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There are 49 ICSID claims lodged against Argentina and only 10 against Ukraine. Who is talking about inappropriate investment climate?

An overview of the investment disputes settlement mechanism under ICSID Convention

One of the chief impediments to foreign investment in Ukraine as well as in other developing countries has been the investor’s perception that, in the event of disputes with the host state, they would find themselves without an effective legal remedy. Investors may no longer realistically rely on their own governments to espouse their claims, at least promptly and successfully, under traditional avenues of diplomatic protection. Investors who proceeded alone against host states, feared discrimination in the local courts. Legal disputes between individuals or corporations were normally settled before domestic courts. States may settle their legal disputes before the International Court of Justice. However, in mixed disputes, especially arising from international investment relationships, no appropriate forum was seen to exist.

studentenkredit2 There are 49 ICSID claims lodged against Argentina and only 10 against Ukraine. Who is talking about inappropriate investment climate?Thus, in 1963 the International Bank convened a conference to create a system of international arbitration associated with the bank. Since its entry into force in 1966, the groundbreaking International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (entered into force for Ukraine on 7 July 2000) has offered eligible states and foreign investors the opportunity to bring their investment disputes to neutral arbitration tribunals administered by the International Centre for Settlement of Investment Disputes.

In present days the majority of international investment agreements, in particular, the bilateral investment treaties, contain provisions on investor-state dispute settlement. Although they had formed part of mentioned agreements for more than 40 years, it was only in the last decade that international investors started to invoke those mechanisms to enforce the standards of treatment and protection granted by the agreements. Merely a decade ago, ICSID had registered five (5) pending cases for an aggregate amount of US$15 million, whereas there were 154 pending cases in 2009 for an aggregate amount close to US$30 billion.

At least 70 governments – 44 of them in the developing world, 14 in developed countries and 12 in Southeast Europe and the Commonwealth of Independent States – have faced investment treaty arbitration. Argentina still tops the list with 49 claims lodged against that it (39 of these disputes relate at least in part to that country’s financial crisis). However, Ukraine with 10 claims lodged against it also figures prominently.

ICSID is an autonomous intergovernmental organism, with its own governing body, the Administrative Council, and a Secretariat. I would like to make it clear that ICSID, in and of itself, does not arbitrate or conciliate disputes. Rather, these responsibilities are carried out by conciliation commissions and arbitration tribunals, which are created on an “ad-hoc” basis by the parties for each individual proceeding. As such, the functions of ICSID are basically those of a secretariat providing support to the tasks of the arbitral tribunals and conciliation commissions.

The arbitration proceeding may be initiated by an investor or by both parties by way of submission of a request which has to be based on the ICSID Convention and the ICSID Arbitral Rules as well as the respective BIT or other investment agreements that constitute the agreement by the government to arbitration investment disputes. The Secretary-General must register the request unless he finds, on the basis of the information contained in the request that the dispute is manifestly outside the jurisdiction of the Centre. Thus, registration is not automatic, and in some instances may be delayed or even refused, such as when the investor is a dual national or if the dispute, in the view of the Secretary-General, is not a legal dispute arising out of an investment. In many instances the Secretary-General leaves the jurisdictional issues to the tribunal.

The Secretary-General also has considerable control over the choice of members of the tribunal. Normally, each party to the dispute appoints one arbitrator who may not be nationals of either of the parties, and the parties decide on a chairperson. However, if one party fails to appoint its arbitrator, or if there is no agreement on the chairperson – as is very often the case – the Secretary-General is to appoint the missing arbitrators.

The Convention and Arbitral Rules also provide detailed procedural rules for such issues as hearings, language, memorials, confidentiality, costs of the proceeding, etc. The fees for use of ICSID facilities (USD 25,000 minimum for registration), and for payment of arbitrators (USD 3,000/day) are also specified, although the latter is subject to negotiation. If the respondent government refuses to appoint its arbitrator, or otherwise participate in the proceedings, the constitution of the tribunal and the consideration of the case will nevertheless proceed expeditiously. The tribunal likely will continue to advise the respondent government at every succeeding stage of the proceedings, and invite its participation in all procedural decisions such as the selection of the chairperson and seat of the arbitration. This is in accordance with applicable arbitration rules that require notice and transparency, and to avoid later challenge to the award.

  • The Request for the institution of arbitration proceedings is submitted by the Claimant

One original and five copies of the request and its annexes should be submitted to the Secretary-General of ICSID

  • Lodging Fee is paid

The request shall be accompanied by the payment of a non-refundable fee, which is US$25,000. The fee is payable by the party filing the request or by both parties in case the request is made jointly.

  • The Secretary-General registers a request
  • The Tribunal is constituted
  • The Tribunal holds a first session

  • The Claimant files a memorial on the merits

  • The Respondent files a counter-memorial on the merits

Prior to filing the memorial on the merits respondents often challenge the jurisdiction of the Tribunal by way of filing a memorial on jurisdiction.

  • Procedural issues and matters related to the presenting of evidences and provisional measures

  • The parties file requests for production of documents
  • Each party files a response to the other party’s request for production of documents

  • The Tribunal issues a procedural order concerning the production of documents
  • The Claimant files a reply on the merits
  • The Respondent files a rejoinder on the merits

  • The parties file witness statements

  • Procedural session with the parties (may be held by the President of the Tribunal by telephone conference)

  • The Tribunal holds a hearing on the merits

  • The parties file post-hearing briefs

  • The parties file statements on costs

  • The Tribunal issues an award

(prior to that the Tribunal may decide on jurisdiction and liability).

The third major aspect of ICSID arbitration arises if one of the parties (often the host state) wishes to challenge the award, to have it annulled. Under ICSID, this can be done only internally, through the request for an Annulment Committee; there is no recourse to domestic courts in the seat of the arbitration, as it may take place under other arbitration rules.

Actually, the ICSID awards were designed to be automatically enforced. As it follows from the analysis of the Ukraine’s attitude toward the decisions of the tribunals Ukraine accepted ICSID as an effective protection for foreign investors which is not a cheap one at the same time.

(c) by International arbitration blog

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