This post is a presentation of information found in Tentative Draft No. 5 of the International Commercial Arbitration project. This will be presented at the 2017 Annual Meeting.

§ 5-1. Legal Framework Governing the Judicial Role in Investor–State Arbitration

(a) The role of a court in connection with ICSID Convention arbitration is governed by:

(1) the ICSID Convention and its implementing legislation;

(2) any other applicable treaty and its implementing legislation;

(3) any other applicable federal statute; and

(4) applicable state law, to the extent not preempted by federal law.

(b) The role of a court in connection with non-ICSID Convention arbitration is governed by:

(1) the New York and Panama Conventions, as applicable, and their implementing legislation;

(2) any other applicable treaty and its implementing legislation;

(3) any applicable federal statute, including the Federal Arbitration Act; and

(4) applicable state law, to the extent not preempted by federal law.

(c) In performing its role in connection with investor–State arbitration, a court also takes into consideration and is guided by any applicable provisions of the instrument upon which the right or obligation to arbitrate an investor–State dispute is based.

(d) Unless otherwise provided in this Chapter, the role of a court in proceedings in connection with investor–State arbitration is determined in accordance with the provisions of Chapters 1 through 4, supra.

Comment:

a. Generally. The Restatement addresses the role of U.S. courts in connection with investor–State arbitration, rather than the investor–State arbitration itself. A U.S. court is guided in performing its functions by any applicable treaties (such as the New York, Panama, and ICSID Conventions) and their implementing legislation, by the Federal Arbitration Act and any other applicable federal statute, and by applicable state law, to the extent not preempted by federal law. It is possible, however, that the specific instrument upon which the right and obligation to arbitrate an investor–State dispute is based—whether an international investment treaty, an international investment contract, or an international investment statute—contains language pertaining, directly or indirectly, to the role of national courts.

A principal difference between ICSID Convention and non-ICSID Convention arbitration is the central role of the ICSID Convention and its U.S. implementing legislation (22 U.S.C. § 1650a) in the former and the New York and Panama Conventions and their implementing legislation in the latter. Another key difference is the FAA’s applicability in non-ICSID Convention arbitration and its non-applicability in ICSID Convention arbitration.

b. Investor–State arbitration pursuant to an international investment treaty. An international investment treaty may take a variety of forms. The most common is a bilateral investment treaty, or BIT, according to which the contracting States agree to accord investors from the other contracting States certain rights and protections set out in the treaty, and agree to submit to investor–State arbitration disputes arising out of an alleged violation of those rights or protections. The U.S. has entered into many such BITs. It ordinarily does so according to the then-current U.S. Model Bilateral Investment Treaty, which periodically undergoes revision. As far as dispute resolution is concerned, a BIT typically addresses such issues as the definition of an investor and an investment, notice of arbitration, conditions precedent to arbitration, transparency, interim measures, circulation of draft awards, governing rules of decision, tribunal-appointed experts, consolidation, and remedies. Most of these issues will be of direct concern only to the arbitral tribunal and the parties appearing before it, and do not ordinarily have direct application in U.S. court proceedings dealing with the arbitration agreement, the arbitral proceeding, or the arbitral award. Other international arbitration treaties to which the United States is a party are multilateral, the best example being the foreign investment chapter of a free trade agreement, such as Chapter 11 of the North American Free Trade Agreement.

Unless an investor–State arbitration is subject to the ICSID Convention, the role of U.S. courts in connection with it will be governed by the Federal Arbitration Act, the New York or Panama Convention, and their implementing legislation, and any other sources of law applicable to international commercial arbitration in U.S. courts, including state law to the extent not preempted by federal law. The bilateral or multilateral international investment treaty on which the arbitration is based may also contain provisions that influence the role of U.S. courts in connection with it.

However, both bilateral and multilateral investment treaties often expressly authorize arbitrations to be conducted pursuant to the ICSID Convention. Assuming the requirements for application of the ICSID Convention are met, an arbitration will be conducted in accordance with that Convention and the ICSID Convention Arbitration Rules. The Convention and Rules set out an elaborate framework governing the arbitration process and limiting the intervention of national courts. The arbitration will be subject to that framework rather than the arbitration law of the arbitral seat and the New York or Panama Convention.

