International investment arbitration refers to a dispute resolution mechanism through which foreign investors, relying on international investment agreements, initiate arbitration proceedings over disputes arising from their investments in host states. Given the significant disparity in resources and power between investors and host state governments, the latter often exploit domestic judicial systems to exert pressure on investors through civil or criminal proceedings, undermining equality of the arbitration process.
To ensure arbitration proceeds smoothly, two essential conditions must be met: both parties must be able to present their arguments without interference, with the status quo maintained during arbitration proceedings.
Since investment arbitration often spans several years, provisional measures have become a crucial means of preventing rights from being impaired while safeguarding procedural fairness.
Applying provisional measures
Wang Jihong
Senior Counsel
Zhong Lun Law Firm
Provisional measures in international investment arbitration refer to interim orders issued by arbitral tribunals before a final award. They aim to prevent harm to parties’ rights, uphold procedural fairness, and preserve the enforceability of arbitral awards.
Although functionally equivalent to interim relief in domestic litigation, these provisional measures are broader in scope, encompassing actions such as halting parallel domestic proceedings initiated by the host state or prohibiting improper conduct.
The Empirical Study: Provisional Measures in Investor-State Arbitration (2023), published by the British Institute of International and Comparative Law and White & Case, examines the frequency and rationale for using provisional measures in disputes submitted to the International Centre for Settlement of Investment Disputes (ICSID) up to 2023.
According to the study, the most common grounds for requesting provisional measures are:
- Refrain from aggravation of the disputes (32.5%);
- Stay parallel proceedings in the respondent’s courts (28%);
- Provide security for costs (22%);
- Stay criminal investigation or proceedings (19.5%);
- Stay local administrative proceedings (14.5%);
- Stop harassment of the investor’s employees or representatives (11.5%);
- Preserve the evidence (7.5%);
- Produce undisclosed documents (7.5%);
- Stop publishing documents or information about the dispute/confidentiality (7.5%);
- Court proceedings in the claimant’s jurisdiction (4.5%); and
- Safety of the investor (3%)
These grounds highlight the diverse methods through which host states interfere with arbitration proceedings and underscore the equally varied nature of provisional measures designed to protect investors.
Yu Xingzhou
Associate
Zhong Lun Law Firm
As a result, provisional measures defy rigid definitions or a one-size-fits-all standard.
When deciding whether to grant provisional measures, arbitral tribunals apply stringent criteria.
Typically, applicants must satisfy two core conditions: (1) the rights they seek to protect must be directly related to the subject matter of the arbitration; and (2) they must demonstrate the urgency and necessity of the measures, meaning that failing to implement them would result in “serious and irreparable harm”.
Common risks and remedies
The above-mentioned empirical study highlights that “stay parallel proceedings in the respondent’s courts (including criminal and civil proceedings)” is among the most common requests for provisional measures.
In practice, arbitral tribunals are more likely to approve provisional measures aimed at halting parallel domestic proceedings. Parallel domestic proceedings initiated by host states interfere with arbitration in two primary ways.
First, domestic proceedings may attempt to adjudicate issues that are already under consideration by the arbitral tribunal. For instance, in Ceskoslovenska Obchodni Banka AS (CSOB) v The Slovak Republic, the respondent initiated bankruptcy proceedings in Slovak courts, which overlapped entirely with the issues under arbitration.
The tribunal ultimately approved the investor’s request for provisional measures, suspending the bankruptcy proceedings and effectively preventing the Slovak courts from issuing rulings that could conflict with the arbitration award, preserving the continuity of the arbitral process.
Second, parallel domestic proceedings may impair the investor’s ability to present their case fairly. For example, in Hydro Srl and Ors v Republic of Albania, Albania initiated parallel criminal proceedings that posed the risk of extradition and imprisonment for a party on the investor’s side.
The tribunal determined that this constituted an urgent and serious threat to the investor’s ability to participate effectively in the arbitration, and consequently ordered suspension of the criminal proceedings.
Core response strategies
The complexity and diversity of international investment arbitration make it impossible to devise a universal formula for managing risks, but the following suggestions are worth considering.
First, adopt a comprehensive perspective. It is essential to proactively identify potential risks that could undermine the integrity of the arbitration process. Even events occurring outside the arbitration proceedings may have a substantive impact on their progression. Anticipating such connections is critical to ensuring procedural integrity.
Second, ensure precision and specificity in requests for provisional measures, as they are applicable only in exceptional circumstances. If a request is overly broad or fails to establish a clear link to the arbitration process, it may be rejected by the tribunal. Requests must be narrowly tailored to the specific risks and supported by compelling evidence of urgency and necessity.
Businesses expanding abroad
Enterprises going global should conduct thorough legal and political due diligence before investing or engaging in international trade. They should focus on whether the host state is involved in international investment arbitration, has high-risk factors, or sells products (such as rare minerals) frozen by provisional measures.
Some states may attract foreign investment through low costs or preferential terms, but unstable policies and weak legal systems may hinder subsequent transactions, leading to disputes arising from expropriation, contractual breaches or administrative interference.
To minimise these risks, enterprises should work closely with experienced legal counsel to conduct careful risk assessments and balance short-term benefits against the potential for long-term disputes.
Wang Jihong is a senior counsel and Yu Xingzhou is an associate at Zhong Lun Law Firm
Zhong Lun Law Firm
22-31/F, South Tower of CP Center
20 Jin He East Avenue
Beijing 100020, China
Tel: +86 10 5957 2288
Fax:+86 10 6568 1022
E-mail: wangjihong@zhonglun.com | yuxingzhou@zhonglun.com
www.zhonglun.com
