UK: An International Arbitration: Investor-State Arbitration Overview
In a League of Its Own? Investor–State Arbitration Within the World of International Arbitration
Investor–State arbitration, otherwise known as Investor–State Dispute Settlement (ISDS), is an international mechanism that enables the resolution of disputes between foreign investors and host States. Sitting within the wider ecosystem of international arbitration, the system of ISDS takes those disputes out of the realm of domestic courts, and places them before a neutral, international forum for determination. There are three primary sources of consent to ISDS proceedings: international investment agreements (IIAs), domestic foreign investment laws, and investment contracts entered into by a host State with a specific investor. The number of IIAs, in particular, has increased dramatically in recent decades (as at May 2026, UNCTAD records over 2,000 bilateral investment treaties (BITs) in force and a further 400+ treaties with investment provisions in force, compared to just over 300 of both combined as at 1990).
ISDS is still, relatively speaking, in its infancy. The first modern ISDS case (AAPL v Sri Lanka) concluded less than 30 years ago. By the end of 2025, with a significant network of IIAs in place globally, more than 1,000 treaty-based ISDS claims had been concluded, with over 300 more pending (source: UNCTAD).
Who Are the Participants in Investor–State Arbitration, and Who Do They Instruct?
Participants in ISDS are multifaceted and reflect the full gamut of those engaged in investing beyond the four corners of their home jurisdiction. They include both individuals and companies, engaged across all sectors of the economy. The respondents in these proceedings can in theory be any State that has signed up to an instrument of consent.
Early ISDS disputes were typically brought against capital-importing States. Venezuela, Argentina and Mexico top the charts of States most frequently appearing as respondent (source: UNCTAD). In the last two decades, however, with the volume of ISDS proceedings increasing dramatically, ISDS proceedings now routinely also involve capital-exporting States. Spain is a prime example, having been involved in numerous ISDS proceedings arising out of its renewable energy sector reforms.
The exponential growth in IIAs – and, in parallel, ISDS proceedings – over recent decades has led to a significant expansion in this sector of the legal profession. Practices traditionally focusing on disputes before domestic courts, or contract-based arbitration between private parties, have expanded their offerings to include ISDS proceedings. At the same time, boutique law firms and other specialist practices, dedicated to the field of ISDS and related public international law practice, have opened up to service ever-growing numbers of clients. The UK has become a prominent global base for services in this field, alongside other leading centres in Washington, DC, and Paris.
Recent Challenges to Investor–State Arbitration
The exponential growth in ISDS proceedings seen in the last three decades has, naturally, been accompanied by a number of challenges. The system of ISDS has attracted criticism from various quarters for certain systemic problems, such as the lack of transparency of ISDS proceedings, inconsistent decisions rendered by different arbitral tribunals on the same or similar legal issues, the absence of a general appellate mechanism, and a perceived imbalance between investor protection and States’ right to regulate. Many of these issues have been discussed within the United Nations Commission on International Trade Law (UNCITRAL). In 2013, UNCITRAL adopted Rules on Transparency in Treaty-based Investor–State Arbitration, which now apply to a growing number of ISDS proceedings. In 2017, UNCITRAL began a consultative process to consider options for reform of the ISDS system (more on this below). States have also responded to substantive legitimacy concerns about ISDS by negotiating new-generation agreements that better reflect contemporary concerns.
The system of ISDS has also weathered various recent regional challenges, starting with the denunciation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Convention) by a number of Latin American States (Bolivia in 2007, Ecuador in 2009, Venezuela in 2012, and Honduras in 2024). Two have subsequently taken steps to rejoin the Convention (Ecuador re-ratified it in 2021, while Honduras re-signed it in 2026). Over the same period, a number of new States have ratified the Convention. Another major regional challenge to the system of ISDS has come from the EU, where the decision of the Court of Justice of the EU in Achmea v Slovak Republic has precipitated the widespread dismantling of investment agreements – both BITs and the Energy Charter Treaty – concluded between EU Member States. The consequences of the judgment continue to reverberate, both in ISDS proceedings and around the world in domestic enforcement and set-aside proceedings arising out of intra-EU arbitral awards.
What to Watch – Recent and Forthcoming Developments in Investor–State Arbitration
To address recent challenges to ISDS, in 2017 UNCITRAL established a Working Group (III) with a mandate to consider a broad package of ISDS reforms. Its work has included proposals for standing and appellate mechanisms for the resolution of international investment disputes, as well as an advisory centre and tools for dispute prevention and mitigation. Other reform proposals seek to increase investor accountability by encouraging the inclusion of investor obligations in investment treaties and by explicitly preserving States’ ability to pursue counterclaims.
UNCITRAL Working Group III has recently made progress on the proposed Advisory Centre on International Investment Dispute Resolution, which is intended to provide capacity-building, technical assistance and support to States in the prevention and handling of investment disputes. Broader structural reforms remain under discussion.
Building on UNCITRAL’s earlier work, arbitral institutions have also made progress towards making arbitration proceedings more transparent and open to the public. The 2022 ICSID Rules, for example, introduced more detailed provisions on transparency, publication of awards and decisions, disclosure of third-party funding, expedited procedures and early dismissal of manifestly unmeritorious claims. More generally, the proliferation of ISDS disputes has been accompanied by the development of certain procedural standards, including rules and guidelines on document production, conflicts of interest, and arbitrator independence and impartiality.
There has also been a growing trend towards reshaping existing IIAs to safeguard States’ regulatory space. According to the 2025 UNCTAD data, 80% of IIAs concluded between 2020 and 2024 carve out generally applicable regulatory measures from expropriation provisions. A growing number of IIAs also incorporate sustainable development, responsible-business-conduct and investment-facilitation provisions, which were largely absent from many older (pre-2010) agreements. This will have an impact on claimants and respondent States alike in future ISDS proceedings .
Despite criticisms, there is little sign that the system of ISDS is in decline. The International Centre for Settlement of Investment Disputes (ICSID), one of the leading global centres for ISDS proceedings, continues to record high levels of new case registrations: 63 in 2025, the second-highest number in a calendar year in its history, compared to a record high of 66 in 2021 (source: The ICSID Caseload – Statistics). ISDS continues to provide investors with a forum for having their disputes heard outside the realm of domestic courts. States, for their part, largely (though with some notable exceptions) continue to place their confidence in investor–State arbitration, by incorporating ISDS provisions in new IIAs.