Originally from the ICDR Handbook on International Arbitration & ADR - Third Edition

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I.    Introduction

Companies that invest in foreign jurisdictions, particularly countries that are far-flung or developing, place considerable reliance on the existence of certain minimum standards (reflected in contracts with the host state or in international agreements) under which the host jurisdiction will treat their investments and on their ability to seek legal redress in the event the local government fails to abide by those standards.  For most investors, it usually goes without saying that the host state’s national courts are not a desirable forum in which to resolve legal disputes involving their investment.  Conversely, if sued before the courts of the investor’s home state, the foreign state would almost invariably assert sovereign immunity even though jurisdiction in those courts was otherwise available.

Savvy investors have therefore long sought, whenever possible, to negotiate contracts with the host government binding the government to minimum standards of conduct and providing for international arbitration in a neutral venue.  For many decades, arbitration has thus served as a traditional means of resolving investor-state disputes.

Since the 1980s, an additional means of investment protection has become available, as investment rights have increasingly come to be enshrined in “bilateral investment treaties,” or “BITs,”   as well as the investment chapters of free trade agreements (“FTAs”).   These treaties typically provide safeguards against expropriation, including the right to compensation at full market value in the event an investment is seized, as well as assurances of fair and equitable treatment of the investment by the host state, and provide for arbitration before a neutral forum, such as the International Centre for Settlement of Investment Disputes (“ICSID”)  or under the rules of the United Nations Commission on International Trade Law (“UNCITRAL”).