Critical Analysis of functioning of International Centre for Settlement of Investment Disputes (ICSID)

The Author, Sneharghya Saha is a student of 3rd year, B.A. LLB(H) at Amity University, Kolkata. He is currently interning with LatestLaws.com.

Definition

The International Centre for the Settlement of Investment Disputes (ICSID) is the treaty-setting intergovernmental body. It is designed to foster dispute settlement between States and private foreign investors. Its aim is to contribute to economic development. ICSID is not an international court or tribunal but rather has an administrative mechanism promoting conciliation and arbitration. The final resolution of disputes happens primarily by arbitral tribunals which are formed for the settlement of each dispute on an ad hoc basis.[1]

The International Center for the Settlement of Investment Disputes (ICSID) was established as an institution explicitly structured to promote the settlement of investment disputes between governments and foreign investors under the Convention on the Settlement of Investment Disputes between States and Citizens of Other States which entered into force on 14 October 1966.[2]

Historical Backdrop and Foundation

ICSID was established by means of the ICSID Convention, 1965 on the Settlement of Investment Disputes between States and Nationals of Other Countries. It was drafted in the framework of International Bank for Restoration and Development (IBRD) between 1961 and 1965. On 18 March 1965 the text of the Conference was adopted by the Executive Directors of the IBRD.[3] The entry into force of the ICSID Convention on 14 October 1966, after ratification by twenty countries, establishing the ICSID as an independent international body whose object is to provide mediation and arbitration facilities for investment disputes in compliance with the provisions of the ICSID Convention.

Under the Convention, the President of the Bank shall be ex officio the Director of the legislative body of ICSID, the Administrative Council, which shall consist of members of the Board of Executives of the Bank serving ex officio as members of the Administrative Council unless a Contracting State makes a contrary classification.

In fact, the relation between ICSID and the Bank are much approaching than a reading of the ICSID Convention would indicate. The vice-president and general counsellor has been regularly elected ICSID's Secretary-General and the Bank covers the overall ICSID Secretariat expenses.[4]

As stated in its Preamble, the object of the ICSID Convention is to promote economic growth through the promotion of private foreign investment. ICSID is to be put within the context of the World Bank's larger, more aggressive, and hitherto highly productive attempt to establish an international investor-friendly legal climate. This long-lasting initiative has produced many praiseworthy outcomes, such as the creation of the Multilateral Investment Guarantee Agency, which offers extremely useful insurance against investment risk in developed countries, that of the International Finance Organization, which helps fund investment ventures in the same countries by the private sector and, more broadly, the adoption of policies and operational guidance and recommendations which, also in the World Bank's more conventional lending operations, have successfully targeted the implementation of international minimum requirements for foreign investment security and free-market economic and social reforms.

To sum up ICSID's position, goals, and overall structure, no words can be better than Delhaume's, possibly the leading expert on this subject and he said, "ICSID is an organization closely associated with the World Bank....Like the World Bank, the paramount objective of ICSID is to promote a climate of mutual confidence between states and investors favourable to increasing the flow of resources to developing countries under reasonable conditions. ICSID, therefore, cannot be viewed solely as a dispute settlement machinery. It must be regarded instead as an instrument of international policy for the promotion of economic development[ICSID] constitutes a self-contained machinery operating in total independence from domestic legal systems.

In the context of ICSID, the sole role of domestic courts is one of judicial assistance intended to facilitate the recognition of ICSID awards and to increase their effectiveness[ICSID arbitration] is intended to maintain a careful balance between the interests of investors and those of Contracting States.

The Washington Convention gives investors direct access to an international forum and enables investors to provide in an investment agreement that disputes will be decided under rules of international law. In exchange, the Washington Convention protects Contracting States from other forms of foreign international litigation the investor cannot bring suit in a non-ICSID forum whether in the investor's state or elsewhere."[5]

Responsibilities of ICSID

Recognizing that private foreign investment is a significant developmental factor has driven many countries to seek to create conditions that draw foreign investors. An important part of a favourable regulatory system for international investors is the provision of appropriate dispute resolution frameworks. ICSID provides for the conciliation and arbitration of disputes between Member States and investors qualified as nationals of other Member States. Recourse to conciliation and arbitration under ICSID is completely optional.

However, neither can arbitrarily revoke the permission once the parties have consented to arbitrate under the ICSID Convention. In fact, all ICSID Contracting States, whether or not parties to the conflict, are required to recognize and execute ICSID arbitral awards under the Convention.[6]

Arbitration offers an enticing solution to the conventional securities dispute resolution approaches. It prevents the inconveniences of domestic court lawsuits and diplomatic security. This gives the parties the ability to choose arbitrators who value their confidence and who have the requisite field experience. Investment arbitration need not take place in the framework of ICSID.

