How to BITe the Apple - Is there a requirement to exhaust local remedies in investment treaty arbitration?

Abstract: The principle that a mistreated foreign national has to attempt to be remedied in the host State before resorting to international measures has deep roots in international law. It is regarded as customary international law within the field of diplomatic protection, from which it has spread into other legal fields, one of them being arbitral proceedings under international investment agreements. Such agreements, most often bilateral (BITs), are concluded between States, guaranteeing investors from its counterpart a safe investment environment. They also include dispute resolution mechanisms, which virtually always give an aggrieved investor the option of international arbitration. This paper intends to explore the question on what is the default situation where such a BIT does not regulate the question of local remedies – does the established local remedies presumption from the field of diplomatic protection prevail: how many bites at the apple are needed? After investigating how the local remedies rule evolved into customary international law, the relatively modern investment arbitration scheme is introduced. Then one chapter of the text discusses how BITs, and disputes arbitrated within their framework, have handled the rule – showing a discrepancy between several arbitral awards as well as the published scholar writings on the rule’s position in investor-State disputes. The paper is concluded by a discussion, in which the posed question is answered partly in the negative. It is argued that there is no procedural requirement to attempt at local remedies before an arbitral tribunal’s jurisdiction can be established. The requirement might however be included in the merits of an arbitral claim, but it is the view of this author that this should be done with considerable caution. Outside of denial of justice-claims, and certain similar claims framed under other standards, the local remedies requirement should have a very limited role in investment arbitration and the purpose and driving force behind the system must be stressed when applying it.