fundamental basis” and “essential claim” is what is relevant

9. B. SUBSTANTIVE ISSUES
Fair and Equitable Treatment Clause
Full Protection and Security Clause
Protection against arbitrary/discriminatory measures
Protection against unjust expropriation
Most favoured nation and National treatment
Umbrella Clause

10. Fair and Equitable Treatment Clause
Doctrine of Legitimate Expectations
Investor to establish this doctrine based on:
Conditions offered by host state at the time of investment [White Industries Australia Limited. v. India]
The conditions must be recognized and enforceable by law
Business risks and industry pattern to be taken into account
Exception – State of Necessity
This does not imply that there cannot be a change in law; but simply that such change in law cannot be unfair.
LG & E Energy Company vs. Argentine Republic
Vodafone ?????

11. Full Protection and Security Clause
Positive obligations on the State to protect investments
Duty of reasonable care rather than Strict liability standard.
E.g. : Law and order Situation leading to destruction of property (Asia Agricultural Products vs. Sri Lanka)
Extended to cases such as withdrawal of an authorization essential to protect investment. (Antoine Goetz & Ors. Vs. Republic of Burundi)
Some clauses go further, eg- India Kuwait BIT states “Each Contracting State shall in accordance with its applicable laws and regulations provide effective means of asserting claims and enforcing rights with respect to investments and ensure to investors of the other Contracting State. the right of access to its courts of justice. administrative tribunals and agencies.” [White Industries v. India]

12. Protection against arbitrary/ discriminatory measures
Arbitrariness - Willful disregard of due process of law
Discriminatory – When/if an investor is treated differently from a similarly placed investor
(Azurix Corporation vs. Argentine Republic)

13. Protection against unjust expropriation
India- Kuwait BIT- “Investments made by investors of one Contracting State in the territory of the other Contracting State shall not be nationalized, expropriated, dispossessed or subjected to direct or indirect measures having effect equivalent to nationalisation. expropriation or dispossession (hereinafter collectively referred to as expropriation’) b the other Contracting State except for a public purpose related to the internal needs of that Contracting State and against expeditious adequate and effective compensation and on condition that such measures are taken on a non-discriminatory basis and in accordance with the procedure established under law.”

14. Direct and Indirect expropriation covered Permissible if:
For a public purpose
Non- discriminatory
Fair market value Compensation
Indirect Expropriation
E.g.: Indirect Control of Company
Impeding distribution of dividends
Detaining employees
Divesting of vested rights

15. Most favoured nation and National treatment
India- Armenia BIT- “(1) Each Contracting Party shall accord to investments of investors of the other Contracting Party, treatment which shall not be less favourable than that accorded either to investments of its own or investments of investors of any third State.
(2) In addition, each Contracting Party shall accord to investors of the other Contracting Party, including in respect of returns on their investments, treatment which shall not be less favourable than that accorded to investors of any third State.”

16. Contd….. National Treatment
Investor to be treated no less favourably than a national
MFN (Most favoured Nation)
Investor to be treated no less favourably than any other investor
E.g. White Industries Australia Limited vs. Republic of India [Incorporation of “effective means” test]

17. Umbrella Clause
“Each party shall observe any obligations it may have assumed with regard to investments”.
Overarching provision
Decisions in SGS S.A vs. Islamic Republic of Pakistan Per Contra SGS vs. Philippines
Can an Umbrella Clause be invoked for a mere breach of Contract where the contract has an exclusive jurisdiction clause conferring jurisdiction on a local court?

18. Email – anirudhkrishnan@me.com
Thank You
Anirudh Krishnan –
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