The parties to investment disputes may agree on ad hoc arbitration. Yet ICSID arbitration also has some benefits of offering uniform provisions and procedural rules, providing administrative assistance for the operation of proceedings, guaranteeing the non-frustration of trials and promoting the acceptance and compliance of the award.[7]

In addition to providing conciliation and arbitration services under the ICSID Convention, since 1978 the Center has had a series of Additional Facility Regulations allowing the ICSID Secretariat to conduct other forms of prosecutions between States and foreign nationals that fall outside the scope of the Convention. There is also an alternative provision for conciliation and arbitration in situations where the dispute is not a business dispute, because it applies to a deal that has "properties that differentiate it from an ordinary commercial transaction."

A third operation of ICSID in the field of conflict resolution consists of the ICSID Secretary-General agreeing to serve as the ad hoc (i.e., non-institutional) arbitration assigning authority of the arbitrators. That is most generally achieved in the form of arbitration agreements under the United Nations Commission on International Trade Law's (UNCITRAL) Arbitration Laws, which are expressly tailored for ad hoc hearings.[8]

ICSID arbitration offers both investor and host State benefits. The investor's advantage is obvious in the way it gains direct access to an effective international forum if a dispute arises. The benefit for the host state is double because it strengthens its business environment by proposing arbitration, which is expected to draw more foreign investment.

In addition, the host state defends itself from diplomatic immunity by consenting to ICSID arbitration (Art. 27), and protects itself from certain types of regional or domestic lawsuits (Art. 26). ICSID had a slow start. It had very few cases during its early years. ICSID has become very successful over the years, and nowadays have to handle a large caseload. The risk of basing authority on the consent provisions of treaties is a significant contributing factor. In formulating the ICSID Convention, the Bank's Executive Directors developed a framework that combines creditors' and host countries' needs with respect. The arrangements made for the Administrative Council of ICSID represent the balance of interests. There is one delegate of each Contracting State on the Council, and the ICSID Convention guarantees fair representation for all Contracting States, since every delegate casts one vote. The ICSID Convention provides exclusive access to an international forum for private investors.

In addition, the terms of the ICSID law, which will be discussed in more detail below, guarantee creditors that the State Party’s unwillingness or abstraction to join in the proceedings after consenting to ICSID arbitration cannot circumvent the ICSID arbitral process. Against investor benefits, the ICSID Convention specifies that a Contracting State may allow prior exhaustion of local remedies, as a condition of its consent to ICSID arbitration. This condition may be set out in the investment agreement, in a bilateral agreement between the host country and the investor's country, or in a declaration made by a Contracting State at the time the ICSID Convention was signed or ratified, although only one Contracting State, Israel, made such a declaration.

Furthermore, Article 42(1) of the ICSID Convention expressly provides that, except where the parties have expressly decided otherwise, the arbitral tribunal shall settle a disagreement according to the law of the host State, along with certain laws of international law which can apply.

Finally, at the time the ICSID Convention was concluded it was understood that, “When a host State consents to the submission of a dispute with an investor to the Centre, thereby giving the investor direct access to an international jurisdiction, the investor should not be in a position to ask his State to espouse his case and that State should not be permitted to do so." This finds expression in Article 27 of the ICSID Convention. The clause specifically precludes the State of the claimant from exercising diplomatic immunity or making a foreign claim, unless the host State refuses to comply with the award provided in the conflict. The suspension of the right of diplomatic protection by the ICSID Convention is one way in which the ICSID system helps to depoliticize investment disputes. The depoliticization of such disputes, which is intended to foster an atmosphere of mutual trust between States and foreign investors favoring increased resource flows to developing countries, is a fundamental objective of the of the ICSID structure. The main features of this structure consist of its volunteer nature, flexibility and efficiency.[9]

Issue of Sanction

There are several innovative elements in the structure of ICSID institutional dispute settlement mechanism. Beginning from the main consent issue, an organized review of certain elements requires. The point of starting in that respect is Article 25(1). The Centre’s jurisdiction shall extend to any legal dispute arising directly from a transaction between a Contracting State (or any constituent unit or entity of a Contracting State appointed by that State for the Center) and a national of another Contracting State, which the parties to the dispute agree to apply to the Center in writing. No party may unilaterally withdraw its consent after the Parties have given their consent. Consent must be in written form, a reasonable requirement that seeks to avoid any potential risk of uncertainty because of the parties' stop-and-go and unilateral behaviour. The nature of this condition can be clarified by the consequences of agreement; however, the parties cannot revoke it automatically after giving their agreement, and they owe the proceedings the green light to go forward.

