Investment arbitration is a procedure to resolve disputes between foreign investors and host States. The possibility for a foreign investor to sue a host State is a guarantee for the foreign investor that, in the case of a dispute, it will have access to independent and qualified arbitrators who will solve the dispute and render an enforceable award.1

This allows the foreign investor to bypass national jurisdictions that might be perceived to be biased or to lack independence, and to resolve the dispute in accordance to different protections afforded under international treaties.

For a foreign investor to be able to initiate an investment arbitration, a host State must have given consent to this.

This paper will address the meaning of investment arbitration in details address the impact of I.C.S.I.D2 Convention which principally deals with investment disputes as well as different angle to international settlement of investment disputes.


To say that public international law is relevant to international investment arbitration would be a gross understatement. In fact, international law is so universal in this area that it is fair to say that investment arbitration lies at the borderline of international and domestic law.

Investment arbitration is designed to replace essentially two different forms of dispute settlement which are diplomatic protection and litigation in domestic courts. Diplomatic protection is a classic institution of public international law. In the context of investment disputes, the investor’s home state would promotes its national’s claim and pursues it against the host state on the international plane. Litigation in domestic courts is the traditional way of settling disputes between private persons.

1. Christopher Schreuer (1992) The Relevance of Public Int’l Law in Int’l Commercial Arbitration:
2. “International Centre for the Settlement of Investment Disputes”

Both types of remedies were considered unsatisfactory for the settlement of investment disputes. Diplomatic protection is discretionary and political. Therefore, it offers no assurance of an effective outcome to the investor. Moreover, before diplomatic protection becomes available, the investor must have exhausted all local remedies in the host state. Additionally, diplomatic protection is liable to lead to frictions in the relations between the two states.

Litigation in the host state’s domestic court is often seen as lacking the objectivity that the investor desire. In addition, domestic courts are bound to apply domestic law even if that law falls short of the standards provided by international law.

Litigation in the domestic courts of states other than the host state is liable to lead to problems like state immunity, the act of state doctrine and territorial jurisdiction. Therefore, it was never a promising alternative.

International arbitration is the most rational way to close this procedural gap between the traditional international law remedy of diplomatic protection and proceedings in diplomatic courts.3 It offers an objective international procedure on the basis of internationally accepted standards that grants direct access to the investor without having to depend on its state of nationality.

3. The Interpretation of ICSID Arbitration Agreement, in: Int’l Law: Theory and Practice; Essays in Honour of Eric Suy 719-735 (1998).

Investment arbitration, like any arbitration, is based on an agreement between the parties. An arbitration clause in an investment agreement between the host state and the investor follows the traditional method of consenting to commercial arbitration. Such arbitration clauses in direct agreements between the disputing parties have been the basis of a considerable number of investment arbitration.

Most recently, the typical basis for the jurisdiction of tribunal in investment arbitration has not been a contract between the parties but a treaty. Most of the bilateral investment treaties BITs contain clauses offering access to international arbitration to the nationals of one of the State parties to the treaty against the other state party to the treaty.

The treaty clause as such does not establish jurisdiction. It is no more than an offer by the state parties to the treaty to eligible investors. The offer may be taken up by an investor who is a national of the other state party to the BIT (or of another state party to the multilateral treaty). The investor can do so either by addressing a formal acceptance to the host state or simply by instituting proceedings.

The result is an agreement between the investor and the host state on the basis of a treaty between the host state and the investor’s home state. Again, the interaction of public international law and of private law is apparent. The distinction between the treaty containing the offer of consent to arbitration and the arbitration agreement brought about by the acceptance of that offer is not just theoretical formalism. The time of consent to jurisdiction is only the acceptance of the offer by the investor. In addition, jurisdiction will only exist to the extent that offer and acceptance coincide. A broad offer of jurisdiction contained in a treaty may be accepted by the investor only in narrow terms, for instance relating only to certain investment operations.

Investment disputes can sometimes be resolved in local courts, or through state-state dispute settlement. However, the most common way in which breaches of an investment treaty are enforced is via investor-state arbitration. Investor-state arbitration is a form of dispute settlement where a dispute between an investor and a host state is heard by an ad hoc tribunal of arbitrators. It is a hybrid of similar procedures developed in the context of commercial and state-to-state disputes. Essentially, under an investment treaty which provides for investor-state arbitration, the parties to the treaty have each agreed that they will resolve disputes with the other parties’ investors through an ad hoc panel of party-appointed arbitrators, who will issue a binding judgment based on law.

Under the treaty agreement, investment was defined as the term investment shall comprise capital brought into the territory of the other party for investment in various forms in the shape of assets such as foreign exchange, goods, property rights, patents and technical knowledge. The term also includes the returns derived from and ploughed back into such investment.

