NILS Winter School On International Dispute Settlement

NILS Winter School
on
International Dispute Settlement

Nov 26 Dec 04, 2016 | New Delhi
NILS WINTER SCHOOL 2016

After two hugely successful Summer Schools, NILS presents to you it's
first Winter School. The Winter School is taking place in New Delhi,
India and is scheduled from the 26th of November to 04th of
December, 2016. The inaugural day of the Winter School i.e. 26th
November is celebrated as 'Constitution Day' in India. It was on this
day in the year 1949 that the Constituent Assembly of India adopted the
Constitution of India, which till date remains the longest Constitution in
the world.
The theme of the Winter School is 'International Dispute Settlement'.
This area of law has seen huge growth in the recent years thanks to
globalisation and ever-increasing cross-border investments. The Winter
School will comprise of approximately 25 hours of lectures on Conflict
of Laws, International Commercial Arbitration and International
Investment Arbitration. Apart from the academic programme, we have
planned several non-academic programmes which will provide you with
an opportunity to discover Incredible India!
Speakers include eminent lawyers from India and abroad, who are
experts in the field of international commercial and investment
arbitration.
The venues for the Winter School are Gandhi Peace Foundation and
India International Centre.
NILS also provides the participants with accommodation at a three-star
hotel in the vicinity of the venues.
SPEAKERS
Complete list on our website www.nilsinternational.org.
MODULE
1. Introduction to International Disputes Settlements | Session 1 (90 minutes)
1.1 Elements of International Dispute
1.2 Kinds of International disputes
1.3 Techniques available for International Dispute Settlement
A. Non-traditional techniques
B. Traditional techniques
2. Introduction to International Arbitration | Session 2(150 minutes)
2.1 History and Background
2.2 New York Convention and its legal framework
2.3 UNCITRAL Model or Rules
2.4 The theory of International Court of Arbitration
3. Drafting the Arbitration Clause | Session 3 (120 minutes)
3.1 The Standard Arbitration Clause
3.2 The Model Arbitration Clause
3.2 Practicum: Industry- Specific Arbitration Clause
4. Arbitral Awards and its Enforcement | Session 5 (60 minutes)
4.1 Definition of Arbitral Award
4.2 Essential characteristics of an award
4.3 Enforcement of award under various Conventions
5. International Commercial Arbitration | Session 6 (120 minutes)
5.1 Recent Trends in International Commercial Arbitration
5.2 IBA Guidelines on Conflict of Interest
5.3 Third Party Funding
6. International Court of Arbitration | Session 7 (75 minutes)
6.1 Critique of the existing International Court structure
6.2 Enforcement of Judgments
6.3 Lack of fact collecting and investigative powers
6.4 No value of precedents
6.5 Abuse of power by the US
6.6 Neutrality of judges
7. Universal Jurisdiction: The way forward? | Session 8 (120 minutes)
8.
International Investment Arbitration | Session 10 (120 minutes)
8.1 Introduction to International Investment Law and Arbitration

8.2 The conflicting interests of the host State and the investor
8.3 Historical development of international investment protection
8.4 Sources of International Investment Law
8.5 The concept of investor
9.
Standards of Treatment
Session 10 (150 minutes)
9.1 National Treatment
9.2 Most favored nation clause
9.3 Minimum Standard of Treatment
9.4 Fair and equitable treatment
9.5 Full protection and security
9.6 The Umbrella Clause
9.7 Access to Justice, Denial of Justice & Fair Trial
10. Host States Defenses

11. State Responsibility and Attribution
12. Negotiations as a tool for Dispute Settlement
*There might be minor changes in the course module as per the request of our Speakers.
International Disputes Settlement

Session 1: 90 Minutes
INTERNATIONAL DISPUTE SETTLEMENT
1.1. What is an International Dispute?

An international dispute, as defined by the Permanent Court of International Justice is A
specific disagreement, concerning a matter of fact, law and policy in which a claim of assertion of
one party is met with the refusal, counter-claim or denial by the other. In the broadest sense, an
international dispute can be said to exist whenever such a disagreement involves governments,
institutions, juristic persons (corporations) or private individuals in different parts of the world.1
Elements of international disputes
i.
The disputes must be specific in nature It must have a well defined subject
matter to determine nominally what the dispute is about.
ii.
The disputes must contain conflicting claims against one another The parties to
the disputes must assert or manifest, conflictingly, what they believe they are entitled
to, with respect to the other. These manifestations may be in the form of statements,
diplomatic notes or state actions.
iii.
The disputes should be time bound The timing of dispute settlement is crucial for
the use of a particular technique to resolve such disputes and hence cast an incumbent
duty upon the international lawyers or diplomats to learn about when as well as how to
try to settle disputes in a timely fashion.
1.2. Kinds of International Disputes

In general, there are great many international disputes that exist between different nations
involving various kinds of claims. The most important task of a negotiator, mediator or
arbitrator is to discover and to effectively help the parties understand where the disagreement
Marvomattis Palestine Concessions (Greece v. UK) 124 P.C.LJ.
lies. Disputes are roughly classified in different ways to identify which type of dispute settlement
technique can be used for effective resolution2:
i.
By identifying the subject matter of the dispute In traditional areas of international

law, disputes mainly arise out of territorial claims, jurisdiction, diplomatic protection, treaty
obligation, laws of the seas, matters of taxations, interference with aircraft pollution, so on
and so forth.
ii.
By identifying the character of the dispute It is of general importance to distinguish

what the dispute is about by understanding what the facts are, the legal principals or laws
applicable, reasonableness and justness of the existing laws and its implications, and who
should decide any of the above questions and by what procedure.
iii.
The nature of relation between the parties It often makes a difference in what kind of
technique of dispute settlement to resort to if the parties to a dispute are those that have a
long term continuing relationship or those who occasionally interact. If the relations
between the nations are long term, parties may be reluctant to drag each other to the
Courts for legal restitution.
iv.
Importance & effect of dispute to the International Community The general

practice is to ascertain whether one or both parties consider the dispute of vital importance
and if the promotion or constriction of the dispute settlement will affect the international
community. For this reason, the U.N. Charter also distinguishes disputes which are likely
to affect international peace and security and those which are not.
v.
Appropriateness of judicial settlement A distinction is often drawn between the

legal, political, justiciable and the non-justiciable disputes that help in determining
whether adjudication by a court of law is the appropriate technique for dispute settlement.
For instance, disputes that arise where the national honor, national security or other
vital interests are involved or disputes which are essentially what the laws should be
than what it is, adjudication is not possible. In such disputes, the nations often submit to
the jurisdiction of the UN Security Council to politically resolve them instead of using
judicial settlement as an appropriate technique for settlement.
1.3. Techniques available for settling international disputes

Disputes are settled in many ways according to the character or nature of dispute. However, the
techniques of dispute settlements are broadly divided into:
Richard B. Bilder, An overview of International Disputes Settlement Emory Journal of International Dispute
Resolution, Vol. 1, No. 1 (Fall 1986), pp. 1-32
2
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A.
Non - traditional techniques
1.
Coercion The use of coercion by powerful nation states, as a technique of dispute
settlement is as old as history. However, coercive settlement poses a threat to social order and
international legal system. The element of power cant be eliminated entirely even if disputes are
settled in a peaceful manner and often reemerge under the guise of bargaining power. The
weaker parties to the dispute often voluntarily relinquish their claims if the persuasive party is
able to, through soft coercive methods; establish that the dispute has no merit.
2.
Voting In democratic societies, representatives or members of the international
community may decide to settle disputes that involve broad issues of social policy by a majority
vote. Although the U.N. does not have legislative powers, there is little direct use of such
technique in resolving disputes of international social order.
B.
Traditional techniques
The U.N. Charter prescribes traditional methods or techniques for international dispute
settlement3 which give control of the outcome primarily to the parties themselves. In practice,
the distinction between these techniques is more theoretical than real, and a particular process of
dispute settlement may include a combination of these techniques, as listed hereunder:
1.
Negotiation Negotiation is a process by which parties directly communicate and
bargain with each other in an attempt to agree on a settlement of the issue. With this method,
parties control majority of the outcome of the process whereby the involvement of a third party
or a negotiator is close to zilch.
Negotiation broadly has the following advantages:
i)
Places responsibility on the parties to the dispute to resolve the conflict at hand and have
maximum control over the outcome of the negotiation which is freely agreed upon by both
parties
ii)
Parties have the option to simply walk away from it if they dont come to a mutual
settlement rather than one being imposed upon by a third party.

iii)
Favors compromise and accommodation between disputing parties to foster long term
cooperative relations.
iv)
Simpler technique of dispute settlement which is less costly than arbitration and can be
done secretly without unwanted publicity
Article 33 of the Charter of United Nations: Pacific Settlement of Disputes
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Limitations of Negotiation as an effective technique of dispute resolution are as follows:

i)
Cannot assure permanent settlement of a dispute. Sometimes parties are unwilling to
cooperate or bend leading to an impasse which can only be resolved by the involvement of a
third party adjudicator.
ii)
Inherently political and are often subject to pressure from interest groups and lobbying
that delay or obstruct negotiations or even make it politically impracticable for the government
of one party to reach compromises or accommodations.
2.
Good Office and Mediation Good office and mediations are often ascribed to when
the parties are unable to resolve their disputes through negotiations. Mediation is a dynamic,
structured, interactive process where a neutral third party assists disputing parties in resolving
conflict through the use of specialized communication techniques wherein the parties actively
participate in the process focusing primarily on the needs, rights, and interests of the parties.
Mediation process is facilitated by a mediator through open communication by analyzing issues
and relevant norms but also refraining from providing prescriptive advice to the parties.
In law, mediation is a form of alternative dispute resolution (ADR) for settlement of disputes in
a variety of domains such as commercial, legal, diplomatic, workplace, community and family
matters. The benefits of mediation include i) Cost effectiveness; ii) Confidentiality; iii)
Control on the outcome or result; iv) Compliance and mutuality of disputing parties; v)
Support for possible solutions
3. Conciliation or Inquiry
Conciliation is another method of the ADR process whereby the parties to a dispute use a
conciliator who meets with the parties both separately and together in an attempt to resolve
their differences. They do this by lowering tensions, improving communications, interpreting
issues, encouraging parties to explore potential solutions and assisting parties in finding a
mutually acceptable outcome.
Conciliation differs from arbitration in that the conciliation process has no legal standing and the
conciliator usually has no authority to seek evidence or call witnesses, usually writes no decision,
and makes no award. It differs from mediation as the conciliator acts as a counselor when often
the parties are in need of restoring or repairing a relationship, either personal or business.
The effectiveness of the conciliator is that of a therapist or a healer which helps the parties by
creating an atmosphere of trust which he then continues to develop to reach a mutually agreed
compromise or decision for both parties. Most successful conciliators are highly skilled
negotiators. Some conciliators operate under the auspices of any one of several non-
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governmental entities, and for governmental agencies such as the Federal Mediation and
Conciliation Service in the United States
4. Arbitration
Arbitration is a process by which parties agree to the binding resolution of their disputes by
adjudicators, known as arbitrators, who are selected by the parties, either directly or indirectly via
a mechanism chosen by the parties. It is another form of ADR process for the resolution of
commercial disputes, particularly in the context of international commercial transactions outside
the courts. The recourse to this mechanism stems from the arbitration clause inserted in
agreements and contracts. It can be voluntary or mandatory, binding or non-binding.
Advantages of Arbitration:
i)
Parties can choose their arbitrator and their own tribunal, especially when the subject
matter of the dispute is highly technical requiring expertise in the procedure and area of law.
ii)
iii)
Arbitration is often faster and more cost effective than litigation or legal restitution.
Awards at the end of the dispute are usually confidential and binding with limited scope of
appeal or setting aside of the order/award.

iv)
The language of arbitration may be chosen by the choice of the parties which makes the
process more transparent and efficient.

v)
Awards are enforceable under the New York Convention 1958 even in other nations (who
are signatory to the convention)
Disadvantages of Arbitration:
i)
When arbitration is mandatory and binding, the parties waive their rights to access the
courts and to have a judge or jury decide the case.

ii)
Arbitrators are generally unable to enforce interlocutory measures against a party, making it
easier for a party to take steps to avoid enforcement.

iii)
Discovery may be more limited in arbitration or entirely nonexistent.
iv)
Unlike court judgments, arbitration awards themselves are not directly enforceable. A party
seeking to enforce an arbitration award must resort to judicial remedies, called an action to
"confirm" an award.
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(Detailed study on arbitration in the next topic)
14
International Arbitration
Session 2: 150 minutes
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INTRODUCTION TO INTERNATIONAL ARBITRATION

