Federal States and Investment Arbitration

This chapter analyses the characteristics of investment arbitration cases where a federal state is sued for the conduct of its political subdivisions. It is a well-established rule of international law that states are responsible for wrongful acts of their political subdivisions and they may not invoke their internal law as justification for failure to comply with an international obligation. Cases in which a federal state is sued for the conduct of its political subdivisions can generate peculiar situations, such as issues of attribution, jurisdiction, and substantive provisions. This chapter explores some of these particularities under international investment law and domestic law. It examines the links between political subdivisions and the central state in matters of investment law. It also explores the issue of financial responsibility between the federal state and its political subdivision, where an arbitral tribunal orders the former to pay compensation for the unlawful conduct of the latter.