International Commercial Arbitration Involving a State Party and the Defense of State Immunity – Vol. 22 No. 2

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Author: Renata Brazil-David*

Published: December 2011



One of the most remarkable developments in international commercial arbitration is the noticeable growth in the number of disputes involving State parties. Such a noteworthy increase in international commercial arbitration involving a State party can be explained not only by economic factors but also by the striking advantages of arbitration when compared to court litigation.

During the past few decades international trade and commerce have increased significantly and sovereign States have been actively involved in international trade transactions with private parties. Simultaneously, there has been a remarkable growth in the number of Bilateral Investment Treaties (“BITs”) in the past few years and most BITs have a clause dealing with dispute settlement, which normally provides for arbitration. Furthermore, international treaties such as the Energy Charter Treaty (“ECT”) and the North American Free Trade Agreement (“NAFTA”) also provide for arbitration as a method of dispute resolution. In this context, foreign investors became aware of the possibility of resorting to arbitration under international treaties and conventions, such as the ECT, NAFTA and ICSID, and the number of arbitrations involving State parties significantly increased.

It is generally argued that the use of arbitration is likely to foster foreign investment since foreign investors might be reluctant to enter into transactions with a State that is not prepared to settle their disputes through arbitration before a neutral tribunal. Therefore, many States, which previously avoided arbitration, are now willing to take part in arbitration of foreign investment disputes and many countries have implemented foreign investment laws that also provide for international arbitration in order to further encourage foreign investment.

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*S.J.D. (American University Washington College of Law), LL.M. (University of Essex). Renata Brazil-David is the Director of Legal Affairs at the International Telecommunications Satellite Organization. The author is indebted to Professor Perry Wallace for his review and comments on this paper. I would also like to thank Dr. Horacio Grigera-Naón and the Center on International Commercial Arbitration for providing me a unique experience to discuss these issues with leading academcis and practioners in this field. Special thanks to David Holloway for inspiring me to write this article and for his comments and suggestions.