Securing investment protection for foreign direct investment

Foreign direct investment (FDI) continues to play an increasingly important role in the global economy. For transnational corporations, or indeed any business seeking to establish operations in an overseas jurisdiction, a crucial factor to consider will be the legal stability of that jurisdiction. Prudent investors will want to ensure that their investment is secure and protected from unwanted interference in the host country. Political and economic circumstances can give rise to state measures which can result, either directly or indirectly, in an investment being impaired and in the most serious circumstances, nationalisation of certain industries or sectors could even see an investor’s assets expropriated (see, for example, Practice Note: Expropriation—investment treaty arbitration).

In such circumstances, investors may have certain rights and remedies available to them under the various contractual arrangements pursuant to which they made their investment. Typically, however, these contacts may stipulate that claims can only be brought before the national courts of the host state, or may limit the remedies available. Therefore, recognising the potential limitations of contractual rights, prudent investors may also seek to structure their investments in such a way as to gain an additional layer of protection under international law. This Practice Note examines the importance of bilateral and multilateral investment treaties (BITs and MITs, respectively) in providing investors with an additional layer of