Exhaustion of Local Remedies

The exhaustion of local remedies rule requires a foreign investor to seek relief through the host state's available domestic courts or administrative bodies before commencing international proceedings. It gives the host state an opportunity to correct the alleged wrong within its own legal system before the dispute is internationalised.

What the investor must do

• The investor must use remedies that are available and effective, including applicable avenues of appeal, to the extent required by the governing legal instrument.
• The investor must follow domestic procedures in good faith; merely approaching a local authority without properly pursuing the claim does not ordinarily amount to exhaustion.
• If exhaustion is mandatory, an international claim filed prematurely may be rejected as inadmissible or otherwise barred under the relevant treaty.

Limits and exceptions

The rule does not require recourse to remedies that offer no reasonable possibility of relief. Exceptions may apply where remedies are unavailable, manifestly ineffective, subject to undue delay, or futile, depending on the applicable treaty and legal rules.

• A treaty may replace full exhaustion with a specified period of domestic litigation, a waiting period, or another procedural condition.
• The investor bears the burden of showing compliance with, or an applicable exception to, a treaty's procedural requirements.

Application in investment treaties

Exhaustion is not automatically required in every investor-state arbitration. Its application depends primarily on the host state's consent expressed in the relevant bilateral investment treaty, investment contract, or arbitration instrument.

• India's Model BIT, 2015, requires an investor to pursue domestic judicial or administrative remedies before arbitration.
• Under Article 15, such remedies are generally to be pursued for at least five years, unless no available domestic remedy can reasonably provide relief.