Lucy Reed - Guide to ICSID arbitration.

Guide to ICSID Arbitration

Guide to ICSID Arbitration

Lucy Reed
Jan Paulsson
Nigel Blackaby

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2011 Kluwer Law International
ISBN 978-90-411-3752-4

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Acknowledgements

We acknowledged in the first edition of this Guide that it is a far greater challenge to write a short book than a long one, with the challenge being magnified when the goal is to explain a complex field to newcomers rather than to analyze nuances for fellow experienced practitioners. Here we acknowledge that the major challenge in drafting the second edition was to cover the scores of new ICSID awards and decisions in investment treaty arbitrations without overwhelming our intended readers.

We could not have met this new challenge without the help of many of our valued colleagues in the Freshfields Bruckhaus Deringer international arbitration group. Greatest thanks go to our senior associate Jeffery Commission, who oversaw the painstaking task of collecting, reviewing and culling new ICSID jurisprudence, and who also prepared the extremely helpful tables of cases in Annex 10. We also thank our New York associates Katie Duglin, Katie Palms, Lindsay Gastrell, Patrick Childress and Jonathan Davis.

Foreword

by Meg Kinnear, ICSID Secretary-General

The last two decades have seen unprecedented growth in cross-border investment flows, the number of concluded investment treaties regulating those flows, and the number of international investment arbitrations. ICSID has been privileged to host the majority of these arbitrations and to play a leadership role in this field.

What may be less evident is the extent to which international investment arbitration has become an increasingly specialized and procedurally innovative endeavour. One need only consider recent cases and commentary on subjects as varied as arbitrator conflict of interest, the scope of provisional measures, the role of non-disputing third parties, or the standard of review for awards, to demonstrate the complexity of this field.

At the same time, the number and diversity of stakeholders involved in international investment arbitration has expanded. For example, 25% of the new cases at ICSID in fiscal year 2010 were initiated by investors from developing economies, more than in any prior year. An analogous trend emerged with respect to the identity of respondents, where the 27 newly registered ICSID cases named 24 different States from every region of the world.

Given this environment, the second edition of this guide is an especially welcome complement to the several excellent sources of information about the ICSID Convention and ICSID arbitration practice that are currently available. It provides a thorough yet succinct roadmap for parties and counsel navigating an ICSID arbitration, whether as novice or experienced litigants. The authors have shared their considerable expertise and knowledge of this field in a user-friendly, accessible and practical manner. In so doing, they have enhanced the ability of all stakeholders to put their best case forward in future arbitrations.

Meg Kinnear

Washington, D.C.

October 2010

Preface to the second edition

An impediment to foreign investment in many developing countries has been the investors perception that, in the event of disputes with the host State, they would find themselves without an effective legal remedy. Investors cannot realistically rely on their own governments to raise their claims promptly and vigorously under traditional avenues of diplomatic protection. If investors proceed alone in the local courts against the host State, they often fear discrimination.

To help resolve this quandary, the World Bank conceived a unique forum for arbitrating investment disputes. Since its entry into force in 1966, the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention or the Convention) has offered Contracting States and eligible foreign investors the opportunity to bring their investment disputes to neutral arbitration tribunals constituted on an ad hoc basis. The tribunals are administered by the World Bank Groups International Centre for Settlement of Investment Disputes (ICSID or the Centre) in Washington, DC. They function independently of local courts and local procedural law. Most important, ICSID awards unlike any other international arbitration awards are immune from any form of national court review, and yet are enforceable in the courts of the more than 144 Contracting States as if they were national court judgments.

Nonetheless, because arbitration arising directly under the ICSID Convention is limited to cases in which foreign investors and States have explicitly provided for ICSID arbitration in an investment contract to which the relevant State (or a specifically designated subdivision of the State) is required to be a party, ICSID arbitration was little used for the first 20 years of its existence. There were isolated cases that did provide valuable guidance for investors and States and attracted scholarly interest, but ICSID arbitration remained rather esoteric.

The situation changed dramatically beginning in the mid-1990s as a consequence of the proliferation of bilateral treaties for the promotion and protection of investment, known as bilateral investment treaties (BITs) (as well as multilateral treaties, most notably the North American Free Trade Agreement and the Energy Charter Treaty), providing for ICSID arbitration of foreign investment disputes. Broadly speaking, each State party to a BIT pledges to provide investors from the other State with certain minimum substantive protections, including the right to fair and equitable treatment and the right to be compensated fairly for expropriation, and agrees that such investors may commence ICSID arbitration (or another agreed form of international arbitration) directly against it to obtain redress for violations of the substantive protections of the BIT. Between 1990 and 2008, the number of BITs increased from about 385 to 2,676. By 2002, almost 75 percent of the cases registered with ICSID were investment treaty arbitrations.

This dramatic legal development, which we predicted in 1995, involves the emergence of non-contractual arbitration or arbitration without privity (see ) out of investment treaties. Today, any company considering a new investment in a foreign country and any financing entity playing a role in the investment must be aware of ICSID and of the growing matrix of BITs providing access to ICSID. At the project negotiation and documentation stage, as well as at possible junctures for restructuring, counsel for investors, financiers and government entities must be attuned to possible rights and responsibilities under the ICSID Convention and under available treaties. In sum, advisers to all sides must be at least familiar with the ICSID arbitration regime long before actual disputes develop.