International investment agreements have proven value in the energy sector, not only over the course of the investment but also, in the event of any dispute, through the damages stage of investor-state arbitration.2 These agreements specify the parties’ rights, allocate risks, and establish expectations for how foreign investors and host states will work together over the long life of energy projects. No agreement, however, can foreclose the possibility of a dispute arising, and the investor and host state may someday find themselves opposed to each other in arbitration. Amidst the small but growing swell of commentary regarding damages in investment arbitration,3 the role of the investment agreement has received relatively little attention. This article focuses on that role and, in particular, when and how the investment agreement interacts with the applicable standard of compensation under international law.
The same state action may breach both an investment agreement and an investment treaty, but those two types of breaches remain separate and distinct. The fundamental principle that state sovereignty encompasses the right of a state to bind itself under international law4 cannot be altered simply because of the terms of an investment agreement with a state. In the context of investment treaty obligations, this means that a state’s violation of such an obligation gives rise to remedies under the investment treaty notwithstanding an investment agreement. The investment treaty may include a baseline of protection for contracts with foreign investors, but investment treaties generally do not limit their scope of application or damages because of contracts with foreign investors. Investment treaties and other sources of international law, not damages provisions in investment agreements, therefore establish the standard of compensation in most investor-state arbitration cases.