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By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Sustainable Development Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), The African Arbitrator of the Year 2022, Kenya’s ADR Practitioner of the Year 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023).

Investment arbitration, also referred to as Investor-State Dispute Settlement or ISDS, has been defined as a procedure to resolve disputes between foreign investors and host States (also called Investor-State Dispute Settlement or ISDS). Investment arbitration is meant to ensure that if a foreign investor were to sue a host State, there 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, allowing the foreign investors to bypass national jurisdictions that might be biased or not fully independent.

The definition of investor and investment are considered to be among the key elements determining the scope of application of rights and obligations under international investment agreements, with an investment agreement applying only to investors and investments made by those investors who qualify for coverage under the relevant provisions. Notably, there is no uniform definition of ‘investment’ under customary international law or recognised by states in international instruments, with most investment treaties adopting an asset-based definition expressed with the formula ‘every kind of asset’ followed by an illustrative, non-exhaustive list comprising all types of properties and contractual rights, including, most commonly: movable and immovable property, and property rights such as mortgages, liens and pledges; equity and debt participation in a company, including shares, debentures and debt instruments; intellectual property rights, goodwill and know-how; claims to money and performance under a contract having an economic value; and concessions or licences granted under public law or contract.

It has been observed that the International Centre for Settlement of Investment Disputes (ICSID) Convention purposefully left the term “investment” undefined when granting the body jurisdiction over matters of international investment, in order to allow tribunals to develop a definition themselves, since they were closer to the facts on the ground and consequently were better equipped to write a useful and accurate test, but this has arguably provoked a considerable amount of controversy and a variety of cases attempting to interpret it in a sensible way. Similarly, the World Bank’s Report of the Executive Directors on the Convention stated that: No attempt was made to define the term “investment” given the essential requirement of consent by the parties, and the mechanism through which Contracting States can make known in advance, if they so desire, the classes of disputes which they would or would not consider submitting to the Centre (Article 25(4)).

The foundations of the modern international investment regime were arguably laid in the aftermath of World War II, where International Investment Agreements (IIAs) were meant to fill the legal gap left by the breakdown of colonial systems and in light of the expropriation policies adopted in many newly independent as well as communist states that often involved the denunciation of contracts between foreign investors and host countries. The traditional investment treaties, therefore, included a core of substantive provisions meant to ensure foreign investors are treated without discrimination and according to a general international minimum standard, are compensated in the case of expropriation, have the right to move investment-related capital freely in and out of the host country and also included provisions that required host states to honour investment contracts between investors and host states, provisions that still persist in modern investment treaties.

With the introduction of IIAs came Investment- State Dispute Settlement system (ISDS). This is because the majority of IIAs signed since the late 1980s include investor–state dispute settlement mechanisms that, in cases of alleged breaches of IIA provisions, allow foreign investors to sue host states before an independent international tribunal without having to rely on the diplomatic protection of its home country. This was based on the idea that increased legal protection would stimulate foreign investment and thus lead to economic development.



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