Foreign investment is increasingly an integral part of the world economy. In developing countries, major infrastructural projects and exploitation of natural resources often require financing by and technical know-how of private foreign investors. The investment may be considerable and may need many years for the investor to recover. In the developing countries, foreign investment often relate to core components of the national economy. These factors make foreign investments particularly vulnerable to possible interference by the host state. While clear-cut nationalizations are rare, there are a number of other measures of a lower threshold which may affect foreign investment, such as: currency restrictions preventing repatriation of profits, prohibitions on price increases, and tax increases or new taxes.


This is the most common form in arbitration and this includes arbitration between private persons and also arbitration between private persons and corporations. This may arise in the course of importing or exporting of goods and services, joint ventures, agency agreement, financing, construction, and so on. In this form of arbitration,, parties are free to choose either the procedure and rules of institutional arbitration or ad hoc arbitration rules, but it is advisable for parties to choose the rules of institutional arbitration which are handy in solving any problem which may arise in the course of the arbitration proceedings unlike the ad hoc rules which may not be exhaustive and perfect enough to deal with all matters in respect of the proceedings. The issue of sovereign immunity in contracting with states is not applicable in arbitration agreements involving private persons but problem may arise in the course of enforcement of award made pursuant to the arbitration particularly in respect of issues of public policy and capacity but this is not monopoly of arbitration proceedings between private persons.


This has shifted the emphasis now to international sphere on arbitration between a state which is a sovereign entity and a private individual or party.

4. Greg C. Nwakoby (2004) Snaap Press Ltd Pp 194.
5. Ibid, pp. 192

The private individual or party in this case is usually a juristic personality in the form of a corporation or company. The existence of this form of arbitration is not surprising because sovereign states or nations have entered into areas of trade and commerce previously reserved for private persons. For example, in Nigeria, we have many joint venture agreements between Nigeria as o country, and several oil companies operating in Nigeria. Nigeria also has other agreements with multi-national construction companies.  In most of these agreements and contracts, if not all, the private party in the agreement usually insists on arbitration outside the territory area of the state so as not to suffer from the bias which may be present where the arbitration is conducted within the territorial area and under the influence of the state  involved and in accordance with the arbitration laws of the state which laws are generally subject to amendment by the state at any time even after the arbitration agreement has been entered into.


Arbitration between states which is popularly referred to as inter-state arbitration, is not always in respect of commercial disputes. However, the practice followed in such proceedings even where the dispute is not commercial has had important influence on the general development of the modern practice of international commercial arbitration. Certain treaties and conventions have emerged as a result of inter-state arbitration and the procedure for appointing arbitrators in inter-state arbitration is reflective of what we have in international commercial arbitration. The use of arbitrators as experts which is to be found in inter-state arbitration is also reflected in modern international commercial arbitration.

6. Greg C. Nwakoby (2004) Snaap Press Ltd Pp 194.

Inter-state arbitration occurs where two or more states have agreed to refer their disputes to an arbitration tribunal.  An example could be seen in the arbitration proceedings between Colombia and Ecuador in 1907 in which the arbitrators were appointed and asked to determine the disputed boundary line between the two countries.7  However, it is not always that inter-state arbitration exists between two states; it occasionally involves a non-state party, such as the arbitration between the Government of Egypt and the Suez Canal Company. This results from a situation in which a state goes to arbitration against another state on behalf of an individual to whom they are prepared to extend their diplomatic protection.

The investment disputes differ in several respects from ordinary commercial disputes. Frequently, the mount in investment dispute is remarkable and the issues may have considerable political implications. Often the disagreement centers on the objectives of the investment; the repatriation of revenues and the ultimate control and benefit of the investment.8


International Centre for the Settlement of Investment Dispute Convention is an autonomous international institution established under the “Convention on the settlement of investment Disputes between states and Nationals of other States. The convention entered into force on October 14, 1966, when it had been ratified by 20 Countries including Nigeria. The convention regulates the conciliation and arbitration of investment (legal) disputes between contracting states and nationals of other contracting states in accordance with the provisions of the constitution. Thus only such disputes which have been submitted to ICSID by the mutual consent of the parties will be settled under the Convention. ICSID by the mutual consent of the parties will be settled under the convention. ICSID also regulates its arbitral proceedings through the ICSID Arbitration Rules.

7. Redfern and Hunter, International Commercial Arbitration: Law and Practice, Sweet & Maxwell, London, 2004, 40
8. Olushola Abiloye: Recognition and Enforcement of foreign Arbitral Awards in Nigeria, Legal Regimes and inherent Challenges Pages 10-13

The preamble to the Convention explains the essence and importance of this convention and it provides in details that:

The contracting States considering the need for international cooperation for economic development and the role of private international investment therein; bearing in mind the possibility that from time to time disputes may arise in connection with such investment between Contracting States and nationals of other Contracting states;

Recognizing that while such disputes would usually be subject to national legal processes, international methods of settlement may be appropriate in certain cases;

Attaching particular importance to the availability of facilities for international conciliation or arbitration to which contracting states may submit such disputes if they so desire;

Desiring to establish such facilities under the auspices of the international Bank for Reconstruction and development;

Recognizing that mutual consent by the parties to submit such disputes to reconciliation or to arbitration through such facilities constitutes a binding agreement which requires in particular that due consideration be given to any recommendation of conciliators, and that any arbitral award be complies with; and..

