Like commercial arbitration, consent from a host state and an investor is the basis for a tribunal’s jurisdiction in international investment arbitration. However, unlike the commercial one, investment arbitration between a host state and an investor is without privity. This means an investor can bring an arbitration case against the host state without a contract, but will have to rely on the investment treaty signed between two or more sovereign states. Under the bilateral or multilateral investment treaties, each contracting state agrees that it will protect foreign investors from another contracting state. For its side, the investor is entitled to bring a claim directly against the host state without seeking diplomatic protection from its home state. The difference between commercial and international investment arbitration resulted in the diversified method for an investor to reach consensus to arbitration with the host state. This article will introduce methods of consent between a host state and an investor in international investment arbitration.
Consent by direct agreement. Although an investor can bring an arbitration case against a host state without a contact, it does not prevent the parties recording their consent to arbitration directly through an investment agreement. The agreement on consent between the parties need not be recorded in a single instrument. For example, an investment application from an investor may provide for arbitration. If the competent authority of the host state approves the application, the parties have consent for arbitration. In addition, a reference in an agreement between the parties to a Bilateral Investment Treaty (BIT) may incorporate the consent for arbitration contained in that BIT in the agreement.
Consent through BITs or multilateral treaties. Consent through BITs or multilateral treaties is the most common way to establish jurisdiction. A vast majority of BITs contain clauses referring to investment arbitration should there be any dispute. For the host state, the consent to arbitration in the BIT is a standing open offer to the investor of the other contacting state. An investor may accept that offer at any time. It is an established practice that an investor can accept an offer of consent by initiating an arbitration proceeding or sending a triggering letter to the host state.
A number of multilateral treaties also offer consent to arbitration for future disputes. For instance, both the North America Free Trade Agreement and the Energy Charter Treaty offer consent to arbitration. An investor could accept that offer to achieve bilateral consent with a host state. It should be noted that Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (also known as the Washington Convention) does not offer consent for arbitration. In the preamble, it states that “no Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration”.
Consent through host state legislation. The host state may also offer consent to arbitration to a foreign investor in its legislation. For instance, Albanian Law on Foreign investment of 1993 states that the foreign investor may submit the dispute for resolution and the Republic of Albania consent to the submission to the International Centre for Settlement of Investment Disputes (ICSID). This provision offers Albania’s consent to arbitration and the investor can accept this offer to reach the consensus to arbitration with the state of Albanian. The consent to arbitration offered in legislation is different from the one in the BIT. The state may repeal its law and unilaterally withdraw the offer at any time. Therefore, it is necessary for the investor to accept the offer to consent to arbitration through a written communication as early as possible.
Consent under most-favoured-nation clauses. In practice, there have been investors who try to import the consent to arbitration the host state offers in a treaty with a third state through the MFN clause in order to have a better offer or to establish jurisdiction. For instance, in Plama v Bulgaria, Palma Consortium Limited (a Cyprus entity), the claimant had attempted to use the MFN clause in the BIT between Bulgaria and Cyprus to avail itself of the Bulgaria- Finland BIT in order to establish ICSID’s jurisdiction. The tribunal reached the conclusion that an MFN provision in a basic treaty did not incorporate by reference dispute settlement provisions in whole or in part set forth in another treaty, unless the MFN provision in the basic treaty leaves no doubt that the contacting parties intend to incorporate them.
Zhang Xi is a case manager of Beijing Arbitration Commission/Beijing International Arbitration Centre