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Part V The International Law of Foreign Investment, XXXV The International Centre for Settlement of Investment Disputes

From: Principles of International Economic Law (1st Edition)

Matthias Herdegen

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From: Oxford Public International Law (http://opil.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 21 May 2024

Subject(s):
Investment — International organizations, practice and procedure

(p. 416) XXXV  The International Centre for Settlement of Investment Disputes

The International Centre for Settlement of Investment Disputes (ICSID) was established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 19651 to provide a reliable and effective mechanism for the settlement of investment disputes between a contracting State to the Convention and a national of another contracting State through conciliation and arbitration (Article 1(2) of the ICSID Convention).2 The ICSID is seated at the principal office of the World Bank in Washington, DC (Article 2). Over the last decade, the ICSID has become the main forum for the settlement of disputes between foreign investors and host States. After the withdrawal of Bolivia, Ecuador, and Venezuela, 147 countries are parties to the ICSID Convention (by mid-2012). The ICSID Convention governs the conciliation and arbitration procedures as well as the enforcement of arbitral awards.

The jurisdiction of ICSID is established, if (1) the State Party to the dispute (ie the host State) and the home State of the investor are contracting States, and (2) the parties to the dispute (the host State and the investor) have consented in writing to arbitrate under the ICSID (Article 25(1) of the ICSID Convention):

The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

Arbitration, according to the ICSID Convention rules, may be based on a dispute settlement clause in an investment treaty or on an ad hoc agreement concluded between the parties after the dispute has arisen. For the State which is party to an investment dispute, the ICSID clause in an investment treaty constitutes consent in writing required by Article 25(1) of the ICSID Convention. The request of arbitration by the private investor signifies acceptance of the offer of the State Party.

(p. 417) By consenting to arbitrate under the ICSID Convention the parties establish exclusive jurisdiction of the ICSID, unless a contracting State makes its consent to arbitration dependent on the exhaustion of local remedies (Article 26 of the ICSID Convention). Article 27(1) of the ICSID Convention bars the home State of the foreign investor to exercise diplomatic protection in respect of another contracting State ‘unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute’.

Jurisdiction extends ‘to any legal dispute arising directly out of an investment dispute’ (Article 25(1) of the ICSID Convention). The ICSID Convention abstains from defining the term ‘investment’. Although the ICSID Convention must be interpreted autonomously from the definition of investment in the applicable investment treaty, an ‘investment’ in terms of Article 25(1) of the ICSID Convention is existent if the value of the capital investment is qualified as protected ‘investment’ by the applicable investment treaty.

In Abaclat v The Argentine Republic, the arbitral tribunal complied with this approach:

349.  If it is obvious that the definition of Article 1(1) BIT and the criteria developed by a number of arbitral tribunals with regard to Article 25 ICSID Convention do not coincide, this is so because they can be said to focus each on a different aspect of the investment, i.e., they each look at the investment from a different perspective. The two perspectives can be viewed to be complementary, and to merely reflect a two-folded approach of the BIT and the ICSID Convention towards investment: At first, it is about encouraging investments, i.e., creating the frame conditions to encourage foreign investors to make certain contributions, and once such contributions are made, it is about protecting the fruits and value generated by these contributions.3

If there is a financial contribution which the contracting State qualifies as protected investment under the investment treaty, an investment is also established in terms of the ICSID Convention. The tribunal in Abaclat v The Argentine Republic tended to side with an approach which

[…] consists in verifying that Claimants made contributions, which led to the creation of the value that Argentina and Italy intended to protect under the BIT. Thus the only requirement regarding the contribution is that it be apt to create the value that is protected under the BIT.4

The ICSID Convention defers to the application of the rules of law chosen by the parties. In the absence of such agreement, ‘the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable’ (Article 42(1)).

The ICSID Convention and the ICSID Arbitration Rules do not address the issue of a mass action or other collective proceedings. As the arbitral tribunal held in (p. 418) Abaclat v The Argentine Republic, this silence of the ICSID Convention cannot be interpreted as categorically prohibiting mass actions.5

