A beginner's guide to investor-state arbitration

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Summary: Investor-state dispute settlements allow foreign investors to bring arbitration claims against governments for alleged breaches of international treaties. These disputes can involve billions of dollars and significant political and policy considerations, as demonstrated by cases involving Venezuela and Romania. For aspiring disputes lawyers, this sector offers the opportunity to work on complex, international and high-profile matters, with solicitors often taking prominent advocacy roles.

Investor-state dispute settlement is a complex, unique and exciting sector of dispute resolution. In contrast to mainstream litigation or alternative dispute resolution such as general arbitration or mediation, investor-state disputes operate under distinctive rules and structures, which can at times differ significantly from regular disputes work. For a junior lawyer, this sector of work can be incredibly rewarding and often involves disputes of significant complexity and cost.

What is investor-state dispute settlement?

Investor-state dispute settlement is a mechanism that allows foreign investors to sue host governments in international, binding arbitrations for alleged breaches of treaties, rather than using a national court system.

The type of treaty disputed can vary, but disputes typically involve a bilateral investment treaty or a free trade agreement. This is a key difference from regular arbitration, where the parties have a contractual relationship, rather than a treaty-based one. These treaties will contain an arbitration agreement, which provides that in the event of a dispute, a specific set of rules apply and a panel of arbitrators is appointed. The rules most commonly used to govern these arbitrations are the ICSID Convention, Regulations and Rules, administered by the International Centre for Settlement of Investment Disputes (ICSID). This is an international institution, which has 166 state signatories, created specifically to resolve this type of investor-state dispute. The influence of ICSID is extended through the ICSID Additional Facility Rules, a mechanism allowing ICSID's administrative services to be used by disputes beyond the scope of the Convention. This usually applies where one party hasn’t signed the ICSID Convention.

Investor-state arbitrations can take place in any location as agreed by the parties, in contrast to domestic litigation. Cases are often seated in global dispute resolution centres including London, Paris and Washington D.C., the latter of which has a specialist ICSID hearing centre.

Two examples of high-profile ICSID cases

ICSID cases can be high-profile for multiple reasons, including the large sums of damages claimed, policy debates and their significance for national governments. One of the most famous cases was the decision in ConocoPhillips v Venezuela which determined that an $8.7 billion award was to be paid by Venezuela. This occurred following the nationalisation of the claimant's oil assets by Hugo Chávez's government, the investment of which was governed by the Netherlands-Venezuela Bilateral Investment Treaty of 1991. This case indicates the significance and scale of damages that tribunals can award.

Another significant, and comparatively recent, ICSID case was Gabriel Resources v Romania. Here, the tribunal rejected a claim brought by Canadian and British investors of $6.7 billion in damages over the blocking of an open-cast gold and silver mine development, in part due to intense environmental protests. This case is one of a growing trend of environmental resources cases, where energy investors have launched claims against national governments.

Why investor-state dispute settlement can be attractive for junior lawyers

Investor-state disputes provide an excellent opportunity for junior lawyers to develop their skills. This includes the prestige of working on, in many cases, high-value, politically sensitive and complex proceedings.

Another differentiator of ICSID arbitrations, compared to general disputes, is that solicitors regularly act as counsel, with the opportunities to lead litigation in a manner that’s less common in general litigation. While perhaps less of a consideration for junior lawyers, it’s certainly a factor when considering building a practice in the sector.

Lachlan Jones is a trainee solicitor at Winston Taylor.