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INTERNATIONAL INVESTMENT ARBITRATION UNDER ICSID – ENFORCEMENT AND APPEAL MECHANISM
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INTERNATIONAL
INVESTMENT ARBITRATION UNDER ICSID – ENFORCEMENT AND
APPEAL
MECHANISM
AUTHORED BY
- DHARUN LAKSHMAN
ICA
RESEARCH PAPER
Introduction
The English poet Herbert Read once
said that I can imagine no society which does not embody some method of
arbitration.[1] Just
like he said a half century ago, the mechanism of arbitration has developed
into a different dimension. First let us start with the question of what arbitration
is. Arbitration is one of the alternate dispute resolution methods where when a
dispute arises between two parties, upon the agreement of the parties, they go
to one or more arbitrators. The arbitrator(s) after doing a thorough analysis
of the dispute, come up with a binding decree also called an award. It is
basically a private dispute resolution method where the parties solve their
dispute outside court. This method of arbitration is done mostly for commercial
matters.
This paper primarily focuses on the topic
of investment arbitration. We will try to under about international investment
arbitration through the lens of ICSID (International Centre for Settlement of
Investment Disputes). We will clearly discuss about essential features of
ICSID, the instigation of investment arbitrations and the selection of
arbitrators for the investment arbitration. Then we will take deep dive into
the vast topics of enforcement of arbitral awards and appeal mechanism in the
investment arbitration followed by case laws relating to investment
arbitration.
International
Centre for Settlement of Investment Disputes
International Centre for Settlement
of Investment Disputes (ICSID hereinafter) is a multilateral treaty established
by the convention on the settlement of investment disputes between the states
and the investors who are citizens of some other coutry. This center was
Executive directors of the world bank just for the purpose of promoting the
scope of international investments around the world. ICSID offers solutions to
investment disputes by the way of arbitration as well as conciliation. The two
major instruments of ICSID are ICSID Convention and the ICSID Additional
Facility. These two provide the complete procedural base for the process of
arbitration. This base is accompanied by a set of rules and regulations.
Essential
features of ICSID
Basically, ICSID provides a platform where
its member nations can solve their disputes with the help of various alternate
dispute resolution methods like Arbitration and conciliation. It gives a
complete framework for the member states to arbitrate over their disputes. This
ICSID is an international treaty among the members. The disputes arising
between the countries which qualify as a member nation of ICSID and an investor
who is a citizen of a country which is identified as a member nation of ICSID
and if they have agreement to arbitrate following the rules of this convention
then ICSID comes into picture to solve the dispute. This method of arbitration
is made in a way that it is self-contained. Local courts cannot be involved in
ICSID proceedings. All these apply to international investment arbitration
also.
Some of the other features of ICSID
are as follows:-
·
Parties
enjoy immunity from legal process in the conduct of the proceedings[2]
·
The
dispute must be a legal dispute arising directly out of an investment.The
disputing parties must have consented in writing to the submission of their
dispute to ICSID arbitration or conciliation.[3]
·
Once
disputing parties consent to ICSID arbitration and unless they agree otherwise,
they accept ICSID arbitration as the exclusive remedy[4]
·
A
Member State cannot give diplomatic protection to any of its nationals which
have consented to arbitration under the Convention, except in limited
circumstances[5]
·
The
limited post-award remedies available are set out in the Convention itself[6]
·
Awards
in ICSID Convention arbitrations are final and binding, and may not be set
aside by the courts of any Member State[7]
·
All
Members States, whether or not parties to the dispute, recognize and enforce
ICSID Convention monetary awards as final judgments in any Member State[8]
·
The
place of proceedings, i.e., where hearings are held, has no legal significance
in Member States[9]
New York Convention –
This convention came to existence in
the year 1959. This came in order to correct and address the problems that were
there with the Geneva Protocol on the arbitration awards 1923. Through this
convention comprehensive and very exhaustive rules were given. This convention
basically makes sure that the nations which are member to it enforce the award
given by the tribunal. It also makes sure that the courts present in the seat
where the arbitration takes place have the absolute authority to annul an award
based on legally valid grounds.
What is
Investment Arbitration?
It is a legal dispute resolution
method where the parties are foreign investor and the host state in which the
investor invested his money. It is also known as Investor – State Settlement.
