Open Access Research Article
Should India reconsider signing ICSID Convention? (By: Rupal Agrawal)
Published Paper
Article Details
Should India reconsider
signing ICSID Convention?
Authored By: Rupal Agrawal[1]
Abstract
World Bank has provided International
Centre for Settlement of Investment Disputes (ICSID) as a forum for the
settlement of disputes related to investment between host states and investors
of foreign states. The ICSID convention touch base its jurisdiction from the
treaties signed by the parties who provides consent for the arbitration as a
resolution mechanism by ICSID. Several countries are signatories to the ICSID
Convention. Many developing countries have also become the member and few have
opted out of the Convention. India along with Brazil and South Africa has not
signed the Convention. The paper seeks the reason why developing countries
could not cope up with ICSID. It also focuses on the need for India to sign the
convention in order to attract foreign direct investments for the economic
development of the country. The paper also throws light on China’s connection
with ICSID for two decades. The researcher has relied on doctrinal research by
using legislations as a primary source and the journals and articles as
secondary sources.
Key Words: Investment Arbitration,
ICSID, Developing Countries, Treaties, India.
1.
Introduction
International Centre for Settlement
of Investment Disputes was established in 1966 and is an independent
institution dedicated to resolve international investment dispute among
investors and host state. It provides arbitration, conciliation or fact-finding
as a settlement mechanism. While resolving the disputes ICSID takes care of the
interests of host states and investors. Each party is provided equal
opportunity to present their evidence and arguments. Expert assistance is
provided through ICSID case team throughout process. ICSID through its dispute
resolution process encourages and promotes international investment. The access
to investment dispute settlement is available to member states. The daily
operations of the ICSID are carried on by their secretariat like keeping list
of member states, maintaining the panels of arbitrators and conciliators,
maintaining documentation, publishing decision, order and awards on its
website, etc. The official languages of ICSID are English, French and Spanish.
Member State can designate up tofour persons to the panel of arbitrators and
conciliators.
Investment Arbitration thrives upon
an investment treaty, the national law of the host state, an independent
investment agreement if entered into and the choice of independent and
individual arbitrator or arbitral tribunal. The dispute resolution clause in
treaties entrust power upon the arbitral tribunal to enquire about the
behaviour of the host state towards foreign investors. The member of panels can
be of any nationality. Bilateral or multilateral treaties are either governed
by the terms of ICSID or the UNCITRAL Rules of Arbitration.
2. History
And Evolution Of Icsid
ICSID was the outcome of the 10 years
of debate in United Nations regarding relations between host state and
investors state. World Bank could not satisfy the capital needs of the
developing countries. During the decolonisation of Africa and Asia, the
potential investors interested in foreign investment were seeking protection
before risking their capital in a hostile environment. A stable dispute
resolution mechanism over the subject matter of the agreement was needed for
the world bank’s mission of economic development.[2]
Aron Broches, General-Counsel of World Bank, had been circulating the internal
memoranda in writing in the Bank. By April 1962, Executive Directors proposed
for the creation of a Centre for Settlement of Investment Disputes. It was
suggested to solve the disputes by arbitration and conciliation through the
centre, if the parties agreed to use the services of the Centre for arbitration
and can avoid approaching Courts. The award would be
enforceable in the countries signing
the Convention. The World Bank went ahead with the resolution in Tokyo to
approve the Convention. The resolution was passed with 21 countries. The
Convention in its Article 25 clarified the linking of dispute resolution of
Bilateral Investment Treaty to ICSID if party’s consent in writing to submit
the disputes to Centre. The Convention was adopted in 1960 and was established
in 1966.[3]
3.Developing Countries And ICSID
Investments are the major concern for
developing countries. Be it investing in other country or welcoming investments
from other country. Finance is the backbone of country’s economies and for
developing countries it becomes the matter of concern as they are always under
the debts provided by world bank.Arbitration and conciliation under the ICSID
Convention and Additional Facility Rules are voluntary. The parties provide
consent to ICSID jurisdiction through theirconcluded investment laws,
contracts, bilateral or multilateral treaties. Cases were instituted under the
U.S-Columbia Trade Promotion Agreement, North American Free Trade Agreement,
U.S.-Peru Trade Promotion Agreement.
