Introduction

Investment arbitration under bilateral investment treaties (BITs) has become a cornerstone of international economic law, providing a specialized mechanism for resolving disputes between foreign investors and host states. Originating in the mid-20th century and proliferating rapidly in the 1990s, BITs aim to foster cross-border investment by guaranteeing protections and transparent dispute resolution procedures. This article explores the nature, legal framework, procedural aspects, benefits, challenges, and evolving trends of investment arbitration under bilateral treaties as of 2025.

What are Bilateral Investment Treaties (BITs)?

BITs are international agreements between two countries that establish conditions for private investments made by their nationals or companies within each other's territories. They focus on protecting foreign investors by setting substantive obligations for host states, including:

• Fair and equitable treatment
• Protection against unlawful expropriation
• Free transfer of funds related to investment
• Full protection and security

Most importantly, BITs often contain investor-state dispute settlement (ISDS) clauses that allow investors to bring claims directly against host states through international arbitration, bypassing domestic courts.

The Basis of Investment Arbitration under BITs

Investment arbitration typically arises from alleged breaches of BIT obligations by the host state, such as expropriation without compensation, denial of justice, or discriminatory treatment.

Consent to Arbitration

Treaties contain clauses whereby states consent in advance to arbitration for disputes with investors. This "offer and acceptance" forms the jurisdictional basis for arbitral tribunals. For example, Article 8 of many BITs (e.g., ICSID Model BITs) offers consent to arbitration under ICSID rules for disputes concerning an investment.

Applicable Law and Jurisdiction

Tribunals determine their jurisdiction based on the BIT, international law principles, and often domestic law concerning the legality of the investment. Host state law compliance may be a prerequisite for arbitration admissibility, serving as a gateway to treaty protections.

Common Arbitration Forums

• ICSID (International Centre for Settlement of Investment Disputes): The most commonly used forum created under the World Bank.
• UNCITRAL Arbitration Rules: Offers procedural flexibility and is often used for ad hoc arbitrations.
• International Chamber of Commerce (ICC) and others are less common but available.

How Investment Arbitration Works under BITs

1. Notice of Dispute and Cooling-off Periods: Many BITs require initial consultations or negotiation attempts.
2. Submission of Notice of Arbitration: Investor formally submits claims to arbitral institutions.
3. Constitution of Tribunal: Typically a three-member tribunal, often with one arbitrator nominated by each party and a presiding arbitrator agreed jointly.
4. Procedural Steps: Written submissions, document production, hearings, and expert testimonies.
5. Final Award: Binding decisions enforceable under international conventions such as the New York Convention.

Advantages of BIT Arbitration

• Neutral forum: Avoids possible bias in host state courts.
• Expertise: Arbitrators versed in international investment law.
• Enforceability: Arbitral awards are widely enforceable under international treaties.
• Confidentiality: Proceedings are generally private.
• Flexibility: Parties can tailor arbitration procedures.

Challenges and Critiques

• Sovereignty and Regulatory Space: Concerns that arbitration limits states' ability to regulate in public interest.
• Cost and Duration: Proceedings can be expensive and lengthy.
• Inconsistent Awards: Varying decisions across tribunals create uncertainty.
• Transparency: Critics argue for more openness in proceedings and awards.
• Impact on Developing Countries: Some BIT claims have led to costly awards impacting state budgets.

Key Trends in Investment Arbitration 2025

• Increased Focus on Sustainability and ESG: Environmental, social, and governance issues are gaining prominence in disputes and arbitrators’ considerations.
• Technological Advances: Adoption of AI tools in case management and document review.
• Third-Party Funding Growth: More cases are financed by third-party funders, raising regulatory focus.
• Geopolitical Impacts: Conflicts and sanctions posing questions on enforcement and jurisdiction.
• Reforms for Transparency: Some treaties incorporate provisions for transparency and amicus submissions.

Case Example: India’s BIT Arbitration Experience

India has been a respondent in multiple BIT arbitrations. Recent reforms in India’s Model BIT (2016) seek to balance investor protection with regulatory sovereignty by narrowing arbitration scope and emphasizing prior dispute resolution attempts. Efforts are ongoing to limit arbitration risks while maintaining investment appeal.

Graph: Growth of Bilateral Investment Treaties and Investment Arbitration Cases (1990-2025)

[image:1]

Line graph illustrating the surge in BITs concluded worldwide, alongside the increasing number of filed investment arbitration cases up to 2025.

Table: Comparison of Key Arbitration Institutions for BIT Disputes

Conclusion

Investment arbitration under bilateral treaties plays a vital role in international commerce by providing legal certainty, impartial dispute resolution, and protection for foreign investors. While offering significant benefits, it raises complex issues concerning sovereignty, transparency, and fairness that are being actively addressed. The evolving landscape in 2025 highlights increased attention to sustainable development, technological integration, and procedural reforms, ensuring that BIT arbitration remains a dynamic and pivotal mechanism in global investment governance.

“Bilateral investment treaty arbitration provides a unique intersection between private investment interests and public international law, offering a pathway to justice beyond national courts while shaping the contours of state sovereignty in a globalized economy.”

References

1. (2025). International Centre for Settlement of Investment Disputes: Convention and Rules. Retrieved from https://icsid.worldbank.org/
2. (2025). UNCITRAL Arbitration Rules. Retrieved from https://uncitral.un.org/
3. (2024). World Investment Report: International Investment Policies and BIT Reform. United Nations Conference on Trade and Development. Retrieved from https://unctad.org/
4. (2023). Investor-State Dispute Settlement Mechanisms: Review and Outlook. Organisation for Economic Co-operation and Development. Retrieved from https://www.oecd.org/investment/
5. Dolzer, R., & Schreuer, C. (2012). Principles of International Investment Law (2nd ed.). Oxford University Press.
6. International Chamber of Commerce (ICC). (2024). Arbitration Rules and Investment Dispute Practice Notes. Retrieved from https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/
7. Sornarajah, M. (2017). The International Law on Foreign Investment (4th ed.). Cambridge University Press.
8. Government of India, Ministry of Finance. (2016). Model Text for the Indian Bilateral Investment Treaty. Retrieved from https://dea.gov.in/sites/default/files/ModelBIT_Annex_0.pdf
9. Schreuer, C. (2009). The ICSID Convention: A Commentary (2nd ed.). Cambridge University Press.
10. Peterson, L. (2025). Arbitration and Sovereignty: Contemporary Challenges in Investor-State Dispute Resolution. Investment Arbitration Reporter. https://www.iareporter.com