Written approval may take the conventional form of an express arbitration provision for ICSID found in the investment agreement between the host state and foreign investors. Another form of written consent may be if the host state consents to ICSID arbitration in its foreign investment law or in a bilateral investment treaty; in this case it is for the foreign investor to accept what is deemed to be the host state's unilateral offer of ICSID arbitration, and such acceptance must be in writing.

This alternative is popular but also poses some interpretative problems, because it may not be obvious whether and when mutual consent has been granted, particularly where the law of the host state is unclear or vague as to the protocol to be followed by the foreign investor for accepting an ICSID arbitration bid from that jurisdiction. Thus, it is necessary for the foreign investor to decide what this process is, and more specifically, whether the supposed agreement inherent in the laws or treaties of the host state amounts to a one-sided offer of ICSID arbitration or is merely the confirmation of ICSID as one of many possible alternatives for dispute resolution. In any case, it is of fundamental importance to emphasize here as well as in any other jurisdictional question that ICSID tribunals have accorded competence de la competence. In short, it is always up to the ICSID tribunal to determine whether or not it has jurisdiction, as a matter of the claim's admissibility.

Obviously, that determination includes the consent issue. ICSID case law shows a tendency to interpret the notion of consent quite liberally, and this certainly helps the foreign investor in all those cases where the host state seeks to use the ambiguity of its consent to refrain from any recourse to ICSID arbitration. On the one hand, the underlying principle is that permission must always be given freely and voluntarily. To be sure, the approval of the host state does not necessarily emerge from its ratification of the Convention, which instead reflects a pure readiness to return to ICSID as a possible mechanism for dispute resolution.

Whatever form it takes, its consent for the particular dispute submitted to ICSID arbitration must be given, this determination being regarded as an expression of the sovereignty of the state. In the other hand, the need to uphold the rights of host states cannot go as far as enforcing a stringent definition of their consent; in one instance, the ICSID tribunal correctly dismissed that view in Amco Asia et al v. The Republic of Indonesia[10] and held that, "[The agreement to arbitrate] is not to be construed too restrictively, nor as a matter of fact, broadly or liberally. It is to be construed in a way which leads to find out and to respect the common will of the parties: such a method of interpretation is but the application of the fundamental principle of pacta sunt servanda, a principle common, indeed, to all systems of internal law and to international law."[11]

Voluntary Aspect of ICSID

ICSID’s facilities are voluntarily available. States eligible for membership of ICSI (Bank members and States invited to join the ICSID Convention under Article 67) are naturally entitled to refuse to do so. Their decision has no implications for their relationship with the Bank itself. Even the act of adoption of the ICSID Convention is merely an expression of the ability, in practice, of a contracting state to make use of the ICSID machinery. Ratification is not an obligation to utilize that machinery. That obligation can only arise after specific agreement has been reached by the Contracting State concerned to submit arbitration to ICSID. In addition, under Article 25(4), any Contracting State can, either at the time of ratification or at any time afterward, inform ICSID of the class or classes of disputes which it would or would not find arbitrable under the auspices of ICSID. The transaction is suitable for ICSID arbitration as could be assumed by limiting the jurisdiction of the Center to legal investment disputes.

The ICSID Convention does not define the term "investment," and this intentional lack of definition has permitted ICSID tribunals to accept all conventional forms of investment in the form of capital contributions as well as modern types of investment including service contracts and technology transfer.

Disagreements presented to the Center varied from conflicts over natural resource extraction to disputes resulting from management arrangements and technological and licensing agreements. Interestingly, the Centre has not issued lawsuits surrounding financial transfers. Parties are, of course, often free to agree not to refer their investment disputes to ICSID, and while provision is often made for ICSID arbitration in transnational loans to foreign governments, it is no secret that borrowers still tend to allow judicial adjudication of loan disputes before the domestic courts of New York or London.[12]

Funds of ICSID

ICSID pays some compliance costs to the participants, in line with the laws and regulations. World Bank holds the bulk of ICSID’s spending. The expenses of particular conciliation hearings and arbitration shall be paid by the parties to those hearings. Arbitrator payments are decided by the Secretary General. The Secretary-General collects advance fees from the parties and makes appropriate contributions to perform the proceedings. In a single case, this program is administered by the tribunal’s secretary on behalf of the secretary general.  The costs of a formal case include three elements which are the payment for the use of ICSID services and expenditures, the compensation and expenditures of the arbitrators and the costs borne by the plaintiffs in connection with the case. Of all three groups, the third, which consists primarily of legal representation fees, is usually the highest by far. The ICSID Convention leaves it to the discretion of the tribunal for whom certain expenses are to be charged, unless otherwise decided by the parties (Art. 61(2)). In certain cases, the tribunals decided that both the Centre's and the arbitrators' fees and liabilities needed to be paid equally and that each party needed to pay its own costs. Most recently, tribunals have shown that they are gradually inclined to adopt the idea that expenses accompany the case.[13]

Jurisdiction of ICSID and its related activities

Under Article 25, for an ICSID tribunal to have authority there are two additional requirements that must be met. They are commonly called ratione personae jurisdiction and ratione materiae jurisdiction. As for the former, this means the parties are properly identified. Article 25(1) lays out the fundamental condition that the conflict is between a Contracting State and another Contracting State's territorial. The necessity, however, poses a range of delicate interpretative problems.

