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What is Investment Arbitration?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 03 November 2016
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    Conjecture Corporation
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Investment arbitration is the resolution of disputes between clients and brokers, or, on an international level, between institutional investors and national governments. Vast numbers of investment transactions take place globally on a daily basis, and of these transactions, a small number become subject to arbitration. Attorneys and investment specialists represent both sides as they attempt to reach an agreement about a topic of dispute, with the goal of avoiding court.

Some reasons someone might seek investment arbitration include investment losses, breach of fiduciary duty, and failure to disclose key information. Within each nation, recognized arbitration agents are available to file and pursue claims. The claimant provides information about the topic of dispute and the desired resolution, allowing the other party to respond. Negotiators work out a deal on the basis of the strength and nature of the claim. The investor may receive cash or other damages if the claim has merit.

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Going through investment arbitration may resolve an issue before the parties become involved in litigation. This can cut costs associated with resolving a problem. It may also conceal the dispute and its nature, depending on a nation's policies. In some nations, investment arbitration must be publicly reported so people know when claims are lodged against specific brokers and brokerage firms. In others, firms can conceal the fact that arbitration occurred or is ongoing, allowing them to retain their reputations. This practice has been criticized by some members of the financial community on the grounds that it allows firms with bad records to maintain a more presentable public face.

International investment arbitration involves a way of settling disputes when institutional investors are not satisfied with their treatment as foreign investors in a given country. Without recourse to arbitration, it would be difficult to file claims and get satisfaction. Agreeing to arbitration can make countries more appealing to potential investors, as investors can rest assured that in the event of a problem, they have some legal recourse for recovering losses or addressing other issues.

The process of investment arbitration can be lengthy, and while it is usually cheaper than litigation, it can get expensive. Investigations may need to be conducted into the circumstances, resulting in a bill for investigative services. Substantial documentation is passed back and forth during the process, and this can also add up as people pay for notarizations, copying, and other services related to communicating with the opposing side. Travel may also be required for international disputes.

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