The U.S. legislation implementing the ICSID Convention is found at 22 U.S.C. § 1650a. It provides that pecuniary obligations imposed by an ICSID Convention award “shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States.” It also specifically excludes application of the Federal Arbitration Act with respect to ICSID Convention awards.

d. Investor–State arbitration pursuant to an international investment contract. An international investment contract is a type of commercial contract entered into between a private party and a State or its subdivision, agency, or instrumentality. The role of a U.S. court in connection with a non-ICSID Convention arbitration arising out of such a contract is determined by the same bodies of arbitration law that govern the judicial role in international commercial arbitrations generally. See Chapters 2 through 4, supra. Thus, the obligation to arbitrate under an international investment contract is subject to any applicable treaty (such as the New York or Panama Convention) and its implementing legislation if any, other federal legislation such as the Federal Arbitration Act, if applicable, and state law, if applicable and not preempted by federal law. Of course the arbitration agreement itself, as well as any procedural rules incorporated into it, may contain provisions bearing directly or indirectly on the functions that a U.S. court may perform in connection with the arbitration agreement.

Like an international investment treaty, an international investment contract may provide specifically for ICSID Convention arbitration. In that event, provided other ICSID Convention requirements are met, the arbitration agreement and arbitral award will be governed by the Convention and its implementing legislation (22 U.S.C. § 1650a), as well as the Rules of Procedure for ICSID Convention Arbitration Proceedings (“ICSID Convention Arbitration Rules”). Not directly applicable to ICSID Convention arbitration are the New York and Panama Conventions, the Federal Arbitration Act, other federal legislation, and state law.

d. Investor–State arbitration pursuant to an international investment statute. It appears that no case seeking to compel arbitration pursuant to a foreign State’s investor protection statute or to enforce a resulting award has been brought before a U.S. court. However, should such a circumstance arise, any involvement by a U.S. court in connection with the arbitration would be governed by the generally applicable sources of international arbitration law: any applicable treaties (notably the New York and Panama Conventions) and their implementing legislation, the Federal Arbitration Act and other applicable federal legislation, and applicable state law to the extent not preempted by federal law. The foreign investor protection statute may also contain provisions relevant to the role of national courts.

Like treaty-based and contract-based investment arbitration, statute-based 8 investment arbitration may be conducted on an ICSID Convention or a non-ICSID Convention basis. As under international investment treaties and contracts, so too under international investment statutes, ICSID Convention arbitration is subject to the ICSID Convention and its implementing legislation, while non-ICSID arbitration is subject to the New York or Panama Convention and its implementing legislation.

e. ICSID Convention arbitration generally. The ICSID Convention, taken together with its Rules of Arbitration, establishes a procedural framework for the conduct of arbitration between a State and an investor that is a national of another State. The ICSID Convention does not create any substantive rights or obligations; the source of those rights and obligations must be found elsewhere, such as in the international investment treaty, international investment contract, or international investment statute. These sources also furnish the basis of the right and obligation to arbitrate investor–State disputes.

ICSID Convention proceedings are in many ways distinct. While they may be held in one or more physical locations, they are not considered as having a “legal seat” that subjects them to the arbitration law of a particular jurisdiction. In this respect, they are unlike international commercial arbitrations or investor–State arbitrations conducted on a non-ICSID Convention basis. An important corollary of this principle is that national courts are foreclosed from entertaining challenges to ICSID Convention awards, whether in an annulment action or an action to recognize or enforce the award. An ICSID Convention award may only be annulled by an ad hoc committee empaneled by ICSID itself for that specific purpose. Contracting States undertake to recognize and enforce ICSID Convention awards as rendered. On the other hand, the ICSID Convention expressly provides that with respect to execution (as distinct from enforcement) of ICSID Convention awards, a court may give effect to its own principles governing the immunity of foreign State property from execution.

f. Non-ICSID Convention arbitration generally. In addition to arbitration under the ICSID Convention, investor–State arbitration may also be conducted on a non-ICSID Convention basis if the relevant treaty, contract, or statute so permits. Such an arbitration may either be administered by an institution, such as ICSID, the Stockholm Chamber of Commerce, or the Permanent Court of Arbitration, or conducted on an ad hoc basis (commonly through use of the UNCITRAL Rules).

g. ICSID Additional Facility arbitration. Investor–State arbitration conducted within the framework of the ICSID Additional Facility is a variety of non-ICSID Convention arbitration. Though administered by ICSID, arbitration under the ICSID Additional Facility Rules is not subject to the ICSID Convention. As a result, ICSID Additional Facility arbitration is subject to the arbitration law of the seat, the parties’ arbitration agreement, the Additional Facility Arbitration Rules, and the New York or Panama Convention insofar as the recognition or enforcement of awards is concerned. See Comment f, supra.