2.1 History and Background of International Arbitration
International arbitration is a mechanism for dispute resolution between companies or individuals
in different states. Arbitration is usually used as a means of dispute resolution by including a
provision of arbitration clause in a contract. Public international arbitration entails both
arbitration agreements and decisions which have been instrumental in the development of the
nineteenth century public international law; leading to the growth of both international
arbitration law and diplomacy.
History tells us there more than one thousand instances of arbitration agreements (also known as
compromis) entered into by different nations during the time of World War I. They included
bilateral and multilateral accords, as well as agreements to settle disputes of boundary,
commercial claims and for managing ongoing shared responsibilities establishing arbitration as
the preferred method of handling dispute resolution.
International arbitration allows the parties to avoid local court procedures and comprises of
different rules when compared to domestic arbitration. It has its own non-country specific
standards of ethical conduct forming a hybrid of sorts between the common law and civil law
legal systems. The IBA Rules blend common and civil systems so that parties may narrowly tailor
disclosure to the agreement's particular subject matter.
International Arbitration can be broadly divided into
i)
Institutional Arbitration
Institutional Arbitration is widely used wherein the parties may choose to take advantage of the
established mechanisms and procedures offered by one of the many arbitral institutions. These
institutions have formal procedures and rules designed to assist parties. The institution chosen
may administer the arbitration according to its own rules or, in most cases, according to other
rules if requested by either party.
ii)
Ad-hoc Arbitration
Ad hoc arbitration allows the parties to tailor the arbitration process to the specific
circumstances of their dispute. A successful ad hoc arbitration often depends on the skill and
experience of the attorneys and arbitrators involved. The arbitration rules are established by the
parties conducting the arbitration. The parties decide the seat of the proceedings and the
domestic laws where the arbitration is seated are applied in the absence of arbitration rules. It
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also gives the parties the opportunity to decide the substantive laws that will govern the
arbitration proceedings.
2.2 New York Convention and its legal framework
All international arbitrations entered into between countries of the developed world are
governed by United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of
1958 ("New York Convention"). It was preceded by the 1927 Convention on the Execution of
Foreign Arbitral Awards in Geneva. The New York Convention was drafted under the United
Nations and has been ratified by more than 140 countries. Under the Convention, if a party to
arbitration files a lawsuit in breach of an arbitration agreement, the court is obligated to stay the
proceedings. The rules of the Convention allow for global enforcement of judgment by National
Courts with limited conditions for setting aside such orders.
Legal Framework of the New York Convention, 1958

1. Recognition & enforcement of Arbitral Awards: Article I to VI
Recognition & enforceability: The New York Convention is applied when differences arises
between persons or arbitrating parties for the recognition and enforcement of arbitral awards
made in the territory of a State other than the State where such awards are sought.4
This Convention shall come into force
Further, all arbitral awards including those pronounced by arbitrators and those made by
permanent arbitral courts are enforceable under this convention.5
Arbitration clause:
The convention requires all contracting states to recognize an undertaking reduced to an
agreement in writing for submitting to arbitration to resolve all or any differences which have
arisen or which may arise between them in respect of a defined legal relationship, whether
contractual or not.6 It also imposes a duty upon the Courts to refer the parties to arbitration
when such an agreement with an arbitration clause has been entered into, unless such an
agreement is not enforceable or incapable of being performed.
cl. (1), art. I, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
cl. (2), art. I, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
6 cl. (1) (2) (3), art II, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
4
5
17
Arbitral awards:
The Convention stipulates that each Contracting State shall recognize arbitral awards as binding
and enforce them in accordance with the rules of procedure of the territory where the award is
relied upon. It also provides for relaxation of conditions or fees or charges on the recognition or
enforcement of arbitral awards, keeping enforcement of such awards in parity with the domestic
arbitral awards.7 Article IV further provides for supplementing original award copies and
agreements for the enforcement of such arbitral awards.8
Refusal and setting aside of arbitral award:

Under Article V9 of the New York Convention, parties can refuse to recognize and enforce
awards against whom it is invoked, if they prove a) that they are incapacitated under the
applicable law; b) If proper notice of appointment of arbitrator or arbitration proceedings was
not given; c) the award deals with such decision which is beyond the scope of submission of
arbitration; d) the composition of the arbitration authority is improper or not in accordance with
the law of the country where the arbitration proceedings took place; e) The award is not yet
binding on the parties or has been set aside by the competent authority.
Such arbitral awards can also be set aside or refused to be recognized and enforced if the subject
matter is not capable of settlement by arbitration or contrary to the public policy of that country.
2. Validity of the convention: Article VII to X
The New York Convention takes dominance over the Geneva Protocol on Arbitration Clauses
of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 if the
contracting parties are a part of the New York Convention.10 However, the provisions of the
Convention do not affect the validity of multilateral or bilateral agreements or treaties of the
country where such award is sought to be recognized and enforced. Article VIII and IX also
provide for the accession of this Convention by all the members of the United Nations or its
specialized agencies.
3. Nation States that are signatory to the NY Convention: Article X to XIV
Ratification of States:
art. III, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
cl (1), art. IV, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
9 cl (1), (2), art. V, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
10 Article VII, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
7
8
18
All contracting states, at the time of signature, ratification or accession can declare that the
Convention extends to all or any of its territories. At any time thereafter, such extension of the
Convention is to be made by notifying the Secretary-General of the United Nations with effect,
on the ninetieth day from the day of the receipt of such notification by the Secretary General.11
The Articles of the Convention encompasses both, the federal and constituent states or
provinces, which are not under the constitutional system of federation, to come within the
legislative jurisdiction of the federal authority.12 A federal State Party to this Convention is also
required to supplement a statement of the law and practice of the federation and its constituent
units in regard to any particular provision of this Convention, showing the extent to which effect
has been given to that provision by legislative or other action.
Denunciation of Ratification:
The Convention allows for the Contracting State to denounce this Convention by a written
notification to the Secretary-General of the United Nations and such denunciation shall take effect
one year after the date of receipt of the notification by the Secretary General. Further, the
Convention will continue to apply to arbitral awards in respect of which recognition or
enforcement proceedings have been instituted before such denunciation takes effect.13 After
such denunciation, a contracting State is not be entitled to avail itself of the present Convention
against other Contracting States.
4. Duties of the Secretary General: Article XV
The Secretary General of the United Nations is allocated with the duty under this Convention to
notify the Contracting States with the signatures and ratifications, accession, declarations and
notification under the articles of the New York Convention. Further, Secretary-General of the
United Nations is also required to transmit certified copy of the convention to the signatory
states.
2.3 UNCITRAL Arbitration Rules, 2010
United Nations Commission on International Trade Law (UNCITRAL) has been recognized
as the core legal body of the United Nations system in the field of international trade law with
Article X, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
Arti XI, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
13 Art XIII, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958
11
12
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universal membership specializing in commercial law reform and harmonization of rules on

international business.
The UNCITRAL Arbitration Rules provide a comprehensive set of procedural rules upon which
parties may agree for the conduct of arbitral proceedings arising out of their commercial
relationship and are widely used in ad hoc arbitrations as well as administered arbitrations. The
Rules are used for the settlement of a broad range of disputes including disputes between private
commercial parties where no arbitral institution is involved, investor-State disputes, State-toState disputes and commercial disputes administered by arbitral institutions. It caters to all
aspects of the arbitral process, providing a model arbitration clause, setting out procedural rules
regarding the appointment of arbitrators and the conduct of arbitral proceedings, and
establishing rules in relation to the form, effect and interpretation of the award.
At present, the UNCITRAL Arbitration Rules entail provisions dealing with multiple-party
arbitration, joinder, liability and a procedure to object to experts appointed by the arbitral
tribunal, revised procedures for the replacement of an arbitrator, the requirement for
reasonableness of costs, and a review mechanism regarding the costs of arbitration.
The Rules include more detailed provisions on interim measures to achieve purposes of
a) Maintenance or restoration of the status quo between the parties;
b) Prevention of actions that would cause imminent harm or prejudice;
c) Preservation of assets to satisfy a subsequent award ("Mareva injunction");
d) Preservation of evidence.
In 2013, the UNCITRAL further adopted the UNCITRAL Rules on Transparency in Treaty-
based Investor-State Arbitration (the "Rules on Transparency") pursuant to an investment

treaty. The 2013 Rules on Transparency allow these rules to be used directly in investor-state
arbitrations and the resolution of complex multi-party arbitrations. The effects of the new rule
incorporate international best practices in the arbitration arena and nominate the Permanent
Court of Arbitration as its default appointing authority to harmonize the evolution of
international arbitration jurisprudence.
2.4 The theory of International Court of Arbitration
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The International Court of Arbitration is an institution for the resolution of International

Commercial Disputes. The ICA is a part of the International Chamber of Commerce (ICC) with
its headquarters in Paris, France. The court comprises more than 100 members from 90
countries.
It performs the functions entrusted to it under the ICC Rules of Arbitration and continually
strives to assist parties and arbitrators to overcome any procedural obstacles that arise.
International Court of Arbitration was founded to resolve business conflicts among
internationally trading companies and constitutes a leading centre in providing resolution
services for commercial disputes.
Parties wishing to have recourse to ICC arbitration in case of commercial conflict usually
introduce specific reference meanwhile negotiating their contract. For all parties stipulating ICC
arbitration as dispute resolution mechanism, a standard arbitration clause is recommended: All
disputes arising out of or in connection with the present contract shall be finally settled under
the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators
appointed in accordance with the said Rules of Arbitration.
The International Court or Arbitration does not itself resolve disputes but administers the
resolution of disputes by arbitral tribunals in accordance with the ICC Rules of Arbitration (the
Rules). The Court is the only body authorized to administer arbitrations under the Rules,
including the scrutiny and approval of awards. The President of the Court or otherwise at the
Presidents request, one of its Vice-Presidents shall have the power to take urgent decisions on
behalf of the Court, provided that any such decision is reported to the Court at its next session.
(Structure and functioning of ICA covered in detail in the 7th Session.)
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Drafting the Arbitration Clause

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3. DRAFTING THE ARBITRATION CLAUSE

Arbitration, as a technique, can be voluntary when the parties agree to do it or mandatory which
may required by law, for dispute resolution. Almost all contract arbitration take place when the
parties include an arbitration clause requiring them to arbitrate any disputes "arising under or
related to" the contract.
Usually contracts provide standard arbitration clauses, which may be used by parties without
modification or modified as may be required by any applicable law or according to the parties
preferences. If a provision like this isn't included in the contract, the parties can still arbitrate if
they both agree to it.
3.1 The Standard Arbitration Clause
The
standard
arbitration
clause
may
appear
to
have
the
following
language
All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of
Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with
the said Rules.
OR
"All disputes arising out of or in connection with the present contract shall be submitted to the International Court
of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of
Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with
the said Rules."
However, the standard clause can be modified in order to take account of the requirements of
national laws and any other special requirements that the parties may have. In particular, parties
should always check for any mandatory requirements at the place of arbitration and potential
place(s) of enforcement.
This traditional arbitration clause still works and it is good to use as they have the advantage of
long-term widespread acceptance and their frequent use has generated helpful guidance from
judicial interpretation. Using standardized clauses that incorporate the rules of a provider
organization such as the ICCs Court of Arbitration gives an important advantage when
problems arise between parties who want to have the option of using ADR and may be dealing
with less than friendly business associates thereby compelling both parties to put the arbitration
clause to test.
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Although in recent years, arbitrators have seen a need to re-examine former conflict management
systems and draconian clauses that were written long ago. The standard arbitration clause should
no longer be "one size fits all" or boiler plates as modern day arbitration has re-examined the
clause and additional steps to design and customize rules and clauses have been taken so that the
dispute resolution system promotes effective settlement.
3.2 The Model Arbitration Clause
Institutional Arbitration proceedings recommend the use of model arbitration clause under
Arbitration Rules or governed by a particular statute with specific guidance for parties to use
these clauses when disputes arise with governmental agencies
Lately, there has been a need for expeditious, fair and effective procedures for the handling of
complaints for the market participants and a few practice procedures have been applied to fit
specific needs of several industries such as that of construction, security, labor, environmental
and intellectual property have expressed the need for industry specific arbitration rules and
clauses.
3.3 Practicum: Industry-Specific Model Arbitration Clause

