Open Access Research Article
SHOULD INDIA BECAME PARTY ON ICSID: IMPACT OF DEVELOPMENT OF INTERNATIONAL COMMERCIAL ARBITRATION IN INDIA BY: APARNA DWIVEDI
Published Paper
Article Details
AUTHORED
BY: APARNA DWIVEDI
COURSE:
LL.M (INTERNATIONAL BUSINESS LAW)
AT:
SCHOOL OF LAW
UNIVERSITY
OF PETROLEUM AND ENERGY STUDIES, DEHRADUN
ABSTRACT
India was asked to refrain from becoming a party to ICSID given to its
lack of exposure to investment disputes. It was argued that ICSID is favorable
to investors of developed countries and
countries like India lacked power to review foreign investment awards under
their domestic laws in case they breach India’s public policy. India has come a
long way since the 90s, today nearly every foreign country shows a strong
interest in investing in India. Yet it is believed that India is unlikely to be
a part of the International Centre for Settlement of Investment Disputes. This
article gives a second look at the disinterest of India in joining ICSID. ICSID
Convention is a very successful convention and it provides for an
"institutional and legal structure for impartial conciliation committees
and arbitral tribunals that are established in all instances to decide the
matter at hand." Governments and the business community largely recognize
and respect the ICSID Convention. All G-7 countries have ratified the ICSID
Convention, with Canada joining for the first time in 2013. Along with other
developing countries, El Salvador, Chile, Egypt, and others ratified the ICSID
Convention. In order to provide a structured analysis of the issue at hand, the
article examines the development of the ICSID Convention and India's stated
position during several negotiating periods of the ICSID Agreement between 1961
and 1965.
Introduction
One of the most contentious issues in contemporary international
investment law is investor-state dispute resolution (ISDS). Foreign investors
may file claims before a panel of international arbitrators pertaining to
issues of domestic administrative law, the execution of regulatory tasks, and
even grounds of contractual disagreements with State enterprises. Recently, a
number of nations have rejected or given the arbitration between investors and
states a negative review. The intellectual or intellectual world has barely
spared it either.
ISDS, though, won't go away at any moment soon. ISDS is inapplicable to
nations that have cancelled bilateral investment treaties (BITs) as long as the
expired agreements contain preservation clauses. Furthermore, additional
investment treaties are signed as a result of BIT talks or as essential parts
of all-encompassing investment and commerce accords. In other words, a complete
withdrawal from ISDS is improbable or at best improbable.
Which type of investment dispute resolution mechanism could be better
suitable for developing nations like India because have been experiencing a
rising flood of arbitral proceedings against these countries over the past
several years becomes a moot issue supposing that ISDS will continue to be
significant. The ISDS is condemned for being expensive, biassed in favour of
investors, and lacking an appeals process.[1]
if somebody decides to believe the extreme statements about the drawbacks
and risks of ISDS, it would still be imperative to have an equitable and
impartial resolution of disputes as long as investor claims are being put out
for review. The matter about if India should change its mind about ratifying
the ICSID Convention is raised by the fact that ICSID is one of the top hubs
for worldwide investment disputes.[2]
The ICSID Convention is widely accepted and respected by governments and
the corporate sector. The ICSID Convention has been ratified by all G-7 nations,
with Canada becoming a member for the first time in 2013. El Salvador, Chile,
Egypt, and other developing nations additionally ratified the ICSID Convention.
The essay follows the history of the ICSID Convention and India's declared
stance across multiple negotiation phases of the ICSID Agreement during 1961
and 1965 so as to give a planned examination of this query.
Overview of the ICSID Convention and its Criticism
The International Bank for Reconstruction and Development (IBRD or the
World Bank) oversaw the creation of the Convention on ICSID which was made
public for signing and approval on March 18, 1965. ICSID became operational on
October 14, 1966. 153 nations had signed and ratified the Convention as of
October 2017. The ICSID Convention provides
a "institutional and legal structure for impartial conciliation committees
and arbitral tribunals that are established in all instances to decide the
matter at hand."