Under the ICSID Convention each party may request interpretation of the award (Article 50), revision of the award in the light of the discovery of a material fact (Article 51), and annulment of the award (Article 52). Under Article 52 of the ICSID Convention, grounds for annulment are limited to the incorrect formation of the arbitral tribunal (lit a), the manifest excess of powers of the arbitral tribunal (lit b), corruption on the part of a member of the arbitral tribunal (lit c), a serious deviation from a fundamental rule of procedure (lit d), and failure to state the reasons on which the award is based (lit e). Requests for annulment are decided by an ad hoc Committee with three members (Article 52(3) of the ICSID Convention). The annulment mechanism is very different from an appeal and is conceived to remedy very exceptionally serious deficiencies of the award or the underlying procedure. Still, in the past, some annulment decisions have interpreted the ‘manifest excess of powers’ in a rather generous way, thus stirring considerable concerns about the stability of awards and the efficiency of the entire ICSID dispute settlement.6 Recent practice suggests a more restrictive approach.7

In Sempra Energy International v Argentine Republic, the ad hoc Committee assumed a ‘manifest excess of powers’ in the case of an award which ignored the distinction between the strict conditions for necessity under customary law and a broadly framed treaty exception for the preservation of the public order and national security.8

According to Article 53 of the ICSID Convention

[t]he award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.

Each state party to the Convention ‘shall recognize an award […] as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgement of a court in that State’ (Article 54(1) of the ICSID Convention).

This obligation does not derogate from the applicable rules on immunity from execution in order to avoid access to its capital (Article 55 of the ICSID Convention). However, the respect for immunity from execution does not preclude (p. 419) national courts from recognizing an award and declaring it enforceable, as these acts do not constitute an enforcement measure.9

In investment disputes, in which only one State is involved, ie the home State of the foreign investor or the host State is a party to the ICSID Convention, the dispute can be settled by the Additional Facility of the ICSID which was created by the Administrative Council of the ICSID in 1978.10 For investment disputes under NAFTA, the Additional Facility became relevant, as only the United States has ratified the ICSID Convention, whilst Canada (only signatory) and Mexico are not parties to it. Under Article 1120(1) of NAFTA, parties to an investment dispute may submit a claim to arbitration under the ICSID Convention, the Additional Facility under the ICSID, or under the UNCITRAL Arbitration Rules.

Select Bibliography

  • MI Egonu, ‘Investor-State Arbitration under ICSID: A Case for Presumption against Confidentiality’ (2007) 24 J Int’l Arb AR 479 ff.
  • OE García-Bolívar, ‘Protected Investments and Protected Investors: The Outer Limits of the ICSID’s Reach’ (2010) 2 Trade L & Dev 145 ff.
  • A Parra, ‘The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes’ (2007) 8 Stud Int’l Fin Econ & Tech L 226 ff.
  • L Reed, J Paulsson, and N Blackaby, Guide to ICSID Arbitration (Kluwer Law International 2004).
  • C Schreuer, L Malintoppi, A Rheinisch, and A Sinclair, The ICSID Convention: A Commentary (2nd edn, CUP 2009).

Footnotes:

1  (1965) 4 ILM 524.

2  For a more detailed analysis, see L Reed, J Paulsson, and N Blackaby, Guide to ICSID Arbitration (2004); C Schreuer, L Malintoppi, A Rheinisch, and A Sinclair, The ICSID Convention—A Commentary (2nd edn, CUP 2009).

3  Abaclat and Others v The Argentine Republic ICSID Case No ARB/07/5 (Award 2011) para 349.

4  Abaclat and Others v The Argentine Republic ICSID Case No ARB/07/5 (Award 2011) para 365.

5  Abaclat and Others v The Argentine Republic ICSID Case No ARB/07/5 (Award 2011) paras 515 ff.

6  See A Broches, ‘Observations on the Finality of ICSID Awards’ (1991) 6 ICSID Rev 321ff; MB Feldman, ‘The Annulment Proceedings and the Finality of ICSID Arbitral Awards’ (1987) 2 ICSID Rev 85 ff.

7  CMS Gas Transmission Co v Argentine Republic ICSID Case No ARB/01/8 (Annulment Proceeding) (2007) 46 ILM 1136 paras 136, 158.

8  Sempra Energy International v Argentine Republic ICSID Case No ARB/02/6 (Annulment Proceeding), paras 205 ff.

9  See French Court of Cassation SOABI v Senegal (1991) 30 ILM 1136; Cour d’Appell de Paris SARL Benvenuti et Bonfant v Gouvernement de la République du Congo (1981) 108 J Droit Int’l 843.

10  Doc ICSID/11, Additional Facility for the Adminstration of Conciliation, Arbitration and Fact Finding (1979); generally on the Additional Facility, see A Broches, ‘The “Additional Facility” of the International Centre For Settlement of Investment (CIRDI)’ (1979) 4 YBCA 373 ff.