In 2023, a Russian construction company invested $18 million in an infrastructure project in Central Asia. Eight months later, the host state introduced new licensing requirements retroactively and blocked the company’s access to the project site. Without the right to international arbitration, the company was forced to pursue its claim before a local court. Two years later, the court dismissed the claim on the grounds of “national interests.”
International arbitration offers something that national courts often cannot: it allows a private investor to bring a direct claim against a sovereign state and recover losses through a procedure unavailable within the host country’s domestic legal system.
Bilateral investment treaties grant foreign investors an independent right to bring claims without relying on diplomatic protection or the courts of their home state. More than 70 such agreements involving Russia and other countries provide a legal basis for investment arbitration.
The problem is that only a limited number of these treaties guarantee the confidentiality of proceedings—an element that can be critical for protecting commercially sensitive information and the investor’s reputation.
Investment arbitration is an international dispute resolution procedure in which a private investor brings a claim against a host state. The resulting award is binding on both parties and may be recognised and enforced in many jurisdictions under the 1958 New York Convention.
Arbitration confidentiality is a legal regime under which the case materials, hearings and arbitral award are not publicly disclosed unless the parties agree otherwise. This may distinguish arbitration from public court proceedings, although the actual level of confidentiality depends on the applicable treaty, arbitration rules and procedural orders.
Key Points
- International investment arbitration may allow an investor to bring a direct claim against a state without first exhausting local remedies. This right is contained in many of Russia’s bilateral investment treaties and may provide an alternative when the national court system is unavailable, ineffective or politically influenced.
- An arbitral tribunal may award compensation for the value of the investment, lost profits, interest and arbitration costs, depending on the treaty, evidence and circumstances of the case. Enforcement may involve attempts to attach the state’s commercial assets abroad, including bank accounts, corporate holdings and real estate.
- Confidentiality can protect trade secrets, financial information and the investor’s business reputation. The applicable arbitration rules determine the level of transparency: some institutions publish redacted awards, while others keep most case materials private.
- Russia signed but did not ratify the 1965 Washington Convention. As a result, disputes involving Russia commonly proceed through alternative mechanisms, including ad hoc arbitration under the UNCITRAL Rules or institutional arbitration in Stockholm, London, Paris or Singapore. Enforcement generally requires proceedings before national courts.
- Investment arbitration may take several years. A typical case can last between 24 and 48 months, although jurisdictional objections and enforcement proceedings may extend the overall timeline. Costs may range from approximately $500,000 to $3 million or more, depending on the complexity of the dispute.
- An unsuccessful investor must bear its own costs and may also be ordered to reimburse some or all of the respondent state’s legal expenses.
What Is International Arbitration in Investment Protection, and Why Is It Important for Investors?
International investment arbitration gives a private investor something a local court may not be able to provide: an independent tribunal before which the state appears as the respondent rather than as the authority controlling the judicial system.
The investor submits the dispute to an international tribunal without necessarily relying on domestic courts or diplomatic channels. Bilateral treaties on the promotion and protection of investments grant qualifying investors an independent procedural status. The investor becomes a direct party to the dispute without requiring its home state to bring the claim on its behalf.
Russia has entered into more than 70 bilateral investment agreements containing dispute resolution provisions.
For Russian investors operating abroad, these agreements may provide protection against:
- direct or indirect expropriation;
- discriminatory state measures;
- arbitrary regulatory action;
- denial of fair and equitable treatment;
- failure to provide full protection and security;
- certain breaches of state obligations affecting the investment.
Foreign investors operating in Russia may receive corresponding protection against unlawful state action. However, international sanctions, asset restructuring and Russia’s increasing isolation from certain jurisdictions have made the enforcement of awards against the Russian Federation and state-related entities substantially more difficult.
Investment arbitration may remain one of the few effective means of protecting violated investor rights.
Courts in the host state may be exposed to political pressure, especially in disputes involving public finances, strategic assets or government policy. A local court may postpone proceedings for years, impose procedural barriers or require the investor to pursue multiple domestic remedies before the substance of the claim is considered.