With regard to the concept of a Contracting State, the Convention declares a State to be a Contracting State only when it announces its signature of the Convention at least thirty days before the date of signature, such clarification may take effect until the disagreement is lodged by depositing either the agreement, the consent or the instrument of accession with the World Bank.

Secondly, scholars and ICSID case load take the view that, while the State does not need to be a Contracting State when it gives its consent to ICSID jurisdiction, it must have that status by the time the formal request is finally sent to the Centre's Secretary-General, otherwise the ICSID tribunal would not have absolute personal jurisdiction over that State, even if it gave its consent.

Finally, Article 25(1) provides that the notion of a Contracting State can, but must not automatically contain a constituent subdivision or State body who could be party to the case before the ICSID tribunal if it is involved. The notion of constituent entity may include federal governments, counties, and other forms of local government; that of organization may include state-owned or managed enterprises. Nonetheless, any precise definition is left to the Contracting State's discretion, as it is for it to appoint its subdivisions and/or entities with legal standing before an ICSID tribunal to the Centre.

Then Article 25(3) provides for in order to ensure that the Contracting State will maintain power over the use of ICSID arbitration by its subdivisions / agencies that the Contracting State to which they belong, accept their consent to such arbitration; as an alternative, the Contracting State may, under the same clause, inform the Center that its consent is dispensed with. Turning to the identity of the foreign investor, that is to say, the national of another Contracting State, it must be noted that the Convention includes some clauses which have incorporated radical innovations in the context of international law as regards the nationality of legal persons.

However, before arriving there, it must be noted that the notion of national referred to in Article 25(2)(a) includes both natural and legal persons. Although the concept of natural persons is clearly clear, it is important to note that the Convention has placed on them a certain law of consistency of nationality, in the sense that, in order to be a party to an ICSID tribunal, a natural person must have the nationality of a Contracting State both when the parties agree to the jurisdiction of ICSID and when the application is registered Moreover, at any moment this ethnicity cannot be that of the Party of the Contracting State which is party to the conflict.

However, the Convention has been very progressive with respect to legitimate persons. The conditions in question are set out in Article 25(2)(b) that [The national of another Contracting State is] any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another contracting state for the purposes of this Convention.

This section addresses two distinct but equivalent situations. The first is quite straightforward because it refers to the case where the legal person is a Contracting State national other than that party to the dispute. It should be noted, however, that the law of continuity of nationality applicable to natural persons does not extend here; however, the first paragraph applies to that nationality as necessary and sufficient only on the date on which the parties agree to the jurisdiction of ICSID; thus, it is not necessary to maintain that nationality until such time as the actual conflict is brought before ICSID arbitration, instead, the second condition is one which, although highly necessary and regular, was specifically dealt with by the ICSID Convention for the first time. This is the condition discussed above to illustrate how complicated and unsatisfactory it is under standard international law to determine the nationality of companies for diplomatic security purposes. Indeed, the situation under review is one where the foreign investment takes the legal form of an entity organized under host state rules.

By the rules of customary humanitarian law set down by the International Court of Justice in the Barcelona case, regardless of the nationality of a business depending on the place of incorporation, the firm could not receive diplomatic immunity from the host state nor require foreign investors to appeal to ICSID arbitration, because the local firm will be considered a citizen of the host state / contracting state. It was seen above how deeply unsatisfactory this result is, as it utterly disregards the fact that sometimes, either as a condition of entry levied by the host state or because of a certain economic justification, international companies, and multinationals in particular, have to set up a wholly owned or managed subsidiary or joint venture in the host state.

In all these situations, following the view expressed by the ICJ in the Barcelona case would eventually require the foreign investor to rely exclusively on the laws and solutions provided by the host state to impose its rights; this scenario has traditionally proven dangerous and unwelcome for the foreign investor, frequently granted insufficient legal protection by the host state. It was also seen that, in the ELSI case, the ICJ somehow differed from the Barcelona decision, but it did so in a vague way that does not permit ELSI to assert that it overruled the rules of customary international law enunciated in Barcelona.

