The illegality of investment in international investment arbitration

This study examines the illegality of foreign investment within the scope of host state law and international law. In this context, "in accordance with host state law" clause contained in many investment treaties was analyzed as part of the breach of the host state law. There are different approaches have been adopted by arbitral tribunals and scholars toward "in accordance with host state law" clause's scope and application. About the scope of the clause, in general, there are three different approaches as the fundamental principles limitation, the object and purpose limitation and the subject-matter limitation. Regarding the application of the clause, arbitral tribunals tend to dismiss cases for lack of jurisdiction as a consequence of initial illegality. In cases where there is no "in accordance with host state law" clause in related investment treaty, the legality of the investment has been considered under international law by arbitral tribunals. In such circumstances, arbitral tribunals deal with the alleged illegality in the admissibility or merits phase of the case and dismiss investor's claims due to the contradiction to international public order or general principles of law.