What Do Investor-State Arbitration Laws Mean For Your Business
The global market has enabled large corporations to expand into foreign territory. Yet many corporate entities are finding foreign states are clipping their wings and preventing an equal playing field with the homegrown competition.
Consequently, the International Chamber of Commerce (ICC), introduced investor-state arbitrations laws to that enabled foreign investors to challenge States that impose unfair advantages through laws and administrative procedures that do not apply to national companies.
International investment agreements (IIA) continue to evolve. The latest revisions to investor-state arbitration laws and regulations seek to improve efficiency, flexibility and transparency. The new regulations will be applied to cases filed from 1 January 2021.
What is Investor-State Dispute Settlement?
Investor-State arbitration is a legal procedure that seeks to resolve disputes between foreign investors and host States. It is also known as Investor-State Dispute Settlement (ISDS).
ISDS is important because it entitles foreign investors to hold the government of the country where their investment was made accountable for breaching a promise stipulated in investment treaties.
Historically, the only option for foreign investors to challenge nation-states for discrimination and contract breaches was through the local courts of the host nation. Needless to say, the award of damages was rarely given in favour of the claimant.
The intention of ISDS is to prevent nation-states from manipulating laws and reneging on their promise to foreign investors. International arbitrations laws pave the way for fair and equitable treatment, full protection and security.
Why is ISDS important?
International arbitration laws remove barriers and seek to ensure contractual obligations are upheld. In the event of disputes, the regulations give foreign investors access to independent and qualified arbitrators rather than national courts where bias typically clouds the verdict.
ICC laws also seek to improve a country’s reputation and moral standing. When disputes arise, the credibility of the host State becomes public knowledge. Moreover, host States have a vested interest to live up to their promises and fulfil contractual obligations.
Nations that mistreat overseas companies deter others from investing in their country. The repercussions for the local economy will suffer. Independent third-party dispute settlement mechanisms can prompt unilateral benefits and act as a deterrent to self-interested parties.
Drawbacks of New States Arbitration Laws for Foreign Investors
International arbitration may not be without its limitations. Dispute resolutions are only available to investors that have sufficient capital and negotiating power.
The average cost of bringing an investor-state arbitration claim to fruition is estimated to be around $6m for the claimant and $4m for the respondent. Small-to-medium sized investors, you would have to say, are excluded from raising disputes and therefore have no protection when investing overseas.
To hold host States accountable, a dispute settlement mechanism must be agreed in the investment contract. Pre-contract negotiations should be conducted by legal representatives that specialise in Investor-State Arbitration Laws to ensure ISDS is administered independently and fairly.