Article 25(2)(b) of the Convention has the benefit of presenting a very simple answer to this pending issue. Indeed, the Parties that decide to recognize the locally incorporated body as a national of another Contracting State for the purposes of implementing the Convention. It is important to note that this arrangement is specifically focused on the dimension of foreign control; this ensures that an instrument of international law finally looks at the content behind the structure and agrees that the real economic interests and freedoms to be secured are those of whoever owns the locally incorporated company. Nevertheless, the solution given by the Convention often clearly exposes its shortcomings, which only partly make the solution satisfactory. Indeed, the very fact that an arrangement between the host state and the foreign investor is required for the locally incorporated organization to obtain immunity under the Convention's framework gives the host state a substantial degree of influence over the prospect of the foreign investor resorting to ICSID arbitration. Moreover, as this solution is structured as an exception to the customary international rules on corporate nationality, this Agreement should be an express one.

Ultimately, and even more critically, the strongest critique drawn by the Convention’s approach is that the Convention acknowledges the concept of customary international law that the nationality of the legal body is defined by its place of incorporation, and that the resolution of the parties pursuant to Article 25(2)(b) allows only for an exception to this concept. In other words the law is verified by the exception.

While it is important that the Convention tries to escape the problems resulting from the rigid implementation of the position of incorporation principle, the opinion reached earlier in this paper is that this theory cannot be adopted.

To this point, it is claimed that the way in which the Convention discusses the issue of the nationality of legal persons is unsatisfactory. To be sure, it cannot go unnoticed that first the Convention is from 1965, and therefore could not represent the changes of the global economy that have arisen more recently, and second it offers a much more suitable and effective solution than that offered by customary international law, which, as shown by the Barcelona and ELSI cases, includes too many loopholes.

It must also be remembered, however, that the time might have come to amend Article 25(2)(b) of the Convention in order I to make the international investor's right to ICSID arbitration independent of the arrangement now required; (ii) to eradicate the conventional conception of a parent-subsidiary partnership based on its distinct legal identity and nationality by virtue of its separate place of incorporation; and (iii) to accept the principles of power and collective unit as the grounds for which a foreign investor may have locus standi before the ICSID tribunal.

The risk of a possible adverse effect of the wide discretion of the host state has been somewhat attenuated by the liberal doctrine developed by the case law of ICSID regarding the existence of the agreement. There have been situations in which the presence of an arrangement pursuant to Article 25(2)(b) was inferred by the conditions, but not specifically entered into by the parties. One of these cases is where the host state has consistently and constantly regarded the locally incorporated company as owned or operated by a foreign investor and as the legal form of the foreign investment; in this situation, the ICSID tribunal has ruled that there is no need for an express agreement on the local entity of the nationalities.[14] ICSID tribunals have gone even further, as in the situation where it was held that, where a host state enters into an investment arrangement with a foreign-owned or controlled company in the same host state and that arrangement includes an ICSID jurisdiction provision, an obligation may be inferred to regard that company as a national of another Contracting State, until proof exists.[15]

More broadly, the theory tends to be that an arrangement should be assumed because the facts of the situation can not indicate any other inference.[16] The implementation of this theory has so far been not only moderate but also very wise. For example, in a case where the locally incorporated entity was established after the conclusion of the investment agreement containing the ICSID arbitration clause, an implied agreement was not found but does not make any reference to that entity. It's been rightly noted though,[17] perhaps the most apparent shortcoming is a certain disparity in the sense that, under the ICSID law, the courts seem too willing and eager to presume the ability of international investors to return to ICSID arbitration, although more consideration should be given to how the host state wants to negotiate solely with the local body.

This dimension is especially relevant in cases concerning local associates of international multinationals; here the international parent may enjoy an implicit right to ICSID arbitration in order to defend his economic interests in the host state, while it was seen that the host state would face several difficulties of a jurisdictional nature to extend the regulatory control to foreign parents, e.g. in collective liability cases. Thus, if an express agreement has not been reached on the right of the international parent to ICSID arbitration, meaning it may create an imbalance in the relationship between the foreign corporation and the host state, which strengthens the former and weakens the latter.

 In the case of the Holiday Inn, this claim was recognized by the ICSID tribunal, and the lack of an express agreement on the care of locally incorporated entities as nationals of another Contracting State was viewed as excluding any potential right to ICSID arbitration for their international parent in the circumstances of the case.

