International Journal of Law And Criminology
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VOLUME
Vol.05 Issue05 2025
PAGE NO.
6-23
10.37547/ijlc/Volume05Issue05-02
Arbitration in International Investment Contract
Disputes
Asst. Lect. Hussein Fahem Hadi
Islamic University OF Lebanon
Received:
05 March 2024;
Accepted:
04 April 2025;
Published:
20 May 2025
Abstract:
This study addresses the topic of arbitration in international investment contract disputes, reviewing
the legal frameworks that govern the arbitration process and its importance as a means of settling disputes
between investors and states. Through arbitration, parties avoid resorting to traditional judiciary, which achieves
speed in procedures and impartiality in adjudicating conflicting interests.
The study confirms that the presence of clear and specific controls for arbitration in international investment
contracts contributes to creating a safe investment environment, as these controls preserve the rights of investors
on the one hand, and take into account the sovereignty of states on the other hand, which supports legal stability
and encourages the flow of international investments.
Keywords:
International Investment Contracts, Arbitration, Investment Contracts, Investor, Dispute Adjudication.
Introduction:
First: Definition of the research topic
Arbitration is one of the means of resolving disputes,
and it is an exceptional way based on the will of the
parties, as the opponents resort to it to resolve the
dispute without the competent court.
The importance of arbitration in the field of
international investment contracts has been confirmed
as a means of resolving disputes arising from these
international relations, as it has become the original
judiciary for resolving these disputes, and its
importance increases when the state or one of the
public legal persons is a party to these disputes.
The prosperity of arbitration was linked to the
development of international economic relations, as
the parties found their purpose in it as a specialized
judiciary that resolves disputes arising from
international contracts due to its simplicity, speed of
procedures, flexibility, and confidentiality.
The basic idea of arbitration is the final settlement of
international disputes with a binding decision issued by
arbitrators chosen by the parties to the dispute per the
law (1 ). In the contemporary era, the state's
intervention has increased, and its role has grown in
another way in the field of international trade through
its direct participation in new forms of contracts. This
has led to it being a strong competitor for individuals
and companies ( 2), and therefore, the provision of the
arbitration clause in the field of investment contracts in
practical reality is not considered new (3 ).
Foreign investors adopt the arbitration system because
it is considered the best investment for them (4 ), and
this is what creates the desire among the parties to
international contracts to "transcend or rise above
every specific legal system of a country, and work to
settle the disputes raised between them by a real
international arbitrator who directly applies a
supranational legal system, derived from the customs
and traditions of international trade" (5 ).
From the above, investment contracts are not
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concluded without an arbitration agreement, which
would refer disputes arising from these contracts to
arbitration.
Talking about investment requires understanding its
meanings and dimensions in light of the so-called era of
globalization, as international investment activities are
often related to the movement of goods, services,
capital, and people across the national borders of a
different country. Foreign investment usually takes the
form of direct investment, which constitutes the
backbone of globalization or takes the form of indirect
investment.
Second: The importance of the research
The importance of the research lies in the economic
and social variables that imposed resorting to
arbitration to resolve administrative disputes.
Countries in which national savings and revenues from
their natural resources were unable to meet the
growing needs for capital required by their
development plans have adopted policies that would
work to stimulate and encourage national and foreign
investments by providing and preparing the
appropriate climate in which various aspects of
guarantee against political and economic risks are
achieved. There is no doubt that the arbitration clause,
which aims to settle disputes that arise in connection
with the implementation or interpretation of these
contracts, occupies a prominent place in the field of
guarantees, as the investor requires its inclusion in the
terms of the contract to provide him with reassurance
in the event of a dispute with the contracting state,
given the difficulty of the state appearing before a
foreign judiciary for considerations related to
sovereignty. Given that arbitration is based primarily
on the will of the parties to the dispute, they are the
ones who prefer to resort to it over the state judiciary.
They are the ones who determine the arbitrators jointly
and equally, and they are the ones who determine the
applicable law. Accordingly, arbitration may result in
the exclusion of the administrative judiciary and the
exclusion of the applicable law to international
administrative contracts, which constitutes a violation
of the theory of the administrative contract.
Third: The research problem
The research problem arises from the principle of how
to apply arbitration in settling disputes over
international investment contracts. This problem
branches out into the following sub-questions:
1- What is the legal nature of international
investment contracts?
2- What are the arbitration procedures in
disputes over international investment contracts?
Fourth: Research objectives
The research aims to shed light on the legitimacy of the
arbitration system in international investment
contracts, especially international ones. The study of
the subject of arbitration in international investment
disputes also stands out because it is one of the topics
that raise renewed concepts according to the
continuous change witnessed by international
economic life and the resulting development of the role
of the state on the stage of international relations, and
the development of the individuals of the international
community in light of the development of these data.
Fifth: Research Methodology
To answer the previously raised problems, the
comparative analytical approach was relied upon in
analyzing a set of controls determining the nature of
arbitration in international administrative contracts.
Sixth: Research Structure:
To answer the raised problem, this research was
divided into two requirements. In the first requirement,
we devoted ourselves to discussing the nature of
international investment contracts within two
branches. The first branch is the legal compatibility of
international investment contracts, while the second
branch is international standards for investment
contracts.
For the second requirement, resorting to arbitration in
international investment contract disputes in two
branches. The first branch is the nature of investment
contract disputes, while the second is the motives for
resorting to arbitration in investment contract
disputes
.