The existence of an arbitration method like this ensures that in case of a
dispute between a foreign investor and a state, the investor who is foreigner
with limited access, will stand a chance to have option to arbitrate the
dispute with qualified arbitrator and render an enforceable award. This type of
arbitration eliminates the possibility of biased approach of courts towards the
foreigner and in favor of the state.
The consent of the state where a
foreigner invests his money is very important for the investment arbitration.
This consent is often present in the IIA (International Investment Agreement).
This consent is given by the host nation mostly based on the nationality of the
person or the entity which is planning to invest in their country. Sometimes in
invest agreements also this consent can be seen. No matter where it is present
this consent of the nation turns out to be a crucial element in the investment
arbitration.
Invest
Arbitration – Instigation
All around the world, different
individuals or firms tend to invest in other countries to yield more profit and
popularity. During investments like these agreements will be made between the country
in which the investment is made and the individual who is investing. In one of
such agreements, the dispute resolution clause will be added in order to solve
a dispute which might arise in future between the parties to the agreement.
Usually, the agreements to an investment arbitration will give a “cooling off
period”. Mostly this period will be of six months when both the parties will be
encouraged to get involved in negotiation with an intention of solving the
problem in a simpler form which can give an amicable solution. This cooling off
period will start from the moment the investor issues a notice to arbitrate the
dispute against the host state. During this period the parties can involve in
negotiations but in some cases the state wont participate in negotiations and
will just stay put to see if the foreign investor is really interested in
arbitration.
Once this cooling off period is done and
even then if the dispute is resolved then the foreign investor has to file a
request for arbitration. Upon such request from the foreign investor and if the
consent to arbitration is there given by the host state then the arbitration
will commence. The foreign investor should be very careful with the consent of
the host state because in the consent, the state might have barred the foreign
investor to go for arbitration if the courts of the host state were approached
first before arbitration. If this happens then investor will be unable to
arbitrate the dispute and court will be the ultimate authority with the
discretion to decide on the dispute.
Selection
of Arbitrators for the Investment Arbitration
Arbitration takes a very meager time
when compared to court proceeding. This is an very important factor which pull
people towards arbitration over normal court proceeding. But, in this less time
also selection of arbitrators delays the entire process as both the party
parties should agree on same arbitrator. Plus unilateral appointment of
arbitrator is usually unstable in countries like India. Selection of the
arbitral tribunal is one of the most crucial and rigorous processes involved in
all of the arbitration process. Mostly, at this point of
time, the arbitrators tend to be either “pro-state” or “pro-state”. This is
because of a lot of reasons like nationality, fees involved and independence
given to the arbitrators by the law and parties. Another factor which will pull
a person as an arbitrator in the arbitration process is that the fees provided
to the arbitrators by the parties. In cases of international investment
arbitration, only high-profile legal practitioners will be approached
considering the density of the matter involved.
ICSID gives the parties ie; the state
and the foreign investor the independency to choose the arbitrator. They have
the power choose the arbitrator they wish. There are zero restrictions from
ICSID’s side when it comes to selection of arbitrators except the nationality of
the arbitrator and his qualifications. The parties are also mostly advised to
choose the arbitrator from the panel of arbitrators that the ICSID have with
them.
BILATERAL
INVESTMENT AGREEMENT
The number of "bilateral
investment treaties" (BITs) in existence currently exceeds 2,200. These
international agreements give foreign investors a direct way of holding nations
accountable for breaking their duties under the rule of law. The term
"investor-state arbitration" is used to describe this. A well-known
illustration of this kind of agreement is Chapter 11 of the "North
American Free Trade Agreement" (NAFTA). BITs, like the Chapter 11
provisions of NAFTA, are not uniform and allow for a wide range of tribunal
decisions. Concern has grown about whether there are enough mechanisms to
ensure uniformity and accuracy with in ad hoc arbitral procedure as a result of
the expansion in investor-state conflicts and new judgements resulting from
such arbitrations. Since there were only 385 BITs in 1989, the number climbed
considerably over the 1990s, reaching 2,265 in 2003. They are currently
covering 176 nations.
