The Role of Domestic Courts in International Investment Arbitration: Have Local Remedies Re-emerged? ?

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.