The guide deals with the issue of counterclaims in Investor-State Dispute Settlement (ISDS) under international investment agreements (IIAs). The contemporary regime of international investment dispute settlement is often considered as a ‘one-way street’, enabling foreign investors to file claims against host States, while these do not seem to enjoy this right to the same extent. The main task of this project is to apprehend the current state of law and identify the basic criteria that counterclaims lodged by host States have to fulfil in order to be entertained by investment tribunals. Adjustments to the current regime that improve the possibility for host States to make successful counterclaims are drawn from this analysis.
The guide is structured in four parts. Firstly, an introduction of the concept of counterclaims in international adjudication is made. In this part, the legal provisions that regulate counterclaims in the most relevant legal texts to investment arbitration are briefly overviewed. These include the International Court of Justice, the Iran-United States Claims Tribunal and the International Centre for Settlement of Investment Disputes among others.
Two fundamental conditions for the admissibility of counterclaims in investment treaty arbitration are analysed in the second part: the requirement of consent to counterclaims and the connectedness of the counterclaim with the primary claim. The core of this part consists of the analysis of the major types of dispute settlement provisions in IIAs, the case law of investment tribunals and the relevant doctrine. For comparative purposes, treatment of counterclaims in other international fora is also examined.
With regards to the requirement of consent, the conclusion that the language of the offer to arbitrate in an IIA is highly determinative for the scope of possible host State's counterclaims is reached. Counterclaims are generally permitted if the IIA provides for settlement of ‘any dispute concerning the investment.’ When the IIA's arbitration offer is limited to disputes ‘concerning the obligations of the host State under the IIA’, to the contrary, it is hardly conceivable that a host State counterclaim will be allowed. The Possible impact of provisions dealing with the parties' locus standi and express references to counterclaims in IIAs is addressed subsequently. Options for the limitation or extension of the scope of the consent, as expressed in the offer to arbitrate in the IIA by the investor are also examined.
As far as the connectedness criterion is concerned, the case law does not offer a uniform view on the requirement. With the help of jurisprudence of other international bodies and the commentaries on the issue, various interpretations of the connectedness criterion for investment treaty arbitration are offered. The case law shows that counterclaims arising from general domestic law of the host State are not considered to have the necessary degree of connectedness to be admitted. Nevertheless, doctrinal opinions articulate a more lenient test of connectedness, which would allow host States to have such counterclaims entertained. This test, requiring for counterclaims to be linked to the investment considered in the original claim, seems more adapted to the investment-treaty arbitration context.
Other limitations of the host states' possibility for filing counterclaims
The general conclusion is that under the current state of law it is virtually impossible for a host State to assert counterclaims which rely on the IIA or general international law as a cause of action, as the investor does not assume any obligations stemming from international law. The possible exceptions exist under the general principles of law such as good faith, as well as under the procedural provisions of IIAs. Conclusion with respect to the contractual causes of action and those based on the host State's domestic law are dependent on various aspects of the dispute and the applicable legal rules and remains fairly limited in practice. The issue of party identity on the part of investor and limitations on the counterclaims arising thereof is considered. In this regard, the major concern is a virtual impossibility of the host State to file a counterclaim against a local subsidiary that is neither party to the arbitration agreement nor a party to the proceedings, but might a party to the contracts concluded with the host State. Finally, contract-based counterclaims are subject to the additional challenge of conflicting for a, when the contract invoked contains its own exclusive dispute resolution mechanism.
The forth and final part of the report presents potential adjustments and suggestions for future treaty drafting which would help to allow host states' to assert counterclaims. These suggestions concern provisions dealing with jurisdiction of arbitral tribunal, express reference to a possibility of lodging counterclaims, the substantive treaty obligations for investors as well as the applicable law. Specific amendments also address the issues of party identity and umbrella clauses.
The full report can be read here.