International arbitration reduces this risk by transferring the dispute to neutral arbitrators who are not part of the respondent state’s judicial system and who must comply with applicable standards of due process.
Practical note: many clients mistakenly believe that filing an investment arbitration claim automatically freezes the respondent state’s assets. In practice, interim measures affecting sovereign assets are exceptional. Arbitrators are generally reluctant to restrict a state’s sovereign functions before issuing an award on the merits. The attachment of assets usually becomes relevant only after the investor obtains an award and begins enforcement proceedings.
How Does Investment Arbitration Differ from Commercial Arbitration?
Investment arbitration and commercial arbitration concern different types of disputes and operate through different legal mechanisms.
Investment arbitration generally resolves public international law disputes between a private investor and a sovereign state.
Commercial arbitration deals with private contractual disputes between commercial parties—for example, a company against another company. A state-owned company may also be a party to commercial arbitration when acting as a commercial entity.
The applicable law also differs significantly.
Investment arbitration applies international law, including:
- bilateral or multilateral investment treaties;
- customary international law;
- general principles of law;
- relevant provisions of the host state’s law;
- the terms of any investment agreement, where applicable.
Commercial arbitration normally applies the national law selected by the parties in their contract or the substantive law determined under the relevant conflict-of-laws rules.
A respondent state may invoke sovereign immunity in an investment dispute. However, consent to arbitration and the commercial nature of particular assets may limit the availability of immunity.
When a state enters into an arbitration agreement or offers advance consent to arbitration in an investment treaty, it may waive immunity from the jurisdiction of the arbitral tribunal in relation to the covered dispute.
This does not necessarily mean that the state has also waived immunity from enforcement. Jurisdictional immunity and enforcement immunity are separate legal issues.
| Parameter | Investment Arbitration | Commercial Arbitration |
| Parties | Private investor against a sovereign state | Private commercial entities or contractual parties |
| Source of jurisdiction | Bilateral or multilateral investment treaty, investment legislation or state contract | Contractual arbitration clause |
| Applicable law | International law, investment treaties and sometimes national law | National law chosen by the parties |
| State immunity | May be limited by the state’s consent to arbitration; enforcement immunity is assessed separately | Usually not applicable unless a state or state entity is involved |
| Public access | Depends on the treaty and arbitration rules; proceedings may be public or partially transparent | Often private, but confidentiality is not automatic in every jurisdiction or under every set of rules |
Conclusion: investment arbitration is generally appropriate when the dispute concerns sovereign acts, such as expropriation, discriminatory regulation, taxation, licensing measures or other state conduct affecting an investment.
Commercial arbitration is normally used for contractual disputes with companies, including state-owned enterprises acting in a commercial rather than sovereign capacity.
Which International Agreements Regulate Investment Protection Through Arbitration?
Bilateral treaties on the promotion and protection of investments form the legal foundation of most investor–state arbitration claims.
A typical investment treaty contains substantive protections such as:
- protection against unlawful expropriation;
- fair and equitable treatment;
- full protection and security;
- national treatment;
- most-favoured-nation treatment;
- protection against discriminatory or arbitrary measures;
- guarantees relating to the transfer of funds.
The dispute resolution provision may give a qualifying investor the right to submit a dispute to international arbitration when the host state breaches its treaty obligations.
Depending on the wording of the applicable treaty, the investor may be able to commence arbitration without first exhausting remedies in the host state’s courts.
However, this is not universal. Some treaties contain:
- mandatory negotiation periods;
- domestic litigation requirements;
- fork-in-the-road clauses;
- limitation periods;
- waiver requirements;
- restrictions on the types of disputes that may be arbitrated.
The 1965 Washington Convention established the International Centre for Settlement of Investment Disputes, known as ICSID.
One of the main advantages of the ICSID system is its specialised enforcement regime. Each contracting state must recognise an ICSID award as binding and enforce its financial obligations as though the award were a final judgment of its own courts.
Russia signed the Washington Convention but did not ratify it. Consequently, Russia is not an ICSID contracting state.
The availability of ICSID in a specific dispute therefore depends on the nationality of the investor, the identity of the respondent state, the relevant treaty and the respondent state’s consent to ICSID arbitration.