In Industry-Specific Arbitration, parties have the power to select the procedures they wish to use
if in the future they have a dispute wherein it is possible to bootstrap the rules of mediation and
arbitration into their contracts.
These Rules broadly encompass the following:
1. Number of Arbitrators
Customary practice in Institutional Arbitration has seen the need to add a clause on the number
and types of arbitrators to preside over the arbitration proceedings. There exists three choices:
i) A single neutral arbitrator;
ii) Two party-appointed arbitrators who appoint a single neutral arbitrator;
iii) Three neutral arbitrators.
All of these alternatives have merit and, when used properly, each will serve the parties resorting
to industry-specific arbitration quite well. When the amount at stake in the contract is reasonably
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low, parties usually resort to a single neutral arbitrator. However, if the dispute is complicated,
even three arbitrators can be appointed provided the contract calls for it or the parties can agree
at the time of the dispute. In recent years, highly qualified panelists have been added to a special
roster called the Large Complex Case Panel, as seen in the US Practice of Arbitration. These
arbitrators are high-profile well-known neutrals whose background and experience qualify them
to be the sole arbitrator in a large, complex dispute.
2. Qualifications of Arbitrators or Mediators
Highly technical disputes in large businesses of energy and mineral or other natural resources are
best heard by an arbitrator who has expertise in the issues involved in the dispute to reduce the
time and the cost of resolving it. Parties who want to avoid the expense and delay of a lawsuit
will work especially hard to get the right arbitrator.
An arbitration provision, like any other binding agreement between parties, is a creature of
contract. Perhaps the most important element in any clause is defining the qualifications of the
preferred arbitrator. The important qualifications for neutral arbitrators are fairness, integrity,
knowledge of the business, the ability to render an impartial decision, and possession of a judicial
temperament.
If the clause of the contractually prescribed qualifications for the arbitrators is such that
arbitrators with the requisite qualifications cannot be located, the arbitration agreement could be
challenged. While the clause is unlikely to cause the entire agreement to arbitrate to fail, the
added expense of the challenge is undesirable. In such case the court could regard the specified
qualifications of the arbitrators as an essential part of the agreement to arbitrate, and it might not
require the parties to accept the decision of arbitrators lacking those qualifications.
3. Selection of the Arbitrator
Arbitrators are generally selected using a listing process. Upon agreement, parties may use other
arbitrator appointment systems, such as the party-appointed method in which each side
designates one arbitrator and the two thus selected then appoint the chair of the panel.
However, the use of party appointed arbitrators can delay the process and produce compromise
awards or deadlock as one party usually charges that the other party wants to delay the selection
to frustrate the process. This often ends for a court appointment of the arbitrator, a situation
which the parties wanted to avoid in the first place.
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If parties want to use the party-appointed process, a carefully worded clause will provide time
limits on selection of the party-appointed as well as an alternative selection method of selection
should the two parties appointed be unable to mutually agree on an arbitrator.
4. Selection of the Locale
The choice of locale is made directly on the demand for arbitration. Even if the contract states a
specific locale by a complaining party, the responding party must file an objection within a
stipulated time period after notice for the seat of arbitration has been proposed by the former.
The choice of seat of arbitration can increase costs and have a major impact on other aspects of
the process, as well as on the success of the dispute resolution mechanism for one or both
parties. The place of arbitration implies generally a choice of the applicable procedural law,
which in turn affects questions of arbitrability, procedure, court intervention and enforcement.
Parties should put language into the contract specifying the locale for all of the above reason and
because in specifying a locale, parties should consider the convenience of the location, local
counsel and transportation, as well as the cost of transporting witness and materials, and the
availability of hotels and meeting facilities.
By choosing a locale, the laws of those countries may govern the arbitration proceedings,
therefore, the drafter must put in adequate though while deciding the locale of arbitration. If the
seat of the arbitration or locale is at issue, and the locale specifies the law of a county and the site
of the arbitration, if it is clear that the failed term is not ancillary from the rest of the agreement,
the entire arbitration provision can fail.
5. Discovery
The rules governing most arbitrations place the issue of discovery squarely on the shoulders of
the parties. If there is a need for discovery that can be determined by the mere subject of the
contracting parties or business agreement, the arbitration agreement should address discovery in
the clause pre-dispute. At the time of the dispute, if the parties cannot agree on document
discovery, the arbitrator(s) should, for good cause, discern the expedited nature of arbitration
and may establish the extent to which the discovery of records must be allowed.
6. Interim Reliefs
One major consideration when choosing to use the ADR system is what to do when a quick
decision is needed. It is within the authority of the arbitrator under the arbitration rules to grant
26
interim relief sought for. If the parties foresee the possibility of a need for emergency relief akin
to a temporary restraining order, they must specify an arbitrator by name (usually a retired judge)
for that purpose in their arbitration clause in sufficient time to address appropriate issues.
Where parties by special agreement or in their arbitration clause have adopted these rules for
emergency measures of protection, a party in need of emergency relief prior to the constitution
of the panel, shall notify all other parties in writing of the nature of the relief sought and the
reasons why such relief is required on an emergency basis
As a source of comfort though, one can add a phrase to the clause such as: Without waiving any
remedy under this agreement, either party may seek from any court having jurisdiction any interim or provision
relief that is necessary to protect the rights or property of that party, pending the establishment to the arbitral
tribunal.
Or;
The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy
shall not constitute waiver of the right of any party to submit the controversy or claim to arbitration if any other
party contests such action for judicial relief.
7. Reasoned Award
The wisdom of early drafters revealed a strong preference for a simple decision without
reasoning or opinion attached to it as a detailed written opinion often has the reverse effect.
In broad practical use, every written word provides a chance for rebuttal or challenge if a motion
to vacate the award is filed. Thus the time saved in arbitration now heads for the courtroom
where the delays and costs of ancillary dispute take on a life of their own.
8. Jurisdiction
Usually, the arbitrator has the power to rule on the scope or validity of the arbitration agreement,
and he/she has the power to determine the existence or validity of a contract of which an
arbitration clause is a part. The arbitration clause is treated as an agreement independent of the other terms of
the contract. A party must object to the jurisdiction of the arbitrator or to the arbitrability of a
claim or counterclaim before submitting themselves to the arbitration proceedings. The
arbitrator may rule on such objections as a preliminary matter or as part of the final award.
9. Remedies
27
Parties drafting a clause should be cautious about expanding what the arbitrator can do outside
of what is permitted by law. There are popular methods parties have used over the years to limit
the amount an arbitrator can award. So long as there is arms-length bargaining in a business
contract, parties are free to limit remedies to meet the existing needs of the parties. They can
agree to relinquish any right to punitive damages, and they can agree to a certain interest rate or
no interest at all so long as it is a contract to which both parties has agreed.
The most method is the use of "baseball" or "last final offer" arbitration to be considered for
specified types of disputes, particularly those relating to prices, indices and other types of
disputes which are quantifiable in numbers. In this type of arbitration, each party submits its best
and final offer supported by a memorandum and copies of all relevant supporting materials.
It is usually advised that the remedies in arbitration be consistent with remedies under the law
and meet the expectations of the parties and the arbitrator. If the contract requires the arbitrator
to apply the law, there is no need to spell out this provision. .
10. Appeals
Sometimes the parties desire an appeals process is put into place pre-dispute, most often in the
setting of complex cases or because one of the parties won't use arbitration unless there is a
mechanism for appeal. Adding such a pre-dispute clause is sure to increase the cost of arbitration
and delay the resolution of the dispute. Providing a mechanism for such an appeal assures that
the losing party will use it.
11. Enforcement
The enforcement clause language must contain the phrase- Judgment upon the award rendered
by the arbitration may be entered by any court having competent jurisdiction.
There are some practical concerns for the drafters that will give the arbitrators more to work
with and give the parties a certain comfort level at the time of payment. Parties should decide in
advance if they will tie a Base Exchange rate to calculate the final settlement.
Conclusion
Therefore, by designing the clause to include all of the necessary components presented in this
chapter and by investigating other additions or deletions, drafters can establish an ideal dispute
resolution mechanism in practice. Arbitration and mediation offer significant cost savings by
28
reducing and avoiding various preliminary motions, controlling discovery, and eliminating most
appeals.
Arbitral Awards & Its Enforcement

29
5.1 What is an arbitral award?

An arbitration award is rendered as a decision or judgment by the arbitrators at the end of
arbitration proceedings. Awards are of two types commercial and investment awards.
However, there is no distinction to be made between commercial awards and investment awards
as both instruments have the same function. They bring an end to a dispute with a decision
rendered by an independent and impartial tribunal and are capable of being enforced.
International Arbitral Awards
An international arbitral award usually looks pretty much like a judicial decision with an official
heading, stating the facts, recalling the parties claims and defenses, explaining what rules of
procedure are applicable and what substantive law applies to the claim. The award sketches a
brief account of the major phases of the arbitral proceedings from commencement of the
arbitration and naming of arbitrators through the hearings and the closing arguments put forth
by the party. Its concludes by presenting the tribunals factual and legal findings, making a
reference to the kind of proof that supports the most vital conclusions reached, summarizes the
conclusion, and recites the place and date of the award which is finally signed by all the
arbitrators.
The arbitral record always remains confidential and there are no uniform rules as to the drafting
of the award. The arbitral award has four main functions i) conclusion of dispute; ii)
determination of parties rights and obligations and disposition of claims; iii) recognition and
enforceability; iv) the potential for review or challenge of the award.
There are some aspects of the award that may vary depending upon the type of dispute before
the tribunal, such as the way in which the arbitral tribunal responds to the parties arguments and
submissions, the possibility, for the arbitrator who dissents from the majority, of issuing a
separate opinion and the reliance on precedents/ previous judgments on the same issues.
5.2 Essential characteristics of an Arbitral Award
The enforcement of an arbitral award can be divided into two phases The first phase, the
arbitral award has to be recognised as a legally binding decision under the law of the forum state.
This recognition will take the form of a confirmation wherein the defendant state can raise a plea
of immunity from jurisdiction in order to prevent the recognition of the award. The second
phase consists of measures of execution against the property of the defendant state. In this
30
phase, the state can try to prevent the enforcement of the award by claiming immunity from
execution.
In International Investment Arbitration, the concept of dual personality of the state comes
into play. By agreeing to arbitrate, a state submits itself to a procedure in which the parties are
equal. After the state has consented in assuming a procedural position which is equal to a private
party, it ought to maintain that position not only throughout the arbitration procedure but also
during the proceedings relating to the enforcement of the award, as that of a private party.
The enforcement of arbitral awards proceeding can be divided into the following
1. Inclusion of Parties arguments and evidence
During international arbitration proceedings, commercial arbitral tribunals are bound to examine
neither every argument raised by the parties, nor every element of proof that was laid before it.
Practice shows that arbitral tribunals often dont extend their reasoning to matters that the
parties have not had an opportunity to address in their submissions to stick to principles of
fairness and equity.
2. Dissenting opinions of the Arbitrators
When the tribunal consists of a sole arbitrator, the deliberative process is straightforward.
However, when the panel consists of two or more arbitrators, dissenting opinions of arbitrators
are provided in the award. However, a majority panels decision is applicable to reach an efficient
process of negotiation and compromise wherein each arbitrator feels obliged to adjust their
positions in the search for a coalition with their colleagues. An international commercial award
generally speaks in a monolithical voice and no separate opinions are rendered.
4. Use of precedents in an award
The source, on which the arbitral tribunals decision relies on, is also likely to differ depending
on the commercial or investment nature of the dispute. The more commercially attuned
arbitrator is principally interested in settling the concrete dispute before him in light of the
parties undertakings and the facts of the case. A commercial arbitrator is usually very concerned
not to overstep the powers that the parties granted him so as to avoid any criticism by the
arbitrating parties.
As a result, the award often justifies its principal legal conclusions by specific reference to
accepted sources of law only. For the same, arbitrators often display a tendency to make
31
reference to rules from a variety of sources (national legal systems, international treaties and case
law, restatements of commercial practices), to apply general principles of international
commercial law. Neither these rules nor these principles are formally binding upon them, but the
attitude may be explained partly by their search for equitable solutions.
However, international investment arbitrators are usually interested in setting out the law in a
public, reasoned decision that might be accepted by, and meet the expectations of, a constituency
broader than the parties themselves. As investment disputes often involve judgments on
important and politically sensitive issues, such as the determination of the adequacy of an elected
governments land distribution policy, States exercise of emergency powers, economic or foreign
policy, activities of an elected legislature, the determinations by a Supreme Court. So, the
international investment arbitral tribunals heavily rely on other international tribunals
precedents, and cite them abundantly.
5. Reasoning of Awards for its enforcement
International investment arbitrators are well aware of being part of a public process of decisionmaking and know that the consequences of inadequate reasoning travel beyond the particular
case onto international investment law jurisprudence, more generally. Inadequate reasoning
threatens the expediency and equity of arbitration; the most egregious inadequacies call into
question its very legitimacy. International investment arbitrators often tend to strengthen their
legal conclusion by referring, in addition to the substantive law binding upon them, to rules
stemming from an array of other source ranging from national laws to international conventions
to scholarly opinions. This produces a collective responsibility on part of the tribunals in this
field to pave the way for an orderly development of the law.
In the commercial field, arbitral awards are short; the reasoning is seldom based on precedents
(or literature) and more often on positive rules, and generally focuses on the parties intentions
and allegations. Reasoning of both commercial and investment international awards are first
directed towards the parties to the disputes, who need to know why they won or lost and to
check whether the merits of their dispute have been properly considered. Parties who pay for
arbitral justicein commercial as well as in investment mattersneed to be reassured that their
arguments have been both heard and understood, and that the adjudication process has been
fairly conducted.
5.3. Enforcement of Arbitral Awards under various Conventions
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The contractual theory of an award focuses on the origin of arbitration in the agreement of the
parties to refer their dispute to arbitration and the consensual nature of arbitration. Since the
arbitration agreement is enforceable, the outcome of the arbitration, the award, must also be
enforceable. The arbitral award is therefore a contract made by the arbitrators acting as agent of
the parties.
However, the international and transnational law, such as the New York Convention, will also
have a say that is often not consistent with the law of the place of arbitration. It has a
transnational effect not capable of being controlled by a single legal system and clearly impose a
public international obligation on their respective Contracting States to recognize and treat an
award as if it were a decision of a local court.
1. Enforcement of award under The New York Convention
An award is considered analogous to a court judgment and it is vested with the same
functionality and powers as that of Courts. Arbitration has a powerful outcome courtesy of the
New York Convention which was designed to give international currency to arbitral awards. The
recognition and enforcement of an arbitral award depends on a territorial connection and a
uniform basis for the application of the law is created by this convention formally known as the
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.
According to Article 1 of the Convention, Contracting states will apply the provisions of the
Convention in cases of recognition and enforcement of an arbitral award made in the territory of
another Contracting state. The Convention enables a court of a Contracting state to confine
itself to testing the applicability of the New York Convention, in cases relating to the
recognition of a foreign arbitral award. When this Convention is applicable recognition of an
award, it can only be refused on the limited grounds provided under Article 5.
2. Under the ICSID Convention
International Investment Arbitral Awards are usually enforced under The International Centre
for Settlement of Investment Disputes Convention which contains an automatic recognition
mechanism, insofar as it obliges any contracting State to enforce ICSID awards as if it were a
final judgment of a court of that State. The ICSID system is efficient and the award adopted by
an international investment arbitral tribunal is recognized as binding, to be enforced by courts of
member States to the Convention.
33
The ICSID was designed so that it cannot be reviewed by domestic a court which in theory
makes it more enforceable.
Under Article 52 of the ICSID Convention, either party may request the awards annulment by
an ad hoc Committee of three persons, which has the authority to annul the award or any part
thereof. If the award is vacated, in whole or in part, the dispute is submitted to a new tribunal at
the request of either party. These awards under the ICSID System undergo two standards for
recognition & enforcement or annulment
i)
a higher standard, under which failure to state reasons has to be equated with the
absence of a statement of reasons capable of providing a basis for the decision and its
non-enforcement and;
ii)
ii) a lower standard wherein an ad hoc committee should concentrate on whether the
award enables the reader to follow the reasoning of the tribunal on points of fact and
law. It is therefore generally held that ICSID rules place on arbitrators a heavy burden to
ensure that their reasons are adequate for its enforcement.
3. Under the ICC Umbrella & Domestic Courts jurisdiction