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The First Requirement
The Nature Of International Investment Contracts
International investment contracts are usually
concluded to achieve common interests between the
two parties. These are the contracts concluded by the
state or its affiliated agencies with a foreign natural or
legal person, and they obligate the foreign investor to
transfer economic values to the host state to exploit
them in investment projects on its lands. These
contracts vary, and their forms are multiple (6),
according to the needs of those countries, with the aim
of economic development for the host state and profit
for the foreign investor. In most cases, the duration of
the contract is relatively long. They are international
contracts with a special nature due to their connection
to the development plans of the host state for
investment. However, these contracts are considered
international activities due to the presence of an
international element in them, such as international
activities, the shareholders belonging to more than one
country, or the people in charge of managing them
being of different nationalities. The international
nature also appears in these contracts as it relates to
the interests of international trade, according to the
economic criterion of the internationality of the
contract, as the international character is given to every
economic activity that includes the transfer of funds
and services between two or more countries.
Therefore, the legal and economic criteria may come
together. Still, without the economic criterion being
absent as a decisive and final criterion given priority,
the two aforementioned criteria often complement
each other to give the contract an international
character ( ).
First Section
Legal Compatibility Of International Investment
Contracts
International investment contracts take different
forms, whether bilateral or collective, and these
contracts may differ in terms of the diversity of their
parties between contracts concluded between a
country and a private person or those whose parties
are countries. Determining the legal nature of these
contracts is an important matter. However, solving the
compatibility problem of these contracts cannot be
ignored in light of the difference in jurisprudential
interpretation regarding the term most relevant to
international investment contracts, which will
undoubtedly overcome many difficulties when
investigating the legal nature of these contracts.
First,
International
investment
contracts
are
administrative contracts
Jurisprudence has been divided regarding considering
investment contracts as administrative contracts into
two trends:
The first trend (7): denies that these contracts are
administrative contracts, as this trend considered that
"if the considerations that are based on the existence
of a great convergence between both the
administrative contract and the state contracts, then
there is a group of factors that reject this convergence
between the two contracts, and thus lead to the
collapse of the hypothesis of giving the administrative
character to state contracts, from those factors the
subject of the contract and the law that is supposed to
be applied when a dispute occurs. It is established that
many of these contracts fall within the framework of
civil or commercial works, and that all arbitration
institutions refer the matter to the will of the parties,
and then the law of the state and international law,
while the administrative contract remains a national
contract subject in all cases to the state party to it."
Investment contracts are not single and, therefore, are
not subject to a single legal system. Sometimes, they
are administrative contracts; other times, they are
considered private law contracts. The point is to
analyze each contract separately to clarify its pillars and
its compatibility with the system that governs it (8 ). As
for the second trend, it believes that investment
contracts concluded by the state with a foreign person
are administrative contracts due to the characteristics
that these contracts enjoy, which make them close to
the idea of an administrative contract since the state
concludes these contracts in its capacity as a public
authority to achieve a public interest. From this
standpoint, these contracts are administrative, given
that they enjoy the same characteristics as this contract
( 9). As a result, the contracting state can amend the
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contract by its sole will or terminate it without being
subject to any contractual liability. Some of them (10)
went further, considering that the distinguishing
criterion of the administrative contract is the one that
contains exceptional conditions, whether because the
nature of public authority characterizes them or
because they are unusual conditions in private law
contracts, and reveal the intention of the contracting
parties to follow the method of public law and submit
to its principles and provisions, and what it includes of
elements of public authority and its privileges since
public authority is what gives the contract its
administrative character. It is undoubtedly the
distinguishing character of the administrative contract
and the basis and criterion of administrative law, and
the criterion of exceptional conditions is nothing but an
application of this rule in administrative contracts. The
trend supporting the consideration of the contract
concluded by the state as an administrative contract,
which is considered more modern, sees that the
current system that has begun to crystallize regarding
these contracts, about the issue of nationalization, is
close to the French administrative contract system that
has influenced other legal systems, as nationalization is
considered one of the forms of terminating the
administrative contract, and is consistent with the
principles of the administrative contract theory
(11).
The Lebanese State Council, in the two cases of the
State against the two cellular companies, Libnacell
S.A.L. (12 ) and F.T.M.L. ( 13), considered these
contracts to be internal administrative contracts and
did not distinguish between administrative contracts
concluded by the State that meet the necessary
conditions to be considered administrative, and
contracts of an international nature that relate to the
interests of international trade, as it considered that
"the contract signed between the State and the
respondent is a concession contract and an internal
administrative contract that does not relate to the
interests of international trade, and is therefore not
subject to international and internal arbitration." A
decision was also issued by the President of the
Lebanese State Council on the occasion of the request
to give the executive formula to two arbitration
decisions (14 ). It ended with the refusal to give the
executive formula after considering that "even if
administrative contracts include provisions that have
an impact on the interests of international trade, the
predominant nature of the contract remains the
administrative nature, as long as the obligated
contractor contributes to the implementation of one of
the national public facilities, those facilities that are
governed by the principle of the necessity of managing
and operating them to achieve the national public
interest. To say otherwise and to consider that
administrative contracts can themselves be the subject
of international commercial operations contradicts the
principle above, given that it is one of the established
principles in administrative science and jurisprudence
that it is not possible to accept the existence of
international administrative contracts. In the same
context, the proponents of this trend (15 ) considered
that "the international administrative contract cannot
see the light except through the administrative
judiciary itself, which by applying the traditional
standards of the internal administrative contract to
contracts that include external elements concerning
the internal legal system, can alone prove, define and
recognize the administrative contract, and is still far
from this recognition in science and jurisprudence, as
science and jurisprudence in countries whose legal
system separates The judiciary between both the
administrative and judicial judiciaries still considers the
issue of the international administrative contract
difficult. Either an administrative contract or an
international contract. This is what the Beirut Court of
Appeal, its tenth chamber, ruled in 2001, the case of
the Lebanese State versus the Bank of Lebanon and the
Emigrants (16 ): "International arbitration is considered
arbitration in a contract whose obligations result in the
movement of values and their transfer back and forth
across borders, which results in mutual results in each
of the two states concerned with that contract... 6- The
French judiciary has gone beyond the position based on
the rule of conflict between the State and arbitration in
administrative matters that the jurisprudence of the
French and Lebanese State Council has settled on, by
establishing a material rule stipulating the validity of
arbitration clauses in state contracts of an economic
nature, and this is what the Lebanese legislator has
enshrined in a direct text in the second paragraph of
Article (809) of the Civil Procedure Code. 7- The state
and legal entities also conclude, as they conclude
internal administrative and international commercial
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contracts, using intrusive clauses. Two characteristics
may come together in these contracts: their connection
to international trade interests due to the entry and
exit of values across borders, their administrative
nature due to the intrusive clause they contain, and the
achievement of a public utility.
