Investment Dispute? You Could Recover Damages Through International Arbitration
International arbitration laws grant foreign investors the same rights as domestic investors, including procedural rights, have escalated in recent years.
Historically, the only option for foreign investors to challenge overseas governments for discrimination was through the host State’s local courts. This rarely resulted with the claimant recovering damages in full, if at all.
International arbitration may not be without its critics but does offer an expedited channel for resolving disputes between parties with more fairness.
A requirement of International arbitration is for tribunals to be independent and impartial. Consequently, claimants can expect their case to be heard by independent and qualified arbitrators that understand domestic law and do not allow bias to cloud their judgement.
A rapidly growing trend in recent years has seen a significant increase in investment arbitration. Proceedings are initiated by foreign investors and may be the only option to expropriate private investments given domestic laws product host States.
The conception of international arbitrations is intended to help courts resolve disputes quickly. However, critics have argued cases can still take up to three years before disputes are resolved.
Initiation of an Investment Arbitration
Investment arbitration can sometimes include multiple parties. The process is initiated by foreign investors that claim they are owed money from an investment or wish to recover their capital due to a dispute such as a breach of contract or failed promise.
When a claim is filed with a State tribunal – a Notice of Intent – international arbitration typically insists on a “cooling-off” period of six months. During this time, legal representatives for all parties are obligated to attempt to resolve the dispute without the intervention of a tribunal.
Failure to reach an amicable solution will result in the claimant filing a Request for Arbitration. This signals the intention that the foreign investor is prepared to proceed with the claim.
Very few disputes are settled prior to arbitration because of the high costs involved. Most defendants will wait to see how willing foreign investors are to pursue the case.
Arbitrators also request that domestic legal remedies are exhausted before initiating the claim through International arbitration; i.e. shareholder claims.
Foreign investors need to review the legal instrument being used by the host State. Not all countries protect investments on the same legal grounding. The claimant must also be a national of a State which is a member of the ISDS Treaty.
If the application and grounds for the claim are not mirrored in the host country, consent for arbitration may be refused after initial proceedings. Rejected claims may also be barred. Moreover, there are no appeals once an award is made in Investor-State Dispute Settlements (ISDS).
The Complexity of ISDS
The complex nature of international arbitration means the technical aspects can over-complicate the case. Common criticisms towards ISDS is that domestic laws still hold sway and decisions made by tribunals are inconsistent.
Due to the technical nature of filing claims against foreign governments, investors are advised to seek the services of specialised lawyers that have significant experience of international investment arbitration.
Counsel must understand the procedural rules and local laws in the jurisdiction of the host State. Awards against the claimant are extremely costly.