When an award is solely the outcome of a jurisdictional theory, then it could be fully controlled
by the courts in whose territory the award was made. The jurisdictional theory focuses on the
endorsement of arbitration by national legal systems and the status of the arbitrator, which is
equated to the judicial function of the judge. It is the premise of this theory that arbitration and
the national courts and national law interact and that the law of the seat of arbitration is critical
in determining the level of interaction. The arbitrators perform a judicial function and the result
of this work, the arbitral award, is treated as, and is given the effect of, a judgment of a national
court.
When an international award is not connected to any legal system acts as an international judicial
decision, whose legality is examined with regards to the applicable laws in the country where its
recognition and enforcement are sought bears on the legality, validity and effectiveness of the
award. However, the national courts recognition and enforcement remain a significant issue for
the international investment awards which do not fall under the NY Convention or the ICSID
umbrella. They verify that the arbitral tribunal did not rule upon affairs beyond the scope of the
agreement to arbitrate, or was in accordance with the procedure agreed to by the parties or was
in accordance with public policy of the forum. National scrutiny over arbitral awards is not the
only form of control that international arbitral awards (and its reasons) may be subject to.
34
In arbitrations under the International Chamber of Commerce umbrella, the Court of

Arbitration scrutinizes all awards before they are issued. In practice, before signing the award,
the arbitral tribunal submits a draft to the court. The court may lay down modifications as to the
form of the award and, without affecting the arbitral tribunals liberty of decision, may also draw
its attention to points of substance. No award can be rendered by the arbitral tribunal until it has
been approved by the court as to its form. Efficiency of the enforcement mechanism is often
intertwined with judicial efficiency, as well as judicial attitudes towards the arbitral process
Conclusion
There is no doubt that institutional constraints affecting reasoning in international investment
arbitration diverge from those in international commercial arbitration. Yet, all these constraints
seem to operate in the same direction that of making the awards free from criticism on
technical and substantial grounds for its enforcement.
In international arbitration, there are no pre constituted tribunals. Members of arbitral tribunals
are selected by the parties after a dispute has arisen, on a case-by-case basis. Arbitrators tenure is
always temporary and expected to expire with the end of the arbitral proceedings.
Consequently, international arbitration is usually not a full-time job. However, arbitrators often
practice as private attorneys whose professional networks in which they operate are small, highly
specialized and elite with tight professional and personal contacts. This provides arbitrators with
an incentive to secure and expand prospects of future arbitral appointments and hence,
recognition and effective enforceability of awards, in this perspective serve as signals of the
same.
35
International Commercial Arbitration

36
6.1 Recent Trends in International Commercial Arbitration

One of the most significant global trends in arbitration has been its increasing popularity as the
preferred means of resolving international commercial disputes, and the corresponding increase
in the support of arbitration by courts in most states. There has continued to be sporadic
resistance to the use of arbitration, particularly by states eager to shield their actions from
international scrutiny, but this stance has become increasingly isolated and difficult to defend in
recent years as it been an enduringly popular choice for parties, in both state-to-state and
commercial dispute resolution, since the beginning of recorded history.
The current legal framework for international arbitration constitutes the signing of the United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958
(New York Convention), the promulgation of the UNCITRAL Arbitration Rules in 1976, the
adoption of the UNCITRAL Model Law in 1985 and the enactment of modern arbitration
statutes in many developed jurisdictions.
This framework evolved in direct response to the needs of the business community and, over
time, has ensured that the international legal system and leading national legal systems have
become firmly pro arbitration.
Arbitration is the preferred means of resolving international commercial disputes because the
process provides a neutral, speedy and expert dispute resolution process, in a single centralized
forum, with enforceable dispute resolution agreements and final decisions.
The parties choose to arbitrate in order to avoid the expense, delays, and rigidities of litigation in
state courts, as well as the peculiar uncertainties of international litigation (including
jurisdictional, choice-of-law and enforcement disputes)
Reasons for Arbitration as a global trend 1. Neutrality of the Forum:
International Arbitration provides a neutral forum for dispute resolution, detached from either
of the parties or their respective home state governments. This objective of neutrality is cited by
contemporary users of international arbitration in both state-to-state and commercial arbitration.
37
The almost universal reaction is to seek agreement on a suitable neutral forum, which does not
favour either party and will afford each party the opportunity to fully and fairly present its case.
2. Neutrality of Arbitrators
International arbitration further permits parties to choose a sole or presiding arbitrator whose
nationality is different from that of the parties involved thus reducing the risks of partiality or
parochial prejudice. All leading institutional arbitration rules or practice require that the sole
arbitrator or presiding arbitrator may not be of the same nationality as the parties.
3. Centralized Dispute Resolution Forum
Another attraction of international arbitration is its ability to avoid the widespread jurisdictional
and choice of law difficulties attending international litigation. One of the objectives of
international arbitration agreements is to avoid multiple proceedings.
International arbitration offers the promise of a single, centralized dispute resolution mechanism
in one contractual forum wherein arbitration agreements are generally both drafted and
interpreted expansively, to encompass as wide a range of potential disputes between two parties
as possible.
4. Enforceability of the Arbitration Agreement and Awards
A centralized forum also enables enforceability provided by international arbitration agreements
and awards. The international and national legal regime governing arbitration agreements and
awards generally enables international arbitration to produce more enforceable and final results
than court proceedings. Thus, international arbitration agreements are more readily enforced and
more broadly interpreted under the New York Convention, to which more than 135 countries
are party, and national arbitration legislation (often based on the UNCITRAL Model Law) which
facilitate the enforceability of international arbitration agreements, with only limited grounds for
denying recognition to an arbitral award.
5. Competence and Expertise
International Arbitration is competent where high end expertise by qualified elite arbitrators is
provided for dispute resolution process. In some states, local courts have littleexperience with
international transactions or disputes; judges are arbitrarily assigned to cases, without regard to
expertise or experience. In many states, basic standards of judicial integrity, independence and/or
38
competence are lacking, particularly in cases involving local or regional litigants and a fair,
objective proceeding is unlikely.
However, in International Arbitration, the parties are free to select their arbitral tribunal in
international arbitrations, including the right to select co-arbitrators and a chairman with
appropriate experience, expertise and availability.
6. Finality of the Decision
The most attractive feature of International Arbitration is the absence, in most cases, of appellate
review of arbitral awards. Judicial review of awards in most developed countries is confined to
issues of procedural fairness, jurisdiction, and public policy.
Dispensing with appellate review obviously reduces both litigation costs and delays particularly
when a case must be retried in the first instance court, with the possibility of yet further appeals.
7. Cost Effectiveness and Expeditious Procedure
Arbitration offers a cheaper, quicker means of dispute resolution than national court
proceedings. International arbitral institutions are responding to parties concerns as to speed
and promote fast-track procedures where possible. And in many jurisdictions, national court
proceedings are subject to at least equally significant delays.
The consistent growth in the number and size of international arbitrations is paralleled by the
increased activity in the field by members of the legal community in most leading national
jurisdictions, including in the UK, Europe, the US, the Middle East and Asia.
Arbitration remains a popular choice for parties because it is effective and, in the international
context, capable of overcoming many of the problems inherent in other dispute resolution
alternatives. Provided those involved in international arbitration continue to be mindful of the
objectives of the parties, and ensure that international arbitration continues to meet their needs,
its growth in popularity is set to continue for many years to come.
6.2 IBA Guidelines on Conflict of Interest
The International Bar Association (IBA) recently revised its Guidelines on Conflicts of
Interest pertaining to International Arbitration.
The Guidelines seek to address issues such as the rise of advance declarations by arbitrators;
third-party funding; increasing significance of arbitral secretaries and the possibility that an
39
arbitrator who is also the counsel to one of the parties operate from the same chambers.
A. Structure and characteristics of the IBA Guidelines
The revised IBA Guidelines retain the previous structure containing two parts Part I: General
Standards This part contains seven sets of principles to which arbitrators should adhere in
order to ensure that they are not subject to a material conflict of interest.
Part II: Application Lists This part gives practical examples of when an arbitrator can or
cannot act under:
i) The Non-Waivable Red List
ii) Waivable Red List
iii)
Orange list
iv)
Green List
Revision of provisions under Part I: General Standards
Advance declarations by arbitrators: The new General Standard under proviso 3 (b) addresses
the increasing use by prospective arbitrators of advance declarations or waivers in relation to
possible future conflicts of interest. The applicable law and the specific wording of the waiver,
suggest expressly that such waiver does not discharge the arbitrator from his or her ongoing duty
Arbitral Secretaries: Under proviso 5(b), the Guidelines also apply to arbitral secretaries and
assistants. This reflects the increasing use of arbitral secretaries and their significance over the
last ten years since the Guidelines were first issued. Further, the duty is to be respected at all
stages of the arbitration, and applies irrespective of whether or not the particular arbitration
institution requires arbitral secretaries to sign declarations of independence and impartiality
following the Young ICCAs Guide on Arbitral Secretaries which provide that the role of arbitral
secretaries may go beyond purely administrative matters to drafting procedural orders and
awards.
Arbitrators law firm: The revised Guidelines make clear that the arbitrator is in principle
considered should bear the identity of his or her law firm under proviso 6 (a) to strike a balance
between the partys desire to appoint an arbitrator who may be a partner in a large international
law firm and the importance of maintaining confidence in the independence and impartiality of
arbitrators. In determining any potential conflicts, consideration should be given to the
involvement
the
firm
has
may
extend
beyond
40
the
scope
of
representation.
Third-party funders: The IBA extends controlling interest of an investor company to a third
party funder and insurers who have a direct economic interest in, or a duty to indemnify a party for, the
award to be rendered in the arbitration under proviso 6 (b) of the Guidelines. This means that thirdparty funders and insurers may now be considered to bear the identity of the party that they are
funding.
Proviso 7 (a) also provides that parties must now disclose any direct or indirect relationship
between the arbitrator and a third-party funder under the disclosure clause by making a
notification in this regard at the earliest possible opportunity.
General Standard 7(b) proviso is a new addition to the Guidelines that provide each partys
obligation to state the identity and relationship of its counsel and the arbitrator at the earliest
possible opportunity as both are members of the same barristers chamber.
Practicum Part II: The Application List
i)
Non-Waivable Red List- When the arbitrator cannot act at all
These provisions under the list expressly clarifies that the arbitrator cannot be an employee of a
party or has a controlling interest in a third-party funder or have his or her firm regularly advise a
party.
ii) Waivable Red List -An arbitrator can act subject to disclosures made by him
The scope of an arbitrators close family member who has a significant financial interest in the
outcome of the dispute has been widened to include not only the immediate family but any
other family member with whom a close relationship exists. Where an arbitrator derives
significant financial income from advising a party regularly, this is dealt with in the non-waivable red
list. However, the waivable red list requires the arbitrator to make an express disclosure before
the
parties
may
appoint
him
as
the
arbitrator
in
the
concerned
dispute.
iii) Orange List: When the arbitrator has a duty to disclose but cannot under unless the parties object
The orange list is a non-exhaustive enumeration of specific circumstances that may create
concerns about the arbitrators impartiality or independence. In addition, examples are given of
situations that are not in the Orange List but may require disclosure, depending on the
circumstances: repeat past appointments by the same party or the same counsel beyond the
normal three-year period; an arbitrator concurrently acting as counsel in an unrelated case that
involves similar legal issues; and an appointment made by the same party or the same counsel
41
while the case is ongoing. New entries in the Orange List include instances where enmity exists
between an arbitrator and the counsel or a third-party funder.
iv) Green List: When no such disclosures are required
The revised Guidelines mark an evolution rather than a sea change from when they were first
issued in 2004. They maintain a framework that is pro-disclosure rather than prodisqualification14.
B. Drawbacks of the IBA Guidelines
The main aim of the revised Guidelines was to promote consistency, avoiding unnecessary
challenges and arbitrator removals, as well as withdrawals under the Applications Lists where the
duties of the parties and arbitrators have been listed. However, the recent case of W Limited v M
SDN BHD215 illustrates that weaknesses remain in the 2014 Guidelines as concerns disclosure
and conflicts of interest where the claimant alleged that the Arbitrator had not made proper
disclosure about being associated with the defendants affiliates and as such sought to overturn
the awards he had made in the defendants favour even though such affiliation comes under the
Non-Waivable Red List.
In this respect, the court held that the IBA guidelines do not purport to be comprehensive and
are to be applied with robust common sense and without pedantic and unduly formulaic
interpretation.
It enables arbitrators and parties in a dispute to gain a better understanding of the scope of any
disclosures that need to be made but this would also open gates to vexatious challenges as the
scope of disclosure.
6.3 Third Party Funding in International Commercial Arbitration
Third Party funding as a concept in International Arbitration was introduced to support
companies that did not have the means to pursue claims. Third party is someone who is not
involved in an arbitration proceeding but provides funds to a party to such arbitration for
something in return. The funding also called as litigation finance covers the party's legal fees
and expenses incurred in the arbitration and the proceeds expended in such arbitration is termed
as collateral. Third party players include insurance companies, investment banks, hedge funds
IBA Guidelines 2014 available at: http://www.ibanet.org/Document/Default.aspx?DocumentUid=e2fe5e72eb14-4bba-b10d-d33dafee8918
15 W Limited v M SDN BHD 2016 EWHC 422 Comm
14
42
and law firms. Funders look at international arbitration, attracted by the high-value claims,
perceived finality of awards, and the enforcement regime provided by the New York
Convention.
Essentials of third party funding
Funders are primarily interested in claims with a damages outcome only available to claimants
or defendants with a counterclaim where damages are assessed at 10 million. Extensive due
diligence, risk analysis, quantum of damages, costs and enforcement risk is key to third party
funding.
The seat of the arbitration is an important factor to determine the fate of the arbitration, as in
some countries, the fact of funding may be used to raise public policy arguments to frustrate
enforcement.
Claimant companies approach funders out of necessity, for risk management and when the
company wants to invest that capital elsewhere. When choosing a funder, it is important to
ensure that a funder has sufficient capital to meet all liabilities that could arise. This should not
be an issue if dealing with a reputable funder with an established track record.
Disadvantages of Third party funding in International Arbitration
Although funders are generally prohibited from taking undue control or influence in
arbitration, there may be some loss of autonomy on the part of the funded party (in particular
when considering settlement) as funders may reserve the right of approval of the settlement.
Most funders will adopt a light touch approach at level of involvement in the matters they
fund. In common law jurisdictions, the funders will be conscious of the need to remain at arm's
length. Otherwise the arrangement could be found to be unenforceable.
The civil law approach is more relaxed and funders may actively engage with the claimants in
matters of fund allocation during the process of dispute settlement. Most funders will therefore
only require limited reporting, usually on a quarterly basis or at key stages of the arbitration.
The nature of international arbitration, and in particular the mechanism for the appointment of
arbitrators, raises several issues surrounding the use of third party funding which gives rise to
potential conflicts of interest where an arbitrator, or his/her colleagues have a relationship
with a funder involved in the case.
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Ethical concerns stem from party-appointment of arbitrators: repeat appointment of