If the decision above accepted arbitration in
international administrative contracts if the two
aforementioned characteristics came together before
the issuance of Decision No. 440/2002 permitting
arbitration in administrative contracts, then, based on
that, a decision was issued by the State Council on
4/26/2005 (17 ), i.e., after the issuance of this law -
ruling that the arbitration clause in the concession
contract is invalid due to the lack of a trade condition
in this contract despite its connection to international
interests.
In confirmation of the idea of the existence of an
international administrative contract, some say (18 ),
"Accordingly, it is clear from the above, the State
Council is keen to encourage investments in Lebanon
and attract foreign capital, through its activation of the
provisions of international agreements related to the
activation and protection of investments And
presenting it in application to the texts of the internal
public law that do not bias arbitration in administrative
contracts, and because it has the character of
international administrative contracts.
Therefore, it is clear that the supporters of applying the
concept of the administrative contract in the field of
contracts concluded by the State and aiming to exclude
the application of any law other than the national law
of the host state of the investment to these contracts,
which fall within the framework of administrative
contracts according to the classification that these
adhere to, as they consider that if arbitration has
become possible in the field of administrative contracts
thanks to the will of the legislator, then these contracts
cannot be removed from the framework of
administrative contracts as they must also be subject to
administrative law.
According to this trend, which is the best, there is no
objection to considering the administrative contract an
international
administrative
contract
as
the
international character of the contract does not negate
its status as an administrative contract, as long as the
necessary criteria are met to bestow this description on
it by the applicable law (19), as these criteria are the
same ones adopted in giving the absolute contract the
international character, and the most important of
these criteria is the economic criterion.
To consider the contract as an administrative contract,
it is necessary to consider the actions issued by the
State as a public entity, as well as the exceptional
conditions contained in these contracts, such as the
benefits granted to the foreign investor, taxes and
customs duties, and granting him land to establish the
project, in addition to some principles that are not seen
in contracts subject to private law, such as the concept
of regulatory authority, financial rebalancing and force
majeure, and terminating the contract by its sole will,
which is what distinguishes administrative contracts.
The administrative contract is also indicated by the use
of the state party in concluding this contract of
extraordinary clauses in its capacity as a public
authority and if it relates to the management of one of
its facilities to achieve the public interest, which places
it within the framework of administrative contracts,
and the necessity of applying the national law of the
host state
.
Second, International investment contracts are private
law contracts. This opinion completely contradicts the
previous opinion, as its supporters consider investment
contracts to be private law contracts ( 20) because the
absence of exceptional conditions in investment
contracts results in the absence of an administrative
nature because many investment contracts may not
have the state as a party, as the administrative div is
a party to the contract, acting in it as an ordinary person
and not a public person. The privileges the investment
law grants to the foreign party are against the state and
not the opposite. These exceptional and unusual
conditions are what make the contract administrative;
when the administration is a party to it, and the
contract is related to the management of a public
facility of the state's facilities, these conditions are
originally granted and decided in favor of an
administrative div, Not the party contracting with it.
The state applies public law within its territory with its
sovereignty, including its citizens. This law is not
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applied to the foreign party contracting with it; the
state's sovereignty is limited to the scope of its
territory, and outside this territory, it does not have this
right, so the state stands in a position of equality with
the foreign contractor. Thus, the state does not enjoy
any exceptional authority over the foreign party except
to the extent permitted by their contractual terms ( 21).
This opinion does not only concern international
investment contracts but rather includes all contracts
concluded by the state with a foreign party. As a result
of practical considerations, the requirements of
investment and international trade require not
adhering to public law methods in contracting because
if the state adheres to its sovereignty and public
powers, it destroys contractual relations with the
foreign party and also raises political problems
between the state party and the foreign contracting
state if it resorts to diplomatic protection for its state.
Therefore, the state must descend to the level of the
private contractor to achieve its interests if it is
attractive to investment ( 22). This requires contracting
using the private law to encourage foreign investment
and achieve the state's economic goals.
Establishing legal equality between the contracting
parties, the state and the investor, is a contemporary
step towards working to flourish the international
investment movement and achieve security for the
foreign investor, as there is no reason to fear dealing
with the state or disrupting its legal status (23 ).
This opinion concludes that investment contracts are
private law contracts, even if one of the parties is a
person from the public law persons, and that in
comparison with the first opinion, we prefer this
opinion, as investment contracts cannot be attached to
administrative contracts in any way because they do
not include all the elements of the administrative
contract (24 ). Legally, the investment contract is
completely equal between its two parties, making it
lose the administrative contract's most important
elements. The flexibility of the investment contract can
also harmonize the interests of the investor and the
government agency contracting with it, which is also
not available in administrative contracts that always
tend to favor the government agency and the harsh
conditions it sets in its contracts. This is because giving
the investment contracts an administrative character
would destroy the basic idea on which they are built
when the investor finds himself bound by
administrative controls and systems that are
completely inconsistent with the nature of the work of
the private sector, which is based on freedom and lack
of restriction. Also, subjecting investment contracts to
the administrative judiciary in interpreting them and
resolving disputes between their two parties gives the
government agency the upper hand, which would lead
to the private sector and investors refraining from
taking the initiative to contract with government
agencies through this type of contract. Accordingly,
giving the character of an administrative contract to
investment contracts and being keen to distinguish the
state's role in contracting may lead to a state of
imbalance and result in negative results in attracting
foreign investors. Therefore, it is better to view
investors in investment contracts as partners in the
development process with the state. They seek profit,
but they choose to establish their project within the
framework of cooperation with the state or the owner
and within the framework of the projects it offers.
