Scroll Top



Investment arbitration often emerges from investment treaties signed by international investors and host countries in order for one party to invest in the business enterprises of the other. The following wheels operate the Investment Arbitration (IA) chariot:

  1. A multilateral (MIT) or bilateral investment treaty (BIT).
  2. The Host State’s national statute governing investments.
  3. A separate Investment Agreement, if one is entered into.
  4. Selection of an impartial and independent arbitrator/arbitral tribunal

International Investment Arbitration uses the same body of process and enforcement as International Commercial Arbitration to disputes between international investors and host countries. In order to provide a favourable climate for foreign direct investment (FDI) and business to develop in any nation, the framework collaborates closely with international commercial arbitration. Investment arbitration’s key feature is that it transplants the private adjudicative model from the world of international commercial arbitration to the world of government, giving private parties and individual investors a chance to seek compensation for the treatment they received from the Government.[1]

“Investment arbitration is a method for resolving disagreements between international investors and host countries (also called Investor-State Dispute Settlement or ISDS).” When a disagreement arises, the right to sue a host State ensures that the investor can reach an impartial and experienced arbitrator who can resolve the dispute. This enables the foreign investor to resolve the issue in compliance with the safeguards provided by international treaties and avoid national authorities that could be seen as prejudiced or lacking in independence. A host State must have approved this for a foreign investor to be eligible to start an investment arbitration.


Tribunal jurisdiction is derived from an international treaty signed by both host and investor states. The majority of investment arbitrations fall under the provisions of a Bilateral Investment Treaty (“BIT”), which requires the host-states to provide some precise safeguards for the foreign investments and also creates certain right of action for investors against the host country if those safeguards are not met. An investment arbitration can also be triggered by an international agreement, like the “nascent North American Free Trade Agreement” or the Energy Charter Treaty. The overall goal is for the foreign investor to avoid the national courts, which may be seen as unfair, and have the issue resolved in compliance with the various provisions issued by the competent treaty.[2]


“Consent to investment arbitration is most typically granted by host countries under International Investment Accords (IIAs), which include Bilateral Investment Treaties (BITs), Free Trade Agreements (FTAs), and multilateral agreements.” Investor arbitration can be authorized in both investment agreements between a state and a foreign investor, or in domestic legislation of the host state, such as mining or investment laws. Over the past 50 to 60 years, investor-state arbitration has grown significantly. There have been a significant number of cases since the establishment of International Centre for Settlement of Investment Disputes (ICSID) Convention 1966, with 58 ICSID arbitration cases recorded in 2020. There have reportedly been more than a thousand investor-state arbitration lawsuits (ICSID and other).[3]

Along with such development emerged criticism to investor-state disputes. Many nations have declared their objection to the ICSID Convention that they would terminate bilateral investment agreements. Several investment treaties have included the concept of permanent “investment courts” to replace the ad hoc investor-state arbitral tribunals.  The principal objections to investment arbitration were the lack of transparency in the arbitral procedures and the tribunals’ conclusions or awards, the uniformity of the judgments from different arbitral tribunals, and the system’s legitimacy.


The institutional arbitration tribunals that are most frequently mentioned in BITs are ICSID and ICSID Additional Facility Rules, which are applicable in cases when only one of the parties is signatory to the ICSID Convention and the other BITs list potential venues like the Stockholm Chamber of Commerce Arbitration Institute or the Court of Arbitration of ‘International Chamber of Commerce (ICC)’ in Paris. The BITs give the option of bringing the issues to ad hoc arbitration as well. The method that is being used most frequently is for the parties to the contract  to agree to undertake such procedures in line with the United Nations Commission on International Trade Law’s Arbitration Rules (UNCITRAL).  When discussing the topic of the arbitration forum during BIT discussions, a number of questions come up:

  • First, if the investor will have several alternatives accessible;
  • Second, that if this is the case, if the investor will have the right to select the forum to which the dispute will be presented; and
  • Third, whether the number of alternatives will be exhaustive or left open for subsequent agreement by the parties.

