Investor-State Dispute Settlement Mechanism

In recent years, the significant increase in the number of investment-related disputes that have been submitted to international arbitration under the terms of BITs has come to the attention of the international community. The majority of the known cases against states were initiated after 2005. The Interna­tional Centre for Settlement of Investment Dis­putes (ICSID), a specialised institution of the World Bank, is particularly affected by this increase.

Investor's choice between institutional and ad hoc arbitration

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, 1965) has been signed and ratified by over 150 countries (including Switzerland). ICSID has its own arbitration rules, according to which it administers arbitral proceedings. Swiss BITs offer investors the choice of institutional arbitration (i.e. under the rules and administrative support of ICSID) or ad hoc arbitration (i.e. under other rules of arbitration). If the parties to the dispute are unable to agree upon the applicable arbitration rules and the investor is unable or unwilling to submit the matter to ICSID arbitration, then the arbitration rules established by the United Nations Commission on International Trade Law (UNCITRAL) apply as a contingency solution.

Several international fora (UNCITRAL, ICSID etc.) are currently working on a precision of the arbitration mechanism. On April 1, 2014, the new UNCITRAL Transparency Rules were put in force. The rules apply in Investor-State Dispute Settlements, which are based on BITs concluded after April 1, 2014 and are executed according to the UNCITRAL arbitration rules. The UN Transparency Agreement, concluded in July 2014, extends the application of the UNCITRAL Transparency Rules for all signatory states to dispute settlements which are based on BITS concluded before April 1, 2014 or are treated by other arbitration rules than UNCITRAL arbitration rules (e.g. ICSID).

ICSID arbitration decisions may only be challenged under very limited circumstances stipulated in the ICSID Convention. Arbitration decisions based on other arbitration rules may be challenged under the terms of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and/or national legislation

How effective is the dispute settlement mechanism?

Individual decisions in investor-state arbitration cases have led to discussions among experts and the general public. Options for reforming the investor-state dispute settlement mechanism are being discussed in UNCITRAL Working Group III, in which Switzerland participates. Nevertheless, the dispute settlement mechanism contained in the BITs has largely proven to be effective in recent years. The BITs give investors the right to obtain an internationally enforceable arbitration award within a reasonable timeframe and this decision can only be challenged on very limited grounds. It should also be mentioned that only a small portion of disputes between investors and recipient countries reach arbitration. In most cases, mutually amenable solutions are found - with or without the help of the authorities of the country of origin - prior to the actual arbitration proceeding.

Specialist staff
Last modification 10.11.2023

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