Investment arbitration resolves disputes between clients and intermediaries or institutional investors and national governments. It can reduce costs and maintain privacy, but may be criticized for allowing companies to hide bad records. International investment arbitration can attract investors, but the process can be lengthy and expensive.
Investment arbitration is the settlement of disputes between clients and intermediaries, or, internationally, between institutional investors and national governments. A large number of investment transactions take place globally on a daily basis and, of these transactions, a small number become subject to arbitration. Lawyers and investment specialists represent both parties in an attempt to reach an agreement on a controversial subject, with the aim of avoiding court.
Some reasons someone might seek investment arbitration include investment losses, breach of fiduciary duty, and failure to disclose key information. Within each country, recognized arbitration agents are available to file and prosecute claims. The complainant provides information on the subject of the dispute and the desired resolution, allowing the other party to respond. Negotiators work out a settlement based on the strength and nature of the complaint. The investor may receive money or other damages if the claim is founded.
Going through investment arbitration can resolve an issue before the parties become involved in litigation. This can reduce the costs associated with solving a problem. It can also hide the controversy and its nature, depending on a nation’s policies. In some nations, investment arbitration must be publicly reported so that people know when claims are being made against specific brokers and brokerage firms. In others, companies can hide the fact that arbitration has occurred or is ongoing, allowing them to maintain their reputation. This practice has been criticized by some members of the financial community as allowing companies with bad records to maintain a more presentable public face.
International investment arbitration involves a way of settling disputes when institutional investors are dissatisfied with their treatment as foreign investors in a given country. Without recourse to arbitration, it would be difficult to file claims and obtain satisfaction. Accepting arbitration can make countries more attractive to potential investors, as investors can be confident that if problems arise, they can take legal action to recover losses or deal with other matters.
The investment arbitration process can be lengthy, and while it is usually cheaper than litigation, it can get expensive. It may be necessary to investigate the circumstances, resulting in a bill for investigative services. Substantive documentation is passed back and forth during the process, and this can also add up when people pay for notarizations, copies, and other services related to communicating with the opposing party. Travel may also be required for international disputes.
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