The Article 1(2) further provides that “the purpose of the Centre shall be to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of this Convention”

From the foregoing provisions of the Convention, there are three 3 conditions which must be fulfilled before this Convention could apply in any particular case.

  1. The parties must have agreed to submit their dispute to ICSID.
  2. The dispute must be between a contracting state and a national of another contracting state and;
  3. It must be a dispute arising directly out of an investment. Delaume, ICSID Arbitration: Practical Consideration Journal of International Arbitration, 1981, 101

The Article 25(1) of the convention puts the fact clearer by stating that: “the jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a contracting State designated to the Centre by that State) and a national of another Contracting state, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally”

The Act provides that an ICSID award shall be enforced in Nigeria as if it were an award contained in a final judgement of the Supreme Court if a copy of such an award, duly certified by the Secretary General of the Centre is filled in the SC by the party seeking its recognition and enforcement9. Example of such enforcement under the ICSID is the case of Guadalupe Gas Product Corporation v. Nigeria10 which deals with the production and marketing of liquefied natural gas, settlement was agreed by the parties and settlement recorded by their request in the form of an award.

Arbitral award rendered under ICSID Convention directly enforceable in signatory states without any standard of review to be applied in National courts. If a party seeking to enforce an ICSID award feels that the Nigeria government is uncooperative in enforcing the award, it can bring an action against Nigeria at the international Court of Justice at the Hague.11

ICSID is the world’s leading institution devoted to international investment dispute settlement. It has extensive experience in this field, having administered the majority of all international investment cases. States have agreed on ICSID as a forum for investor-State dispute settlement in most international investment treaties and in numerous investment laws and contracts. The ICSID Convention is a multilateral treaty formulated by the Executive Directors of the World Bank to further the Bank’s objective of promoting international investment. ICSID is an independent, depoliticized and effective dispute-settlement institution. Its availability to investors and States helps to promote international investment by providing confidence in the dispute resolution process. It is also available for state-state disputes under investment treaties and free trade agreements, and as an administrative registry.

9. Article 54 of the ICSID Convention.
 10. ICSID Case No. ARB/78/1
11. Olushola Abiloye: Recognition and Enforcement of Foreign Arbitral Award in Nigeria. Legal Regimes and Inherent Challenges Pages 14

ICSID provides for settlement of disputes by conciliation, arbitration or fact-finding. The ICSID process is designed to take account of the special characteristics of international investment disputes and the parties involved, maintaining a careful balance between the interests of investors and host States. Each case is considered by an independent Conciliation Commission or Arbitral Tribunal, after hearing evidence and legal arguments from the parties. A dedicated ICSID case team is assigned to each case and provides expert assistance throughout the process. More than 600 such cases have been administered by ICSID to date.


Consent to investment arbitration is most commonly given by host States in International Investment Agreements (IIA’s), including Bilateral Investment Treaties (BIT’s) as well as Free Trade Agreements (FTA’s) and multilateral agreements, e.g., The Energy Charter Treaty (ECT)12.

Less frequently, consent to investment arbitration may be found in investment agreements concluded directly between a State and a foreign investor, or it may be contained in a domestic law of the host State, such as a mining or investment law. The United Nations’ UNCTAD maintains a list of the vast majority of instruments providing for a host State’s consent to investment arbitration, which should be consulted13 at the outset of any potential dispute to see whether investment arbitration may be envisaged.

12. Gaius Ezejiofor, The Law of Arbitration in Nigeria, Longman, 1997, 136
13. The journal of world investment & Trade, 555- 562 (2004)

While consent is typically nationality-based, the applicable nationality may be that of an individual or a legal entity, providing some flexibility in terms of the treaty or treaties under which an investment arbitration may be initiated.


The protections provided to foreign investors depend on the international investment agreement upon which their claims are brought. They are different from the protections afforded by the domestic law of the host State, and at times the protection they afford may be greater. The most common protections afforded to foreign investors, with respect to which there is a significant volume of publicly-available arbitral jurisprudence, include:15

  1. Protection from expropriation;
  2. Fair and equitable treatment (FET);
  3. National treatment;
  4. Most-favoured-nation treatment (MFN);
  5. Freedom to transfer funds; and
  6. Full protection and security

Each of these protections has a defined meaning under international law, although the scope of these protections is always debated, as arbitral jurisprudence is non-binding and merely persuasive. The UNCTAD has published a useful overview of International Investment Agreements and their meaning.

