Changing Contours of Host State Counterclaims in Investor-State Arbitration : With Special Reference to the Indian Position

Palada Dharma Teja & Shashwat Bhaskar

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This paper seeks to expound the legal conundrum regarding host state counterclaims in investment arbitration. Host state counterclaims exemplify the complex nature of the system of investor-state arbitration. Unlike commercial arbitration, states do not have an automatic right to bring counterclaims against investors in investment arbitration. This paper attempts to make a comprehensive analysis of the law on host state counterclaims in investor-state dispute settlement (‘ISDS’) mechanism. The paper highlights the need to allow host state counterclaims. It shall critically analyse the requirements for admissibility of host state counterclaims, which include consent, connectedness, arbitration rules and procedural requirements and attempts to assimilate the same. Further, this paper analyses several international investment agreements (‘IIAs’) and underlines the divergent approaches to host state counterclaims in investment arbitration. Thereafter, it delineates the Indian approach to counterclaims in investment treaty practice. In doing so, it shall specifically analyse the Draft India Model and the India Model Bilateral Investment Treaties of 2015 and 2016 respectively. Thereafter, the paper shall examine the recent arbitral awards dealing with counterclaims and their interpretation of the dispute resolution provisions of the underlying IIAs. Finally, the authors propose a model clause corresponding to Article 28(9) of the Common Market for Eastern and Southern Africa Investment Agreement (‘COMESA’) and Article 14.11 of the Draft India Model Bilateral Investment Treaty expressly permitting host states counterclaims in investor-state arbitration. Thus, the paper seeks to suggest a shift from the existing paradigm of admissibility of host state counterclaims in investment arbitration.