individual arbitrators in cases involving the same funder, or appointment of an arbitrator by a
funded party where that arbitrator already has a relationship with the funder, are but two of the
potential conflict scenarios.
It is also found that on applications for security for costs, it should not be assumed that the fact
that a party is funded means that it is impecunious and unable to meet the obligation to pay the
respondent's costs. However, if there is evidence suggesting that a party is impecunious, the
existence of a third party funding agreement may be taken into account and this may require
disclosure of the third party funding agreement.
The other issue that has concerned many is whether a funder can be ordered to pay costs.
This flows from the concern that the existence of third party funding will lead to an increase in
the number of claims brought, and in particular, the number of investment treaty claims where
the potential gains are considerable.
Third party funders will have a preference for arbitrations in funder-friendly jurisdiction. The
seat of the arbitration will be the relevant jurisdiction that are currently regarded as being funderfriendly include the US, UK, Australia, Germany, France, and the Netherlands, with London and
the US currently dominating the funding market.
44
Critique of the International

Court of Arbitration
45
7.1 Critique of the existing International Court structure

With the growth of globalization, disputes also started becoming wider and more global. While
talking about courts that have lead the way in international dispute resolution, the International
Court of Justice (ICJ) or the World Court as it is commonly called, should be the start of all
discussions.
In line with the theme of this academic programme, the other court to be dealt with is the
International Court of Arbitration (ICA).
It is not denied that these courts have provided ease of settlement of international disputes and
have had a very important role to play in maintaining international law and order. Recently,
however there has been a growing voice of concern against these mechanisms that cannot be
shut out without an analysis of the concerns, especially when many of these can be resolved with
simple measures. This discussion becomes even more relevant in the light of the break 16 on the
negotiations between the European Commission and the United States over the Transatlantic
Trade and Investment Partnership (TTIP) amidst criticisms that the Investor - State Dispute
Settlement clauses would allow self-interested arbitrators to secretly overrule the European
Governments, with no right to appeal.
7.2 Enforcement of Judgments
A lot of critiques have often pointed out the lack of mechanisms with the ICJ to enforce a
judgment made by it is a major reason of its failure to be able to deal with international disputes.
Article 94 (2) of the Charter while vesting in the Security Council the power to give effect to a
judgment has also given it the power of discretion. Unlike the previous mechanism for the
League of Nations, where the Security Council was obligated to act when a successful litigant
brought a case of non-compliance before it, in the present Charter the scope for discretion has
caused abuse of powers by the voting countries. This it may be argued has severely hampered the
effectiveness of the ICJ. Further, there is also an issue of enforcement of decisions of the ICJ
that are not in the nature of a judgment, but are mere orders indicating provisional measures17.
7.3 Value of Precedents.
16EU-US
trade negotiations (TTIP) Investor dispute mechanism Trojan horse must be excluded from TTIP, by the
Greens (European Free Alliance) in the European Parliament (Available at:http://www.greens-efa.eu/eu-us-tradenegotiations-ttip-11492.html)
17Attila Tanzi, Problems of Enforcement of Decisions of the International Court of Justice and the Law of the United Nations
46
The ICJ doesnt consider itself bound by precedents as per Article 59 of the Statute which says
that the decision of the court has no binding force except between the parties and in respect of
that particular case.
In international arbitration, precedents play an even smaller role due to factors such as
decisions being of variable quality, lack of permanence and all decisions not being public.
The reasons for the ICJ not following its precedents have their own rationale, but this
characteristic has often caused the fear of uncertainty. Several corporates approaching arbitration
tribunals have said that the lack of certainty and the personal disposition of every arbitrator has
caused them to cover all bases, instead of just the issues at hand to remain in the safer side even
if it includes more time and cost18.
7.4 Lack of summoning and investigative powers

The ICJ does not have the power to summon third party states in a dispute before it. The ICJ
has had to balance 2 principles upon which international jurisdiction is based
1. Principle of consent according to which only consenting parties come before the court and the
court can decide on matters that only bind these parties and;
2. Principle of excessive impairment of its own jurisdiction according to which the ICJ may not
excessively restrain itself in the exercise of its own jurisdiction.
The fact that an arbitral award cannot impinge on the rights of a third party not present before
the arbitral tribunal is widely accepted and a consequence of the private nature of arbitration
proceedings. Thus, it remains to be seen if this lack of summoning power could create a hurdle
in the effective dispute resolution by an international court structure.
Further, the investigative powers of these court structures are very limited, leading to inaccurate
or inefficient examination of the facts of any case before them. For the ICJ, it is practically
impossible to direct a State party to disclose and ensure that the facts disclosed are completely
accurate, more so when the state is a Superpower or has a permanent seat at the Security
Council. 100 % of the corporate participating in a survey on the effectiveness of commercial
18
http://kluwerarbitrationblog.com/2010/07/16/more-on-corporate-criticism-of-international-arbitration/
47
arbitration agreed that excessive document disclosure is a major concern they face when
choosing to go for arbitration.
7.5 Neutrality of Judges/ Arbitrators
There have been various studies conducted to evaluate the neutrality of judges of the ICJ and
many arbitrators have also received flak for being biased. In the challenge to the ISDS clause of
the TTIP also, one major reason cited was the perceived lack of independence and impartiality of
arbitrators.
Critics of the ICJ, mainly politicians and diplomats from states that have recently lost their
casesargue that the ICJs rulings are politically motivated. In the words of Jeane Kirkpatrick,
the ICJ is a semi-legal, semi judicial and semi political body which the nations sometimes accept
and sometimes dont.19
A study by Eric A. Posner20 showed that judges at the ICJ tend to vote about 90% in favour of
their home state and when their home state is not party to the dispute, then states that are most
closely situated to their country in terms of wealth, culture and political regime. The scope of this
discussion in matters of arbitration is reduced due to the fact that parties have a say in the choice
of arbitrators.
19Nicaragua
v. U.S., (available at: http://en.freepedia.org/Nicaragua_v._United_States.html)

A. Posner and Miguel de Figueiredo, Is the International Court of Justice Biased? 1 December 13, 2004.
(Available at : http://www.law.uchicago.edu/files/files/234.eap_.icj-bias.pdf)
20Eric
48
International Investment Arbitration

49
9. 1 Introduction to International Investment Law and Arbitration

From one perspective, international investment law is a specialized subject of international law
an evolving combination of treaties, customary international law standards, and general
principles, striving for (and perhaps achieving) universality. From another perspective, it is a
specialized subject of international commercial arbitrationa series of individual business
disputes based on particular, usually bilateral, treaty arrangements (and often also on contracts
between investors and states governed by national law), resolved by arbitral tribunals.21
The emergence of the system of investment treaty arbitration, when viewed against the canvas of
international law, is a major transformation in international adjudication. The reason why this is
so is that investment treaties uniquely combine various innovative features of international
adjudication to formulate a system that uses arbitration to review and control states. To be
concise, the treaties draw together these features22:
(i)
Investors can bring international claims against states in the context of regulatory
disputes, unlike customary international law and most treaties.
(ii)
The states consent to arbitration is prospective, unlike historical claims tribunals before
which foreign nationals could bring claims.
(iii)
The main remedy is state liability in public law, unlike virtually any treaty that allows
individual claims.
(iv)
A liberal approach to forum-shopping by claimants is, in some cases, combined with the
removal or limitation of the duty to exhaust local remedies.
(v)
Awards are enforceable in domestic courts across the globe, with limited opportunity for
judicial review.
9.2 The Conflicting Interests of the Host State and the Investor
Foreign investors, being aliens to the host States political process who often control key sectors
of the economy, are especially vulnerable to sustain the intemperate exercise of sovereign power.
Bilateral as well as multilateral investment protection treaties typically provide that direct as well
as indirect expropriations or measures having equivalent effect require compensation. A clear
conflict arises between the regulatory interests of States and the interest in the protection of
investments.
Alex Mills, Antinomies of Public and Private at the Foundations of International Investment Law and Arbitration,
Journal of International Economic Law 14(2). 469-503
22 Gus Van Harten, Investment Treaty Arbitration and Public Law, Oxford University Press
21
50
The goals of investment protection and promotion are important but not absolute. Instead, they
must be weighed against the needs of States to maintain a meaningful degree of sovereignty,
both as host state regulators and as treaty parties. Host states have an interest in providing
investor protection in order to promote investment, but they must weigh this economic welfare
goal against a variety of other economic and non-economic welfare goals such as national
security, environmental protection, health and safety regulation, protection of the economy, and
wealth redistribution through taxes.23 Awards in published cases indicate that investor-state
arbitral tribunals are holding governments to stricter standards of non interference with investorstate contracts than their domestic law counter parts.
9. 3 Historical Development of the Concept of International Investment Protection24

