Report on Host State Counterclaims and Sustainable Development Goals in Investment Treaty Arbitration

Introduction: Aligning Investment Law with SDG 16

The capacity of a host state to file counterclaims in investor-state dispute settlement (ISDS) is a critical component for achieving Sustainable Development Goal 16 (Peace, Justice and Strong Institutions). By enabling states to hold investors accountable for breaches of domestic or international law, counterclaims help create a more balanced, just, and effective international investment regime. This mechanism allows states to seek remedies for investor conduct that undermines other SDGs, such as environmental degradation (SDG 13, 14, 15) or violations of labour rights (SDG 8), thereby ensuring that investment treaties do not hinder the pursuit of the 2030 Agenda for Sustainable Development.

The Jurisdictional Framework for Counterclaims

A tribunal’s authority to hear a host state’s counterclaim hinges on the consent of the parties. The central debate is whether this consent must be explicitly stated in the Bilateral Investment Treaty (BIT) or can be inferred from the parties’ agreement to a set of procedural rules that accommodate counterclaims. This jurisdictional question is governed by the following frameworks:

• The ICSID Convention: Article 46 allows for the determination of counterclaims that “arise directly out of the subject matter of the dispute,” provided they are within the “scope of consent of the parties” and the jurisdiction of the Centre.
• The UNCITRAL Arbitration Rules: Articles 21(3) and 21(4) explicitly provide a procedural basis for a respondent to file a counterclaim.

The interpretation of “scope of consent” by arbitral tribunals has significant implications for a state’s ability to protect its policy space and enforce regulations aligned with its SDG commitments.

Evolution of Arbitral Jurisprudence on Counterclaims

Tribunals have adopted conflicting approaches when determining jurisdiction over host state counterclaims, leading to uncertainty for states seeking to advance public interest objectives. Key decisions illustrate this evolution:

1. Restrictive Approach Requiring Explicit Consent

   • Spyridon Rousallis v. Romania (2011): The tribunal majority ruled that consent for counterclaims must be found in the BIT itself. A mere reference to ICSID rules was deemed insufficient, as the dispute resolution clause only granted the investor the right to initiate arbitration. This approach can severely limit a state’s ability to seek redress for investor misconduct that harms public welfare, creating an imbalance that runs counter to the principles of SDG 16.
   • Marco Gavazzi and Stefano Gavazzi v. Romania (2015): Reinforcing the Rousallis majority, this tribunal held that jurisdiction over counterclaims cannot be inferred from the “spirit” of the BIT and must be grounded in its explicit text. This highlights the challenge for states operating under older-generation treaties that lack specific language on counterclaims.

2. Permissive Approach Based on Implied or Broad Consent

   • Antoine Goetz & Ors. v. Republic of Burundi (II) (2012): In a departure from Rousallis, this tribunal found that an investor’s consent to ICSID arbitration was sufficient to imply consent to the entire procedural framework, including the rules on counterclaims. This interpretation empowers states to better defend public interest regulations.
   • Urbaser S.A. v. The Argentine Republic (2016): The tribunal interpreted the neutral language of the BIT, which referred to disputes “between a state and an investor,” as allowing either party to be the claimant. This interpretation enabled Argentina to bring a counterclaim related to the human right to water, directly linking investment arbitration to the fulfilment of SDG 6 (Clean Water and Sanitation).
   • Saluka Investments B.V. v. The Czech Republic (2004): Under UNCITRAL Rules, the tribunal found that the BIT’s reference to “all disputes” was sufficiently broad to encompass counterclaims by the host state. This demonstrates that even older treaties can be interpreted in a manner that supports the balanced and effective institutions envisioned by SDG 16.