Therefore, it is necessary to find a formula for balancing
those contracts.
Third: The Mixed Nature Of The International
Investment Contract
Some investment contract jurisprudence has gone
from mixed contracts and that they are of a special
nature that combines public law and private law, to
consider the new conditions in this contract to give it a
mixed character of a special nature, as these conditions
contain new developments that restrict the
sovereignty of the state and reduce its powers, and
deprive the contract of its judicial jurisdiction, and
prevent the state from appearing as a public authority
in the contract, so it cannot amend a contract by its sole
will, in addition to the fact that it protects the foreign
investor against changes in tax and customs legislation
that may lead to harm to the financial side of the
investor (35).
There is no doubt that the existence of the condition of
legislative stability and the condition of the contract,
the absence of which undoubtedly leads to the contract
returning to the fold of public law and the immediate
application of the rules of administrative contracts
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familiar in the general theory of administrative
contracts, leads to the dilution of the legal nature of the
contract and its transformation from a purely
administrative nature to a mixed nature ( 36). Several
arbitration rulings have supported the mixed nature of
investment contracts, including the Aramco arbitration
issued in the case of Aramco Company against the
Saudi government, which indicated that the mining
concession is a contract of a special nature that cannot
belong entirely to any contract, i.e., it cannot be
included within the usual categories of contracts, as it
is an action that has the nature of a single act about its
reliance on the initial license, and it also has the nature
of a contract because it requires an agreement of
mutual wills of both the state and the concession
holder. The idea of the mixed nature of the investment
contract is only a partial case at best, as it is not easy to
challenge its dominant elements, whether they are
elements of public law or elements of private law. It is
noted that this differs from one contract to another.
The contractual and commercial nature of the deal is
one of the most important elements of private law, as
its terms are discussed by the two parties and imposed
by one of them, in addition to the fact that it includes
conditions of the applicable law and the settlement of
disputes through arbitration (37 ). The conditions for
choosing the law aim to exclude the internal legal
system of the contracting state, as the contracting
party seeks to free it from the authority of its law. As
for the dispute settlement condition aims to provide
neutral and effective means for settling disputes arising
from this penalty to restore balance between the
parties while considering the dispute. The arbitration
condition is often considered a general guarantee in
this regard, as arbitration is likely to dispel the fears of
foreign investors about their disputes being subject to
the state's judiciary, which is rarely welcomed by
foreign investors (38 ). This originally existed in
contracts concluded between parties of equal legal
status. In contrast, the most important elements of
public law in an investment contract are the existence
of the state itself, in addition to granting the foreign
investor several exceptional privileges and facilities and
requiring legislative approval of some contracts.
Despite this difficulty in determining the predominance
of public or private law elements, the mixed nature of
investment contracts remains an undeniable reality,
which requires the application of appropriate legal
rules, whether related to private or public law, but
taking into account that the rules of private law are the
basic and most applicable rules for their compatibility
with the flexibility of the contract terms and the
project's needs for some privileges. Investment
contracts have a special nature due to the nature of
their parties and the connection to the economic
development plans of the host country. This requires
the recognition of investment contracts for some
general principles that are not necessary to achieve the
desired goal of concluding them, regardless of whether
the contract contains the elements of an administrative
contract or not, as the special nature does not result
from being a public law contract or a private law
contract, but rather derives this specificity from the
connection of its subject matter to the development
plans of the host country. Section Two
International Standards Investment Contracts
An international contract is a contract that is connected
to several legal systems, i.e., a contract that is not
limited to one legal system, but jurisprudence (39 )
acknowledges that it is difficult to find a comprehensive
and exhaustive definition, which necessitates searching
for a standard that helps determine what is meant by
an international contract. It is noted that there are
three standards used to determine the international
nature of a contract: a legal standard, an economic
standard, and a third standard that combines the two
previous standards, which is the mixed standard.
First: The Legal Standard
The legal standard, in determining the international
nature of a contract, is based on the idea that the
contract is considered international simply because the
foreign nature touches on any element of the legal
relationship (40 ). However, supporters of this trend
have differed over the effectiveness of the contractual
bond's legal elements and their effect on the
international nature of this bond. It can be said that
there are two forms of the legal standard: the first
traditional and the other modern, as follows:
1- The traditional legal standard:
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The supporters of this standard go to the settlement
between the legal elements of the contractual
relationship; as the foreign character touches on any of
them, the contract acquires an international character
that justifies subjecting it to the provisions of private
international law (41 ). Meaning that it is sufficient for
the contract to be considered international that the
foreign element touches on the element of the parties,
such as their nationalities being different, or the
element of the subject, such as the place of execution
of the contract being different from the judge's
country, or the element of the establishing fact, such as
the place of conclusion of the contract being in a
country other than the judge's country (42 ). According
to its supporters, this standard can confirm the
universality of the solutions of private international law
( 43).
This standard has been criticized, as it is a rigid
mechanical standard, as it requires that the contract be
considered international simply because there is a
foreign element in the contractual relationship,
regardless of the importance of that element or the
nature of the relationship in question ( 44). This is what
led to the emergence of the modern legal standard.
