Bilateral investment treaty
A treaty between two states that protects each one's investors on the other's territory and gives them access to international arbitration against the host state, the basis of recovery for the subrogated political risk insurer.
A bilateral investment treaty is an agreement by which two states undertake to grant investors from the other party a set of protections: fair and equitable treatment, full protection and security, free transfer of funds, and a ban on expropriation without prompt, adequate and effective compensation. Its most important clause allows the investor to bring a claim directly against the host state before an international arbitral tribunal, most often under the auspices of the International Center for Settlement of Investment Disputes, created by the 1965 Washington Convention. More than two thousand are in force. For political risk insurance, the treaty is the keystone of recovery. After indemnifying an expropriation, the insurer is subrogated to the insured's rights and can pursue the proceedings, or require the insured to do so. The existence of a treaty between the investor's country and the host country, and arbitral case law on its wording, therefore enter into pricing. The award must still be enforced against a state protected by immunity from execution, which can take more than a decade.
In July 2014, an arbitral tribunal sitting in The Hague under the Energy Charter Treaty, a multilateral instrument of the same kind, ordered Russia to pay about 50 billion dollars to the former majority shareholders of Yukos. The award was set aside in 2016 by the Hague District Court, then reinstated on appeal in 2020, and its enforcement remains disputed more than ten years later.
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