Investment treaties involving Russia frequently provide for alternatives such as:
- ad hoc arbitration under the UNCITRAL Arbitration Rules;
- arbitration before the Arbitration Institute of the Stockholm Chamber of Commerce;
- arbitration under the Rules of the International Chamber of Commerce;
- arbitration before the London Court of International Arbitration;
- other institutional or ad hoc mechanisms specified in the treaty.
Awards issued outside the ICSID Convention framework are generally recognised and enforced under the 1958 New York Convention.
Enforcement requires an application to a competent national court in a jurisdiction where the respondent state or its relevant assets are located. This creates an additional stage compared with the self-contained ICSID enforcement regime.
Arbitration rules also differ in their approach to confidentiality and transparency.
UNCITRAL arbitration is not automatically confidential in every respect. The confidentiality regime depends on the applicable treaty, procedural orders, party agreement and, where applicable, the UNCITRAL Rules on Transparency.
The Stockholm Chamber of Commerce generally conducts hearings in private, but information about investment disputes or redacted awards may be published in accordance with the applicable rules and institutional policy.
LCIA arbitration is typically private, and the rules impose confidentiality obligations concerning awards and materials created for the proceedings, subject to legal and regulatory exceptions.
The choice of arbitration rules may therefore determine whether the investor’s competitors, business partners or the public learn about the dispute and the information submitted in the proceedings.
How Does Investment Arbitration Proceed from the Notice of Dispute to the Final Award?
Investment arbitration normally begins not with a statement of claim but with a written notice of dispute sent to the state.
The applicable cooling-off period often lasts between three and six months, although the precise period depends on the wording of the relevant investment treaty.
The investor sends the notice to the ministry of foreign affairs, ministry of finance or another authorised state body. The notice normally describes:
- the investor and the investment;
- the relevant state measures;
- the factual background;
- the treaty provisions allegedly breached;
- the losses suffered;
- the investor’s intention to commence arbitration if the dispute is not resolved.
The practical effect of the cooling-off period is straightforward. When a treaty requires six months of negotiations and the notice is submitted in January, the investor may be unable to commence arbitration until July.
Many treaties require the parties to attempt an amicable settlement before arbitration. In practice, states do not always engage in meaningful negotiations at this stage.
To establish jurisdiction and succeed on the merits, the investor normally needs to demonstrate at least three essential elements:
- It qualifies as a protected investor under the treaty.
- It made a protected investment in the territory of the respondent state.
- The respondent state breached one or more applicable treaty obligations.
Investor status is generally determined by nationality or the place of incorporation of a legal entity. A company normally needs to be incorporated in a state that is party to the relevant investment treaty, although some treaties contain additional requirements concerning ownership, control or substantial business activity.
A protected investment usually involves a contribution of capital or other resources, a certain duration, the assumption of risk and an expectation of economic return. The exact definition depends on the treaty.
Many Russian investment treaties do not require the prior exhaustion of local remedies, although this must be confirmed from the wording of the specific agreement.
Formation of the Arbitral Tribunal
A tribunal is normally formed according to an agreed appointment procedure.
The investor appoints one arbitrator, the state appoints the second, and the two party-appointed arbitrators or the appointing authority select the presiding arbitrator.
If the state fails to appoint an arbitrator within the required period, the appointment may be made by:
- the administration of the relevant arbitral institution;
- a designated appointing authority;
- the Secretary-General of the Permanent Court of Arbitration;
- another authority specified in the treaty or arbitration rules.
The investor therefore participates in forming the tribunal. This differs from national litigation, where judges are appointed through the domestic judicial system.
Practical note: states frequently appoint an arbitrator close to the end of the permitted period while simultaneously challenging the tribunal’s jurisdiction. Jurisdictional objections may delay consideration of the merits by six to twelve months or longer, particularly when the tribunal decides to bifurcate the proceedings.
Written Submissions and Hearings
The arbitration usually includes a written phase and oral hearings.