As on 2020, there are 163 countries
signatories and 155 countries are contracting states to the ICSID Convention.
The increasing membership is an evident that ICSID is making its mark among the
investors and considered as a chosen platform for the resolution of
international investment disputes.The Republic of Djibouti is the newest
Contracting State which has deposited its instrument of ratification with the
World Bank on June 9, 2020. The first case was registered in 1972 and total of
303 cases were administered alone in the year 2020.Overall, 768 cases
administered under ICSID Convention and Additional Facility Rules. Some of the
signatories from the developing country to ICSID Convention are Bangladesh,
Pakistan, Nepal, Singapore, Srilanka, Afganistan, Central African Republic, Mexico,
Morocco, Qatar, United Arab Emirates, Uruguay, Ukraine, Zimbawbe.[4]
The ICSID Convention and the
developing countries has not been connected smoothly. The actions of the
government of developing countries carries a major impact in their own growth
and development. The changing laws and the reviews of policy in developing
countries is the reason for their detachment from the international investment
regime like ICSID Convention. Developing
countries like Bolivia, Ecuador and Venezuela have pulled out from ICSID
Convention in 2007, 2010 and 2012 respectively. Ecuador terminated its BITs in
2008 when the agreements with Cuba, the Dominican Republic, El Salvador,
Guatemala, Honduras, Nicaragua, Paraguay, Romania and Uruguay was terminated.
The Constitutional Court of Ecuador in 2010 declared the arbitration provisions
of Ecuador BITs with China, Finland, Germany, UK, Venezuela and USA to be
inconsistent with the Constitution of Ecuador. Brazil is not the member of the
ICSID Convention but has introduced its model Agreement on Cooperation and
Facilitation of Investment (CFIA) in 2013 which includes ombudsmen as a term of
its dispute prevention mechanisms. South Africa as well is not the member of
ICSID Convention and has terminated many BITs in order to protect its public
policy. Investor’s protection provisions have been introduced into domestic law
of investment.[5]
A well-known case of Salini
Construttori S.P.A. and Italstrade S.P.A. v. Kingdom of Morocco[6], where
Salini, an Italian company, requested arbitration, claiming that the company
suffered damage since its contract for road construction with a private entity
financed by the Moroccan government, was terminated. The Moroccan government
objected to the jurisdiction of the arbitral tribunal, insisting that the
claimant’s contract for highway construction does not fall under the category
of an investment as per the Italy-Morocco BIT nor an investment under the ICSID
Convention. The arbitral tribunal held that the contract concerned falls under
the category of an ‘investment’ as defined in the BIT, holding that the
contract satisfies all of the elements of ‘investment’ in the ICSID Convention.
Firstly, the tribunal affirmed the ‘economic contribution’, that the claimant
had provided know-how, necessary equipment and capable personnel. Regarding the
contract term, the tribunal held that the contract fulfilled the requirements
of a minimum term of 2 to 5 years, because the duration was 32 months at the
beginning and 36 months after the extension. With regard to risks, the tribunal
stated that definite costs cannot be determined in advance for a long-term
construction project, making it a clear risk for a contractor. Lastly, the
tribunal affirmed the claimant’s contribution to the economic development of
the host country, based on the public interest and the know-how provided upon
the construction.
For the arbitral tribunal based on
the ICSID Convention to have jurisdiction, the right concerned must relate not
only to an ‘investment’ as defined in the BIT but also ‘investment’ as used in
the ICSID Convention. While determining whether it falls under the category of ‘investment’
under the ISCID Convention, (i) economic contribution, (ii) the period of time
for which the contract was implemented, (iii) sharing of risks on the
transaction, and (iv) contribution to the economic development of the host
country are all taken into consideration.