The ICSID Centre for Dispute Resolution was created by the ICSID Convention
to carry out this helpful duty. The ICSID Further Facility was established on
September 27, 1978, in lieu of the ICSID Convention, to provide arbitration,
conciliation, and fact-finding services for some disputes that do not fall
under the purview of the ICSID Convention and in which neither the State party
to the dispute nor their state of residence of the citizen of another nation
engaged is one of the Contracting States of the Convention.
The ICSID Additional Facility is controlled by other rules, not the ICSID
Convention, and awards made under the ICSID Additional Facility are not
governed by the subject to broad guidelines like the norm of immediate
execution of ICSID awards. Initial reactions to the establishment of ICSID were
not very positive. The first action that was taken before the ICSID was an
arbitration against Morocco in 1972 over challenges to the regular operation of
hotels constructed by certain American investors.[3]
However, it wasn't until the 1980s and 1990s that ICSID began to draw
cases. In accordance with the ICSID Convention including the Additional
Facility Rules, 597 applications had been recorded as of December 31, 2016, by
the ICSID. As the ICSID's backlog has grown over the past few years,
additionally evolved the criticism that the organisation isn't serving the
objectives of poor nations. The majority
of cases filed by the ICSID involve nations in Latin America. The majority of
the cases involving ICSID concerned claims resulting from legislative actions
impacting public interests, such as water and wastewater services.
The nations of South and Central America have taken unprecedented and
dramatic measures as a result of these changes, including reviewing the
conventional paradigm for agreements regarding investment. The argument put out
by developing nations is that agreements result in an unfair allocation of
rights and duties between both industrialised and developing countries. These
accords raise the possibility of prosecution and enormous financial losses,
which might quickly cancel out whatever apparent advantages in terms of
increased investment flows.[4]
It goes without saying that the costs of lawsuits and damages granted in
investor-State conflicts can be prohibitive for the majority of nations that
develop. Recently, a number of developing nations have left the ICSID
Convention. Bolivia withdrew from the ICSID Convention on May 2, 2007, by
delivering a notice of condemnation. On the other side, Ecuador initially used
Article 25(4) of the ICSID Convention to limit ICSID's purview over disputes
involving transactions in energy resources, especially oil, gas, minerals,
along with additional types.
Ecuador then added a notice of denunciation with effect from January 7,
2010, on July 6, 2009. On January 24,
2012, the Bolivarian Republic of Venezuela also announced that it will be
resigning from the Agreement on ICSID after the departure of Bolivia and
Ecuador from ICSID. In light of
Argentina's experience, Nicaragua's Attorney General stated on April 14, 2008
that Nicaragua intended to oppose the ICSID Convention and further stated that
Nicaragua was not going to sign agreements regarding investment where ICSID has
been designated.
What is wrong with ICSID?
Is ICSID being unfairly held responsible for some Member States' policy
instability and incompetence? This issue is still up for debate. Some
developing nations' main worry is that the ICSID was "established by, and
arguably in the interest of, wealthy countries and their investors
abroad." When openly denouncing the
ICSID in 2009, Senator Raphael Correa of Ecuador said that it was important for
"the emancipation of the nations we represent because this [ICSID]
signifies colonialism, servitude with respect to multinational companies and...
the World Bank and we is unable to tolerate this [sic]". The pro-investor
bias of ICSID, the inconsistency of the ICSID Convention with the Venezuelan
Constitution, and the restrictions placed on the nation's sovereign rights, as
to the Venezuelan government, were the main causes of its withdrawal from the
Convention on International Criminal Court [5]
Some of the broad criticisms against ICSID’s structure and operations are
the following:
a) ICSID’s relationship with the World Bank;
b) A lack of transparency of the ICSID’s proceedings;
c) Arbitrator bias in favour of investors
d) Cost of litigation;
e) The absence of an appeal process, but only a limited annulment
procedure
ICSID’s relationship with the World Bank
It is suggested that the ICSID's complex connection with the World Bank
endangers its ability to perform its duties. Understanding ICSID's
organisational structure is essential to understanding the criticism of the
organization's link to the World Bank. There is an Administrative Council and a
Secretariat for ICSID. A Secretary-General, one or more Deputy Generals, and
other professional and administrative employees make up the Secretariat. The
Administrative Council chooses the Secretary-General and Deputy
Secretary-General.
