The investment thought, especially the foreign one, continued to take precautions and feared the risks associated with the investment in developing countries as a result of the legal instability in these countries (whether at the level of legislations or judicial decisions), national and sectarian conflicts, bureaucracy, rigidity of social structures, and lately the revolutionary movements that swept a number of Arab countries in recent times. Moreover, there are international factors that increased the severity of the aforementioned factors which had adverse effects on the investment projects and the movement of the international credit such as globalization, the information era and the global financial crises. Consequently, the variety and multiplicity of risks increased, significantly, as well as the consequences facing the invested capital starting with not making profits and ending in its total loss.
This takes place while the developing countries are aspiring to attract the different forms of investments because they are considered to be one of the most important drivers of development on which these countries rely after they realized that the national savings and the income resulting from the natural resources are incapable of satisfying the increasing needs essential for achieving the developmental goals of the state as well as the capability of the foreign investments to attract the foreign capitals for carrying out the development projects in a way that contributes to the employment of labor, increasing incomes and stimulating trade.
Moreover, the investment contracts play a very essential role in this regard because they set the limits of a relation of special nature bringing together on one hand the investor who aspires to achieve the maximum possible benefit through his investments while wishing to be protected by the different guarantees against all the risks of investment and on the other hand the State which wishes to benefit from the various investment capabilities of the investor and it sticks at the same time to maintaining its resources and national wealth especially that investment contracts make the State lose control over these resources within the term of the investment contract.
The importance of this study lies in that the political and economic volatility, which affected many states around the world recently (whether because of the global financial crisis or the Arab Spring revolutions) revealed that there is a lack of economic balance in many of the investment contracts. As a result, many countries realized that these contracts with their conditions and terms have become a heavy encumbrance over their resources and national wealth. Thus, they sought a mechanism to amend these contracts in a way that matches the political and economic developments especially since arbitration is the method agreed upon to resolve all the disputes emanating from these contracts.
States find their options limited, between the realization that their resources are diminishing and their reluctance to resort to arbitration to resolve the dispute, thus leading them to nationalizing the investor's project. Consequently, the arbitral tribunal is only entitled to award compensation to the investor in this case once the dispute is presented before its jurisdiction.
It is noteworthy that this solution represents an unfair settlement which adversely affects the parties especially the State hosting the investment where the two parties to the relation wish the continuity of the contract because each of them needs the other. Also, the exclusion of the investment project isn't a simple matter owing to the large volume of capitals invested in it. The imbalance of these contracts requires treatment by the arbitral tribunal vested in resolving the dispute to overcome its problems and as a result to maintain the existing relationship.
The importance of the role of arbitration lies, in particular, in having special capabilities connected with understanding the nature of the investment contract and how to recover its lost balance owing to the existence of technical elements qualified to handle these contracts in the constitution of these tribunals even it this role is subject to the drafting through which the power of the arbitral tribunal is regulated in the investment contract.
While arbitration is the settlement method that the investor can't operate without and which the State hosting the investment can't deprive the investor from, in most cases the investment contracts expressly reflect such clauses. Therefore, this study addresses the economic imbalance of the investment contract in light of the investor's wish to protect the arbitration clause in these contracts with the conditions of legislative stability and the conditions of no negotiability. On the other hand, the importance of talking about the guarantees which could be used by the state hosting the investment upon agreeing on the arbitration in order to avoid the going too for by the arbitral tribunals when hearing the investment disputes which appear in the form of the economic imbalance of the investment contract
Abdo, Alaa El Tamimy
"The Role of Arbitration in Addressing the Economic Imbalance of Investment Contracts" Part (I),"
Journal Sharia and Law: Vol. 2015:
62, Article 1.
Available at: https://scholarworks.uaeu.ac.ae/sharia_and_law/vol2015/iss62/1