Another case of TokiosTokelés
v. Ukraine[7]where a
business enterprise TokiosTokelés, established under the laws of Lithuania,
owned a publishing company in Ukraine. Ukrainian publishing company, published
a book that portrayed a politician in the opposition party, due to which the
owner TokiosTokelés was subjected to tax investigations by Ukrainian
authorities which hindered its business activities and therefore, Ukraine
breached the Ukraine-Lithuania BIT. On this breach TokiosTokelés filed for
arbitration. The Ukrainian government claimed that because TokiosTokelés was
99% owned and controlled by Ukrainians, therefore, it did not fall under the
definition of an investor who was protected under such BIT. The arbitral
tribunal held that the nationality of a company is determined not based on the
provisions of Article 25(2)(b) of the ICSID Convention but by the respective
BIT. It rendered a decision that TokiosTokelés would be deemed to be a
Lithuanian investor, as the BIT only defines an investor to be ‘any entity
established in conformity with the laws and regulations in the Republic of
Lithuania’.
4. India And ICSID
India is one of the projecting
developing countries that has abstained from joining the ICSID Convention,
since its beginning. While India has not specified the specific explanations
for its absence from the ICSID Convention, in 2000, the Indian Council for
Arbitration recommended to the Indian Ministry of Finance that India refrain
from becoming a signatory to the ICSID Convention on the following grounds: (1)
the Convention’s rules for arbitration supported towards the developed
countries and (2) there is no choice for a review of the award by an Indian
court even if it violates India’s public policy.
India has terminated 58 Bilateral
Investment Treaties on 31st March 2017. With the aim of increasing
foreign investment flow into the country India has signed major BITs with
US-India and Brazil-India. ICSID convention in 1965 created the forum for the
resolution of disputes between investors and host state by introducing
arbitration clause in contract between states. India has not signed the ICSID
convention and has mitigated this non-membership by entering into BITs or
Bilateral Investment Protection Agreements (BIPA) with many countries. In 1994,
India signed its first BIT with United Kingdom. Such BITs or BIPA contains
essential clauses of Applicability, Fair and Equitable Treatment (FET), Full
Protection and Security, Most Favoured National Treatment (MFN), Expropriation,
Dispute Resolution Regime.[8]
The first publicly known investment
treaty decision against India was in White Industries Australia Limited v
Republic of India[9]
(White Industries). The Arbitration whose seat was fixed in Paris resulted in
effecting the Republic of India with an award worth 4.06 Million Dollars in
favour of White Industries.The White Industries ruling hastened a fundamental
re-assessment of India’s investment treaty framework and the review led India
to adopt a new Model BIT in December 2015 (the Model BIT).The Model BIT mandates
exhaustion of local remedies, negotiations and consultations before an investor
initiate arbitration against host state. An investor can initiate the case in
court of law within one year from the date of knowledge of loss in investment. The Model BIT of India provides room to
negotiate BITs with different countries on different terms. It strikes a good
balance between the interests of the host and investor state as well.The
Belarus BIT of 2018 is based on the Model BIT of India.
The country has shown significant
improvement in the Foreign Direct Investment in India. The developments with
regard to foreign investment are the reasons India should consider joining
ICSID. The other developed countries who are members to ICSID convention aims
India as an investment hub. India as well has invested in countries like
Netherlands, Singapore, Mauritius, USA and UK that are members to ICSID
Convention. Therefore, membership to ICSID Convention would provide protection
of rights to Indian investors and their investments in foreign countries.
Currently the investment awards are
enforced through New York Convention which lacks certainty. Under Article 1(3)
of the New York Convention India has availed commercial reservation which
restricts its applicability to foreign awards arising out of legal
relationships considered as commercial under Indian law. Hence, Arbitration and
Conciliation Act, 1996 to be applied to Investor State Disputes Settlement is
highly uncertain. It will not be fallacious to state that the New York Convention
is not an expected command for the enforcement of investment awards in India.