DIFFERENCE
BETWEEN INSTITUTIONAL INVESTMENT ARBITRATION AND AD HOC INVESTMENT ARBITRATION
While talking about international
arbitration, it will be erroneous mistake to skip the part where we should talk
about institutional and Ad Hoc investment arbitration. Institutional
arbitrations are where an institution will administrate an arbitration with a
particular set of rules. ICSID is a vert apt example for institutional
investment arbitration. Other examples are Permanent court for Arbitration
(PCC), International Chamber of Commerce (ICC). Institutional investment
arbitration is usually very expansive because of an entire institution is
involved and all the man power etc.,
Ad Hoc investment arbitration. On the
other hand is a type arbitration where there is no institution involved which
will administer the arbitration process with a set of rules and regulations to
abide by. The process of Ad Hoc arbitrations are governed by the most famous
and dimensional UNCITRAL arbitration rules. These days , the investors are
given more leniency by providing them with the opportunity to appoint the
arbitrators. But this leniency also depends upon the terms of the agreement upon
which the dispute is brought for resolution.
ENFORCEMENT
OF AWARD IN AN INTERNATIONAL INVESTMENT ARBITRATION
The enforcement of investment
arbitration is facilitated by the way of treaties which are multilateral in
nature. These treaties are there to give a platform or ground to enforce the
award which arises out of the investment arbitration between a host state and a
foreign investor.
This is basically a recognized legal
regime which is widely used to enforce arbitral awards which as mentioned
below;
ICSID Convention – This convention is
basically came into existence to protect the investors from the unilateral
enforcements of arbitral award by host nations. There are no grounds or legal
explanation to refuse to enforce an award given by this convention. They
strictly restrict refusing of awards. Even national courts cannot annul the
award given by ICSID convention. ICSID has its own annulment process as well
which we will talk about in the later part of the paper. ICSID provides
sovereign immunity though. Articles 53, 54 and 55 regulate the enforcement of
arbitral awards.
Article 53 states that the award which
the convention shall be final and binding on both the parties to arbitration
and appeals are not allowed at any manner. The enforcement of the award can be
stayed but cannot be stopped from being enforced. This section defines an award
as well.[10]
Article 54 reiterates the same thing
that Article 53 stated and it also adds something like the award given by the
convention should be enforced and recognized like it was an award given by the
highest court of that country. The execution of these awards should be governed
by the legal principles which govern the execution of judgments given by the
court.[11]
Article 55 states that “Execution of
the award shall be governed by the laws concerning the execution of judgments
in force in the State in whose territories such execution is sought.”[12]
In case if the host state is not a
party to the ICSID Convention then the enforcement of the award arising out of
the investment arbitration will be governed under the convention on the
recognition and enforcement of foreign arbitral award, 1958. To this convention
almost 75 percent of the countries are members so this will ensure the
enforcement of the award.
Appeal mechanism against investment
arbitration award -
It is a known fact that ICSID does
not allow the parties to go for an appeal against an award given by the convention
and it is binding on both the parties. Only thing available for the party
against which the award was given is annulment. This might seem like that there
is no remedy available for the party. This also leads to the conclusion that even
if the tribunal of the convention gives an award by wrong application of law
then the party will have no option to appeal and make it right. An appellate
authority would ensure that the law has been applied by the arbitrators
properly. It will also ensure that there is a chance for reviewing the award is
present so that there is no unilateral decision. It is also considered as a
demerit of ICSID that there is no appellate authority.
PROBLEMS
WITH HAVING APPEAL MECHANISM
There is no doubt that the finality
benefits of arbitration is greatly weakened if you add a second complete
appeals phase to the whole arbitration procedure. Particularly, the length and
cost of arbitrations will significantly rise, as will the likelihood that the
claimant would receive a negative ruling. Large, resourceful governments and
enterprises will gain from the process' extension. Smaller investors'
complaints and developing nations' defences will consequently be far more
challenging. The quality of the evaluation of any review process becomes a
crucial consideration when addressing the issue of accuracy. The threshold of
assessment can be thought of as a spectrum, with restricted review included in
judicial review under the UNCITRAL Model Law or New York Convention across one
end of the scale and complete appeal on both fact and law, with the discretion
of the courts to replace its conclusion, on the other. The review gets
increasingly time-consuming (and expensive) as one moves closer to an appeal.
