Difference Between International Commercial Arbitration and International Investment Arbitration

DIFFERENCE BETWEEN International Commercial Arbitration and International Investment Arbitration

Introduction

International arbitration has become a preferred method for resolving cross-border disputes due to its efficiency, neutrality, and flexibility. Two prominent forms of international arbitration are ICA and International Investment Arbitration (IIA). While both share the common goal of resolving disputes outside traditional court systems, they differ significantly in their scope, parties involved, and underlying principles. In this blog post, we will explore the key distinctions between International Commercial Arbitration and International Investment Arbitration.

Nature of Disputes

International Commercial Arbitration (ICA):

ICA primarily involves disputes arising from contractual relationships between private parties engaged in commercial activities across borders. These disputes can range from breach of contract to issues related to the performance, interpretation, or termination of international business agreements.

International Investment Arbitration (IIA):

IIA, on the other hand, focuses on disputes between foreign investors and host states. These disputes typically arise from alleged violations of international investment agreements, such as bilateral investment treaties (BITs) or multilateral treaties, by the host state.

Parties Involved

International Commercial Arbitration (ICA): The parties in ICA are typically private entities engaged in international business transactions. These can include multinational corporations, joint ventures, or other commercial entities entering into contractual agreements.

International Investment Arbitration (IIA): IIA involves disputes between a foreign investor (individual or corporation) and a sovereign state. The investor alleges that the host state has breached its international obligations, resulting in financial losses or damage to the investment.

Arbitration law in India- Overview

Legal Framework

International Commercial Arbitration (ICA): International Commercial Arbitration (ICA) operates within a legal framework that encompasses a combination of international conventions, national laws, and institutional rules. Here are some key elements of the legal framework governing International Commercial Arbitration:

• New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)
• UNCITRAL Model Law on International Commercial Arbitration (1985, with amendments in 2006)
• International Arbitration Institutions’ Rules: Various institutions, such as the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), and the International Centre for Dispute Resolution (ICDR).
• National Arbitration Laws
• Arbitration Agreements

International Investment Arbitration (IIA): International Investment Arbitration (IIA) operates within a specific legal framework that is primarily based on international treaties and conventions. The key elements of the legal framework for International Investment Arbitration include:

• Bilateral Investment Treaties (BITs) Under a Bilateral Investment Treaty (BIT/s), States ensure certain rights and protections to investors from the other contracting State.
• Multilateral Treaties and Agreements
• ICSID Convention
• Customary International Law
• National Laws and Domestic Courts: While the primary focus of International Investment Arbitration is on resolving disputes between foreign investors and host states, national laws and domestic courts may come into play at various stages of the arbitration process.

Remedies and Awards

International Commercial Arbitration (ICA): Remedies in ICA are generally focused on compensating the injured party for losses suffered due to the breach of contract. Awards typically involve monetary compensation, specific performance, or injunctive relief.

International Investment Arbitration (IIA): IIA awards can include compensation for financial losses suffered by the investor, restitution, or other remedies. Additionally, IIA awards may have broader implications for the relationship between the investor and the host state, potentially impacting future investments.

Conclusion

While both International Commercial Arbitration and International Investment Arbitration share the overarching goal of providing an alternative dispute resolution mechanism, their differences in nature, parties involved, legal framework, and remedies highlight the need for a nuanced understanding of each. Whether engaging in international commerce or making foreign investments, parties should carefully consider the distinct features of these arbitration mechanisms to ensure that their chosen method aligns with the specific nature of their dispute.

Reference

Lawrence W. Newman, David Zaslowsky, “The Difference Between Commercial and Investment Arbitration” Part 5 Chapter 43, The Practice of International Litigation – 2^nd Edition (2010). Available on: https://arbitrationlaw.com/library/difference-between-commercial-and-investment-arbitration-part-5-chapter-43-practice

UNCTAD Investment Policy Hub (2019). Available on: https://investmentpolicyhub.unctad.org/IIA