The predictable regime for the enforcement of investment award is provided by
ICSID Convention. ICSID awards are final, directly enforceable and binding. It
is undeniable that the ICSID Convention does not provide for a ‘public policy
review’ of awards by the national courts but this aspect has been covered
efficiently by the Model BIT of India.
Article 15.1 of the Model BIT of
India provides a mandatory clause on ‘exhaustion of local remedy’ before
invoking arbitration which means that when dispute arises, an investor must
approach to domestic courts or administrative bodies of the host state in order
to resolve it. Article 15.2 of the Model BIT provides a clarity that the investor
must exhaust all judicial and administrative remedies for five years prior to
arbitration. These provisions are in consonance with Article 26 of ICSID
Convention, which permits Contracting States to exhaust local administration or
judicial remedies before providing consent to arbitration. Therefore, Article
15 of the Model BIT is another reason to join ICSID Convention which allows
India’s domestic judicial bodies to resolve the investment disputes prior to
ICSID arbitration and in this way ICSID arbitration would restrict itself to
institute unresolved disputes.
The most notable features of Model
BIT of India are the absence of a traditional standard of treatment i.e. Most
Favoured Nation provision, the replacement of the Fair and Equitable Treatment
standard to a list of state obligations, and an explicit section on investor’s
obligations. It also includes provisions on Corporate Social Responsibility and
compliance with the laws of the host state.
5. CHINA
AND ICSID
The People’s Republic of China (PRC)
is not only the member to ICSID but also has been signatories of various BITs
which grants binding mandatory jurisdiction to ICSID arbitration tribunals. The
PRC consented to the ICSID Convention in 1993.In joining ICSID the PRC limited
its scope of consent with regard to jurisdiction of ICSID. The PRC notified the
Centre on January 1993 that ‘pursuant to the Article 25(4) of the Convention,
the Chinese Government would only consider submitting to the jurisdiction of
the ICSID disputes over compensation resulting from expropriation and
nationalization’.[10]
This notification does not mean that PRC cannot broaden the jurisdiction of
ICSID arbitration. The scope of jurisdiction on submitting claims before ICSID
arbitration can be extended through PRC’s BITs.
Under ICSID system, an investor-state
arbitration can only be initiated if the host state has consented to the ICSID
jurisdiction. Such consent arises through Bilateral Investment Treaties with
another nation. After membership with ICSID Convention, PRC has signed hundreds
of BITs providing consent to jurisdiction for ICSID arbitration. China is
deeply engaged and intertwined with the ICSID system of investment protection
and investor-state arbitration. Article 54 of the ICSID Convention specified
that a member state must provide a domestic law enforcement mechanism for ICSID
awards and that such mechanism must give awards the status of a ‘final judgment
of a court of that state’ which requires china to ensure that ICSID awards may
be enforced in the same manner as domestic court judgements.Article 238 of
Civil Procedural Law of China clarifies that no other domestic law could
override Article 54 of the ICSID Convention's requirements. However, in China a
judicial interpretation from the Supreme People’s Court is necessary to clarify
lower court’s authority to enforce awards.[11]
In the case of Beijing Urban
Construction Group v Republic of Yemen[12],
the arbitration under the contract entered in the year 2006 to build a $100
million international terminal for Yemen’s main airport in Sana’a. The
tribunal found that the language of the 2002 PRC-Yemen BIT was unsatisfying as
between the narrow and broad interpretations. The tribunal considered the
context of the language used and placed emphasis on the fork-in-the-road
provision in the PRC-Yemen BIT, which requires an investor to choose between
local court and ICSID protection, where the existence of expropriation would be
determined in local courts, but losses to be quantified in arbitration.
