Exhaustion of Local Remedies in International Investment Law

The report examines the transition of the exhaustion of local remedies (ELR) rule from a customary international law requirement to one that is largely waived in modern investment treaties. It analyzes how tribunals interpret silence in treaties as a waiver and explores the legal distinctions between ELR as a jurisdictional versus procedural requirement. The document also details how ELR is applied as a substantive standard in denial of justice and expropriation claims, and concludes with recommendations for states to explicitly define ELR requirements and exceptions in their treaties to safeguard state sovereignty.

• The customary international law rule of exhaustion of local remedies (ELR) requires foreign nationals to seek redress within a state's domestic legal system before initiating international proceedings, serving to safeguard state sovereignty by giving the state "an opportunity to redress it by its own means, within the framework of its own domestic system".
• In international investment law, the ELR rule has been largely dispensed with; most of the over 3,000 bilateral investment treaties (BITs) and treaties with investment provisions (TIPs) are silent on the matter, and tribunals generally interpret this silence as an implicit waiver of the requirement.
• Recent treaty practice shows a trend toward reintroducing mandatory local remedy requirements. States such as Argentina, India, Romania, Turkey, the United Arab Emirates, and Uruguay, as well as the SADC and EAC regions, have included requirements to pursue or exhaust local remedies to empower domestic legal systems.
• Investment tribunals are divided on whether ELR is a jurisdictional requirement (a condition of consent to arbitrate) or a procedural requirement (a condition of admissibility). While the conceptual difference exists, it has not led to significantly different outcomes in practice.
• Tribunals generally recognize a 'futility exception' based on customary international law, allowing investors to bypass ELR if they can demonstrate that local remedies are not 'reasonably available' or offer no 'reasonable possibility' of effective redress.
• ELR is frequently applied as a substantive standard rather than a procedural one in specific claims. For denial of justice claims, tribunals consistently hold that an investor must exhaust local remedies up to the highest court of the host state to succeed.
• There is conflicting case law regarding ELR as a substantive requirement for expropriation claims. Some tribunals suggest that failure to seek domestic redress may disqualify a claim of indirect expropriation, while others argue that court decisions can engage state responsibility for unlawful expropriation without requiring ELR, unless a denial of justice is also alleged.
• Some tribunals have allowed investors to bypass ELR requirements by using Most-Favoured-Nation (MFN) clauses to import more favourable dispute settlement provisions from other treaties that do not require ELR, though this practice is controversial and rejected by other tribunals.

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} }