Until the Communist Revolution in Russia in 1917, neither state practice nor the commentators
of international law had reason to pay special attention to rules protecting foreign investments.
Treaty practice in the nineteenth century protected alien property not on the basis of
autonomous standard, but by referring to the domestic laws of the host state. The implicit
assumption was that each state would, in its national laws protect private property and that the
extension of the domestic scheme of protection would lead to sufficient guarantees for the alien
investor.
The first perspective on international investment law views its history as progressiveit might
(loosely) be described as a Hegelian philosophical perspective on history. From its origins in the
nineteenth century and in arbitral awards like the Neer decision in the 1920s, investment law (it
is argued) has seen in the second half of the 20th century a progressive trend toward increasingly
greater agreement on increasingly enhanced international standards of protection for foreign
investments, a movement toward an international consensus.
An alternative and contrasting perspective views the history of international investment law not
as one of progress but as one of an ongoing struggle of competing interestsit could (loosely)
be described as a Marxist philosophical perspective on history. This version might start with the
history of international colonial exploitation and the Calvo doctrine which emerged in response,
and view international investment law as the site of, or a product of, economic conflictthe
Anthea Roberts, State-to-State Investment Treaty Arbitration: A Hybrid Theory of Interdependent Rights and
Shared Interpretive Authority, 55 Harv. Intl L.J. 1
24 Rudolph Dolzer and Christoph Schreuer, Principles of International Investment Law, Oxford University Press
23
51
continuing disagreement and contestation between developed and developing worlds, reflecting a
polarization of perspectives between North and South.
The Calvo Doctrine
In a famous study first published in 1868, the Argentine Jurist Carlos Calvo presented a new
perspective based on the view that foreign nationals must assert their rights before domestic
courts and that they have no right of diplomatic protection by their home state or access to
international tribunals. Calvos theory was conceived against the background of gunboat
diplomacy by capital-exporting countries and other such similar practices.
The Hull Rule
In 1938, the nationalization of US interests in the Mexican agrarian and oil business, led to a
dispute which resulted in an exchange in which US Secretary of State, Cordell Hull, wrote a
famous letter to his Mexican counterpart. In his letter, he spelled out that the rules of
international law allowed for expropriation of foreign property, but required compensation that
was proper, adequate and effective.
The International Minimum Standard
What had emerged from the various international disputes about the status of aliens in general,
was a widespread sense that the alien is protected against unacceptable measures of the host state
by rules of international law which are independent of those of the host state. The sum of these
rules eventually came to be known as the international minimum standard.
Development after the Second World War
Over the years, the new theme for capital-importing states was not to oppose customary law, but
instead to attract additional foreign investment by granting more protection to foreign
investment than required by traditional customary law, now on the basis of treaties. Five decades
after it was formulated, the Hull rule became a standard element of hundreds of new bilateral
investment treaties (BITs) as well as multilateral agreements such as the Energy Charter Treaty
(ECT) adopted in 1994 or the North American Free Trade Agreement (NAFTA).
The Broches Concept and the ICSID
In 1961, two years after the era of bilateral treaties had begun, the World Bank took the lead to
address the emerging international legal framework of foreign investment. In the World Bank, it
52
was the then General Counsel, Aron Broches, who concluded that for the time being, the best
contribution the Bank could make was to develop effective procedures for the impartial
settlement of disputes, without attempting to seek agreement on substantive standards.
In 1965, the Convention on the Settlement of Investment Disputes between States and nationals
of other States came into being a multilateral treaty that provides a procedural framework for
dispute settlement between host states and foreign investors through conciliation or arbitration.
9.4 Sources of International Investment Law25
The most important sources of international investment law are:
(i)
The ICSID Convention
Investment treaty arbitration is governed by the ICSID System is an ad hoc tribunal established
pursuant to UNCITRAL Rules to arbitrate International Investment Agreements and provide
foreign investors with a means for redress against states for breaches of contract. The ICSID was
designed so that it cannot be reviewed by domestic a court which in theory makes it more
enforceable. The legal protection of foreign direct investment is guaranteed by a network of
more than 2750 Bilateral Investment Treaties (BITs), Multilateral Investment Treaties. The
ICSID also handles investor-state dispute settlement and hears relatively few cases.
(ii)
Bilateral Investment Treaties (BITs)
BITs are the most important source of contemporary international investment law. BITs provide
guarantees for the investments of investors from one of the contracting states in the other
contracting state. Most BITs contain advance consent of the two states to international
arbitration with investors from the other state party. Another provision on dispute resolution
provides for arbitration between the two state parties to the treaty (state-state arbitration),
although investor-state arbitrations are more common.
(iii)
Sectoral and Regional Treaties: the Energy Charter Treaty and NAFTA
The scope of the ECT is not limited to investments, but covers a wide range of issues such as
trade, transit, energy efficiency, and dispute settlement. It essentially grew out of the desire of
European states to cooperate closely with Russia and the new states in Eastern Europe and
Central Asia in exploring and developing the energy sector. Currently, 51 states and the
European Union have ratified the Treaty. The NAFTA between Canada, Mexico and the United
25
Ibid
53
States, addresses matters of both trade and investment at the free movement and liberalization of
goods, services, people, and investment, and its provisions are largely built on the rules of the
WTO.
(iv)
Customary International Law
The treaty-based rules have to be understood and interpreted, like all treaties, in the context of
the general rules of international law. Relevant areas of customary international law include rules
on attribution and other areas of state responsibility, rules on damages, expropriation, on denial
of justice, and on the nationality of the investors.
(v)
General Principles of Law
General principles become relevant in the case of lacunae in the text of treaties. General
principles of law in the sense of Article 38(1)(c) of the Statute of the International Court of
Justice have been receiving increasing attention. Examples of general principles relied on by
tribunals are similar to principles of natural justice which include i) good faith; ii) nemo auditor
propriam turpitudinem allegans (no one can be heard to invoke his own turpitude); iii) estoppels; iv)
onus probandi (burden of proof) and v) the right to be heard.
(vi)
Unilateral Statements
The International Court of Justice and its predecessor have recognized that unilateral
declarations will be binding if the circumstances and the wording of the statement are such that
the addressees are entitled to rely on them. The International Law Commission (ILC) has
adopted Guiding Principles applicable to unilateral declarations of states that capable of creating
legal obligations which is a guarantee of minimum standards, FET and good faith. An illustration
may be found in the cases of Waste Management v Mexico26 and the like.
9. 5 Concept of Investor
From the perspective of a capital exporting country, the definition identifies the group of
investors whose foreign investment the country is seeking to protect through the agreement,
including, in particular, its system for neutral and depoliticized dispute settlement. From the
capital importing country perspective, it identifies the investors and the investments the country
26
Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No. ARB(AF)/00/3
54
wishes to attract; from the investors perspective, it identifies the way in which the investment
might be structured in order to benefit from the agreements protection.
Investment
Most bilateral investment treaties do not follow any particular economic or financial theory when
defining the concept of investment and often contain a mix of various economic, financial and
accounting-based notions of what could or should be counted as investments. Generally, these
treaties seek to embrace a broad concept of investment and thereby maximize the scope of
foreign investment protection.27 The ICSID Convention also does not define the term, however,
the OECD in their working papers have defined an investor under two types28:
(i)
Natural persons - For natural persons, investment agreements generally base nationality
exclusively on the law of the state of claimed nationality. Some investment agreements also
introduce alternative criteria, such as a requirement of residency or domicile. The ICSID
Convention requires nationality to be established on two important dates: the date of consent to
arbitration and the date of registration. The Convention does not cover dual nationals when one
of the nationalities is the one of the Contracting State.
(ii)
Legal persons - Tribunals have usually adopted the test of incorporation or seat rather
than control when determining the nationality of a juridical person, unless the test of control is
provided for in the agreement. Accordingly, it is the general practice in investment treaties to
specifically define the objective criteria which make a legal person a national, or investor, of a
Party, for purposes of the agreements, rather than to simply rely on the term nationality and
international law.
Protection of Foreign Investments through Modern Treaty Arbitration Diversity and Harmonisation,
Association Suisse de lArbitrage
28 International Investment Law : Understanding Concepts and Tracking Innovations, OECD 2008, ISBN 978-9264-04202-5
27
55
Standards of Treatment
56
10. Standards of Treatment

10.1 National Treatment
The provisions of national treatment encompass the treatment accorded to nationals of one
party by those of the other while entering into commercial treaties of investment. National
treatment can be divided into two types i) promises of national treatment and; ii) promises of
most-favored-nation (MFN) treatment.
National treatment is basically a promise made by the host state that the inhabitants of one of
the contracting parties shall be treated in the respects agreed to, in its territory as if they were
natives of its own territory. The treaty between the United States and Great Britain of 181529 is
the first ever example of national treatment. This standard of treatment was extended to prevent
discrimination against the nationals of the contracting parties, in any way, in regard to the
obligations stipulated in the treaty.
The national treatment standard is different from the minimum standard of treatment under
customary international law, in that the principle of national treatment foresees that aliens can
only expect equality of treatment with nationals but the international minimum standard sets a
number of basic rights established by international law that States must grant to aliens,
independent of the treatment accorded to their own citizens.
10.2 Most Favored Nation Treatment
The principle of the most-favored-nation treatment is based upon the conception that a State is
entitled to, and should grant, equality of treatment in commercial relations. As a safeguard
against oversight at the moment of negotiation, and to obviate the necessity of subsequent
negotiations, the provision known as the most-favored-nation clause was devised to ensure to
the contracting States not only the benefit of concessions previously made but also of those
subsequently to be made by either of the contracting States.30
A MFN treatment under investment agreement means an investor from a party to an investment
agreement would be treated by the other party no less favorably with respect to a given
subject-matter than an investor from any third country, or its investment. MFN treatment
clauses are found in most international investment agreements which are unconditional in nature
However, this standard can be accorded only when the parties insert this clause in their treaties
29
30
MALLOY'S collection of American treaties, Senate documents 47-48, Sixty-first Congress, Second Session.
William Smith CULBERTSON, International Economic Policies, Pg. 56
57
and the absence of which can retain the possibility of discriminating between foreign nations in
their economic affairs.
An example of an MFN treatment clause is expressed as .in the following article provides:
(1)
that no other or higher duties should be levied than on the commerce of any other nation;
(2)
that every favour granted by either of the parties to any other nation should be immediately extended to
the other party.