In the last two decades since China
gained the membership of ICSID, PRC faced extremely low arbitration brought by
investor. On 24 May 2011, a Malaysian company filed the first-ever case against
the Chinese government before ICSID, but that case was ‘suspended’ on 12 July
2011 pursuant to the party’s agreement. The reason could be numerous but the
modern China still has influence of the traditional Chinese culture which
contributes to the amicable settlement of disputes. The Chinese environment are
better suited and culturally prefers the means of non-litigation methods for
resolving disputes such as consultation and mediation.[13]
|
|
ICSID Convention 1966 and
ICSID Arbitration Rules 2006
|
UNCITRAL Arbitration Rules
2013
|
|
Nature
of Rules
|
Rules are explicitly
drafted for the investment disputes transported under the ICSID Convention.
|
In
UNCITRAL model, investment arbitrations commonly adopt general commercial
arbitration rules.
|
|
Applicability of Rules
|
Article
25 of the Convention - The ICSID
jurisdiction extends to any dispute related to investment which arise between
a Contracting State and a national of another Contracting State with the
written consent of parties to submit to Centre.
|
Article 1.4 - Investment treaty for investor-state arbitration
concluded after 1st April 2014, automatically applies UNCITRAL
Rules.
|
|
Requirements of
Arbitrators
|
Rule
1(3) of Arbitration Rules - Neither
party may appoint a national of its own country as an arbitrator without the
consent of the other party.
|
Article
11 - Arbitrators must reveal
conditions that give rise to reasonable doubts about their impartiality or
independence.
|
|
Appointment of Tribunal
in the Event of a Defaulting Party
|
Rule
4 - If the parties did not consent
on the appointment of tribunal within 90 days after registration of the case,
either party may request to Chairman of the Administrative Council to make
appointment.
|
Article
9.2 - The Claimant may request
that the Secretary General of the Permanent Court of Arbitration (PCA)
appoints an arbitrator on behalf of the Respondent if a Respondent fails to
nominatewithin 30 days of the Claimant’s nomination.
|
|
Grounds for Challenging
Arbitrators
|
Rule
9 (1) - Tribunal can be challenged
if arbitrator lacks competence in the fields of law, commerce, industry or
finance in order to exercise independent judgement.
|
Article
12.1 - The ground for challenging
the tribunal is when there are justifiable doubts as to the arbitrator’s
impartiality or independence.
|
|
Timing of Challenges to
Arbitrators
|
Rule
9 - Challenges need to be brought
before the proceedings get closed. The validity of the challenge is
determined by the members of the tribunal who are not challenged. Until
decision is arrived on the challenge the proceeding remains suspended.
|
Article
13 - Challenge to the tribunal to
be brought within 15 days of the notice of appointment. The validity of the challenge
is determined by the Secretary General of the PCA.
|
|
Interim Measures
|
Rule
39(1) - After proceeding initiates
party may request tribunal to recommend provisional measures for the
preservation of rights.
|
Article
26 - The tribunal may order interim
measures only if the requesting party can satisfy that there can be
irreparable harm if measures not issued and that there is reasonable
possibility of his success on the merits of the claim.
|
|
Third Party Intervention
|
Rule
37(2) - After consulting both the
parties, tribunal may allow third party with its interest, to file a written
submission with regard to any matter in dispute to assist them in determining
any legal or factual issue, if such submission brings different insights from
that of disputing parties.
|
Article
4 - The tribunal in consultation
with the parties may allow interested third parties in the proceedings to
submit written Amicus Curiae to assist them in determining any legal
or factual issue, if it brings different insights from that of disputing
parties.
|
|
Applicable Law
|
Article
42 - The Tribunal decides the
dispute on the rule of law agreed by the parties, failing which, the law of
Contracting State party to the dispute, including ICSID rules and rules of
international law is applied by the Tribunal.
|
Article
35.1 - Law designated by the
parties are applied, failing which the Tribunal applies the law or rules of
law as it deems fit to them.
|
|
Timing of Awards
|
Rule
46 -Award to be signed within 120
days after closure of the proceedings which can be extended for further 60
days by tribunal if required.
|
UNCITRAL
Rules is silent about such timing of awards.
|
7.