The investor files a statement of claim or memorial setting out:
- the relevant facts;
- the basis of jurisdiction;
- the treaty breaches;
- the requested relief;
- the calculation of damages.
The state responds with a counter-memorial and may challenge:
- the tribunal’s jurisdiction;
- the investor’s protected status;
- the existence of a qualifying investment;
- the admissibility of the claims;
- the alleged treaty violations;
- the methodology used to calculate damages.
The parties may exchange replies and rejoinders, request documents, submit witness statements and provide expert reports on damages, international law, national law or industry-specific matters.
Hearings may take place in a neutral venue such as Paris, London, The Hague, Stockholm or Singapore. A hearing may last from several days to several weeks, depending on the case.
The period from the commencement of arbitration to the final award commonly ranges from 24 to 48 months.
When jurisdictional objections are heard in a separate phase, an additional 12 to 24 months may be required, bringing the total duration to approximately 36 to 60 months or more.
Costs may include:
- arbitrators’ fees;
- institutional fees;
- legal representation;
- financial experts;
- industry experts;
- translators and interpreters;
- document management and hearing expenses.
An investor’s total costs may range from approximately $500,000 to $3 million or more, depending on the complexity and value of the case.
The unsuccessful party may be ordered to reimburse all or part of the successful party’s costs. This creates a significant financial risk for both the investor and the state and may encourage settlement.
Who May Serve as an Arbitrator in Investment Disputes?
An arbitrator should have recognised expertise in international law, experience in investor–state disputes and independence from both parties.
Most treaties do not impose detailed formal qualifications. In practice, the parties often appoint:
- professors of international law;
- former judges of international or national courts;
- experienced arbitration lawyers;
- specialists in public international law;
- practitioners with sector-specific expertise.
The presiding arbitrator will often have substantial previous experience in investment arbitration, although there is no universal requirement that the chair must have participated in a specific number of cases.
Independence and impartiality are protected through disclosure obligations and challenge procedures.
A prospective arbitrator must disclose circumstances that may give rise to justifiable doubts about impartiality or independence, including:
- previous relationships with the parties or their lawyers;
- concurrent appointments;
- financial or professional interests;
- public statements or publications concerning issues central to the dispute;
- repeat appointments by the same party or counsel.
When a conflict emerges after appointment, the opposing party may challenge the arbitrator.
The challenge may be decided by:
- the relevant arbitral institution;
- the appointing authority;
- the remaining members of the tribunal;
- another body specified in the applicable rules.
What Evidence Is Admissible in Investment Arbitration?
International arbitration generally applies flexible evidentiary standards.
The tribunal may consider documents and testimony that it regards as relevant and material, including:
- investment agreements;
- commercial contracts;
- correspondence;
- corporate records;
- financial reports;
- government decisions;
- internal documents of public authorities;
- licences and permits;
- expert reports;
- witness statements;
- audio or electronic records, where admissible;
- evidence obtained through document production.
Witnesses usually provide written statements and may be cross-examined during the hearing.
Damages must be established with a reasonable degree of certainty.
The investor must demonstrate:
- a causal connection between the state’s conduct and the claimed losses;
- the value of the investment;
- the basis for calculating lost profits;
- the financial performance of the investment before the alleged breach;
- whether the losses were reasonably foreseeable;
- whether the investor took reasonable steps to mitigate its losses.
Expert evidence may be used to determine:
- the value of property;
- the value of a business;
- lost future cash flows;
- the effect of regulatory measures;
- the applicable discount rate;
- industry conditions;
- the financial impact of the alleged treaty breach.
The tribunal evaluates the evidence freely. Claims unsupported by reliable financial records, credible witness testimony or qualified expert analysis may be rejected or substantially reduced.
Recovery of Damages and Enforcement of Arbitral Awards Against a State
An award in favour of the investor may provide compensation for:
- the value of the lost investment;
- actual losses;
- lost profits;
- pre-award and post-award interest;
- some or all of the arbitration costs.
The amount depends on the applicable treaty, the nature of the breach, the evidence and the valuation methodology accepted by the tribunal.
