INVESTMENT DISPUTE RESOLUTION MECHANISM UNDER ICSID ARBITRATION
Article by Legal Specialist at Dai Ha Thanh Law Firm - Nguyen Le Bao Khanh - Currently studying Law at Ho Chi Minh City University of Law
In the context of globalization and international integration, disputes between foreign investors and the governments of investment-receiving countries are increasing. To resolve these disputes fairly and effectively, the International Center for Settlement of Investment Disputes (ICSID) was established. As an independent arbitration mechanism, ICSID has become an important tool to protect the rights of investors and create a stable investment environment. However, besides its positive contributions, ICSID also faces many problems such as the imbalance of interests between investors and investment-receiving countries, high litigation costs, and difficulties in enforcing judgments. In the scope of the following article, Dai Ha Thanh Law Firm will provide customers with information on "Investment dispute resolution mechanism under ICSID arbitration".
1. Overview of ICSID:
1.1. Concept of ICSID:
The International Centre for Settlement of Investment Disputes (“ICSID”) was established in 1966 under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”). ICSID is the world’s leading institution for Investor-State Dispute Settlement (ISDS), administering over 70% of all ISDS arbitration proceedings. The purpose of the Centre is to provide facilities for the conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States.
1.2. Overview of ICSID Arbitration:
Arbitration procedures under the ICSID Convention are governed by: the ICSID Convention, the ICSID Institution Rules, the ICSID Arbitration Rules and the ICSID Administrative and Financial Regulations.
The ICSID Convention provides the legal framework for the conduct of arbitration proceedings. The main procedural provisions are set out in Chapters IV to VII of the Convention. The jurisdictional requirements are set out in Chapter II of the Convention.
The ICSID Institution Rules (“Institution Rules”) explain how arbitration proceedings are to be conducted, including the form and content of the Request for Arbitration. They apply between the time of filing the Request for Arbitration and the time of notification of registration. The ICSID Institution Rules do not apply to the initiation of post-award proceedings under the ICSID Convention and the Arbitration Rules. The applicable Institutional Rules are those in effect on the date of filing the Request for Arbitration.
The ICSID Arbitration Rules (“Arbitration Rules”) govern the arbitration process after a Request for Arbitration has been registered. These rules supplement the procedural provisions of the ICSID Convention, including provisions relating to awards and post-award procedures.
The ICSID Administrative and Financial Regulations include provisions relating to costs of litigation, disclosure of information relating to cases, immunities and privileges, etc.
1.3. Jurisdiction of ICSID:
According to Article 25(1) of the ICSID Convention: “The jurisdiction of the ICSID Centre shall be to resolve any legal dispute arising out of an investment…” Other commercial disputes are not within the jurisdiction of ICSID. According to the case law of the ICSID Centre, the characteristics of investments include: Commitments of capital or other resources, a certain period of time, potential risks, can contribute to the economic development of the host country and can be implemented under the laws of the host country.
2. ICSID dispute resolution process:
2.1. Filling and acceptance of lawsuit:
2.1.1. Filing a lawsuit:
The Claimant shall file the Claim with the Secretary General of the Centre and pay the fee. Upon receipt of the Claimant's Request for Arbitration, the Secretary- General shall forward the Claim to the Respondent and communicate the Parties in writing.
2.1.2. Acceptance of petition:
After receiving the request and the fee, the Secretary-General shall consider the request in accordance with the requirements of Article 28(3), or Article 36(3) of the Convention. The Secretary-General shall consider whether the dispute is beyond the jurisdiction of the Center. If the request does not meet one of the requirements of Article 25 of the Convention, the Secretary-General shall refuse the request. Within about three weeks, the Secretary-General shall clarify the necessary contents, additional information and documents from the requesting party. According to Article 36(3) of the ICSID Convention, in case of refusal, the Secretary-General shall notify the parties together with the reasons for refusal.
