Investment arbitration has become a central mechanism in the resolution of international disputes, offering both investors and States an effective way to settle conflicts. In this article, we will explore the fundamental aspects of arbitration, the lack of legal grounding, the need for evidence, and the jurisdictional requirements in investment arbitration cases. Additionally, we will review the application of international treaties, the ICSID system, and the impact of denial-of-benefits clauses.
1. Lack of Legal Grounding: How to Avoid It
One of the most common weaknesses in an arbitration case is the lack of solid legal grounding. It is essential that each argument is thoroughly supported by existing legislation, whether from bilateral treaties or the United Nations Convention on Contracts for the International Sale of Goods (CISG). Citing relevant articles and specific national legislation will strengthen the case’s legal foundation.
2. The Importance of Evidence in Arbitration
For an arbitration case to be successful, a solid evidentiary basis is required. Depending on the country and the applicable treaty, it is important to clarify the legal provisions that support the admissibility of evidence.
3. Identifying the Representatives of the Parties
In arbitration, the accurate identification of the legal representatives of the involved parties is essential. It is crucial to ensure that the representatives have the legitimacy to act on behalf of the parties, taking into account corporate law and bilateral treaties governing foreign investment.
4. Procedural Aspects to Consider
An essential point in preparing the award is the consideration of procedural aspects. Throughout the arbitration process, the parties must ensure that they follow the procedural framework of the applicable treaty. This includes meeting deadlines, submitting evidence, and correctly interpreting the contract that gives rise to the dispute.
5. The Debate on Interests in Arbitration
A recurring issue in investment disputes is the discussion over the applicable interest rate in cases of compensation. Different approaches exist between pre- and post-award interest, as well as whether to apply compound or simple interest. Many jurisdictions have moved away from using the LIBOR rate, and it is important to consider the laws of the countries where the proposed rate is applied, such as Sharia Law in some cases.
6. The ICSID Arbitration System
ICSID, founded by the World Bank, is one of the global leaders in investment arbitration, handling 70% of global cases. Its autonomous procedure ensures the independence of the system from local courts. In 97% of cases, compensation is awarded, either through the award or enforcement in national courts. However, the 2006 amendment introduced a powerful tool to avoid meritless cases by allowing the respondent to raise an early objection.
7. Denial-of-Benefits Clauses: When and How to Apply Them?
Many investment protection treaties include denial-of-benefits clauses, which allow States to refuse benefits to investors who do not have substantial activities in the country of nationality or who are controlled by third-party countries with which they have no diplomatic relations. A common example is treaty shopping, where investors create "shell" companies to access bilateral treaties.
Conclusion
Investment arbitration is a complex process that requires a deep understanding of the applicable laws, bilateral treaties, and procedural aspects. Success in these cases depends on the correct identification of the parties, legal grounding, and proper management of the interests at stake. ICSID has positioned itself as a reliable and effective system for resolving investment disputes, ensuring independence and enforcement of its awards.
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