Conclusion
Therefore, it can be concluded that
ICSID protects the rights of investors and host countries while solving their
disputes related to international investment. The mission of world bank is to
promote economic development worldwide. Both developed and developing countries
take part in the investment business and hence the world economic development
plan requires the need for the protection of rights for the developing
countries specifically. The changing laws of the developing countries are the
reason for the incompatibility to cope up with investment regimes like ICSID.
India is known as the investment hub and many developed countries seek to
invest in India. The fact that ICSID does not protect the nation’s public
policy concern has very well mitigated by the India’s Model BIT 2015 where the
country has provided the condition that the public policy of India cannot be
undermined in any case. India should reconsider to become member of ICSID
convention because such developed countries who look towards investment in
India are member with ICSID and India’s joining ICSID will bring trust among
the foreign investors that their host country is also connected to the same
regime as they are.
Competition is for every country but
it gets tougher for developing countries like India. Their survival at global
level is like living on the edge. A small financial mistake can drastically
affect the economic status of developing countries, whereas developed nations
find it no difference as they are financially sound and effective. The
international institutions are for every nation and it is important that they
provide provisions which establishes trust and confidence of every nation
specifically developed and under-developed countries. Hence, it is expected
from ICSID to relax the rules only for developing countries by allowing the
ICSID award to be reviewed by domestic courts and to provide concessions on the
cost of arbitration proceedings explicitly for the developing countries. Such
generosity is necessary in order to meet the World Bank’s goal of economic
development and to remove the line of difference between developed and
developing countries.
____________________________________
Bibliography
Articles:
1. 2020 Annual Report, Excellence in
Investment Dispute Resolution, ICSID.
2. Allen,
Richard and SC, Leng Sun Chan. ‘Comparative Chart of International Investment
Arbitration Rules’, BAKER MAKENZIE, January 2017.
3. Guiguo, Wang. ‘Chinese Mechanisms for
Resolving Investor-State Disputes’, JINDAL JOURNAL OF INTERNATIONAL AFFAIRS,
vol. 1, Issue 1, October 2011.
4. ISCID, Contracting States and
Measures Taken by Them for the Purpose of the Convention (July 2020).
5. Ku, G. Julian. ‘Enforcement of ICSID
Awards in the People' s Republic of China’, 6 CONTEMP. ASIA ARB. J. 31, 2013.
6. Mestral, de Armand. ‘The Impact of
Investor-State Arbitration on Developing Countries’, CENTRE FOR INTERNATIONAL
GOVERNANCE INNOVATION, November 2017.
7. Nedumpara, James J. and Laddha
Aditya. ‘India Joining the ICSID: Is it a Valid Debate?’, CTIL, Discussion
Paper No. 1, November 2017.
8. Parra, Antonio R., ‘The Development
of the Regulation and Rules of the International Centre for Settlement of
Investment Disputes’, ICSID REVIEW-FOREIGN INVESTMENT LAW JOURNAL.
9. Sweta, Madhu and Tandon, Kanika.
‘Investment Arbitration – The Assignation & Its Way Ahead in India’,
MONDAQ, August 2018.
Cases:
1. Salini Construttori S.P.A. and
Italstrade S.P.A. v. Kingdom of Morocco [ICSID Case No. ARB/00/4].
2. White Industries Australia Limited v
Republic of India [IIC 529 (2011)].
3. Beijing Urban Construction Group v
Republic of Yemen [ICSID Case No. ARB/14/30].
4. TokiosTokelés v. Ukraine [ICSID
Case No. ARB/02/18].
Websites:
1. www.cigionline.org.
2. www.iaa-network.com.
3. www.icsid.worldbank.org.
4. www.scholarlycommons.law.hofstra.edu.
5. www.unctad.org.
Article Information
Should India reconsider signing ICSID Convention? (By: Rupal Agrawal)
Author Name: Rupal Agrawal
Title: Should India reconsider signing ICSID Convention?
Email Id: rupal13.agrawal@gmail.com
- Journal IJLRA
- ISSN 2582-6433
- Published 2022/05/30
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International Journal for Legal Research and Analysis
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