The Stakes for States in Defending Investment Treaty Arbitrations: A game of luck and chance?

This research paper examines the financial risks and imbalances faced by states, particularly developing nations, when defending investment treaty arbitrations. It argues that the system is structurally biased toward investors, as states can only defend claims rather than bring counter-claims, and rarely recover the substantial legal and administrative costs of arbitration even when they win.

• Investment treaty arbitration is structurally skewed in favor of investors because states are limited to defending claims and cannot bring counter-claims, unlike in commercial arbitration where both parties have rights and obligations.
• While a UNCTAD study of 164 concluded cases at the end of 2009 showed states were successful in 57 per cent of non-settled cases (62 cases in favor of the state versus 47 for the investor), these figures may be incomplete due to confidential awards and the ambiguity of the 55 settled cases.
• Tribunals apply a hybrid approach to cost allocation, but data from 54 awards between 2007 and 2010 suggests states are less likely to recover costs than investors. In cases where the state was successful, it recovered some costs in only 6 out of 20 instances, meaning states covered their own costs in 70 per cent of successful defenses. In contrast, successful investors covered their own costs in only 40 per cent of cases.
• States face significant financial exposure because they must use public funds for legal fees and arbitration costs, which can reach several million dollars, regardless of the outcome. Investors mitigate this risk through third-party financing and contingency fee agreements, options unavailable to states since states cannot claim damages.

APA

Malik, M. (2011). The Stakes for States in Defending Investment Treaty Arbitrations: A game of luck and chance? International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/dci_2010_stakes_of_states.pdf

Chicago

Malik, Mahnaz. The Stakes for States in Defending Investment Treaty Arbitrations: A game of luck and chance? International Institute for Sustainable Development, 2011. https://www.iisd.org/system/files/publications/dci_2010_stakes_of_states.pdf.

Wikipedia

{{cite report |last1=Malik |first1=Mahnaz |title=The Stakes for States in Defending Investment Treaty Arbitrations: A game of luck and chance? |publisher=International Institute for Sustainable Development |date=2011 |url=https://www.iisd.org/system/files/publications/dci_2010_stakes_of_states.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{malik2011stakes, author = {Malik, Mahnaz}, title = {{The Stakes for States in Defending Investment Treaty Arbitrations: A game of luck and chance?}}, institution = {International Institute for Sustainable Development}, year = {2011}, url = {https://www.iisd.org/system/files/publications/dci_2010_stakes_of_states.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }