Below is a guest post
from Prateek Mishra, a final year candidate in the BA. LLB. (Hons.) programme
at NLIU, Bhopal. Currently, he is serving as the Convenor of the Alternative
Dispute Resolution Cell at the University. He was recently awarded
as the Best Speaker at 5th NLSIU International Arbitration Moot
Among
the many issues that remain unsettled in the relatively young field of
international investment arbitration, the relevance of local remedies remains
very important and controversial.
Under
traditional international law, the rule that local remedies must be exhausted
before international proceedings may be instituted has been considered to be
customary and the term “local remedies” as used in this context refers
to any redress available from the governmental apparatus in the host State,
including relief that may be available from a court, administrative agency or
other authority.
As
a general matter the rule requires a complete exhaustion of local remedies,
meaning that the investor must make any available appeals and obtain a final
decision from the highest court in the host State, at least where the relevant
local remedies are judicial ones. However, the advent of direct arbitration
between the host state and the foreign investor over settlement of investment
disputes, has generally led to the the assumption that where consent has been
given to investor-state arbitration, there is no need to exhaust local
remedies.
In
such a condition, one would expect that an investor could proceed straightaway
to arbitration, without any potential adverse consequence from the decision to
forego local remedies. That is not necessarily the case, however, in light of
what George K. Foster termed as the Local Remedies Cases.
Decisions
in this line of authority include awards in some leading cases like Jan De Nul, SGS vs. Philippines, Saipem
S.p.A. and the Loewen Group.
An
illustration is the controversial decision in Generation Ukraine, where the Tribunal had asserted that the
claimant would have been able to state a valid treaty claim only if it could
show that local courts committed a denial of justice in handling the claims.
Interestingly,
Professor Christoph Schreuer, one of the most eminent experts in contemporary
investment arbitration, has also appeared to support the existence of local
remedies as a substantive requirement in denial of justice claims.
This new
development also finds support in the fact that there are sound policy reasons
for encouraging or even requiring the pursuit of local remedies when investors
seek to challenge judicial conduct. Such policy reasons become increasingly
important when a Tribunal is urged to balance the rights of both the parties to
the dispute.
Firstly, the inclusion of the need to use local remedies can help to strike a
balance between the rights of the investor and the right of the host country to
regulate the investment.
Secondly, provided the host country can offer reliable and
effective dispute settlement systems it may be in the long-term interests of
both parties to have recourse to local courts and tribunals first.
Moreover,
by the time an issue reaches an appellate court, it is normally more
crystallized and the chances of it being decided correctly are greater. This is
because more people, judges and attorneys alike, will have had a chance to
evaluate the issue, and make different and better arguments. As such, errors
may be corrected, juries may be reined in, and justice may be done.
Another
matter of relevance to an Investment Arbitration Tribunal is the principles of public
international law. International investment law being an extension of public
international law must conform to such principles.
Consequently,
a Tribunal will have to deal with the contention that a mandatory condition for
the espousal of any claim would require complete exhaustion of local remedies.
The basis for such a contention is that exhaustion of local remedies is a
fundamental principle of international law in light of the successive judgments
by the International Court of Justice in this regard. These include the
judgment in Switzerland vs. United States
of America (Interhandel) and Elettronica Sicula S.p.A (United States vs.
Italy), popularly known as the ELSI
case.
Therefore,
it will not be improper to consider local remedies as relevant to the substance
of certain treaty claims, including those for fair and equitable treatment,
effective means and expropriation; at least to the extent they concern
appealable judicial or administrative decisions in domestic courts of the host
state.