B- The modern legal standard:
According to the proponents of this standard, it is
necessary to differentiate the legal elements of the
contract that may be affected by the foreign character
between the ineffective or neutral elements and the
effective or influential elements in the contractual
relationship, as the mere availability of the first
elements is not sufficient to give this bond an
international character, but rather, for it to acquire this
character, the foreign character must have touched an
effective or influential legal element (45 ). It has been
said that it is unreasonable to consider the contract
international, for example, simply because it was
written on paper manufactured in a foreign country (
46).
Determining the internationality of the contract or not
in this manner is a relative matter that depends on the
nature of the contractual bond. For example, suppose
the nationality of the contracting parties is considered
a negative element that does not affect financial
transaction contracts. In that case, it is, on the contrary,
a decisive element in marriage contracts, as the fact
that one of the spouses has a foreign nationality is likely
to give the contract an international character. The
relative nature of the international character of the
contractual relationship confirms that this character is
determined through a "qualitative" criterion, which is
the "influential" foreign element in this relationship,
regardless of the numerical quantity of neutral foreign
elements that may be involved.
Second: The economic criterion
The economic criterion appeared in the late twenties of
the last century in the field of monetary law and
international payments (47), as the contract is
considered international according to this criterion if it
is related to the interests of international trade, and
since the term international trade itself needs a
definition, this criterion took multiple forms, as each
form was a solution that meets certain economic needs
witnessed by the French society in which this criterion
appeared, such as the need to apply or avoid applying
a specific legal text. The following are the most
important of these images:
1- The first image: The ebb and flow criterion:
This criterion requires that for a contract to be
considered international, it must contain a movement
of ebb and flow, i.e., the back and forth of economic
values across the borders of two or more countries.
This criterion has been criticized for its inability to
accommodate all international economic relations,
which made it difficult to adopt it within the scope of
some contracts, such as international service contracts.
It is also criticized for not considering the diversity of
payment methods, as not every back and forth is the
payment amount. There are other payment methods,
so there is no escape from developing this criterion (
48).
2- The second image: The criterion of international
trade interests:
To apply this criterion, every contract that focuses on
economic operations, including the movement of
money, services, or payments across borders, even in
one direction, is considered an international contract.
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The interests of international trade, as defined by
French jurisprudence, mean the existence of an
economic transaction that requires the movement or
circulation of money, services, or payment across
borders, and in the words of French jurisprudence, the
existence of an ebb and flow of values or services
beyond borders. Based on the ebb and flow criterion,
this concept of the interests of international trade was
previously used by the French Court of Cassation in its
definition of the international contract until its
application. This time was subject to some
development, as French jurisprudence considered (49)
that the interests of international trade are achieved
even if this movement is absent in the form of the two
operations of going and returning or the ebb and flow,
as long as the contract or transaction indicates this
movement across borders. In a famous case brought
before the French Court of Cassation on February 19,
1930, this case concerns a contract of sale concluded in
France between two Frenchmen regarding one
hundred tons of wheat under a contract of sale,
according to the terms of the London Grain Trade
Association, which contains an arbitration clause and
the effect of a dispute between the parties. The dispute
was brought before the French judiciary, and despite
the contract concluded between France and two
Frenchmen and France being the place of execution,
the French Court of Cassation overturned the ruling of
the Court of Appeal, which ruled that the arbitration
terms were invalid according to French law. The French
Court of Cassation decided that the invalidity of the
arbitration clause stipulated in Article (1006) of the
French Code of Civil Procedure is unrelated to public
order in France. Therefore, this invalidity, although it
applies within the scope of domestic contracts, does
not apply within the scope of international contracts,
which acquire this character merely because they take
into account or take into account the interests or
requirements of international trade (50). Among the
legislations on which this standard was relied upon by
Lebanese legislation, Article (809) of the Lebanese
Code of Civil Procedure of 1983 stipulated that
arbitration related to international trade interests is
considered international. The economic standard
adopted by French jurisprudence (51 ) and the judiciary
is distinguished by the fact that it gives the arbitration
agreement an international character regardless of the
nationality of its parties as long as it relates to the
interests of international trade.
Third: The mixed standard
The mixed standard combines both of the previous
standards, the legal standard and the economic
standard, as it is not sufficient to verify the presence of
a foreign element in the contractual relationship to
decide the internationality of the contract in question,
but it also requires that the contract be related to the
interests of international trade.
The French Court of Cassation, in its ruling issued on
July 4, 1976, called for the application of the mixed
standard by relying on the legal standard and the
economic standard together, as it was not satisfied
with the availability of the legal standard to determine
the state of the contract, but rather went on to confirm
the state of the contract, i.e., what the contract aims to
achieve by transferring funds across borders, that it
affects the interests of international trade (52).
The modern legal standard is the general standard in
determining the state of contracts, that the contract is
international if an influential foreign element
addresses it. In contrast, the economic standard of the
state of contracts answers the question: When does
the foreign element influence the field of international
economic relations?
It is also preferable in international economic
arbitration that the legislation and agreements
regulating arbitration adopt the modern economic
standard, i.e., the international trade standard,
adopted by the French legislator. Still, some countries
have adopted mixed standards, such as the Model Law
(53 ).
What can be concluded is that investment contracts are
contracts concluded by the host state or one of its
bodies or public institutions affiliated with investors,
whether they are natural or legal persons. It is possible
to differentiate between citizens and foreigners by the
criterion of nationality in the case of natural persons or
by one of the standards followed, such as the criterion
of control or establishment or the nationality of the
partners in the case of legal persons.
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As for the legal nature of the investment contract,
despite the differences around it, the investment
contract has a special nature not because it is a mixture
of elements of public law and elements of private law
due to the inequality in the legal positions of its parties
and its connection to the development plans of the
host state.
The Second Requirement
Recourse To Arbitration In Disputes Over International
Investment Contracts
Since political considerations often govern the public
foreign investments obtained by developing countries,
developing countries have tended to attract private
foreign investments to complete the economic
development process. For this purpose, countries
usually resort to concluding contracts with foreign
capital owners according to what their development
plans require, such as contracts to exploit their natural
resources, technology transfer contracts, factory
construction contracts, and contracts for the works
required for their infrastructure... which fall within the
framework of investment contracts.
