Chapters 10 and 11 deal with whether an arbitration tribunal has jurisdiction over a particular matter. The issues examined include whether the parties have given consent to arbitration, whether there is an “investment” as defined by the relevant instruments, and whether the requisite nationality requirements have been met. There may also be temporal conditions, such as a requirement that the complainant wait for a specified period of time before beginning the arbitration. In addition, the international investment agreement (IIA) may contain a “fork-in-the-road” provision, barring arbitration if the complainant has already commenced litigation in a domestic court, or a provision requiring an investor to waive its rights to litigate in the local courts if it wishes to pursue arbitration. Finally, Chapter 12 discusses the issue of state responsibility, i.e., under what circumstances a state is internationally responsible for the actions of its organs towards foreign investors.

Chapter 10: Consent, Nature of Investment and Nationality

The great majority of investment treaty disputes are submitted to the International Centre for Settlement of Investment Disputes (ICSID), which operates pursuant to the specialised Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). Investors considering whether to start an investment claim at ICSID should focus at the outset on whether the following conditions are met: (1) the parties to the legal dispute have consented in writing to the jurisdiction of an ICSID tribunal; (2) the dispute arises directly out of an investment; and (3) the dispute arises between a Contracting State (a state that has signed and ratified ICSID) and a national of another Contracting State.

To this end, investors should: (1) look for expressions of the host state’s consent to arbitration in applicable contracts, statutes and treaties; (2) consider whether they made an investment that falls within the definition of this term in both the applicable statute or treaty (if any) and the interpretations of the term “investment” in the ICSID Convention; and (3) make sure that both the investor’s home state and the host state are ICSID Contracting States. If only one party is an ICSID Contracting State, the investor may be able to submit the claim to ICSID’s “Additional Facility”. Non-ICSID investment cases are often conducted under the UNCITRAL arbitration rules, but they may sometimes be administered by the rules of other arbitral institutions such as the Permanent Court of Arbitration, the International Chamber of Commerce, or the Stockholm Chamber of Commerce.

Chapter 11: Temporal Issues, Denial of Benefits, Fork-in-the Road Provisions and Waiver

An investor’s claim against a host state under an IIA must satisfy all the conditions imposed by the IIA, including temporal conditions. Temporal limitations on the jurisdiction of a tribunal include the principle that states are not liable for conduct that occurred prior to the entry into force of the IIA, unless the IIA clearly says otherwise. An IIA may impose other temporal limitations, such as waiting periods or conditions that must be met before a claim is submitted to arbitration, specific time limits for bringing claims, as well as a so-called sunset clause which may prevent foreign investors from bringing claims against state parties after a specified period (normally between 10 to 20 years) after the termination of a treaty. Investors should also check

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the IIA for other carve-outs limiting the state’s liability under the IIA or otherwise narrowing the scope of liability. These may include denial-of-benefits provisions, through which states may be entitled to preclude nationals of third countries from obtaining IIA protection by the use of shell companies or “mailbox” corporations registered in a state party to the IIA; fork-in-the-road provisions, which can preclude an investor from having the dispute heard by an international arbitral tribunal if the dispute has been submitted for adjudication to some other forum, including a domestic court; or waiver clauses, which may require the investor to expressly waive the right to domestic adjudication of the dispute that the investor intends to submit to international arbitration; or clauses that exclude all or some taxation matters from the scope of the IIA’s protections.

Chapter 12: State Responsibility

In international law states may be held responsible for actions or omissions of their principal organs: legislative, executive and judicial. In other words, if the actions of these organs breach an obligation in an IIA, the state would be held responsible and would have to repair the consequences of its wrongful conduct. More often than not, however, grievances of foreign investors arise from their dealings with various agencies of a state, or state-owned entities, which may not necessarily qualify as state organs. The conduct of such bodies normally does not create state responsibility, unless they exercise elements of sovereign power vested in them by the principal organ. Therefore, before bringing a claim against a state for conduct of such bodies, it is important that an investor assess whether the specific conduct of these bodies is attributable to the state under international law, and whether the conduct is a breach of an international obligation of the state.

Under international law the conduct of the state or its agency may comply with the domestic laws of the state, but the same conduct may still breach the state’s international obligations, including obligations under an IIA. Nevertheless, conduct constituting a breach of an IIA may not be wrongful due to one or more circumstances precluding a finding of wrongfulness. Among them, the “necessity” defence has been invoked by states more often than other defences, such as consent, self-defence, countermeasures, force majeure, and distress. Successful invocation of the necessity defence, or other defences, would eliminate or delay the wrongfulness of a conduct, but may not eliminate the obligation to pay compensation for the losses caused as a result of the conduct.

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