Conclusion: The Imperative for SDG-Coherent Investment Treaties

The analysis of arbitral awards indicates that the explicit text of a BIT is the most reliable basis for establishing jurisdiction over host state counterclaims. To ensure that the international investment framework is a true partnership for development (SDG 17) and promotes justice (SDG 16), it is essential for new treaties to include clear and unambiguous provisions allowing states to file counterclaims. The inclusion of such clauses, as seen in modern agreements like the India-Uzbekistan BIT, represents a critical step in rebalancing the ISDS system and ensuring that it supports, rather than undermines, the global pursuit of the Sustainable Development Goals.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article primarily addresses issues related to the following Sustainable Development Goal:

• SDG 16: Peace, Justice and Strong Institutions. The entire article is a detailed discussion of legal frameworks (Bilateral Investment Treaties), international dispute resolution mechanisms (ICSID and UNCITRAL arbitration), and the interpretation of legal texts by arbitral tribunals. This directly relates to building effective, accountable, and inclusive institutions at all levels and promoting the rule of law at the international level.
• SDG 17: Partnerships for the Goals. The article discusses Bilateral Investment Treaties (BITs), which are a form of international agreement or partnership between states designed to promote and protect foreign investment. The functioning of these partnerships, including how disputes are resolved, is a core component of this goal.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s focus on international law and dispute settlement, the following specific targets can be identified:

SDG 16: Peace, Justice and Strong Institutions

• Target 16.3: Promote the rule of law at the national and international levels and ensure equal access to justice for all.

  The article is fundamentally about the application of the rule of law in the context of international investment. It analyzes how arbitral tribunals interpret and apply the law as written in BITs and arbitration rules (e.g., ICSID, UNCITRAL). The central debate on whether host states can file counterclaims is a question of ensuring “equal access to justice” for both the investor and the state within the arbitration process. The article cites multiple cases, such as Spyridon Rousallis v. Romania and Urbaser S.A. v. The Argentine Republic, where tribunals grappled with the scope of their jurisdiction to ensure a just process based on the treaty’s text.

• Target 16.8: Broaden and strengthen the participation of developing countries in the institutions of global governance.

  The article implicitly touches upon this target. The discussion revolves around the balance of power in investor-state dispute settlement. Allowing host states (many of which are developing countries) to bring counterclaims is a way to strengthen their participation and voice in these international arbitration forums. The mention of the “unique inclusion of Article 16 in the India-Uzbekistan BIT” highlights how countries are actively shaping international agreements to better serve their interests within the global governance of investment.

SDG 17: Partnerships for the Goals

• Target 17.16: Enhance the global partnership for sustainable development, complemented by multi-stakeholder partnerships that mobilize and share knowledge, expertise, technology and financial resources.

  The entire context of the article—Bilateral Investment Treaties—is a manifestation of this target. These treaties are partnerships between countries to facilitate financial flows. The article discusses the legal architecture (ICSID, UNCITRAL rules) that underpins these partnerships, showing how global institutions provide the framework for resolving disputes that arise from them.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

The article does not contain quantitative data but implies several qualitative and process-based indicators for measuring progress:

For SDG Target 16.3 (Rule of Law and Access to Justice)

• Indicator: The existence and specific wording of dispute resolution clauses in international treaties.

  The article repeatedly emphasizes that tribunals give “greater importance to the text of the BIT.” It analyzes specific clauses, such as Article X of the Argentina-Spain BIT which refers to disputes “between a state and an investor,” and Article 8 of the Netherlands-Czech Republic BIT which refers to “all disputes,” to determine jurisdiction. The content of these clauses is a direct indicator of the legal framework in place.

• Indicator: The application and interpretation of procedural rules in international dispute settlement bodies.

  The article explicitly refers to “Article 46 of the Convention on the Settlement of Investment Disputes” and “Rule 48(1) of the ICSID Arbitration Rules, 2022,” as well as “UNCITRAL Arbitration Rules 2021.” How these rules on counterclaims are interpreted and applied by tribunals is a measure of how access to justice is being operationalized.

• Indicator: The legal reasoning and outcomes of arbitral awards on procedural matters like counterclaims.

  The article uses specific awards (Rousallis v. Romania, Goetz v. Burundi, Saluka Investments B.V. v. The Czech Republic) as evidence of evolving legal interpretation. The rulings in these cases serve as indicators of how the principle of equal access to justice is being handled within the system.

For SDG Target 16.8 (Participation in Global Governance)

• Indicator: The inclusion of provisions in new investment treaties that balance investor and state rights.

  The article opens by highlighting the “unique inclusion of Article 16 in the India-Uzbekistan BIT” as a significant development. The presence of such clauses, which explicitly address issues like counterclaims, indicates a strengthening of the host state’s position in the governance of investment disputes.

4. Table of SDGs, Targets, and Indicators

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