Therefore, disputes arising from investments are
closely linked to changes in the political, social, and
economic circumstances that
accompany the
emergence of the investment link, whether by a
contract or a license issued by the host country or
through an international investment agreement, which
calls for the need to reconsider and review it, and these
new circumstances may lead the host country to take
some measures or resort to actions emanating from its
sovereign authority.
Section One
The Nature of Investment Contract Disputes
Sometimes, some matters may lead to an imbalance in
the contractual obligations correctly formed at the
time of contracting. These matters may expose the
contract to complete collapse and cancellation by both
parties as if a force majeure occurred. The contract may
be exposed to an imbalance, but this does not require
its cancellation; rather, it requires reconsideration and
renegotiation of its terms (54 ).
The state may also sometimes make changes to its laws
or legislation in order to respond to global
developments, which may lead to influencing the
authority that it or its agencies enjoy in terms of
resorting to arbitration, or may lead to amending the
legal rules governing the settlement of its disputes (
55).
The matter is wider than making legislative changes.
Still, it may extend to the state, with its authority in the
contract and with its authority, carrying out some
actions or procedures that may lead to the invalidation,
cancellation, or termination of the investment contract
that includes an arbitration clause or refers to the
arbitration agreement that regulates the method of
resolving their disputes.
First: The effect of force majeure on the investment
contract
One of the most important principles governing the
formation of contracts is the principle of contractual
justice. The contract must achieve an economic balance
between its two parties, especially in the field of
investment, so that one party does not become rich at
the other party's expense (56 ).
If achieving profit and incurring loss are the effects of
every contract, then achieving huge profit versus huge
loss cannot be the natural and acceptable result of any
contract, as contractual integrity and justice reject any
imbalance in the contractual balance when this
imbalance exceeds the acceptable or reasonable limit
in dealing (57 ).
Force majeure constitutes an unexpected and
irresistible event or group of events. It occurs due to an
act independent of the one who invokes it. He could
not anticipate or prevent it, and its occurrence resulted
in the expiration of his obligation due to the
impossibility of implementing it without bearing the
consequences of that ( 58).
The matter may be different when force majeure
occurs in an international investment contract, as the
parties often rely on this contract and the profits they
will reap. Therefore, they prefer to maintain the
contractual relationship between them, regardless of
this event, contrary to the general rules established by
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most legal systems, which cancel the contract when an
event that constitutes force majeure occurs.
Therefore, the parties often resort to including a
condition in their contract, the force majeure condition
(59 ).
The dispute that occurs between the two parties to the
investment contract, which resulted from the impact of
force majeure, may relate to non-compliance with
what the two parties originally agreed upon due to the
occurrence of force majeure, which constituted an
obstacle to the best implementation agreed upon in
the contract.
Let's look at the role of the judge in resolving disputes
arising between individuals due to force majeure. We
will find that the judge considers this force majeure an
obstacle to liability, as it appears as an event beyond
human control, unpredictable, and irresistible. It also
constitutes force majeure if it could be anticipated but
could not be prevented ( 60). To create a kind of trust
and protection for third-world countries, the
Washington Convention of 1965 was founded, which
aims primarily to resolve disputes arising from
investment. Investment is often linked to arbitration,
and the reason for this may be that the investor is a
foreigner in most cases and may not be sufficiently
familiar with the law of the country in which his
investment is taking place, in addition to his fear that
the investing country will impose its legislative
authority on the method by which investment disputes
are settled (61 ). Thus, arbitration contributes to
attracting investments to countries ( ), and these
diverse investments involve various disputes, most of
which are technical disputes, and therefore, resolving
them requires special programs that require a lot of
experience and knowledge. Although arbitration has
proven its role over time in resolving international
trade disputes in general and investment disputes in
particular, some believe that these issues of a technical
nature double the difficulty of the tasks assigned to
arbitration bodies. Although these arbitration bodies
can appoint experts specialized in this field, the time
between force majeure events, referring the dispute to
arbitration, and appointing experts makes it difficult to
reach real results consistent with the circumstances of
the dispute (62 ). However, regardless of the length or
shortness of the period, the reality is that settling
investment disputes through arbitration is consistent
with the nature of these disputes and with the desire
of the parties to maintain their ties more than any
other means. In light of the expansion of investment
contracts, resorting to arbitration is better than
resorting to the judiciary and obtaining a coercive
ruling from the point of view of one of the parties, as
arbitration is based on settling the dispute amicably,
thus preserving good relations between the two
parties, which provides an opportunity for future
dealings between them.
Second: The dispute arising as a result of a legislative
interpretation carried out by the state
Global developments at the economic and political
levels are reflected in all countries due to their general
interaction. There is no doubt that security guarantees
and a political climate suitable for attracting
investment, which any sudden change affects the
investment contract, are important matters supporting
countries' economic policies. However, the matter is
not limited to providing a political, social, and economic
climate for the investment to succeed, but more
importantly, providing the legal systems that the
investor seeks to facilitate his investment, whether in
terms of tax legislation, customs, or legislation related
to investment, which the investor pays special
attention to in his studies related to investment in this
country, as he extracts from his study of these systems
and legislation, the limits within which he works, the
incentives he will enjoy, the flexibility of the dispute
resolution system and other things that may affect the
results of his work (63).