The problem is to be resolved on a case-by - case basis, though, and ICSID tribunals have been more concerned with the need to provide appropriate safeguards for foreign investment when it takes the form of a locally incorporated company. In the case of Amco Asia, the tribunal specifically limited the reach of the Holiday Inn decision and affirmed its ability to impose on the international parent an implicit right to ICSID arbitration. Because of the ICSID tribunals' position regarding this jurisdictional issue, if the host Contracting State wishes to exclude the foreign parent, it should do so expressly to avoid any risk of negative interpretation.[18]

The ICSID Convention does not allow local remedies to be tested until a State applies its agreement to that requirement (Art. 26). But certain BITs include the claimant to try a settlement in the domestic courts of the host state for a specified period of time, most commonly 18 months, before taking a case to ICSID. The respondents have argued in a number of cases that an offer of agreement to arbitration should be viewed restrictively. The claim has been dismissed by most tribunals. The vast majority of tribunals have supported a balanced approach that does not embrace a rigid or broad approach to consent clauses interpretation.

Under the Convention the parties' agreement to arbitration is binding. If the sides have issued it, it cannot be automatically revoked. A group cannot arbitrarily assess if it has given its consent to the authority of ICSID: it is for the tribunal to decide if authority remains. After consent has been granted to ICSID arbitration, a party may no longer have access to any other redress (Art. 26). If the parties have decided otherwise, territorial courts would no longer be open for cases sent to arbitration under ICSID.

The ICSID Convention does not allow local remedies to be tested until a State applies its agreement to that requirement (Art. 26). But certain BITs include the claimant to try a settlement in the domestic courts of the host state for a specified period of time, most commonly 18 months, before taking a case to ICSID. The respondents have argued in a number of cases that an offer of agreement to arbitration should be viewed restrictively. The claim has been dismissed by most tribunals. The vast majority of tribunals have supported a balanced approach that does not embrace a rigid or broad approach to consent clauses interpretation.

Under the Convention the parties' agreement to arbitration is binding. If the sides have issued it, it cannot be automatically revoked. A group cannot arbitrarily assess if it has given its consent to the authority of ICSID: it is for the tribunal to decide if authority remains. After consent has been granted to ICSID arbitration, a party may no longer have access to any other redress (Art. 26). If the parties have decided otherwise, territorial courts would no longer be open for cases sent to arbitration under ICSID.

Resilience of the ICSID System

The rules of practice applicable to ICSID are versatile in the way that the parties can derogate from them so as to meet their unique needs. For example, most of the clauses surrounding the number of arbitrators and the procedure for nominating them are permissive, and only apply in the absence of agreement between the parties. Although they have the necessary flexibility, the ICSID rules are sufficiently specific to ensure a party cannot frustrate the proceedings. Therefore, if one of the parties fails to participate in the selection of arbitrators, the tribunal can also be named by the Bank's President as Chairman of ICSID's Administrative Council. And if a party who has consented to ICSID arbitration refuses to take part in the hearings, the ICSID Protocol guarantees that the trial will continue and lead to an award. In fact, in spite of the high degree of state involvement in the trials and the regular resolution of such trials by amicable settlement, there has been no scope for such clauses to be included.[19]

The Delocalized nature of ICSID

The overall delocalized character of ICSID probably provides the biggest contribution to making the Centre a special and highly useful multinational administrative conflict resolution system. Delocalization appears in many aspects of the ICSID mechanism. Delocalization is achieved primarily through the exclusive nature of ICSID jurisdiction in relation to any other national or international remedy, as provided for in Articles 26 and 27(1) respectively. In addition, recourse to national remedies is prohibited by Article 26, which states that "consent of the parties to arbitration under this Convention shall be considered to be consent to arbitration to the exclusion of every other remedy, unless otherwise specified." Instead, Article 27(1) specifically prohibits the provision of diplomatic immunity and any other legal recourse to the national Contracting Condition of the foreign claimant in respect of a dispute taken to arbitration by ICSID.[20]

It is important to note that, as provided for in the last part of Article 27(1), at a later stage these international remedies may become available to the national state of the foreign investor. In other terms, after the ICSID hearings have been finished, if the award is in favour of the international claimant and against the respondent Contracting State, while this award must be accepted and upheld by the national courts of every Contracting State as to the pecuniary obligations it imposes, the respondent Contracting State may always fail to meet its obligations. If this is the case, then the home Contracting State of the foreign investor could resort to diplomacy defence and other international law remedies against the Contracting State respondent that has not complied. It is only at this stage that what was an ICSID dispute, not involving the foreign investor's national state, can be brought up to the level of a more traditional dispute between the host of the foreign investor and the home states.

In addition, pursuant to Article 54 of the Convention, each Contracting State has acknowledged the mandatory authority of the ICJ as regards disagreements concerning the definition or operation of the Convention with other Contracting States. Therefore, this authority can be defined as covering situations where the legal standing of the suing Contracting State is secured by the inability of another Contracting State to satisfy the obligations resulting from an ICSID award against it. Delocalization, however, has certain limitations.

