International investment arbitration suffers from many drawbacks which

disadvantage both developing and developed countries. In light of

developments in the last decade, discuss
BY
SACHIN SHARMA
FINAL YEAR
JAMIA MILLIA ISLAMIA
Globalization has enriched the world scientifically and culturally and benefited many people
economically as well.
-Amartya sen
In this era of globalisation,there is substantial flow of capital from one country to another in form
of internatonal investment which in turn is fundamental to the growth of a economy. In this
world, capital flows have becme a vital component for economic development.This led to
increased caution on the part of investor so as to seek certain guarantees or mechanism to
safeguard his interest and this gave rise to rapid development of new field of international law
which aimed to codify obligations of investors and state towards each other.
BIT(Bilatral investment treaties) and also multilateral investment agreement has been employed
by states to put in place the mechanism to safeguard foreign investment to variable success but
what this regime or mechanism does is reduces investor insecurity, increase investment and
assures investors that their investment will not be subject to harassment through measures such
as expropriation and discrimination.
Under this whenever a investors rights are violated it can file a complaint before international
tribunal for redress which are normally composed under a renowned arbitral institution such as
LCIA(London court of arbitration) or SIAC(Singapore international arbitration centre) or
sometims Ad hoc, this is in stark contrast to traditional system where the investors needed his
government to espouse their claim on their behalf.
This has also ben held in case such as AMCO Asia Corporation vs Republic of Indonesia1
It was saidInvestor state arbitration is aimed to protect to same extent and same vigour the
investor and the host state.
The rise of BITs came about in the 70s and 80s where the phenomenon of nationalisation or
exproriation was witnssed in developing countries like india which led to great worry among
forieign invstor abut their investent an this led to proliferation of BITs all over the world and til
dat about 3000 of them have been signed among various countries which inssitd on arbitartion
throgh arbitral instituions as a method of dispute settlement due to its various percived
advantages sch as finality of awrards, unbiased judges etc.
However despite having many advantages investmant arbitarion deos have some serious
drawbacks which seriously hamper both developing and developed countries alike which have
emerged in lase decade such as
(i)

Cost of arbitraton

1 ICSID case ARB/81/11 sept 25, 1983

Earlier it was considered to be a cheaper altrenative to litigation for ex early reles of

arbitration of ICC under Article 23 envisaged awrds to made in 60 days. Now due to
complex nature of investor state aribtration such as fees and expenses of parties egal
advisors and expert witness can rn into millions.
(ii)
(iii)

Limitations on Arbitraitors powers

They cannot take coercive action even they are well intentioned, they do not have
powers like national courts.
Multi party arbitrations
In traditional system of arbitration there were considered to be only two parties as
evidneced by UNCITRAL rules (ARTICLE 3) Claimant and respondent this was also
espouse in New York convention but this concept was shredded in the famous Dutco
case2
Respondent were asked to pick a arbitrator among multile party under former icc
rules which they did so under protest.after this th provion was changed undr which in
ase of disagreement on arbitrator court may itself appoint them.
This multile party makes the part liable in for damage hard to find and makes it
complex.

(iv)

Non signatories
This becomes a problem when investors are made parties unwillinlgly like shell
corporations ownd by bigger cos such as in dow chemical case wher parent co was
held liable.

(v)

Conflicting awards
This problem has serously emerged in last decade that interntional law does not have
a system of precedent. Same tribunal for similar case gives diiferent award.ex CME
VS Czech Republic case

The law governing invetment state arbitration ha evolved a lot to grant party various
relifs through amendment in ICSID rules under which paty can ask for interim relief
or for proividing provisional relief on expedited basis which in turn has helped in
making them upto to date but still a long way away from ideal but step in the right
direction.

2 BKMI and Siemens vs Dutco 1992