Standing Up to Investor Misconduct


Adjudicative bodies applying international law usually operate in blissful obscurity.  Although their decisions are of global significance because they, for example, define state territorial boundaries, they generate very limited media coverage.

The same was true for decisions of arbitral tribunals applying international investment law.  With the entry into force of the two main investment treaties in 1995, NAFTA and the Energy Charter Treaty, this area of international law witnessed an explosion in the number of decisions being issued, most of which went entirely unnoticed.  But fast forward twenty years to 2015, journalists and opinion piece writers for various media outlets had put international investment law on the map.

In 2015, a perfect storm came together.  Big Tobacco was waging a war on multiple fronts against states that had enacted, or were considering the enactment of, stringent tobacco control regulations.  Two of the battlefronts of that war were claims brought under investment treaties against Australian and Uruguay.  Against that background, the Obama administration was pushing for the conclusion of two new investment treaties of unprecedented scope, namely the Trans-Atlantic Trade and Investment Partnership (’TTIP’) and the Trans-Pacific Partnership.  Public sentiment turned against these investment treaties.  Sensing the political opportunity, then presidential candidate Donald Trump announced that he would withdraw the United States from them, an announcement that he subsequently acted on.

“…there is one general tenor: this is an area of international law that is structurally designed to (unfairly) favour investors’ interests over states’ interests…”

Reading through the media coverage that international investment law received in 2015, there is one general tenor: this is an area of international law that is structurally designed to (unfairly) favour investors’ interests over states’ interests.  And this mattered for the simple reason that it made it easier for investors to successfully claim compensation from states, compensation payments that would be funded from citizens’ taxes.  The alleged design flaws were numerous, but one which was omnipresent was the asymmetry of obligations; in other words, investors could sue states for their misconduct, but states did not enjoy the same privilege.

Contributory Fault and Investor Misconduct in Investment Arbitration by Martin Jarrett

Contributory Fault and Investor Misconduct in Investment Arbitration by Martin Jarrett

Very concisely, states make a raft of promises regarding their treatment of foreign investments in investment treaties.  A breach of one of these promises gives investors the right to claim from the states making them, thereby giving investors the legal protection they need to confidently invest.  But while investment treaties create legal rights for investors, they are silent on investor obligations, such as respecting human rights.

Putting all this together, it seemed that investors were not accountable for their misconduct under international investment law.  The truth, of course, is more nuanced.  Revealing those nuances is the primary goal of my forthcoming book, Contributory Fault and Investor Misconduct in International Investment Law.  Acknowledging that investment treaties do not currently impose obligations on investors, it explores the other legal tools in international investment law through which investors can be held accountable, such as the doctrine on contributory fault, ‘in accordance with host state law’ clauses, the defence of illegality, and counterclaims against investors.  The state of the jurisprudence on these tools, however, means that they are theoretical possibilities for holding investors to account.  In seeking to fill this jurisprudential void, the book puts forward the doctrine that is needed to bring these tools to life.

Contributory Fault and Investor Misconduct in Investment Arbitration will be available from August 2019.

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About the Author: Martin Andrew Jarrett

Martin Jarrett is a Senior Lecturer at the Department of Law, Universität Mannheim, Germany. He holds a B.A. and LL.B. (with first class honours) from the University of Newcastle, Australia. After qualifying and practising as a lawyer, he entered academia and was awarded his doctorate (summa cum laude) at the University of Mannheim....

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