Tribunals may use:
- the discounted cash flow method for an established income-producing investment;
- market-based valuation;
- comparable transaction analysis;
- book value;
- replacement cost;
- sunk investment costs.
Awards may range from several million dollars to billions of dollars, depending on the scale of the investment and the seriousness of the state’s conduct.
Recognition and Enforcement Under the New York Convention
Enforcement of non-ICSID awards is generally based on the 1958 New York Convention.
The investor applies to a court in a country where the respondent state or its assets are located and requests recognition and enforcement of the foreign arbitral award.
The national court normally reviews limited issues, such as:
- whether a valid written arbitration agreement existed;
- whether the parties received proper notice;
- whether the tribunal acted within the scope of its authority;
- whether the tribunal was properly constituted;
- whether the award is binding;
- whether enforcement would violate public policy.
The enforcement court does not normally reconsider the merits of the dispute.
Which State Assets May Be Attached?
Potential enforcement targets may include the state’s commercial assets abroad, such as:
- shares in foreign companies;
- bank accounts used for commercial activities;
- commercial real estate;
- receivables;
- export revenues;
- interests in joint ventures;
- certain assets of state-owned enterprises.
The investor must normally demonstrate that the targeted asset belongs to the state or is sufficiently connected to the state and that it is used for commercial rather than sovereign purposes.
Assets used for sovereign functions are generally protected by immunity. These may include:
- diplomatic property;
- military assets;
- property used for consular functions;
- central bank reserves;
- certain cultural or public assets;
- assets used exclusively for governmental purposes.
Sovereign immunity is governed by the law of the country where enforcement is sought.
The United Kingdom State Immunity Act 1978 and the United States Foreign Sovereign Immunities Act 1976 contain exceptions relating to commercial activity and arbitration.
However, the existence of jurisdiction over the state does not automatically make all state assets available for attachment. The investor must satisfy the separate rules governing immunity from execution.
In practice, investors may attempt to recover an award by attaching:
- accounts of state entities in foreign banks;
- commercial receivables;
- shares in joint ventures;
- non-diplomatic real estate;
- other assets shown to be used for commercial purposes.
Practical Enforcement Difficulties
Serious difficulties arise when a state refuses to comply with an award and restructures or conceals its assets.
A state may:
- transfer assets to separate legal entities;
- move funds to jurisdictions where enforcement is difficult;
- change ownership structures;
- invoke sovereign immunity;
- challenge recognition in multiple courts;
- seek to set aside the award at the seat of arbitration.
Since 2022, the availability and location of Russian state-related assets abroad, as well as the sanctions and counter-sanctions environment, have made enforcement involving Russian state bodies substantially more complex.
Investors may need to investigate assets in several countries and file parallel recognition and enforcement applications in multiple jurisdictions.
How Long Does Enforcement of an Arbitral Award Against a State Take?
The timeline depends on whether the state complies voluntarily and on the procedural requirements of the enforcement jurisdiction.
When the state pays voluntarily, payment may take place within several months after the award becomes final and binding.
When compulsory enforcement is necessary, recognition proceedings may take between 6 and 24 months. Additional time may then be required to:
- identify attachable assets;
- establish ownership;
- prove commercial use;
- obtain freezing or attachment orders;
- complete the sale or transfer of assets.
In European jurisdictions, uncontested recognition and enforcement may take approximately 6 to 12 months.
When the state opposes recognition on public policy, jurisdictional or procedural grounds, the proceedings may continue for 18 to 24 months or longer, particularly where appeals are available.
After obtaining an enforcement order, the investor must still identify assets and apply for their attachment. This may add several months or years.
A common strategy is to initiate parallel proceedings in several jurisdictions where the debtor state may hold commercial assets, including:
- the United Kingdom;
- Switzerland;
- the Netherlands;
- the United States;
- Singapore;
- other major financial centres.
This approach limits the state’s ability to move or protect all relevant assets simultaneously.
In practice, full or partial recovery may take an average of two to four years after the award, although complex cases may continue considerably longer.
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This article has been published by an independent law firm for informational purposes only. It does not constitute individual legal advice and does not state or imply any affiliation with a government authority, international organisation or official institution.
