Sanctions in an international investment arbitration case

In this article, the authors consider the approach of international investment arbitration tribunals to the resolution of disputes between claimants from a sanctioned state (in this case – Iran) and the host state (Bahrain). Depending on how the defendant builds its defense, the arbitral tribunal may regard the sanctions against the claimant’s State as a basis for declaring that the arbitral tribunal does not have jurisdiction to consider the dispute on the merits; or that the claim is inadmissible, should be dismissed on the merits, or should be satisfied; or for use as a factor in decreasing the amount of compensation for the respondent State’s violation of the investor’s rights. In this case, the defendant (Bahrain) chose to use sanctions against Iran as the basis for objections against the jurisdiction of the arbitral tribunal and against the admissibility of the claim. Therefore, it is precisely these objections of the respondent State and their assessment by the arbitral tribunal that are of particular interest. However, despite the respondent’s deeply layered argumentation on these issues, the panel of arbitrators did not agree with the respondent. In addition, a whole battle unfolded between the parties about every substantive law argument, while the parties gave mutually exclusive legal assessments of the facts of the case. However, the panel of arbitrators ruled generally in favor of the claimant. This in itself is surprising, because Iran is subject both to sanctions imposed by the UN Security Council and even more severe EU and US sanctions, and the claimants were Iranian state-owned banks. As follows from this decision, the claimant’s being from a sanctioned state is not an obstacle for protection of its rights under the applicable international treaty on the protection of foreign investments. In light of the new sanctions imposed by the EU, the US and other states on various Russian entities and individuals after 24 February 2022, the case is of particular interest to potential Russian claimants and to Russia as a potential respondent State.

About the authors: Elizaveta Rachkova – LL.M. Candidate of the join program of the Graduate Institute of International and Development Studies and Centre for International Dispute Settlement, Geneva, Switzerland; associate of the law firm “Nektorov, Saveliev and Partners”, Moscow, Russia; Iliya Rachkov – Candidate of Sciences (PhD) in Law, Associate Professor of the Departament of International Law, MGIMO, Ministry of Foreign Affairs of the Russian Federation, Moscow, Russia.

Citation: Rachkov I., Rachkova E. (2022) Sanktsii v mezhdunarodnom investitsionnom arbitrazhe (na primere odnogo iz del) [Sanctions in an international investment arbitration case]. Mezhdunarodnoe pravosudie, vol. 12, no. 2, pp. 84–112. (In Russian).

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