Arbitrators can be chosen by the ICSID Secretary-General to settle
investment disputes. The Administrative Council, which oversees ICSID, is
chaired by the World Bank Governor by virtue of office. The World Bank and its
Fund hold their annual meetings concurrently with the ICSID Administrative
Council's annual conference. The World Bank also provides funding for the ICSID
Secretariat. Despite the fact that ICSID
is associated with the World Bank, there is no systematic pattern or occurrence
that would support a finding that ICSID's independence or judicial character
are in jeopardy. [6]
Contrary to other investment arbitration institutions, ICSID's
Contracting States have more readily available and less expensive access to
technical and financial resources. Despite the obvious connections between
ICSID and the World Bank, it should be underlined that this critique seems more
polemical than it is supported by facts. To prove beyond a reasonable doubt
that ICSID's relationship with the World Bank compromises its judicial
independence, more evidence is necessary.
Inadequate transparency
The ICSID is frequently accused of lacking openness in its processes. In
light of current events, this critique has to be re-examined. The ICSID
Arbitration rules did not have clauses to guarantee openness in the procedures
before to 2006. Parties are permitted to attend or watch all or a portion of
the proceedings in accordance with the new rules announced on April 10, 2006.
The ICSID arbitral courts have some latitude under Rule 37 of the ICSID
Arbitration Rules to accept arguments from other parties. Additionally, the
ICSID will only publicize the delivered award with the parties' permission. In
any circumstances, it must disclose the legal analysis of the award in extract
form.[7]
The same regulations apply to conciliation processes. It should be
highlighted that parties have the freedom to control the procedures due to the
public-private structure of ICSID awards. In stark contrast, hearings in
UNCITRAL procedures are held behind closed doors unless the parties agree to a
different arrangement. An award will
only be made public with the agreement of all parties, or "where and to
the extent disclosure is required of a party by legal duty, to protect or
pursue a legal right, or in relation to legal proceedings before a court or
other competent authority," as stated in Article 34(5) of the UNCITRAL
Arbitration Rules. However, UNCITRAL
does not accept proposals from outside parties.
To adequately clarify the transparency question, it is important to
discuss recent developments in UNCITRAL and other investor-state dispute
systems. The UNCITRAL Transparency Rules, sometimes known as the "UNCITRAL
Transparency Rules," were published in 2013. The UNCITRAL Transparency
Rules provide that tribunals may receive arguments from third parties, hearings
must be open to the public, and all significant documents in the procedures
must be made public
Cost of Litigation
The expense associated with international investment arbitration is a
prominent complaint. The ICSID processes are reportedly quite expensive and
complicated. The United Nations Conference on Trade and Development (UNCTAD)
asserts that the price of investor-State arbitrations has
"skyrocketed" recently. An ISDS case's litigation expenses have often
exceeded USD $8 million, although they have occasionally gone above USD $30
million. The consequences of this are especially severe for emerging nations.
According to detractors, poor nations lack the financial capacity to
cover the legal bills and other associated costs of defending themselves
against well-established investors. These expenditures also cover the fees paid
to legal firms, experts, and witnesses needed throughout the procedures, in
addition to the fees and expenses paid to ICSID and the three arbitrators while
the dispute was pending. Studies on international investor-State arbitration
show that UNCITRAL arbitration is more expensive with an average than ICSID
arbitrations. [8]
According to ICSID, it seeks to adopt a price system that is both
affordable and effective, with Secretariat fees as low as $42000 year (paid
exclusively by contracting States) and an arbitration fee ceiling of $3000 per
day. Additionally, the ICSID arbitration hearings typically last between 3 and
3.6 years. Parties in UNCITRAL have the option of appealing the tribunal's
costs to the person who appointed the tribunal. The tribunal must abide by any
adjustments made to fees and costs made by the appointing body. Additionally,
it is anticipated that the attorneys and law firms engaged in the case would
get a substantial portion of the legal fees expended by the parties in
investment arbitrations.