14. Schrevor, The ICSID Convention, A Commentary PP 585-590 (2001)
15. Jonathan (2014) International Relations, Cambridge University Press Pp 73


Most investment arbitration agreements provide for a cooling-off period, frequently of 6 months, where the investor and the host State are invited to engage in negotiations in order to find an amicable solution. The starting point of the cooling-off period is typically a Notice of Intent to initiate arbitration proceeding against the host State. In case of a failure to settle the dispute over the cooling-off period, as is common many States prefer to wait and see whether a foreign investor is truly willing to pay the high costs that are required to pursue an investment arbitration, the foreign investor must file a Request for Arbitration in accordance with the applicable rules of arbitration. The vast majority of disputes do not settle at this stage.

In some cases, the investor may be obliged by the arbitration agreement upon which its claim is based to exhaust all effective domestic legal remedies prior to initiating a claim in arbitration.

To the contrary, other arbitration agreements force the investor to either choose to sue the state before domestic courts or before an international arbitral tribunal. It is very important for a foreign investor to review the instrument containing the host State’s consent to arbitration in detail prior to initiating proceedings, since it may be barred from later initiating arbitration if courts of the host State are first approached to resolve the dispute.

Institutional Investment Arbitration vs. Ad Hoc Investment Arbitration:

The best known arbitration institution16 administrating investment arbitrations is the International Centre for Settlement of Investment Disputes (ICSID).

16. Amazu. A. Asouzu “ The Arbitration and Conciliation Decree Cap. 19 as a Legal Framework for institutional Arbitration: Strenghts and Pitfalls,” Lawyers Bi-Annual, Vol 2 No 1 June 1995, 1 at 3

Based in Washington, ICSID arbitrations involving parties from Europe or Asia are often held at the World Bank’s Paris headquarters.

Other institutions such as the Stockholm Chamber of Commerce (SCC), the Permanent Court for Arbitration (PCA) and the International Chamber of Commerce (ICC) also act as arbitration institutions administrating investment arbitrations. The investment arbitration agreement may also provide for an ad hoc arbitration (the absence of an arbitration institution that administrates the proceedings. Typically, such ad hoc arbitrations are governed by the UNCITRAL Arbitration Rules17. The bottom line is that investors are provided a choice of the arbitral institution they would like to entrust with administering their dispute. This choice depends upon numbers of terms and considerations.

Enforcement of Investment Arbitration Awards: The ICSID Convention provides the rules for the enforcement of international investment awards that host States are bound to respect18. According to the ICSID Convention, “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.”

If the host State is not a party to the ICSID Convention, then enforcement of the award is carried out in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. According to this Convention the awards of international arbitrators can be enforced in over 150 countries.

 17. United Nations Commission on International Trade Law
 18. Articles 53 to 55 of the ICSID Convention


International arbitration of investment dispute lies at the boarderline of international and domestic law. The fusion nature of investment arbitration is evident in a number of ways19:

  1. The participants in the proceedings are a State and a private investor.
  2. Investment arbitration replaces diplomatic protection and litigation in domestic courts.
  3. Jurisdiction is often based on an offer to arbitrate contained in a treaty between the host State and the investor’s home state. The investor’s acceptance of the offer perfects the arbitration agreement between the parties. The interpretation of the consent agreement may combine elements of treaty interpretation and of domestic law.
  4. In investment arbitration, the claimant will typically argue violations of international law, especially of a BIT or other relevant treaty. Under certain circumstances, claims based on breach of contract may also be pursued20.
  5. The relevant substantive law in an investment dispute nearly always combines international law and host State law. Some Clauses on applicable law refer exclusively to international law.

The choice of international law cannot exclude considerations of domestic law entirely. The protection of propriety through an investment treaty or

general international law is contingent upon the existence and extent of

propriety rights as determined by the applicable domestic law. Similarly, if an investor claims that its right, arising from a contract, have been expropriated or have been subjected to treatment that is contrary to a treaty’s fair and equitable standards, domestic law will also be relevant. It will be necessary to look at the existence of the contract and the rights arising under it in terms of the applicable domestic law.

 19. Oleghe, francis, “promoting Foreign Investments through Arbitration,” Vol 8, No. 1 September, 2013.
20. Osunbor, Oserheimen, Opportunity for Foreign Direct Investments in Nigeria.. paper presented at workshop organized under the auspices of UNCTC and UNDP in Abuja from 26-30 March, 1990, 101.

Generally, in order to attract foreign investment into an economy, the government is expected to provide not just the regulatory framework for foreign investments but has also positively provided for the settlement of disputes that may arise from such investments outside of its municipal courts, thereby increasing investors’ confidence.

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