Originally from Between East and West: Essays in Honour of Ulf Franke

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I. INVESTMENT ARBITRATION

Arbitration between an investor and the State of investment is a procedure with its own characteristics distinguishing it significantly from ordinary commercial arbitration. While commercial arbitration is normally based on a contract between the parties to the dispute, arbitration in investment disputes is not founded on a private contract but on an international treaty between two or more States (the Contracting States), one of which is the Respondent in the arbitration. The legal ground on the basis of which an individual investor is entitled to initiate arbitration proceedings against a State before an international tribunal is the Contracting States’ agreement in the relevant treaty that a dispute between one of them and an investor of the other Contracting State (or one of the other Contracting States in the case of a multilateral treaty) may be settled by international arbitration. Consequently, the investment protection treaty, although an inter-State treaty, contains an open offer of arbitration addressed to all investors concerned, and any such investor may at any time after the treaty has come into force accept this offer by initiating arbitration proceedings against the State of investment. However, the fact that the State’s obligations are laid down in an international treaty and not in a contract has important legal consequences. As an international agreement, a treaty is to be interpreted and applied according to the norms of public international law, in particular the Vienna Convention on the Law of Treaties from 1969 (the Vienna Convention) which, in Articles 31-33, contains basic rules for interpretation of treaties. In this respect, an investment dispute differs from an ordinary commercial dispute in which the applicable law is, as a rule, national—private or commercial—law. 

Since an investment dispute is not based on an agreement between the parties, no question will arise as to the common intent of the parties to the dispute at the time when the applicable provisions were drafted and adopted. Occasionally, a question might arise as to what the Contracting States had in mind when drawing up certain provisions in the treaty, but in international treaty law the common intent of the Contracting States, if it can be established at all, is only given limited weight. According to Article 32 of the Vienna Convention, the preparatory work of a treaty and the circumstances of its conclusion are no more than supplementary means of interpretation.