The best defence is a good offense - Sate counterclaims in investment treaty arbitration

Abstract

Host state counterclaims in investment treaty arbitration are rarely pleaded and never successful, to the extent that one commentator has characterised their use as ‘thirty years of failure’. This paper navigates the obstacles that host states must contend with to assert counterclaims in investment treaty arbitration. While state counterclaims are permitted in principle under the ICSID Convention and UNCITRAL Arbitration Rules, satisfaction of the jurisdiction and admissibility requirements has proved more complex. The paper examines a number of core treaty provisions to identify the treaties that may be more or less likely to extend a tribunal’s jurisdiction ratione materiae over state counterclaims. Subsequently, this paper examines the requisite connection that must exist between a counterclaim and the principal claim. A survey of international jurisprudence supports the conclusion of this paper that recent treaty tribunal decisions have taken an unjustifiably narrow and often inconsistent approach to requisite connection, to the extent that it may be virtually impossible for states to assert counterclaims under its current articulation. This paper offers an alternative approach.