First, it is clear that the host state may maintain power over its disputes with the foreign investors by either not consenting to ICSID jurisdiction at all or having a limited consent, as it is the case when it consents to ICSID arbitration only in respect of one class or other groups of disputes under article 25(4). As mentioned above, another significant power over ICSID authority will be exerted as the host state does or may not decide to recognize the locally incorporated body as the national of another Contracting State under Article 25(2)(b). Another serious limit to delocalisation is the recognition, pursuant to Article 26, of the power of the host Contracting State to "require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention." Consequently, the rule of exhaustion of local remedies may well be maintained.

However, this provision is not automatically a significant delocalization drawback, since it does not prohibit international investors from resorting to ICSID authority in the event of an unsatisfactory result of the local administrative or judicial remedy. An significant thing similar to all of the delocalization limits seen so far is that such limitations which work at a preliminary level, i.e. at the point of consent to the authority of ICSID, in the sense that they which either qualify/restrict or exclude the consent. Articles 25(1) and 26, however, appear to make it clear that after this consent is granted, the authority of ICSID is exclusive in the sense that the parties cannot revoke their consent or resort to any other national or foreign remedy.

Nevertheless, two aspects of the proceedings may limit the delocalisation. First, while Article 26 excludes recourse to national remedies, there may still be room for interference by national courts in the pending ICSID proceedings owing to the initiative of either the parties or the national courts. Any actual interference in either case will ultimately depend on whether or not the national court accepts the primacy of the ICSID proceedings. It was noted that "in this regard, the response from the national courts has been inconsistent."[21]

There are two instances that define this contrasting mindset. There was an American arbitral award in MINE v. Republic of Guinea[22] on the same dispute as the one pending before an ICSID tribunal. The winning party was seeking its enforcement before US, Belgium, and Switzerland national courts. The US courts declined to impose exclusive authority on grounds other than ICSID, although both the Swiss and Belgian courts denied the appeal by acknowledging the primacy of ICSID authority. In SOGUIPECHE v. Atlantic Triton[23], a case before the French courts involving ICSID proceedings, the Court of Cassation, by overruling the Court of Appeal’s judgment, held that ICSID exclusive jurisdiction applied only to the merits of the dispute, whereas the parties were entitled to seek the application of provisional attachment measures before the national courts.

An extension of ICSID's exclusive jurisdiction to these measures was to be agreed expressly or implicitly by the parties to the dispute for the French courts to uphold it. The Court could base these conclusions on the lack of any indication to the contrary in the ICSID Convention or the Rules of Arbitration, While it was apparent that recognizing the jurisdiction of national courts to take provisional measures would adversely affect the effectiveness and linearity of the related ICSID proceedings. This specific dilemma is now resolved, as Rule 39 of the 1984 Amended ICSID Arbitration Rules specifically gives the parties the freedom to request temporary remedies before national courts "if they have so stipulated their approval in the Agreement."

However, the more general question of the partnership between ICSID authority and national courts essentially depends on the agreement. Secondly, the delocalisation of ICSID cases can be negatively impacted by the laws of the dispute's merits regulating law. The restrictions on content are set out in Article 42(1) of the Convention says that, “The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed 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 of the Conflict of Laws) and such rules of international law as may be applicable.” 

Therefore, the general rule is that of the sovereignty of groups. However, in the event that the parties do not choose the governing law, the Convention stipulates that the national law of the Contracting State Party to the dispute applies; because that includes its rules on conflict of laws, in the end the national law applicable may be that of a State other than that party to the dispute, if it is determined by the conflict of law rules of that State.

Thus, either because the agreement on ICSID jurisdiction often provides that the national law of the host Contracting State applies, in a logic of giving and taking, as part of the negotiation process where the host State is likely to impose this choice on foreign investor, and if the parties refuse to decide on the substantive statute, which is the result of which the host state might well wish to receive understanding that the Convention will instead enforce the national rule, it is probable that the legislation regulating the grounds of the case would be impeded from being moved. This will significantly dilute ICSID’s overall delocalized nature, rendering it much less appealing to international investors. Ultimately, if the host state can retain control over such an important aspect of the dispute, it is obvious that the foreign investor can no longer see any reason to prefer ICSID to the local remedies. In fact, it's not really clear if this situation will be in the host state's favour. Indeed, it has been sharply observed that the ICSID tribunal is likely not to possess an appropriate degree of competence in the law of the host state, especially as compared to that of the host state's national courts. In this case, there may be a high risk of misapplying the law, which would be counterproductive both for the interests of the parties and for the ICSID’s reliability and attractiveness. Confronted with this scenario, instead, the parties could reasonably opt for local remedies.

