Exhaustion of Local Remedies in International Investment Law

This report by the International Institute for Sustainable Development (IISD) examines the rule of exhaustion of local remedies (ELR) in international investment law. It analyzes how the customary international law requirement—that individuals seek redress in domestic courts before initiating international proceedings—has been largely dispensed with in investment treaties, while recently being reintroduced by several states to protect domestic sovereignty. The document reviews treaty practices, case law from ICSID and other tribunals, and provides policy recommendations for states negotiating investment agreements.

• The rule of exhaustion of local remedies (ELR) is a customary international law principle designed to protect state sovereignty by requiring foreign nationals to seek redress within a host state's domestic legal system before pursuing international claims. In international investment law, this rule has been largely abandoned, as states typically provide advance consent to international arbitration, which is generally interpreted as a waiver of the ELR requirement.
• Several states and regional blocs have recently reintroduced mandatory requirements to pursue or exhaust local remedies in their investment treaties to empower domestic legal systems. These include Argentina, India, Romania, Turkey, the United Arab Emirates, Uruguay, and countries within the Southern African Development Community (SADC) and East African Community (EAC).
• Investment treaty practice regarding ELR is diverse: the vast majority of treaties are silent on the matter, while a small number expressly require ELR, pursue local remedies for a limited time, or explicitly waive the requirement. For example, the 2015 Indian Model BIT requires the exhaustion of judicial and administrative remedies for at least five years.
• International investment tribunals, particularly those under the ICSID Convention, generally interpret silence in a treaty as a waiver of the ELR requirement. This reverses the traditional customary international law presumption that ELR applies unless expressly waived. This 'waived unless required' approach has also been extended to non-ICSID arbitrations by various tribunals based on policy reasons.
• Tribunals are divided on whether ELR is a jurisdictional requirement (a condition of the state's consent to arbitrate) or a procedural requirement (a condition of the claim's admissibility). While the theoretical distinction exists, it rarely leads to different outcomes in practice, as both can result in a tribunal refusing to hear a case.
• Tribunals often allow investors to bypass ELR requirements through the 'futility exception,' which applies when there is no reasonable possibility of obtaining effective redress from local courts. Some tribunals have also bypassed the requirement for reasons of 'procedural economy' to avoid wasting time and resources if the requirement is met during the course of the arbitration.
• Some tribunals have allowed investors to bypass ELR requirements by using Most-Favoured-Nation (MFN) clauses to import more favorable dispute settlement provisions from other treaties that do not require ELR. However, this practice is controversial, and some recent treaties explicitly exclude dispute resolution procedures from the scope of MFN treatment.
• ELR is frequently treated as a substantive standard rather than a procedural one in specific types of claims. For 'denial of justice' claims, tribunals consistently hold that an investor must have exhausted local remedies up to the highest court to prove the system as a whole failed. In 'indirect expropriation' claims, some tribunals suggest that failure to seek domestic redress may disqualify the claim because the reality of the expropriation is doubtful without such effort.

APA

Brauch, M. D. (2017). Exhaustion of Local Remedies in International Investment Law. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/best-practices-exhaustion-local-remedies-law-investment-en.pdf

Chicago

Brauch, Martin Dietrich. Exhaustion of Local Remedies in International Investment Law. International Institute for Sustainable Development, 2017. https://www.iisd.org/system/files/publications/best-practices-exhaustion-local-remedies-law-investment-en.pdf.

Wikipedia

{{cite report |last1=Brauch |first1=Martin Dietrich |title=Exhaustion of Local Remedies in International Investment Law |publisher=International Institute for Sustainable Development |date=January 2017 |url=https://www.iisd.org/system/files/publications/best-practices-exhaustion-local-remedies-law-investment-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{brauch2017exhaustion, author = {Brauch, Martin Dietrich}, title = {{Exhaustion of Local Remedies in International Investment Law}}, institution = {International Institute for Sustainable Development}, year = {2017}, month = jan, url = {https://www.iisd.org/system/files/publications/best-practices-exhaustion-local-remedies-law-investment-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }