Objections to Jurisdiction and their Settlement in International Investment Arbitration

Author Name IWATSUKI Naoki  (Rikkyo University)
Creation Date/NO. July 2008 08-J-012
Download / Links


It is now a common feature of international investment treaties to provide for investor-State arbitration to be initiated unilaterally by foreign investors. It is a much-anticipated and effective procedure for the protection of investors. At the same time, it brings advantages to recipient States as well in that they embody assurance for protection and thus encourage investments. However, as investors have been more active in their use of this arbitration procedure, recipient States have become increasingly concerned that an excessive burden has been placed upon them. These concerns include the fear that investor-State arbitration proceedings may improperly prevent the implementation of domestic policies, and that they may be abused by multiple usage of national/international procedures with regard to substantially "identical" facts, even though claimants in each procedure are different entities from a formal point of view. This paper evaluates these concerns from the perspective of the conditions surrounding the submission of claims to investor-State arbitration.

When faced with a unilateral commencement of arbitral procedure, respondent States usually object to the jurisdiction of the arbitral tribunal by alleging that some conditions are lacking, such as (1) the existence of legal disputes, (2) jurisdiction ratione temporae, (3) exhaustion of prior consultation, and (4) jus standi. Despite emphatic calls for consideration of sovereignty on the part of respondent States as a presumed limitation to competence, arbitral tribunals generally adopt literal interpretation of international investment agreements and rules of arbitration procedures. Investors' right to sue is explicitly provided by States concerned in the text, whereas deference to sovereignty is not.

It is inappropriate to claim from these past judgments that by placing too much emphasis on the need for protection of investments, arbitral tribunals tend to bend their interpretation of treaties in investors' favor. Nevertheless, we can point out at least one problem: they haven't paid much attention to the distinction between two different questions, i.e., their jurisdiction and admissibility of claim. They generally tend to treat issues concerning submission to arbitration solely as those regarding the arbitration agreement and, as such, related to the jurisdiction of tribunals. However, questions such as jus standi are issues pertaining to the appropriateness of submission of claims, which are questions of admissibility that cannot be reduced entirely to the interpretation of a "constructed" agreement between investors and the recipient State. Rather, they are concerned with the circumstances relating to the commencement of an arbitration proceeding, and they are not to be treated as something included in an "agreement" simply because the comprehensive consent of recipient States to investment arbitration is given in advance through treaty provisions. If there are justifiable grounds for concern or feelings of distrust on the part of recipient States involved in the active use of arbitration proceedings, they can be traced to the fact that arbitral tribunals tend to misunderstand pleas from respondent States on grounds of inappropriateness of submission in specific circumstances to mean that a submission of claims exceeds the reach of their consent given in treaties.

One of the reasons for this attitude among arbitral tribunals lies in the dogma of party autonomy: operation of arbitral proceedings are to be based on agreement between the parties concerned, so they seek to base and explain their judgment exclusively in terms of "agreement," which is constructed by juncture of an offer on the part of recipient States set out in a treaty and an acceptance on the part of an investor by way of submission of claim. But, in view of past judgments, it is worthwhile to consider providing arbitral tribunals explicitly with competence to handle questions of admissibility as distinct from those of jurisdiction. From this point of view, it is of great significance that the ICSID rules of proceeding for arbitration were revised in 2006 in order for arbitral tribunals to deal with the objection to a claim that is "manifestly without legal merit." Its future application should be watched closely.