ANNULMENT
In comparison, only the
self-contained ICSID annulment procedure can nullify ICSID awards. The
contracting nations of the ICSID Convention have undertaken to implement ICSID
awards automatically until they are overturned by such an ICSID annulment
tribunal. The ICSID Convention establishes an unified set of premise for
annulment to be adapted to just about every ICSID award, even farther differing
from the guidelines established by the New York and Panama Conventions, that
also contemplate and recognise some variation in the merits for annulment
implemented by each contracting party to its own domestic arbitrations.
The following reasons can be used by
an ad hoc annulment panel to nullify the arbitration award in response to a
petition for annulment under Article 52:
There were major violations of a key
procedural norm, the tribunal wasn't even appropriately formed, it had clearly
overstepped its authority, one of its members had engaged in corruption, and
the award lacked a justification for its conclusions. The creation of an ad hoc
commission in response to each annulment request, though, has resulted in a
broad interpretation of the criteria for annulment. Additionally, the grounds
for annulment are limited to purely procedural infractions and do not include
actual initiatives like public policy. In actuality, a number of contested
awards are also not annulled due to the strict criteria established for the
annulment process. The strict guidelines for annulment procedures established
by the annulment panel focus solely on the validity of the mechanism used to
determine the award. It has been noted that even when awards are overturned,
the reasons for doing so are frequently due to improper use of the law instead
of improper application of a relevant laws. The annulment committee also
disregards grounds such failing to provide enough justification, applying the
legislation incorrectly, etc. An appeals facility will offer a wider scope of
review of an award than annulment procedures.[13]
Case laws on Investment Arbitration
Micula V Romania
This judgment confirmed that the UK's
responsibilities under the Convention to acknowledge and start enforcing ICSID
arbitral award are not avoided by the responsibility of assistance and
cooperation under EU law. The SC's decision is noteworthy because this attempts
to deal with the interaction of (occasionally) opposite manner of national,
international, and EU law in the setting of investment arbitration.[14]
Eiser and infrastructure services v.
Spain
The Supreme Court in this case, made
it quite apparent that removing foreign sovereign protection does not prevent
an award from being acknowledged as a judgement. The ruling also emphasizes the
complexity of a procedure that is frequently seen as being very simple when
engaging with regular business parties. Foreign arbitral awards are typically
simple to recognise and enforce when there is no sovereign party involved. When
attempting to impose against a recalcitrant sovereign, greater obstacles are
likely to be encountered.[15]
COCLUSION
International arbitration, which
offers a neutral court for the settlement of disputes with said host state, is
a key safeguard provided by investment treaties intended to draw foreign
investment. A reasonably high proportion of voluntary cooperation with
investment treaty judgments has historically enhanced the promises of
investment arbitration.
For several years, some well-known
experts have predicted the end of investment arbitration. However, it is
difficult to undo the several conventions and treaties currently in force, so
it is unlikely that it will end very soon.
The moment has now come for the ICSID
not just to reopen the debate as well as to take concrete actions toward the
creation of an appellate framework as a result of the increase in investment in
the economy and ISDS.
[1] Herbert Read Quotes.
BrainyQuote.com, BrainyMedia Inc, 2022. https://www.brainyquote.com/quotes/herbert_read_261755,
accessed October 22, 2022.
[2] ICSID Convention, Article 21 and
ICSID Convention, Article 22
[3]ICSID Convention, Article 25
[4]ICSID Convention, Article 26
[5] ICSID Convention, Article 27
[6] ICSID Convention, Article 49 and
ICSID Convention, Article 52
[7] ICSID Convention, Article 53
[8] ICSID Convention, Article 54
[9] ICSID Convention, Article 62 and
ICSID Convention, Article 63
[10] ICSID Convention, Article 53
[11] ibid.,
[12] ICSID Convention, Article 55
[13] Thomas W Walsh, 'Substantive
Review of ICSID Awards: Is the Desire for Accuracy Sufficient to Compromise
Finality' (2006) 24 BJIL 444 accessed on 20 October 2022.
[15] Eiser and infrastructure services
v. Spain ,[2020] FCA 157
Article Information
INTERNATIONAL INVESTMENT ARBITRATION UNDER ICSID – ENFORCEMENT AND APPEAL MECHANISM
Authors: DHARUN LAKSHMAN
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/10/13
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
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