2.2. Establishment of the Arbitration Council:
2.2.1. Appointment of arbitrator:
The Tribunal shall be constituted as soon as possible after the request is made pursuant to Article 36 of the Convention. The parties shall endeavor to agree on any uneven number of arbitrators and the method of their appointment. If the parties do not advise the Secretary-General of an agreement within 45 days after the date of registration, the Tribunal shall be composed of three Arbitrators, two of whom shall be appointed by the parties and the third Arbitrator shall be agreed upon by the parties or shall be appointed by the Secretary-General as Chairman of the Tribunal.
According to Article 18(1) of Arbitration Rules, if the Tribunal has not been constituted within 90 days after the date of registration, or such other period as the parties may agree, either party may request that the Chair appoint the arbitrator(s) who have not yet been appointed pursuant to Article 38 of the Convention. The Chairman shall appoint the Arbitrator within 30 days of receipt of the request for appointment from the parties.
2.2.2. Establishment of the Arbitration Council:
According to Article 19(3) of Arbitration Rules, within 20 days after receipt of the request for acceptance of an appointment, the appointee shall accept the appointment or refuse the appointment, in case the arbitrator accepts the appointment, the arbitrator must sign the appointment statement. The Tribunal shall be deemed to be constituted on the date the Secretary-General notifies the parties that all the arbitrators have accepted their appointments and signed the declaration required by Article 19(3)(b).
2.3. Trial:
2.3.1. First Session:
Immediately after the Tribunal is constituted, the Secretary-General shall transmit the file and documents of the dispute to the Tribunal in accordance with Article 21 of the ICSID Arbitration Rules. The first session shall be held within 60 days after the constitution of the Tribunal or such other period as the parties may agree. The first session may be held in person or remotely, by any means that the Tribunal deems appropriate. The first session will deal with the procedure, including: the applicable arbitration rules, the division of advances payable, the language, the venue and the procedural calendar, etc.
2.3.2. Written Submissions:
The parties shall file the following written submissions: a memorial by the requesting party and a counter-memorial by the other party. Then, unless the parties agree otherwise, the parties shall file: a reply by the requesting party and a rejoinder by the other party. The memorial shall include the background to the case, the parties' arguments, the applicable law and the request for resolution of the dispute. A counter-memorial shall be similar in content and shall also include the Defendant's responses to the issues raised in the memorial by the requesting party.
2.3.3. Hearings:
The Tribunal shall hold one or more hearings, unless the parties agree otherwise. The President of the Tribunal shall determine the date, time and method of holding a hearing after consulting with the other members of the Tribunal and the parties. The venue shall be agreed upon by the Tribunal and the parties. In the absence of agreement, the hearings shall be held at the seat of the Centre pursuant to Article 62 of the Convention.
Failure of a party to appear or to present its case shall not be deemed to constitute admission of the other party's claims. If a party fails to appear or present its case at any stage of the proceedings, the other party may request the Tribunal to resolve the questions submitted and to render an award.
According to Article 32(4) Arbitration Rules, any member of the Tribunal may put questions to the parties and ask for explanations at any time during a hearing. In addition, in Article 43 of the ICSID Convention, if the Tribunal deems it necessary, it may request the parties to present other documents and evidence related to the dispute. The Tribunal's discussions will be private and confidential.
According to Article 42 (1) of the ICSID Convention, the Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.
2.4. Decision:
Pursuant to Article 35 of the Arbitration Rules and Article 48 of the ICSID Convention, the Tribunal shall render its award by a majority vote of all its members. Abstention shall be considered as a negative vote. According to Article 49 of ICSID Convention, the Secretary-General shall promptly dispatch certified copies of the award to the parties. The award shall be deemed to have been rendered on the date on which the certified copies were dispatched.
The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention. The remedies under the Convention, is regulated in Chapter 5 of the ICSID Convention, include:
- Request interpretation of the award;
- Request revision of the award;
- Request annulment of the award.
A party seeking recognition or enforcement of a judgment in the territory of a Contracting State shall submit to the competent court or other authority designated by that State for this purpose a certified copy of the judgment. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in that designation. Enforcement of the judgment shall be governed by the law relating to enforcement in force in the State in which enforcement is sought.