Annulment Mechanism
The ICSID renders binding decisions that are not appealable and are only
subject to the remedies listed in the ICSID. Revision and annulment are the
options offered as remedies. A party may also ask ICSID whether it failed to
respond to any questions it received. A party may also ask for the award to be
interpreted. A three-arbitrator ad hoc body is formed in response to the
annulment request. Any annulment must be solely based on one or more of the
five reasons listed in Article 52 (1) of the ICSID Convention. An ad hoc
committee may only annul a tribunal's verdict in whole or in part or leave the
award untouched.
An ad hoc committee, unlike an appellate body, cannot examine an award
for errors of fact; although misapplying the applicable law is not susceptible
to annulment procedures, utterly failing to apply the applicable law is. It is
not permitted to alter an award, substitute its own judgement for it, or send
it back to the tribunal for reconsideration. The ICSID Convention's travaux
préparatoires (negotiation history) reveal that its drafters took a conscious
decision not to broaden the grounds for annulment to include "violation or
unwarranted interpretation of principles of substantive law." An ad hoc
committee "can destroy a res judicata but cannot create a new one,"
claims Christopher Schreuer.
Arbitrator Bias
The majority of arbitrators in investment arbitration, including that of
the ICSID, are criticised for having backgrounds in investments, which they say
leads to biases that benefit investors. 47% of the Arbitrators, Conciliators,
and Ad hoc Committee Members appointed in ICSID cases come from Western Europe,
according to the 2017 ICSID Caseload Statistics. Arbitrators have the
reputation of being biased "private judges" in favour of investors. The
president of Bolivia asserted that Latin American developing nations
"never win the cases. The multinationals always prevail.[9]
However, there is a sizable body of contradictory research analysing
allegations of investor prejudice in investment treaty arbitration. It is
crucial to note that allegations of investor prejudice in ICSID procedures made
by a small number of developing nations do not reveal a general bias in
judgements or proceedings against developing nations. It is accurate to say
that the arbitral losses suffered by a small number of developing countries in
the investor-State dispute before the ICSID do not result in a net loss for the
whole group of developing countries.
Therefore, it is impossible to fully rely on any assertion regarding the
existence of arbitrator prejudice. The essay will next explore whether the
ICSID Convention can satisfy India's concerns surrounding investment treaty
arbitration and dissuade it from signing and ratifying the ICSID Convention
once it has addressed the broad criticism levelled against ICSID.
India and Investor-State Arbitration
The following section of the paper will begin with a brief introduction
of India's experience with investment arbitration in order to serve this aim.
The explanation of India's position on investor-State arbitration and its
suggestions made during the creation of the ICSID Convention comes next. The
study will then examine whether the ICSID can accept India's investor-State
arbitration strategy.
Since entering into its first bilateral investment treaty (BIT) with the
United Kingdom (UK) in 1994, India has taken a variety of steps to encourage
foreign investment. From 1994 to 2000, India entered into BITs with nearly all
major European nations, including France, Germany, Italy, Netherlands, Belgium,
Denmark, Poland, Switzerland, and Sweden. From 2000 onward, India entered into
BITs with many developing nations.[10]
Conclusion
It is not surprising that investment arbitration has increased somewhat
in frequency in the context of international dispute resolution as a result of
the opening up of global markets and the development of fresh procedures to
promote the flow of investment. Several nations' reneging on their promise to
investment treaties has made it more problematic at the same time. This article
has claimed that while the ICSID Convention has certain drawbacks in terms of
transparency, litigation expense, and arbitral bias, it also offers some
compensating advantages. There is a ton of research that shows how well ICSID stacks
up versus other rival forums like UNCITRAL, especially when it comes to things
like arbitral bias and litigation expenses. There is a converging opinion
across numerous forums to provide better openness in this area.
The concern is whether India's interests may be harmed by joining ICSID
in particular. The judicial thinking inside the ICSID on a number of conceptual
and definitional concerns has been taken into consideration in India's 2015
Model BIT. It is reasonable to say that India's new 2015 Model BIT is made to
prevent the difficulties that may result from any liberal application of the
ICSID doctrines and jurisprudential ideas. For instance, India's approach to
these concerns in its 2015 Model BIT is consistent with some provisions of the
ICSID Convention pertaining to the exhaustion of local remedies, the concept of
"investment," and the "applicable law."