General principles of an MFN clause
The language of the MFN clause must be interpreted in accordance with the principles of treaty
interpretation, as codified in Article 31.1 of the Vienna Convention that states a treaty shall be
interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their
context and in the light of its object and purpose.
The MFN clause is therefore described as taking the form of a treaty provision whereby the
granting state undertakes an obligation towards the beneficiary state to accord MFN treatment
in an agreed sphere of relations and that beneficiary State accepts.
The MFN clause may be invoked if the third State (or persons or things in the same
relationship with the third State) have been extended the favors that constitute the MFN
treatment foreseen in the clause to set in operation the application of the clause.
This treatment may be based upon a treaty, another agreement or unilateral, legislative or other
acts in practice.
This allows the beneficiary State, on the strength of an MFN clause to invoke it for also
demanding the same benefits as were extended to the third State.
The mere fact that the third State has not availed itself of the benefits which were extended to
it by the granting State does not absolve the granting State from the obligation under the MFN
clause.
When two treaties exist, one between the granting State and the beneficiary State containing the
MFN clause, and the other between the granting State and a third State, the treaty that contains
the MFN treatment clause is considered to be the basic treaty.31
31
Anglo-Iranian Oil Co., U.K. v. Iran, Judgment, 1952 I.C.J. 93 (July 22)
58
The beneficiary is entitled, to the extent provided by the MFN provision under its own treaty,
to claim all rights and favors extended by the granting State to the third State. For e.g:- The
NAFTA case of ADF v. United States of America (2002) is an example where claimant alleged a
breach of the MFN treatment clause under Article 1103 of the NAFTA.
MFN treatment has long been a core standard of international economic relations which
provides for equal competitive opportunities between nations in respect to the matters to which
the particular MFN clause applies, be they in the field of trade, investment, or any field of
economic co-operation.
Despite their prevalence in investment treaties, MFN clauses do not have a universal meaning.
The formulation and application of MFN clauses varies widely among investment treaties in
some cases the scope of application of the clauses extends to the entire content of the treaty;
whereas in others, the clause is limited to only some of the matters addressed by the treaty.
10.3 Minimum Standard of Treatment
The Minimum Standard of Treatment has existed in international law throughout its origins in
the ancient doctrine of denial of justice which was a result of a missing central power when
people of one country or state, specially merchants, could not accede or obtain justice from a
foreign country or a state for acts done by their citizens. The merchants or traders who were
looking for the satisfaction of their rights and redressal of their grievances, appealed to their
prince or authorities who in turn appealed to the authority of the debtor. If the debtor did not
respond, the aggrieved person was authorized to take reprisal. This theory of reprisal became a
more civilized practice of diplomatic protection and the attendant idea of an international
minimum standard.32
The idea of minimum standard has evolved to protect properties and investments against
expropriation and economic measures in developing countries. The international law doctrine of
State responsibility for injuries to nationals was an injury made to that nationals State, allowing
the protection of the state. State responsibility doctrine was applicable when the nationality of
the alien which also included corporations was entitled to this protection and when local
remedies were exhausted. In such a case, the State of nationality owned the investors claim and
under such power could pursue it, settle it or just ignore it.
32
Don Wallace Jr. Fair and Equitable Treatment and Denial of Justice: Loewen v. US and Chattin v. Mexico.
59
The international minimum standard is a norm of customary international law which governs the
treatment of aliens, by providing for a minimum set of principles which States, regardless of their
domestic legislation and practices, must respect when dealing with foreign nationals and their
property. Violation of this norm engenders the international responsibility of the host State and
may open the way for international action on behalf of the injured alien provided that the alien
has exhausted local remedies.33
Minimum Standard of Treatment in Investment Law and Bilateral Investment Treaties
Bilateral investment treaties usually include the obligation to provide minimum standard of
treatment to foreign investors, to which they are entitled under customary international law. The
standard of treatment in BITs extends from national treatment, to most favored nation, to fair
and equitable treatment. Fair and equitable treatment served as precedent in subsequent
instruments concerning international investment and these two standards of treatment namely
the minimum standard and the fair and equitable treatment became dominant over capital
exporting countries.
If we were to look at the BITs and the Organization for Economic Co-operation and
Development (OECD) Draft Convention, the phrase fair and equitable treatment which is
customary in relevant bilateral agreements indicates the standard set by international law for the
treatment due by each State with regard to the property of foreign nationals.
The standard conforms to the minimum standard that requires protection to be afforded
under the Convention shall be that generally accorded by the Party concerned to its own
nationals but where rules of national laws and administrative practices fall short, the rules being
set by international law come to play.
10.4 Fair and Equitable Treatment
Fair and equitable treatment (FET) is the most common provisions found in almost all
bilateral and multilateral investment treaties and many international investment agreements.
Under the NAFTA34, minimum standard and the fair and equitable treatment is often stated
together with other standards, as part of the protection due to foreign direct investment by host
countries. It is an absolute, non-contingent standard of treatment, i.e. a standard that states
OECD Directorate for Financial and Enterprise Affairs, Working Papers on International Investment No.
2004/3; Fair and Equitable Treatment Standard in International Investment Law (September 2004)
34 Article 1105 (1) NAFTA
33
60
the treatment to be accorded in terms whose exact meaning has to be determined, by reference
to specific circumstances of application, as opposed to the relative standards embodied in
national treatment and most-favored nation principles.
In fact, it is currently the most important and successful basis for claims in investor-State
arbitrations. There is no doubt that it is an autonomous standard of protection that has given rise
to numerous successful claims. Tribunals have held that the FET standard requires a transparent
and consistent legal framework that protects the investors legitimate expectations, freedom from
coercion and harassment, procedural propriety and due process and generally action in good
faith.35
However, FET standard does not operate in isolation. It is also in interaction with other
standards of protection such as
constant protection and security, protection against
unreasonable or discriminatory measures, treatment required by (customary) international law

and observance of obligations entered into with an investor (the umbrella clause). Additional
standards are afforded by the host States domestic law and by protection against
uncompensated expropriation.
The obligation of the parties to investment agreements to provide to each others investments
fair and equitable treatment has also been provided in many multilateral treatments. For
instance, under the Draft United Nations Code of Conduct on Transnational Corporations36 the
standards of equitable treatments has been emphasized for transnational corporations under the
laws, regulations and administrative practices of the countries in which they operate. A number
of arbitration tribunals, both within and outside NAFTA have employed the international
minimum standard as an additive element of fair and equitable treatment; in determining claims
of arbitrariness or lack of transparency or even subjective bad faith.
The standard of treatment as defined by arbitral tribunals
Though most investment protection agreements require that investments and investors covered
receive fair and equitable treatment, there is no general agreement on the precise meaning of
this principle. The concept of fair and equitable treatment is not precisely defined. It is a concept
that depends on the interpretation of specific facts for its content. At most, it can be said that
the concept connotes the principle of non-discrimination and proportionality in the treatment of
C. Yannaca-Small, Fair and Equitable Treatment Standard in International Investment Law, In International
Investment Law: A Changing Landscape, OECD ed. (2005) p. 73;
36 Art. 48, Draft United Nations Code of Conduct on Transnational Corporations, 1986.
35
61
foreign investors. The interpretation of the fair and equitable treatment will be progressively
developed through the work of the arbitral tribunals. The tribunals have gone beyond the
specific discussion on the relationship between the fair and equitable treatment standard and the
minimum standard as defined by customary international law and attempted to identify the
elements encompassed in this standard of treatment while dealing with Investment Arbitrations.
These elements can be analyzed as
a) Obligation of vigilance and protection,
b) Non denial of justice and lack of arbitrariness,
c) Transparency,
d) Good faith which could include transparency and lack of arbitrariness and
e) Autonomous fairness elements.
10.5 Full protection and Security
Most investment treaties contain provisions granting protection and security for investments.
The NAFTA refers to the clause of full protection and security and the Energy Charter Treaty
(ECT) refers to most constant protection and security clause. The wordings of this clause
suggest that host-states are under an obligation to take active measures to protect the investment
from adverse effects that may stem from private parties or from action of host-states and its
organs. This clause of full protection and security guarantees a legal security the investor
enabling them to pursue their rights effectively.
Full protection extends to Physical Security by private persons and host-states
The standard of full protection and security relates to the physical protection of the investor and
its assets. In fact, in a number of cases tribunals seem to have assumed that this standard applies
exclusively to physical security and to the host States duty to protect the investor against
violence directed at persons and property. In Rumeli v Kazakhstan the Tribunal held that they
agree with the Respondent that the full protection and security standard... obliges the State to
provide a certain level of protection to foreign investment from physical damage.37
When adverse actions are directly perpetrated by State organs, it becomes the host States duty to
extend its responsibility to actions perpetrated by its organs. The applicability of a treaty
37
Rumeli v Kazakhstan, Award, 29 July 2008, para 668.
62
provision on protection and security to direct attacks on the investors person and property by
organs of the host State is absolute as held in Biwater Gauff v Tanzania.38
Full protection extends to legal security
This principle of full protection and security reaches beyond safeguard from physical violence
and requires legal protection for the investor when treaties refer to the clause of legal security.
This obligation would not only be breached by active and abusive exercise of State powers but
also by the omission of the State to intervene where it had the power and duty to do so to
protect the normal ability of the investors business to function... a duty, enforceable by
investment arbitration, to use the powers of government to ensure the foreign investment can
function properly on a level playing field, unhindered and not harassed by the political and
economic domestic powers that be.39
Link between full protection & security and fair & equitable treatment under
customary international law
The provisions referring to full protection and security and to FET create independent treaty
standards in some investment agreements and sometimes, are mere references to the
international minimum standard under customary international law. However, a close reading of
Article 1105(1) of the NAFTA refers to both FET and to full protection and security to
widely reflect the minimum standards that ought to be maintained by parties entering bilateral
investment treaties.
The concept of full protection and security also protect foreign investors against adverse actions
by third parties or host-states which otherwise is limited in customary international law. The
ICSID Tribunals have equated the standards of full protection and security with FET in Wena
Hotels v Egypt40 dealing with these two standards jointly and without drawing any distinction
between them. When the tribunal found that the Respondents had violated the standard of FET,
it also held that there had been a breach of full protection and security under this Article as a
treatment that is not fair and equitable automatically entails an absence of full protection and
security of the investment.
Biwater Gauff v Tanzania, Award, 24 July 2008, para 730

TW Walde, Energy Charter Treaty-based Investment Arbitration (2004) 5 J World Invest Trade 3901.
40 Wena Hotels Ltd v Arab Republic of Egypt, Award, 8 December 2000, 6 ICSID Rep 89.
38
39
63
By contrast, in Azurix v Argentina41 the ICSID Tribunal found that the two standards were
separate under Article II.2 (a) of Bilateral Investment Treaties and have different obligations.
The notion of continuous protection and security is to be distinguished here from the fair and
equitable standard since they are placed in two different provisions of the BIT, even if the two
guarantees can overlap. The FET standard consists mainly of an obligation on the host States
part to desist from behaviour that is unfair and inequitable. However, while assuming the
obligation of full protection and security, the host State promises to provide a factual and legal
framework that grants security and to take the measures necessary to protect the investment
against adverse action by private persons as well as State organs.
10.6 The Umbrella Clause
Investment Treaty Arbitrations involve treaties and investor-state contracts. However, the extent
or scope of jurisdiction under Bilateral Investment Treaties (BITs) is limited to only disputes
relating to an obligation under this agreement, i.e. only for claims of BIT violations. Some treaties
cover a broader scope of the jurisdiction to any dispute relating to investments. While those entered
in accordance with international law create an obligation on the host state to observe any
obligation it may have entered to or constantly guarantee the observance of the commitments it has entered into;
observe any obligation it has assumed and other formulations - These provisions are commonly
called umbrella clauses in respect of investment treaties and agreements. Clauses of this kind
provide additional protection to investors in investment agreements that host countries
frequently conclude with foreign investors.
The umbrella clause has been seen in various draft conventions purpose of which to provide a
distinct investment protection clause42 promising investor protection to foreign nationals as
much as to national investors while entering into investor-state contracts or agreements.
The OECD Draft Convention on the Protection of Foreign Property also applied the umbrella
clause as one of its core substantive rules43 that provided protection to property of nationals of
any other party other than the host States. The word property was not limited to only property
but to all property, rights and interests whether held directly or indirectly by the company.
Azurix Corp. v The Argentine Republic, n 47. 80 Para 407.

(Article 4):3 of Draft International Convention for the Mutual Protection of Private Property Rights in Foreign Countries; Article
(II):4 of the Abs-Shawcross Draft Convention on Foreign Investment, 1959.
43 (Article 2) 5 of OECD Draft Convention on the Protection of Foreign Property, 1967.
41
42
64
Commentators, arbitrators, scholars and professors are now of the common view that the
umbrella clause in the BITS protects the investor against a mere breach of contract that is
protection against any interference with his contractual rights, whether it results from a mere
breach or a legislative or administrative act and if such interference amounts to expropriation.
T. Wlde44 has opined that the principle of international law would only protect breaches and
interference with contracts made with government or subject to government powers, if the
government exercised it particular sovereign prerogatives to escape from its contractual
commitments or to interfere in a substantial way with such commitments.
The ICSID has also recognised that treaties may furthermore elevate contractual undertakings
into international law obligations, by stipulating that breach by one State of a contract with a
private party from the other State will also constitute a breach of the treaty between the two
States.
Umbrella Clause in various Bilateral Investment Treaties
The placement of the umbrella clause within the framework of the bilateral investment treaty is a
point of variance in treaty practice - The Netherlands Model BIT including those concluded by
the United Kingdom, New Zealand, Japan, Sweden and the US places the umbrella clause within
an article detailing the substantive protections provided under the Treaty.
The German Model BITs is to place the umbrella clause in a separate provision from the
substantive protections but before the dispute resolution clauses.
By contrast, the Swiss Model BIT places the umbrella clause in a provision entitled other
commitments and separates it from the substantive provisions by two dispute resolution clauses
and a subrogation clause. The ICSID Tribunal in SGS v Pakistan45 was of the opinion that the
placement of the clause near the end of the Swiss-Pakistan BIT following Swiss Model BIT was
indicative of an intention on the part of the Contracting Parties not to provide a substantive
obligation. The reason accorded by the tribunal was that if contracting parties wanted to create a
substantive obligation through their umbrella clause, they would place the clause alongside firstorder obligations and not separate it in the provision for other commitments.
10.7 Access to Justice, Denial of Justice and Fair Trial
44
45
Supra Note 29.