Attracting investment to developing regions such as
third-world countries requires a legal framework that
helps flow capital. One of the most important elements
that constitute this framework is the existence of
national laws that provide the opportunity for the
foreign investor to obtain the returns and profits he
seeks from his investment in this country, which
guarantee the protection of his capital and ensures the
stability of this investment ( 64). However, the investor
may sometimes need help convincing the host country
of his investment to subject this contract to other than
its law. In all cases, if the contract is subject to the law
of the host country or other, some legislative changes
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may occur in the law chosen to govern the contract
between them. In light of the collapse of colonial
systems and the arrival of many formerly colonized
countries to obtain their independence and
sovereignty, their legal systems could be more stable
due to their work on commercial economic
development with developed countries ( 65). Such
legislative changes in the host country's laws may lead
to undermining confidence in this country and not
providing the appropriate climate to attract
investments, especially in a country seeking economic
development in various fields. This prompted many
investors to put what is known as legislative stability
conditions in their contracts with the host countries.
The primary goal of implementing these conditions is
to freeze the legislative role of the state party to the
contract, from changing the legal rules in force at the
time of concluding this contract and not issuing new
legislation that applies to the contract concluded
between them in a way that leads to disrupting the
economic, contractual balance, and harming the
foreign investor contracting with it ( 66). Therefore, the
existence of this condition prevents the state from
using the advantage it enjoys, as it is an authority that
has the right to legislate and create a law and
implement it on the contract concluded between it and
the foreign investor, which creates a kind of inequality
between the two parties. Third: The dispute arising as
a result of an individual action taken by the state
Considering the individual actions that the state may
take, such as if it nationalized a project, is open to
discussion from two aspects, as it includes two basic
matters: the legitimacy of the action taken by the state
and the damage resulting from this action, as the
contract has a legal and an economic balance.
Can the arbitrator consider the appropriate
compensation for the damage resulting from the action
taken by the state without considering the legality of
the action itself? Neither the arbitrator nor the
international courts have the authority to force the
state to retract the action and oblige it to implement
the contract, even if the investor based his request on
the real motives behind the state's action (67 ).
When considering whether this dispute arising from an
individual action taken by the state is legal and subject
to the arbitration of the center, we must not confuse
the nature of the action taken by the state, such as
nationalization or expropriation, with the nature of the
dispute surrounding it.
Sometimes, the state may take some individual
measures considered political measures given the
motive for taking them. At the same time, the dispute
revolves around matters of a predominantly legal
nature, such as compensation. Thus, when the dispute
is related to nationalization without compensation, it is
subject to arbitration in the center as a legal dispute.
However, when the dispute revolves around the state's
right to take this measure or the validity of the motive
for taking it, in this case, the dispute is not legal and is
not subject to the center's agreement
(68).
Section Two
Motives For Resorting To Arbitration In Investment
Contract Disputes
Arbitration plays an important role in resolving
disputes that may arise in investment contracts, and
some of them have made arbitration in investment
contracts a necessary and inevitable matter (69 ).
The countries hosting the investment see that it is not
more appropriate to resort to their national judiciary in
investment disputes because this leads to a ruling in
their favor, which conflicts with the interests of the
foreign investor and leads to his fear and reluctance to
invest in such a country (70 ).
Many initiatives have been taken at the national and
international levels to support the efficiency of
arbitration and encourage it as a means of settling
trade and investment disputes of an international
nature (71 ). And it has become the natural judiciary in
this field (72). Those dealing within the framework of
international relations prefer arbitration over the state
judiciary (73 ). The preference of countries to resort to
arbitration in investment contract disputes is due to
the following reasons:
First, The most important advantages of arbitration are
consistent with the nature of investment contract
disputes
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The most important advantages of arbitration are the
speed of the procedure, confidentiality, and
specialization, and we summarize them in the following
matters:
1- Speed of procedures:
Arbitration procedures are simple, as the parties to the
dispute determine those procedures, which leads to
the speed of issuing the arbitration decision (74 ). This
is what is required to resolve investment contract
disputes. There may be investments and large amounts
of cash frozen awaiting a court ruling, which leads to a
real loss to disrupt those amounts awaiting a resolution
in the dispute, as the parties to investment contracts
prefer to resort to arbitration for the rapid justice it
provides (75 ).
In addition to the speed of its procedures compared to
the usual judicial procedures, the selection of
arbitrators and specialists in the field of investment
gives them the great ability to understand the
problems presented to them and find the best
solutions for them, as arbitration is capable of applying
the objective provisions that govern the relationships
presented, given their international nature (76 ).
In addition to the fact that arbitration shortens the
levels of litigation, as the arbitration panel issues a final
judgment that cannot be appealed ( 78) by any normal
means of appeal, with the possibility of filing a lawsuit
for nullity regarding it and the reasons exclusively
stated in the law, and as a general principle, the appeal
for nullity does not stop the implementation of the
arbitration award ( 79). In addition to the above, the
international agreements concerned with arbitration
did not address the methods of appealing nullity and its
procedures, as they made that part of the countries'
national legislation. These agreements recognize the
right of the national judiciary to monitor arbitration
awards. Hence, the laws of different countries regulate
the methods of review and nullification of arbitration
awards and their causes, and these laws are similar to
the arbitration legislation of many countries ( 80). One
of the professors says this: "The legitimate interest of
the parties in international arbitration and their
keenness on it should not allow the absolute authority
to be enjoyed by the courts of the state in which it was
issued, as interest and keenness require that the
court's authority to declare the invalidity or
cancellation of the ruling be a specific authority" (81 ).
Accordingly, arbitration provides the foreign investor
with a neutral div that he requests due to the
weakness of his legal position in the face of the host
state of investment. It also gives him complete freedom
in choosing his arbitrators who will be assigned to
resolve the dispute, form the arbitration court, and
determine the law applicable to the arbitration
procedures and the subject of the dispute ( 82).
