Research On The Legal Issues Of Counterclaims Of Host States In International Investment Arbitration

Among different mechanisms of Investor-State Dispute Settlement(hereinafter referred to as “ISDS”),international investment arbitration between the foreign investor and the host state of foreign investment is a widely recognised mechanism utilised by both investors and host states.This mechanism prevents the foreign investors from the negative impact of over-protection and over-preservation of national sovereignty and legitimate regulatory power of host states that are resulted from the judgments determined by their domestic courts,and reduces the probability of diplomatic protection exercised by the home states of foreign investors.Hence,this mechanism is of great significance to effectively settle investment disputes of different kinds and protect the rights and interests of foreign investors in a neutral way.Currently,international investment arbitration is broadly utilised around the world,with an increasing number of cases heard by arbitration institutions of various types.The majority of investment disputes are settled in an effective way after a series of arbitration proceedings.However,based on the previous practice of international investment arbitration,it is undeniable that some tribunals would protect the rights and interests of investors in a more favourable manner,rather than reasonably balance the legitimate rights and interests of investors and the legitimate regulatory power and public interests of host states in the settlement of disputes.Meanwhile,although investors are entitled to claim that host states should bear the legal responsibility due to the infringement of certain provisions in international investment agreements(hereinafter referred to as “IIAs”)and the losses of investors brought by them,it is likely that investment activities conducted by investors themselves may violate the IIAs as well as the domestic laws and regulations of host states,and may seriously damage the legitimate regulatory power and public interests of host states.Therefore,for the purpose of preserving the legitimate regulatory power and public interests,some host states would file counterclaims against the investors in the arbitration proceedings on the basis of the related provisions in both the IIAs and the arbitration rules.The number of cases in relation to counterclaims of host states in international investment arbitration increases gradually at present.On a case-by-case basis,the tribunal of each dispute would determine whether it has the jurisdiction over counterclaims and whetherthe counterclaims should be admitted or upheld.Nevertheless,this current situation may lead the host states to refrain from filing counterclaims to respond to the claims of investors in the arbitration proceedings because no unified rule concerning the determination of counterclaims of host states is available for host states to refer to or invoke,which may become an obstacle of the preservation of the legitimate regulatory power and public interests.Accordingly,this dissertation aims to research the counterclaims of host states in international investment arbitration.It firstly introduces the background and causes of counterclaims filed by host states and analyses the functions of them.Based on the concluded cases in the arbitration practice,it then discusses three main issues of the counterclaims of host states: the parties of counterclaims;the consent of disputing parties to the counterclaims;and the connection between the original claims and the counterclaims.It finally tries to give some suggestions to the Chinese government on how to effectively utlise the counterclaims of host states in the future arbitration practice in order to preserve the national sovereignty and other legitimate power or legitimate rights of China,and tries to enhance the development and improvement of counterclaims of host states in international investment arbitration.To be specific,apart from Introduction and Conclusion,this dissertation is divided into the following five parts:Part I,“Fundamental Issues of Counterclaims of Host States in International Investment Arbitration”,mainly introduces some backgrounds and basic concepts related to counterclaims of host states in international investment arbitration.On the basis of the current development and the general mode of operation of international investment arbitration,it introduces the background,causes and basic components of counterclaims filed by host states in the arbitration proceedings and analyses the functions and significance of the counterclaims.Part II,“Parties of Counterclaims of Host States in International Investment Arbitration”,describes that in accordance with the basic principles concerning counterclaims in the domestic civil procedure,the parties of counterclaims filed by host states should be the same parties of original claims filed by investors in international investment arbitration under normal circumstances.The only difference is that host states become the claimants and investors become the respondents in the counterclaims.On the contrary,in some special previous cases,the parties of counterclaims are not the same as those of original claims.Some host states of foreign investment select affiliated parties of foreign investors,rather thanforeign investors themselves as the respondents in the counterclaims.However,according to the decisions of those previous cases,it is difficult for the tribunals to uphold this strategy proposed by the host states.Thus,this dissertation hereby holds that host states of foreign investment should directly select foreign investors themselves as the respondents in the counterclaims,for the purpose of realising the consistency of the parties of original claims and the parties of counterclaims,and increasing the probability of the occurrence of counterclaims to be upheld by the tribunals.Part III,“Consent of Disputing Parties to Counterclaims of Host States in International Investment Arbitration”,demonstrates that the presupposition of counterclaims of host states should be the consent of disputing parties to counterclaims because the consent of parties is one of the essential requirements for the start of arbitration proceedings.Apart from endeavouring to obtain the explicit consent of investors to counterclaims,host states should invoke other related provisions in both the IIAs and the arbitration rules during the arbitration proceedings,for the purpose of demonstrating that the disputing parties have consented to the counterclaims.From the perspective of such related provisions in both the IIAs and the arbitration rules applied and interpreted by the tribunals,this dissertation hereby analyses how the counterclaims of host states should obtain the consent of disputing parties in various forms based on the previous arbitration practice.Only when the consent of disputing parties is made may the counterclaims be admitted or upheld by the tribunals.Part IV,“Connection Between the Original Claims of Investors and the Counterclaims of Host States in International Investment Arbitration”,illustrates that the connection between the original claims and the counterclaims in international investment arbitration is an essential component of counterclaims that may be admitted or upheld by the tribunals,like that in the domestic civil proceedings.For the purpose of determining whether the connection is established,this dissertation hereby proposes that arbitration rules always provide that the connection should be a prerequisite for the counterclaims.Apart from those provisions in the arbitration rules,the tribunals should determine the issue on the basis of the concrete facts of each dispute.Under some circumstances,despite the fact that the counterclaims are not governed by the same legal relation of the original claims,it is possible that the tribunals would still hear the counterclaims provided that a close factual connection between the original claims and the counterclaims is established.This arbitration practice can avoid repetitive hearings of the same facts and evidence by different bodies in different proceedingsand contribute to the finding of facts and the settlement of disputes by the tribunals,which is also a reflection on the principle of judicial economy.Part V,“Enlightenment for China on the Practice of Counterclaims of Host States in International Investment Arbitration”,gives some suggestions and enlightenment for the Chinese Government on how to effectively respond to the investment disputes initiated by the foreign investors.China may file counterclaims against foreign investors during the arbitration proceedings of individual cases and formulate reasonable strategies for the participation of arbitration.Besides,China may also consider adding a provision concerning the counterclaims of host states into the IIAs between China and other countries and regions around the world in order to provide a legal guarantee and legal expectation for China and other host states of foreign investment on effectively filing counterclaims against foreign investors in international investment arbitration.