The execution of arbitral judgements made under international investment
treaties, however, would be a tricky problem. India would like to maintain some
latitude in challenging the enforcement of such judgements to the extent that
such principles clash with local arbitration legislation in India. India's
domestic courts continue to have a lot of authority when deciding whether or
not foreign arbitral judgements may be enforced there.
The impact of this element on India's decision to join the ICSID is
debatable, but it would be important for India to consider whether domestic
courts will really interfere with the decisions of international investment
tribunals. Given India's greater goal of becoming a centre for investment, it
is essential for India to choose and put into practice a consistent strategy for
investment arbitration and maybe take a second look at ICSID.
REFERENCE
T. BEGIC, APPLICABLE LAW IN INTERNATIONAL INVESTMENT DISPUTES 5 (2005).
121
Y. Banifatemi, The law applicable in investment treaty arbitration, in
ARBITRATION UNDER INTERNATIONAL INVESTMENT AGREEMENTS: A GUIDE TO THE KEY
ISSUES 196 (K. Yannaca-Small ed., 2010). 122
ICSID, supra note 1, art. 42. 123ICSID Arbitration (Additional Facility),
supra note 7, art. 54. 124 INT’L CHAMBER OF COM., ICC Rules of Arbitration,
art. 21(3) (2012),
ICSID, supra note 1, art. 54.
ICSID Arbitration (Additional Facility), supra note 7, art. 19 & 20
(Arbitration in Additional Facility can be done only in those states who are
party to the New York Convention);
The UNCTRAL Arbitration Rules do not provide machinery for enforcement of
awards and art. 40 of the UNCITRAL Arbitration Rules merely declares that the
award shall be final and binding. 111
History of the ICSID, supra note 75, 527. 112 The Hindu’s Bureau, ICA
Against India Joining Global Dispute Settlement Body THE HINDU BUSINESS LINE
[1] See Holiday Inns S.A. and others
v. Morocco, ICSID Case No. ARB/72/1, Decision on Jurisdiction (May 12, 1974);
P. Lalive, The First ‘World Bank’ Arbitration – Some Legal Problems, 51 BRITISH
YEARBOOK INT’L. L. 123, 130 (1980)
[2] See ICSID, THE ICSID CASELOAD-
STATISTICS (ISSUE 2017-1) 9 (2017)
[3] Gus Van Harten, supra note 10; Uma
Kollamparambil, supra note 12
[4] M. H. Mourra, The Conflicts and
Controversies in Latin American Treaty-Based Disputes, in LATIN AMERICAN
INVESTMENT TREATY ARBITRATION 60
[5] Fiezzoni, supra note 11, 137 (As
of November 14, 2017, Nicaragua is a contracting State of the ICSID
Convention.)
[6] Leon E. Trakman, The ICSID Under
Siege, 45 CORNELL INT'L L.J. 603, 666 (2013) [hereinafter “Trakman”]; Sergey
Ripinsky, Venezuela’s Withdrawal From ICSID: What it Does and Does Not Achieve
(Apr. 13, 2012),
[7] Fernando Aguirre, Bolivia in LATIN
AMERICAN INVESTMENT PROTECTION 65 (Jonathan C. Hamilton eds., 2012).
[8] See Corporate Europe Observatory
& the Transnational Institute, PROFITING FROM INJUSTICE HOW LAW FIRMS,
ARBITRATORS AND FINANCIERS ARE FUELLING AN INVESTMENT ARBITRATION BOOM (Nov.
2012)
[9] 6 Babiy, Larisa et. al., Should
Mexico Join the ICSID? THE GRADUATE INSTITUTE, GENEVA, CENTRE FOR TRADE AND
ECONOMIC INTEGRATION 6 (2012).
[10] ICSID, Rules of procedure for
Arbitration proceedings, rule 37 in ICSID CONVAENTION, REGULATIONS AND RULES
Article Information
SHOULD INDIA BECAME PARTY ON ICSID: IMPACT OF DEVELOPMENT OF INTERNATIONAL COMMERCIAL ARBITRATION IN INDIA BY: APARNA DWIVEDI
Authors: APARNA DWIVEDI
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/04/22
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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