2- Confidentiality:
Arbitration decisions are usually not published, unlike
what happens with judicial decisions. For this reason,
business people prefer arbitration over ordinary
judiciary because publication conflicts with the
confidential nature of their work and disputes with host
countries, and the principle is that arbitration rulings
may not be published except with the consent of the
arbitrators and arbitrators ( 83). The failure to disclose
the secrets of disputes as a result of the openness of
the judiciary is something that economic and
commercial circles at the international level are
reluctant to do ( 84). 3- Arbitration is a specialized
judiciary:
Since the judge in the state courts may be a skilled
jurist, but he has little experience in international trade
affairs ( 85). Because arbitration is based primarily on
the management of the two parties, the two parties
choose those to whom the arbitration task is assigned
from those who know the type of commercial dealings
(86 ).
They can take into account when choosing arbitrators
the degree of specialization required in the subject of
the dispute (87 ) and those who have sufficient
experience and professional training instead of
referring it to the judiciary, which may resort to seeking
the assistance of experts in technical trade matters (88
) or may not have the necessary competence to resolve
complex technical and legal issues, which are often
included in investment disputes. Therefore,
Arbitration is closer to achieving justice because the
specialized arbitrator is more capable of understanding
the subject of the dispute, its details, and complexities,
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unlike the judge, who looks into all disputes, regardless
of whether he is specialized in the dispute ( 89).
Based on the above, and considering arbitration as a
specialized judiciary, instead of litigation, the parties
choose the arbitration panel and those who have the
experience, competence, and special knowledge in the
areas related to the dispute, which leads to the speed
of adjudication and settlement of the dispute, and also
leads to increasing the possibilities of optional
implementation of the panel's ruling ("arbitrators") and
resolving the dispute quickly.
Second: The foreign investor's insistence on the
arbitration clause
Because in many countries, there is no special system
for suing governments ( 90), as a result, foreign
investors are keen to include the arbitration clause in
investment contracts due to the lack of confidence in
the integrity and fairness of the courts of the host
country, in addition to the fact that its position will not
be neutral towards the dispute, as the national
judiciary. However, independent of the state itself, it is
not neutral regarding investment disputes or those in
which the state is a party with a foreign contractor.
That contract arises from a contract related to
economic or social interests and the state's sovereignty
( 91).
Naturally, private foreign companies do not accept that
their agreements be subject to the domestic law of the
host state or the party to the contract, in addition to
the fact that the state refuses to subject the
concessions and contracts to which it is a party to the
law of the foreign state, so the parties "the state and
companies" agree to subject them to international law
or in general to the general principles of international
law. Hence, the parties guarantee their agreement by
stipulating that they will resort to arbitration in the
event of a dispute between them. Including an
arbitration clause in international trade contracts has
become a common condition, especially when the state
is one of the parties ( 92).
For this reason, the foreign investor, out of his desire
not to be subject to the judiciary of the host state and
its laws as a result of the state's interference with its
influence or influencing the justice of national
arbitration or the national judiciary as well, and the
foreign investor's fear that the state will make sudden
amendments or changes that affect his interests,
therefore the will of the foreign investor tends to be
keen to include the text of resorting to arbitration in
investment contracts.
Third: Arbitration is a procedural judicial guarantee to
encourage investment
International trade professionals have sought to
include an arbitration clause in their contracts at a time
when the state judiciary is no longer the only one
concerned with resolving international contract
disputes, as arbitration has become a competitor to
this judiciary, in addition to the fact that those dealing
in the field of international trade see that it is better to
submit their disputes to people with special technical
expertise, who are specialists in trade or the
profession, who by nature have a technical nature and
are raised by the dispute; Because this makes them feel
safe and secure, and ensures that they avoid internal
legal surprises, the topics, and provisions of which they
are ignorant of (93 ). Another opinion believes that "the
arbitration system has created for itself and its
assistants, the jurists of the era of internationalization
and the dominance of multinational companies, legal
formulas and tools that guarantee the exclusion of
state law and the effectiveness of contract provisions
through arbitration," and says in another topic "It is
necessary that we do not look at arbitration in itself,
but rather as an integral part of a broader and more
comprehensive legal system, which is, in turn, part of a
new system of international economic relations" (94 ),
and thus the non-subjection of arbitration to any
official div, or a state with a specific interest, confirms
in the eyes of foreign investors the necessary
neutrality, and the necessary guarantees to protect
their investments. As for international investment
contracts, in which the state "any state" is linked to a
foreign buyer, they usually do not trust the judiciary of
the contracting state or its laws because the judge is
influenced by national motives that conflict or
contradict the interests of the investor, and because
the laws in developing countries are easy to amend,
and are not stable ( 95). If estimating it when disputed
remains in the hands of the host country's judiciary, the
importance of international arbitration as an
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appropriate means and an effective guarantee for
resolving investment disputes is very serious.
CONCLUSION
In conclusion, the topic of resorting to arbitration in
disputes over international investment contracts
makes it clear to us that arbitration is a vital tool for
achieving justice and maintaining a balance between
the interests of the contracting parties, whether
countries or investors. The importance of arbitration is
highlighted in its ability to provide solutions
characterized by neutrality and flexibility, which
provides a safe and reliable environment for resolving
disputes arising from investment contracts, away from
the pressures of the traditional judiciary and its
influences.
It is also clear that the success of arbitration depends
largely on the existence of precise legal controls that
regulate the arbitration mechanism and determine the
procedures for resorting to it, starting from the
arbitration clause in contracts, through the
appointment of the arbitration panel, and reaching the
formulation and implementation of judgments. These
controls enhance transparency and trust between the
parties and preserve the rights of investors on the one
hand and the rights of countries to protect their
sovereignty and economic interests on the other hand.
Therefore, it can be said that international arbitration,
with its established controls, contributes to creating a
stable legal environment that encourages investment
and supports economic growth, making arbitration an
indispensable legal tool in the field of international
investment and a means of reconciling the aspirations
of investors and the development goals of countries.
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