SGS Socit Gnrale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13
65
The majority of the cases in Investment Arbitration arise out of denial of justice in the matter of
procedure or some deficiency in the vindication and enforcement of the investors rights. The
principle of denial of justice has been considered as being part of customary international
law and is used in three senses
i)
In the broadest sense, it seems to embrace the whole field of State responsibility and
has been applied to all types of wrongful conduct on the part of the State towards aliens or
foreign investors. It includes therefore acts or omissions of the authorities of any of the three
branches of government, i.e. executive, legislative or judiciary.
ii)
In the narrowest sense, it is limited to refusal of a State to grant an alien access to its
courts or a failure of a court to pronounce a judgment in favour of the aggrieved investor (alien).
iii)
In its intermediary sense, it is employed in connection with the improper administration
of civil and criminal justice as regards an alien, including denial of access to courts, inadequate
procedures, and unjust decisions.
The ELSI case46 is a landmark case in this regard enumerating principles of access to justice,
denial or justice and arbitrariness on part of the State action.
46
Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1987 I.C.J. 3 (Order of Mar. 2)
66
Host State Defence and Counterclaims
67
11. Host States Defense and Counterclaims

International investment arbitration is considered to be a form of dispute settlement to render
quasi-judicial review of state regulatory action whereby the respondent state is brought to task
for treating a foreign investor in a manner that violates its treaty obligations.
However, host states, in their defence and counterclaims push back against this conception in
the interest of their nation or sovereignty. The nature of host state counterclaims is also evolving
- early counterclaims were predominantly based on a contract with a foreign investor however,
the recent cases of host state counter claims asserted on the basis of its own general domestic
laws.
Characteristics of Host State Defence or Counterclaims
A counterclaim is a claim presented by the respondent in opposition to a claim advanced by the
claimant or investor who submits his principle claim. The nature of this opposition imposed
by the host State is not by way of defence but a counterclaim which constitutes a new cause of
action against the claimant.
Counterclaims are an independent cause of action in that, once properly admitted, the success
or failure of a counterclaim does not depend on the subsequent fate of the principal claim.
However, counterclaims are connected to the principal claim, in that; it must arise from the same
legal and factual context.
Host States resort to this defence or counterclaim to negate or mitigate the legal consequences
of the principal claim. For instance, in a contractual dispute, where a claimant alleges breach of
contract, the respondent may counterclaim that the claimant is also in breach of that same
contract.
The rationale underlying counterclaims is procedural economy and the better administration of
justice. Consolidation of claims and counterclaims in the same proceedings allows adjudicators to
hear a more complete overview of the case through the respective claims of the parties and a
fully informed tribunal may be expected to reach a more just and rational result also
simultaneously promotes procedural fairness between the disputing parties and saves both
parties time and money by safeguarding the coherence of the legal system as a whole
Illustration
1.
Counterclaims are not the same as defenses on the merits - A defence on the merits is a
submission formulated by the respondent that is devised to nullify the principal claim, that is, to
render the principal claim devoid of its factual or legal basis. Where a respondent may submit
that it is not at fault for non-performance of its contractual obligations on the grounds of force
68
majeure47, such a submission is a defence on the merits as its objective is to defeat the principal
claim.
2.
In contrast, when a respondent submits a counterclaim to seek a judgment in its favour
further or over and above dismissal of the principal claim by denying the principal claim as
well as alleging that, instead, the claimant is at fault.
Alternatively, a counterclaim may not deny the principal claim at all but aim to mitigate or
deprive a judgment in favour of the principal claim of its adverse effect. In this way, a
counterclaim may serve a defensive function in a tactical sense, but it is not a defence as a
term of art in the law of procedure; counterclaims have an offensive character.
Counterclaims are also distinguishable from claims of set-off which is an equitable defence
that money owed by the claimant to the respondent should be counter-balanced against the
principal claim. The primary similarity between set-off and counterclaims is that both are
presented to avoid circuitry of action between mutual debtors.
Conclusion - It is seen that host-states counterclaims have been regularly unsuccessful wherein
tribunals almost always find in the favour of investors or principle claimants, thereby making
States more aggressive in asserting counterclaims against investors marking a rampant rise in
host-state counterclaims as an attempt or tact to negate or nullify or create liability on the
investors as well.
Gould Marketing, Inc v Ministry of National Defense of Iran (Award No. ITL 24-49-2) in the Iran- United States
Claims Tribunal dated 27 July 1983.
47
69
12. State Responsibility and Attribution

When the State or a state-owned entity (which has a separate legal personality) enter into utilities
and infrastructure industries such as distribution of natural resources (oil, gas, hydro power and
coal), telecommunications and transport with foreign investors and breaches the agreement,
foreign investors often seek to address their claim directly against the host state. Investors are
motivated to claim disputes to pursue direct state responsibility and the legal circumstances
under which the conduct of a state-owned entity can be attributed to the state.
Submitting to the ICSID Jurisdiction for Investment Disputes
ICSID Convention extends jurisdiction for disputes arising directly out of an investment
between a contracting state of the Convention on the Settlement of Investment Disputes
between States and nationals of other States provided the parties gave their consent in writing. 48
State-owned entities may have the arbitration clause under the agreement entered into subject
to the Arbitration Rules under the UNCITRAL, but, the investors seek to submit their claims
before the ICSID to partiality by the courts of the host states and particularly because the ICSID
award is not subject to any review under the Convention and is to be recognized by the
contracting states as if it were a final judgment of a court in that state.
49
In addition, host states
have a strong incentive to comply with ICSID awards because of the institutional link of ICSID
to the World Bank.
Usually in Investment disputes, the investor will often argue that the host state itself is
responsible for the breach of contract committed by one of its entities. However, the respondent
state, in turn, may deny its responsibility by pointing out that the contract was concluded with an
entity which enjoys its own legal personality.
Relevance of State Attribution
Investors are first required to establish state responsibility to determine whether the breach of
contract committed by a state-owned entity can be attributed to the state. The procedural,
substantive and legal perspective of the state is examined to ascertain attribution on part of the
host State.
48
49
ICSID Convention art. 25(1).

ICSID Convention arts. 53(1), 54(1).
70
When investors seek a claim against the State, the investors have to make a case that the state is
liable for such conduct since the ICSID Convention can only extend jurisdiction to disputes
between a contracting state and a national of another contracting state and lacks jurisdiction to
arbitrate disputes between two private parties under Article 25 (1) of the Convention.50 If the act
cannot be attributed to the state, it has no responsibility towards the investor.
To understand if the State is liable for attribution, the case of Maffezini v. Kingdom of Spain plays
importance wherein the tribunal noted that the jurisdiction of the ICSID can only be
determined based on the merits of the dispute which will determine whether the state is
responsible for the acts committed by the State-owned entity.51 The tribunal concluded that at
the procedural question of the ICSID jurisdiction, it is sufficient if the investor is able to make a
prima facie case that the acts of the state-owned entity are attributable to the state. The prima
facie test is in fact a well established threshold for determining jurisdiction in investment dispute
cases, especially with regard to rationae materiae which can also be understood by the case
of Salini v. Jordan.52
Further, in order to hold a state responsible under international law, the breach of contract must
constitute a violation of an international obligation on the legal grounds of which and the
circumstances under which a contractual breach amounts to such violation. Article 12 of the
International Law Commission (ILC) defines the breach of an international obligation as an
act of a state which is not in conformity with what is required of it by that international
obligation, regardless of its origin or character. The characterization of an act as internationally
wrongful is made on the basis of international law, irrespective of how such act is characterized
by municipal law. An act can thus constitute a violation of an international obligation even
though it is lawful under municipal legislation this applies to all international obligations of a
state.
International obligations may be established by a customary rule of international law, by a treaty
or by a general principle applicable within the international legal order as observed by Walde. In
his opinion such action of the State will constitute a violation of an international obligation
when non-observance of a contractual obligation constitutes a violation of the obligation to
provide fair and equitable treatment of foreign investments or to observe obligations entered
51
52
Maffezini v. Kingdom of Spain, Award on Jurisdiction, ICSID Case No. ARB/97/7,

Salini Costruttori S.p.A. and Italstrade S.p.A. v. Jordan, Decision on Jurisdiction, ICSID Case No. ARB/02/13
71
into by the state under the umbrella clause. When such a contractual breach may amount to
an expropriation, compensation is owed by the State.
Violation of Fair and Equitable Treatment calls for State Attribution
Most BITs and investment treaties provide for fair and equitable treatment of foreign
investments, more famously, the Article 1105(1) of the North American Free Trade Agreement
of 1992 ("NAFTA").One aspect of the FET provision is the obligation to expropriation which is
generally accepted that it may affect not only tangible property but also a broad range of
intangible assets of economic value to the investor, such as contractual rights.53 Tribunals agree
that a mere failure to comply with a contractual obligation does not constitute expropriation.
However, the ICSID Tribunal shared the view that a breach of contract which was the result of
use of sovereign power, such as a decree annulling the contractual rights, may amount to an
expropriation as held in Waste Management II54 and SGS v. Philippines55.
Thus, if a state-owned entity breaches its contractual obligation by using methods unavailable to
a regular contracting party, compensation may be owed under the expropriation clause in the
investment treaty. Compensation under the expropriation clause may also be owed if a state
owned entity merely engages in an ordinary breach of contract, but the investor is unable to seek
redress before a court. In this scenario, however, the decisive conduct under international law is
not the breach of contract but also the denial of justice. Therefore, such conduct will be
attributed to the state under ILC Articles56.
Two factors need to be fulfilled to establish the responsibility of a state for the breach of
contract committed by one of its entities i) A state can only be held responsible if the stateowned entity was empowered with governmental authority and if it acted in such capacity when
breaching the contract. When an entity exercises both governmental and commercial functions,
such as in the Maffezini case, where it breached the agreement by acting in its sovereign capacity,
the breach is attributed to the state.
ii) The contractual breach must amount to a violation of international law Under BITs and
Investment Treaty disputes; the breach must constitutes a violation of the obligation to provide
fair and equitable treatment or the breach amounts to an expropriation.
Energy Charter Treaty of 1994 [hereinafter ECT], Dec. 17, 1994, 1994 O.J. (L 380) 13.
Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No. ARB(AF)/00/3
55 SGS Socit Gnrale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6
53
54
56
art 4, art. 5 International Law Commission Articles, General Assembly Resolution 56/83 of 12 December 2001.
72
Conclusion
When it can be established that the State owned entity acted in governmental capacity when it
performed the contract and that it failed to honor its contractual obligation, the state can be held
responsible for a violation of the umbrella clause. However, the mere failure to comply with the
contract does not constitute an expropriation. The state's responsibility under the expropriation
clause will only arise if a state-owned entity breaches its contractual obligation by using methods
unavailable to a regular contracting party or if the investor is unable to seek redress before a
court as held in SGS v. Philippines and Waste Management II.
Prepared by:
Iti Singh
President, NILS India
Clarifications, if any, may be emailed to president@nilsindia.org
73

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International Dispute Settlement

NILS WINTER SCHOOL 2016

Complete list on our website www.nilsinternational.org.

International Investment Arbitration | Session 10 (120 minutes)

8.1 Introduction to International Investment Law and Arbitration

10. Host States Defenses

International Disputes Settlement

1.1. What is an International Dispute?

1.2. Kinds of International Disputes

Marvomattis Palestine Concessions (Greece v. UK) 124 P.C.LJ.

By identifying the subject matter of the dispute In traditional areas of international

By identifying the character of the dispute It is of general importance to distinguish

Importance & effect of dispute to the International Community The general

Appropriateness of judicial settlement A distinction is often drawn between the

1.3. Techniques available for settling international disputes

Non - traditional techniques

Coercion The use of coercion by powerful nation states, as a technique of dispute

Voting In democratic societies, representatives or members of the international

Negotiation Negotiation is a process by which parties directly communicate and

settlement rather than one being imposed upon by a third party.

done secretly without unwanted publicity

Article 33 of the Charter of United Nations: Pacific Settlement of Disputes

Limitations of Negotiation as an effective technique of dispute resolution are as follows:

Cannot assure permanent settlement of a dispute. Sometimes parties are unwilling to

appeal or setting aside of the order/award.

process more transparent and efficient.

courts and to have a judge or jury decide the case.

easier for a party to take steps to avoid enforcement.

Discovery may be more limited in arbitration or entirely nonexistent.

(Detailed study on arbitration in the next topic)

INTRODUCTION TO INTERNATIONAL ARBITRATION

Legal Framework of the New York Convention, 1958

Refusal and setting aside of arbitral award:

universal membership specializing in commercial law reform and harmonization of rules on

based Investor-State Arbitration (the "Rules on Transparency") pursuant to an investment

The International Court of Arbitration is an institution for the resolution of International

Drafting the Arbitration Clause

3. DRAFTING THE ARBITRATION CLAUSE

3.3 Practicum: Industry-Specific Model Arbitration Clause

Arbitral Awards & Its Enforcement

5.1 What is an arbitral award?

3. Under the ICC Umbrella & Domestic Courts jurisdiction

In arbitrations under the International Chamber of Commerce umbrella, the Court of

International Commercial Arbitration

6.1 Recent Trends in International Commercial Arbitration

Revision of provisions under Part I: General Standards

Non-Waivable Red List- When the arbitrator cannot act at all

Ethical concerns stem from party-appointment of arbitrators: repeat appointment of

Critique of the International

7.1 Critique of the existing International Court structure

7.4 Lack of summoning and investigative powers

v. U.S., (available at: http://en.freepedia.org/Nicaragua_v._United_States.html)

International Investment Arbitration

9. 1 Introduction to International Investment Law and Arbitration

9. 3 Historical Development of the Concept of International Investment Protection24

The ICSID Convention

Bilateral Investment Treaties (BITs)

Customary International Law

General Principles of Law

10. Standards of Treatment

the other party.