The prevalent trend among BITs that provide more than one conceivable arbitration venue is to allow the investor to select the precise forum in which the dispute will be decided. However, other treaties, such as the BIT between Canada and Costa Rica (1997), provide a secondary reference to ICSID, ICSID’s Additional Facility, and UNCITRAL, enabling the use of one forum only if the first choice — ICSID — is unavailable.[4]


A major development that has been observed in investment arbitration has been what is called Transparency which further has three aspects: The first being a greater public access to documents which helps people satisfy themselves about cases; the second is much greater access to the hearing process, as matter of fact, some cases of investor state hearing have also been webcasted in the recent years of the development; the third one is Amicus curiae in investment arbitration which gives third parties a chance to bring important information to the tribunal so that the decision is made with a full record. However, one of the most controversial issues right now is that who makes the decision, which as a result has given rise to the demand of having a standing body of jurists who act as a standing court for investment arbitration.


For some years, investment arbitration has worked to provide a certain level of transparency in and of the arbitral proceedings. Originally, investment arbitration followed rules similar to regular international commercial arbitration; such proceedings were often exclusive and undisclosed. The citizens of host countries are directly impacted by investor-state arbitration. Claims brought by foreign investors frequently relate to the actions taken by the state operating as a sovereign and based on the authority it has under the legal and constitutional arrangements of the states; such acts also sometimes concern the environmental protection and human rights; investment disputes are thus of interest to the general public, prompting changes in arbitration rules. The rules on transparency are important for the states because it enhances the legitimacy and accountability of the process. It is also a sign of good  governance and a fight against corruption. It also allows the states to justify when they have to pay damages or justify the expense within their parliaments. It is also of great benefit for practitioners and for people as it gives access to several aspects of the dispute and of the proceedings, which can introduce the principles of open justice to ISDS which could further add legitimacy to the process.


The use of a third party in investment arbitration is a relatively new practise. “An amicus curia (friend of the court) is a non-party to the dispute who desires to offer legal arguments before a court or arbitral tribunal.” [5]The main goal of investment treaty arbitration is to provide claimant investors with a neutral  and independent arbitration forum where arbitrators decide where  a state has breached  its treaty obligation,  which is often seen as an effective way than having direct recourse to the host states domestic courts, which may be biased and may not play a level playing field in terms of bargaining power. Hence, in that sense ISDS allows certain functions of dispute settlements as exercising diplomatic protection is not necessary anymore.

Third party funding is the mechanism through which a funder is going to fund a case either for a credit restrain claim or a risk adverse claimant with the expectation of receiving an uplift. “TPF is now a common tool in clients and counsel’s armoury- increasingly for respondents as well as for claimants. According to a survey most funders have increased their business despite the Covid economic downturn, backed by growing interest and use by law firms and clients.  This expansion has sparked institutions and states’ interest in regulating TPF. For practitioners, the changing landscape for TPF in the arbitration rules means that TPF should be considered not only when dispute arises, but already when selecting and negotiating a suitable arbitration clause. Most of the current debate surrounding the regulation of TPF in investment arbitration is  driven by misinformation about funding,. In response to which, ISDS typically claims with a high probability of success and that ISDS  arbitration plays an important role in holding the states to the treaty obligations to which they have voluntarily consented  and that the availability of TPF in such cases supports access to justice and promotes the rule of law.” [6]


International investment arbitration is a rapidly evolving field. Such advances have resulted in a notable strengthening of foreign investors’ procedural and substantive rights and positions vis-à-vis host countries. While the measures implemented have had various degrees of effectiveness, there is still potential for development. The continuous efforts of the UNCITRAL working groups to change the ICSID rules and regulations are one example of how the legal system is continuing to adjust and adapt to these issues.

Author(s) Name: Sristi Chaudhary (Bharati Vidyapeeth University, New Law College, Pune)


[1] India: Investment Arbitration – The Assignation & its Way Ahead in India ( <> accessed July 25, 2022

[2] Sara Nadeau-Séguin “A Guide to Investment Arbitration” (lawyer-monthly) >> accessed July 25, 2022

[3] “International Arbitration” ( <> accessed July 25, 2022

[4] “International Arbitration” ( <> accessed July 25, 2022

[5] Sara Nadeau-Séguin “A Guide to Investment Arbitration” (lawyer-monthly) <> accessed July 25, 2022

[6]  Kristin dodge, Jonathan Barnett, Lucas Macedo, Patryk Kulig, Maria Victoria Gomez “Can Third-Party Funding Find the Right Place in Investment Arbitration Rules?” <> accessed July 25, 2022