In LETCO v. Liberia[24], however, the ICSID tribunal held the view, never to date accepted in other cases, that even though the parties had selected the law controlling their conflict (which in the present case was that of the host state), the tribunal should also subject it to international law regulation. Consequently, compliance with international law appears to be an absolute value which the ICSID tribunal is willing to test in any event whether or not the parties have chosen the law governing the merits of their dispute.

To order to support this method, there have been cases, e.g. the two cases of Amco Asia[25], to which the parties have not expressly selected the guiding statute, and that Article 42(1) allows for the national law of the host Contracting State referred, and the tribunals of ICSID ruled that that rule was applicable to international law.

 Second, the Amco Asia cases also addressed the question of how and to what extent international law controls the national law governing the dispute, which was the law of the host Contracting State in those two cases. In the first instance, the argument was that international law only played a "supplementary and correction" role; it could only fill "the lacunae in applicable domestic law" and ensure "precedence over international law norms where applicable law laws are in conflict with these requirements."

However, when the Amco Asia case was resubmitted to ICSID arbitration this subordinate position of international law was dismissed as being too restrictive. So the ICSID tribunal held, "Article 42(1) refers to the application of host state law and international law. If there are no relevant host states laws on a particular matter, a search must be made for the relevant international laws. And, where there are applicable host state laws, they must be checked against international law, which will prevail in case of conflict. Thus international law is fully applicable and to classify its role as "only" "supplemental and corrective" seems a distinction without a difference."

Last but not least, that approach is more generally consistent with ICSID’s structure and rationale. In other terms, the ICSID award is recognized and enforced in all Contracting States under the Convention, and diplomatic protection by the national Contracting State of the foreign investor is quite limited. The claim that the award must conform to international law in order for it to conform with certain clauses of the Convention, because only an award that complies with international law rules and standards is entitled to full acknowledgment and compliance and limits the use of diplomatic immunity. In addition, it can be argued that the centrality and primacy of international law significantly limits the power of the host state over the (merits of) conflict, and allows ICSID to regain its basic delocalized form, which is the ratio of an international tribunal itself. "An international tribunal cannot consider a plea from the respondent state, as Muchlinski puts it, that clauses from its own legislation or defects in that legislation are a response to a lawsuit against it for alleged violation of international law."[26]

The note of Conclusion on ICSID

ICSID's self-contained and delocalized character clearly arose from the above debate. This character makes ICSID a remarkable example of international law, as well as a landmark in the progress of international law in complete consideration of the person as a matter of international law, both substantive and procedural. To be sure, ICSID is not completely excluded from any contact with national legal processes, due to the likelihood of more or less substantial intervention by national courts, to a degree of power over the conflict held by the parties, and to the applicability of national law as the ruling rule on the merits of the dispute. Nevertheless, the capacity to offer a system that removes much, if not all, the shortcomings of the other, conventional and obsolete international conflict resolution systems , in particular those of diplomatic security, identity determination and exclusive access to local remedies, is hard to ignore.

Overall, ICSID has been able to find an reasonable and successful balance between the sometimes competing interests of host states and foreign investors, as well as those of capital exports and capital importing countries; this, in turn, leads to the achievement of the purpose for which ICSID was originally created, that is, to promote through a neutral and denationalized forum, the movement of international investment as a medium of economic development for the settlement of international economic disputes.

Maybe as a further example of the decreasing relevance and appropriateness of the conventional distinction between public and private international law, ICSID is an international conflict resolution platform but not in the sense of contributing to the domain of public international law, as is the case with mechanisms such as the ICJ instead. Indeed, quite paradoxically, while it is the product of a Convention, that is to say an international treaty binding on states, and is thus an organ of public international law, it attempts to transfer and has effectively eliminated the entire problem of international economic conflicts between states and private parties from the old and inappropriate State-to-State dispute settlement framework.

In other words, it has succeeded in depoliticizing disputes that affect mainly private commercial interests but also private parties' public policy goals. No other changes in international law in this century have so fundamentally altered the conventional form and formulation. The current under-use of ICSID is dedicated to one last comment.

On the one side, as a matter of fact, the caseload has so far been quite small, and this can be seen as a indication of the system's non-attractiveness and incompetence due to some procedural shortcomings (e.g. the problems discussed above, in which the host Contracting State maintains considerable power and the misuse of the annulment procedure) and the animosity on the part of certain Consumers to these processes On the other hand, it is clear that this same item can prove the exact opposite, i.e. ICSID has been so effective in binding contracting states and foreign investors to a certain discipline that it has served as an exceptional prophylactic tool that prevents conflicts from arising in the first place, or better, fostering peaceful resolution without confrontational, adversarial settlement It is not possible to make either-or-choice between these two contradictory assumptions, although it seems fair to argue that the reality lies in the centre, since such a somewhat small caseload poses several questions regarding the system 's efficacy.

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