Energy Projects - Resolution of Investment Disputes through ICSID

Caroline Kehoe, a partner in Herbert Smith's Litigation Department in London, takes a look at the possibilities of arbitration under the auspices of the International Centre for Settlement of Investment Disputes.

Arbitration has long been the preferred method of resolving investment disputes, particularly those involving foreign investment. Arbitration offers a private forum outside the jurisdiction of the courts of the country into which the investment is being made and in which the parties can appoint arbitrators with the appropriate specific technical or legal expertise for the type of dispute. It also offers greater prospects of enforceability than a judgment of a national Court.

ICSID

The International Centre for Settlement of Investment Disputes (ICSID) was established in 1966 by a multilateral treaty: the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (The Washington Convention). It was created by the World Bank as an institution specially designed to facilitate the settlement of investment disputes between governments and foreign investors. It was hoped that such an institution would promote an atmosphere of mutual confidence between States and foreign investors conducive to increasing the flow of private international investment. Although it maintains close links with the World Bank and is headquartered in Washington D.C., ICSID is an autonomous international organisation. The Centre is run by an Administrative Council comprising one representative from each Contracting State (see below). It does not itself engage in conciliation and arbitration, which is the task of the conciliators and arbitrators appointed by the parties, but assists in the initiation and conduct of those proceedings, performing a range of administrative functions.

Each Contracting State may designate four persons to each of the Conciliation and Arbitration Panels who may, but need not be, its nationals (Article 13).

ICSID proceedings need not be held in Washington. The Convention contains provisions that facilitate advance stipulations of other venues and the parties are free to agree to conduct their proceedings at any other place (Articles 62 & 63).

ICSID basic documents

The Convention is, of course, the key document since it is signed and ratified by the Contracting States and sets out their intentions regarding the establishment of the Centre, its administration and the basic rules governing both the conciliation and arbitration procedures.

The Institution Rules set out the procedure for instituting either conciliation or arbitration proceedings including prescribing the details to be included in the formal written Request, payment of the appropriate fee and the constitution of the Conciliation Commission (consistent with Articles 29-31 of ICSID) and Arbitral Tribunal (consistent with Articles 37-40 of ICSID). For example, the Request must include the "credentials" of the parties to confirm that they are either a "Contracting State" or a National of a Contracting State and also indicating the date of the consent in writing to ICSID arbitration.

The Rules of Procedure (the Conciliation Rules and the Arbitration Rules) contain the procedural rules, again reflecting the terms of the Convention.

ICSID case review

There appears to be an increasing recognition of the value of arbitration through ICSID, both in the energy industry and generally. The recent marked increase in the ICSID caseload has undoubtedly been affected by the consents to ICSID arbitration put in place by bilateral investment treaties. These now make up the majority of the new cases submitted to ICSID, currently running at approximately one new case per month.

Of the 58 concluded ICSID cases (of which 7 were commenced since 1992), 12 were energy related.

Of the 37 pending cases (commenced since 1997), 7 are energy related and concern the following...