Illegal Investments in International Arbitration

Abstract

Investment treaty tribunals at numerous occasions had to deal with the impact the illegality of an investment made in the host State had on its protection under international investment treaties and in investor-State arbitration. In this context, tribunals had to interpret different “in accordance with host State law” - clauses contained in international investment treaties, but also dealt with the effect of illegality in the absence of such clauses. The present paper traces this increasingly complex jurisprudence and embeds it into a general framework as regards the relationship between breaches of domestic law and investment treaty protection. Although some differences are noticeable between both situations, most importantly as regards the effect of domestic illegality on the jurisdiction of investment treaty tribunals, the paper suggests that there is considerable convergence as regards the conditions under which breaches of domestic law affect the protection of foreign investors under international law. This unveils the contours of a doctrinal structure for dealing with illegal investments in international investment law and arbitration.

Keywords: investment treaties, international investment law, investor-state arbitration, illegality of investment, in accordance with host state law-clause

JEL Classification: K33