International Tribunal Spotlight
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International Center for Settlement of Investment Disputes (ICSID)
By: Taylor G. Stout, Reporter, International Judicial Monitor
Origins and Purpose
The International Centre for Settlement of Investment Disputes (ICSID) is an international institution that provides facilities and resources for the arbitration and conciliation of investment disputes between nations and foreign private investors. The purpose of the ICSID is to promote international investment and economic development. The ICSID does not itself arbitrate disputes. The headquarters of the ICSID are located in Washington, D.C.
The ICSID was established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The Convention is a multilateral treaty initiated by the Executive Directors of the World Bank. It took effect on October 14, 1966. The Convention sought to promote international investment by private entities by minimizing noncommercial investment risks.
Typically, in a dispute handled by the ICSID, the plaintiff is a foreign private investor and the defendant is a nation, often a developing nation. Historically, many ICSID cases concerned the performance of investment contracts by the nation-state. Increasingly, however, the disputes adjudicated in ICSID proceedings concern claims over events such as civil strife, expropriation, and actions of a nation’s political subdivisions.
Activities
Parties to an international investment dispute under the jurisdiction of the ICSID are not obligated to resolve their dispute through the ICSID. But once the parties have consented to have their dispute resolved through the ICSID, neither party may unilaterally withdraw. Arbitral judgments pronounced under the ICSID Convention are binding on the parties and may not be set aside by the courts of any member nation. Moreover, the Convention requires all member states to recognize and enforce ICSID arbitral awards.
An international investment dispute must satisfy several requirements to be eligible for arbitration or conciliation under the ICSID Convention. First, the dispute must be between an ICSID member nation and an individual or company that qualifies as a citizen of another ICSID member nation. Second, the dispute must be a legal dispute arising directly out of an investment. Finally, the parties to the dispute must have consented in writing to the submission of the dispute to ICSID arbitration or conciliation.
In addition to its core jurisdiction under the Convention, the ISCID possesses authority to administer certain proceedings between states and foreign nationals that fall outside the scope of the Convention. In 1978, the Additional Facility Rules enlarged the jurisdiction of the ISCID beyond that initially prescribed by the Convention. This additional jurisdiction includes arbitration and conciliation of disputes arising directly out of an investment in which either the state party or the home state of the foreign citizen is not a member nation of the ICSID Convention. It further includes arbitration and conciliation of disputes that do not arise directly out of an investment between parties where at least one party is not a member nation or a citizen of a member nation. The Additional Facility Rules also permit the ICSID to administer fact-finding proceedings at the request of states and individuals.
Finally, in addition to administering arbitration and conciliation proceedings under the Convention and the Additional Facility Rules, the ICSID occasionally engages in miscellaneous dispute settlement activities. These activities include the Secretary-General of the ICSID appointing arbitrators in ad hoc arbitration proceedings. The ICSID also provides administrative services for proceedings conducted under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.
The majority of ICSID proceedings take place at the ICSID headquarters in Washington, D.C. But parties may agree to hold their proceeding at any other venue. Alternate venues have included: the Permanent Court of Arbitration at The Hague; the Regional Arbitration Centres of the Asian-African Legal Consultative Committee in Cairo, in Kuala Lumpur, and in Lagos; the Australian Commercial Disputes Centre in Sydney; the Australian Centre for International Commercial Arbitration in Melbourne; the Singapore International Arbitration Centre; the Gulf Cooperation Council Commercial Arbitration Centre in Bahrain; the German Institution of Arbitration; and the Maxwell Chambers in Singapore.
Organizational Structure
The ICSID consists of an Administrative Council and a Secretariat. The Administrative Council is the governing body of the ICSID. Its functions include the election of the Secretary-General and the Deputy Secretary-General of the ICSID, the adoption of regulations for ICSID proceedings, the approval of the ICSID budget, and the approval of the annual report on the operation of the ICSID. The Administrative Council is composed of one representative from each member nation. The representatives possess equal voting power. The President of the World Bank is ex officio Chairman of the ICSID Administrative Council but does not possess a vote. The Administrative Council convenes annually in conjunction with the joint World Bank/International Monetary Fund annual meetings.
The Secretariat consists of the Secretary-General, the Deputy Secretary-General, and staff. The primary function of the Secretariat is to provide institutional support for ICSID proceedings. It maintains the ICSID Panels of Conciliators and Arbitrators, a pool of conciliators and arbitrators from which parties to ICSID proceedings may choose. The World Bank finances the Secretariat’s administrative costs. Disputing parties bear the costs of ICSID proceedings.
Influence
The influence of the ICSID on international investment is considerable. The ICSID has been ratified by over 140 nations, and more than 60 cases have been submitted to the ICSID, involving more than 30 governments. Investment contracts between governments of member nations and investors from other member nations commonly include provisions providing for arbitration under the auspices of the ICSID. Terms providing for arbitration and conciliation provided by the ICSID may also be found in many bilateral investment treaties. And ICSID arbitration is one of the primary means through which parties settle disputes under multilateral trade and investment treaties, such as the North American Free Trade Agreement (NAFTA).
The ICSID is the leading international arbitration institution devoted to dispute settlement between states and foreign private investors and, as such, it plays a critical role in international investment and economic development.
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