Originally from Asian Leading Arbitrators' Guide to International Arbitration

Over the past five or so years, international arbitration involving states has received a new lease of life. Previously, states were involved from time to time in traditional international arbitrations against private parties arising out of contracts containing ordinary arbitration clauses. States were also involved in isolated arbitrations against other states.1 While these sorts of arbitrations have not disappeared, they have been eclipsed by the recent, spectacular growth of a new form of arbitration which necessarily involves a state as one of the disputing parties: investment treaty arbitration. In this chapter, we examine the phenomenon of investment treaty arbitration, with an emphasis on its use in Asia.

Investment treaty arbitration is sometimes referred to as “investor-state arbitration”, although the latter appellation does not convey the fundamental basis of the arbitration in question, which is an investment treaty as opposed to a contract. Investment treaty arbitration takes place between foreign investors and the states that host their investments (“host states”). The arbitration is commenced pursuant to the terms of an investment treaty between the host state and the state of which the investor is a citizen or company (the “home state”). While a foreign investor and a host state may agree to refer disputes arising out of a contract between them to traditional international arbitration or the courts, foreign investors – a group which includes just about any natural or juridical person from outside the host state which is doing business in the host state – increasingly favour investment treaty arbitration.2