Yesterday’s International Arbitration Forum session featured Dr Darya Shirokova, Counsel at FBFK Law and Founder of the Houston Place of Arbitration, alongside moderator Velimir Zivkovic, Miljana Bigovic, Matej Pustay, and Michail Risvas. The discussion examined whether investor–state contracts can serve as an alternative to bilateral investment treaties (BITs) for investment protection.

Opening the discussion, Shirokova drew on extensive doctoral research analysing more than 500 contracts between states and energy companies. Against a backdrop of growing scepticism towards investment treaties, treaty terminations, evolving EU dispute resolution approaches, and recent treaty drafting trends excluding contractual disputes from treaty protection, she examined the argument that contracts may be replacing treaties as the primary vehicle for investment protection.

Shirokova focused on four key arguments commonly advanced in support of this proposition.

Bargaining Power and State Sovereignty

The first argument is that states remain economically motivated to incorporate treaty-like protections into contracts. While acknowledging that investors may sometimes possess significant commercial leverage, particularly in major energy projects, Shirokova argued that this overlooks the fundamental legal reality that states retain sovereign powers unavailable to private parties.

She noted that technological developments, improved access to information, and greater state sophistication have reduced informational asymmetries that historically favoured multinational corporations. She also highlighted the continued importance of resource nationalism and domestic political considerations, citing Ecuador as an example of strong public resistance to international arbitration. The continued use of Calvo clauses in parts of Latin America further demonstrates that many states remain reluctant to grant foreign investors protections beyond those available to domestic actors.

Can Contracts Replicate Treaty Protection?

The second argument examined whether contracts can provide the same substantive and procedural protections as investment treaties.

While contracts may include arbitration clauses and references to international law, Shirokova argued that these mechanisms often create only an appearance of treaty-like protection. Her research found that arbitral tribunals consistently distinguish contracts from treaties and interpret them through contractual rather than public international law frameworks.

Drawing on cases such as RSM Production v Grenada, she demonstrated that tribunals frequently reject attempts to treat contracts as treaty equivalents, reinforcing the distinction between private contractual obligations and treaty-based commitments.

Attribution Challenges

A further obstacle arises where contracts are concluded not directly by states but by state-owned entities.

Shirokova explained that state ownership alone is generally insufficient to attribute contractual conduct to the state. Investors must demonstrate that the entity acted as a state organ, exercised delegated sovereign authority, or acted under state direction. Several arbitral decisions have declined to attribute contractual obligations to host states despite close state involvement, creating significant practical challenges for investors seeking redress.

The discussion also highlighted the importance of attribution at the enforcement stage, where investors may face substantial difficulties recovering awards if liability rests solely with a state-owned enterprise rather than the state itself.

Incorporating Treaty Standards into Contracts

The final argument considered attempts to incorporate treaty standards, such as fair and equitable treatment or protection against expropriation, directly into contractual provisions.

According to Shirokova, this strategy encounters similar difficulties. Even where contracts contain international law clauses or are subject to ICSID arbitration, tribunals have generally remained reluctant to interpret contractual obligations through the lens of treaty jurisprudence.

Cases including Duke Energy v Peru and ConocoPhillips v PDVSA illustrate tribunals’ preference for applying domestic law and conventional contractual interpretation rather than importing treaty standards into private agreements.

Reflections on the Relationship Between Contracts and Treaties

Responding to questions from Zivkovic, Shirokova emphasised that contracts and treaties serve complementary rather than interchangeable functions. While sophisticated investors in sectors such as energy may negotiate contractual protections, many smaller investors depend heavily on treaty frameworks and lack the leverage or expertise to secure equivalent safeguards through individual agreements.

Pustay agreed that contracts cannot replace BITs, particularly where investments occur without any contractual relationship with the host state. Instead, contracts should be viewed as an additional layer of protection that can complement treaty protections where available.

Risvas explored parallels with sovereign debt instruments and raised questions regarding state entities and non-signatory participation. Shirokova responded by outlining the concept of the “internationalised contract” and explaining the importance of attribution, arbitration clauses, and denationalised governing law in strengthening investor protection.

Conclusion

The session concluded that, despite growing reliance on contract-based arbitration, contracts have not displaced investment treaties. While carefully drafted state contracts may provide valuable protections, arbitral practice continues to treat contracts and treaties as fundamentally distinct legal instruments. For the foreseeable future, treaties remain an essential pillar of the international investment protection framework.