3. Evaluation of the ICSID arbitration investment dispute resolution mechanism:
3.1. Advantages:
One of the biggest advantages of the ICSID arbitration dispute resolution mechanism is that the award is binding and directly enforceable in all member states of the Convention. According to Article 26 of the Convention, consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. In addition, according to Article 53.1 of the Convention, the award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. This helps to ensure the rights of investors without depending on the judicial system of the countries in the dispute.
Another advantage of the ICSID arbitration mechanism is that it is highly specialized, objective and independent. According to Article 14.1 of the Convention, Arbitrators must be “…persons who may be relied upon to exercise independent judgment.” Arbitrators established under the ICSID Convention are required to be objective and independent. The standards of objectivity and independence apply to all appointed Arbitrators and the President of the Arbitral Tribunal. At the same time, according to Article 57 of the Convention, a party has the right to disqualify a member of the Tribunal if that member cannot be relied upon to “exercise independent judgment,” and based on “any fact indicating a manifest lack of the qualities required by Article 14(1).”
In addition, the third advantage of the ICSID arbitration investment dispute resolution mechanism is the confidentiality of this method. According to the ICSID Arbitration Rules, confidential information is information that is not disclosed to the public, information protected by the arbitrator's written consent, by the applicable law or applicable rules; information of the parties in the dispute, etc.
3.2. Disadvantages:
One of the major limitations of ICSID is that there is no adequate mechanism for appeal against arbitral awards. According to Article 53(1) of the ICSID Convention, the award is binding on the parties and they may not appeal or take any other remedies except those provided for in the Convention. Although the Convention has procedural provisions on the procedure for annulment of awards, this annulment is limited to special cases only.
In addition, this mechanism limits the autonomy of the State in controlling investment disputes. According to Article 25(1) of the Convention, once a State has agreed to submit a dispute to ICSID, it cannot unilaterally withdraw the request. The inability to control investment disputes through the national legal system reduces the autonomy of the investment-receiving country.
3.3. ICSID in Vietnam:
Currently, Vietnam has not joined the ICSID Convention. In the context that Vietnam has very little experience with the dispute resolution mechanism under ICSID, Vietnam will face many difficulties when facing the risk of being sued at ICSID. In addition, due to the final nature of arbitral awards, once it becomes a member of the Convention, Vietnamese courts will no longer have the authority to consider annulling ICSID arbitration awards.
Joining ICSID for Vietnam will be a sign of Vietnam's strengthening international commitment to protecting the rights of foreign investors and continuing to maintain and attract FDI capital flows in Vietnam. Along with the trend of ICSID arbitration rules becoming more fair and considering the interests of investment recipient countries, Vietnam needs to be more proactive in studying ICSID procedures, litigation processes as well as case law,... so that when facing a lawsuit at ICSID, Vietnam can quickly and accurately take the necessary steps to protect its legitimate rights.
Above is the general sharing about the mechanism of investment dispute settlement under ICSID arbitration. Dai Ha Thanh Law Company Limited with a team of Lawyers and Legal Advisors who are well-trained domestically and internationally is committed to providing professional legal services to our customers. If you need detailed advice, please contact us to receive professional and effective legal advice.
REFERENCES
A. LIST OF LEGAL DOCUMENTS:
1. ICSID Convention 2006.
2. ICSID Institution Rules 2022.
3. ICSID Arbitration Rules 2022.
B. LIST OF REFERENCES:
1. Ucheora Onwuamaegbu, Lee M. Caplan , Timothy J. Feighery (2022), Highlights of the 2022 ICSID Rules Amendments,
2. Overview of an Arbitration - ICSID Convention Arbitration 2022, https://icsid.worldbank.org/procedures/arbitration/convention/overview/2022
3. Tran Ngoc Thuy, “Practice of resolving international investment disputes by ICSID arbitration and experience for Vietnam”