The ICSID stands for the International Centre for Settlement of Investment Disputes. It is an institution for resolving disputes between companies and individuals from different countries. ICSID was established in 1966 to manage legal dispute settlement and conciliation between international investors and states.
The ICSID is an establishment that is part of the World Bank Group and is also funded by them. The headquarter of ICSID is in Washington DC, USA. The nature of the institution is autonomous, wherein the institute practices multilateral relations that aim to promote the flow of investment internationally.
In addition, the ICSID lessens the non-commercial risks through a treaty that was written by the authorities of the International Bank for Reconstruction and Development and signed by member countries. The center of the ICSID also undertakes advisory activities and maintains several publications under its name.
During the 1950s and 1960s, an international firm by the name Organisation for European Economic Cooperation, was established to develop a framework that would protect foreign investments. This organization is now recognized as the Organization for Economic Co-operation and Development.
However, the organization’s efforts all went in vain since the members had conflicted views regarding the process required to provide compensation for expropriating foreign direct investment. Expropriation means confiscating private property by a public agency that is considered to be used for the public interest. FDI (Foreign direct investment) is when an entity owns a business in a different country, and the entity itself is based in another.
How did the ICSID come about?
In 1961, Aron Broches, the General Counsel of the International Bank for Reconstruction and Development (IBRD) at that time, established the idea of a multidimensional agreement on a procedure.
It was for settling individual financing disputes according to the facts and figures of the particular situation instead of imposing outcomes based on standards. Aron Broches held multiple conferences to talk with legal experts and advisers from every corner of the globe. These countries were involved including Europe, Africa, and Asia, to confer and constitute an initial agreement.
The IBRD staff wrote a legal draft of the agreement. They then discussed it with legal representatives of the IBRD’s board of directors to conclude and complete the draft. And then get it approved by the authorities.
After the consultations, the draft got finalized. The board of directors authorized the final document of the agreement, which was titled “Convention on the Settlement of Investment Disputes” among States along with Nationals of Other States.
Then the Bank president circulated the agreement to its members of different states for signing the final agreement on March 18, 1965. Twenty states immediately accepted and signed the agreement. Therefore it was decided that the ICSID, which was formed based on the final agreement, would be officially functional by October 14, 1966.
Settlements of Disputes by the ICSID
A company named Churchill Mining, based in London had sued the Indonesian government back in June of 2012. The accusation was on the account that the local government canceled the concession rights under the local company in which Churchill Mining had invested. The government countered the lawsuit. It claimed that Churchill Mining did not have the correct type of license needed for mining.
Another dispute that happened was that the ICSID was settled in October 2012 between the government of Ecuador and Occidental Petroleum. The Ecuadorian government sued the oil company on the account that Occidental Petroleum violated a clause. The clause stated that the oil company was not allowed to sell its rights to another firm without first taking permission from the government.
The ICSID tribunal supported the government’s claim that such a violation had occurred. However, they passed the judgment that the annulment was unfair and inequitable to the company. The tribunal awarded Occidental Petroleum a verdict of $1.8 billion against the government of Ecuador.
In addition, the Ecuadorian government was made to pay $589 million in backdated compound interests and half of the tribunal’s cost. As a result, the government had to pay $2.4 billion.
Plus, the Ugandan government was sued by Tullow Oil, an Irish company, in November 2012. The dispute occurred after the Ugandan government placed a value-added tax (VAT) on goods and services that Tullow Oil purchased for its operations in the country. The government claimed that the firm had no right to claim tax on goods and services before the commencement of drilling.
The ICSID tribunal settled another dispute. It was between tobacco giant Phillip Morris and Uruguay’s government. The tobacco company sued the Uruguay government, citing a breach in the Uruguay-Swiss BIT.
According to Phillip Morris, the violation was that the cigarette packs the company was producing were required to display graphic images depicting health warnings. They further sued Australia for requiring plain packaging for cigarette packets under the Australia-Hong Kong BITS. Phillips Morris claimed that both countries violated their investment as they needed a different kind of cigarette packaging.
The ICSID also helped settle another dispute between the German government and Vattenfall, a Swedish energy company. It was in the context of a nuclear power phase-out in Germany. Vattenfall looked for compensation from the German government because the government called to shut down their nuclear power plants prematurely.
The Performance of ICSID since its birth
During the initial few years of the 21st century, the ICSID got a considerable number of Bilateral Investment Treaties (BITs). They proliferated as much as 2500 BITs by 2007. Several of these treaties also contain writing investment disputes to ICSID about the present and future investments.
The ICSID was able to register at least 390 disputes by June 30, 2012. The International Centre for Settlement of Investment Disputes had cases registered that belonged to various problems. It included a majority of convention arbitration cases, making up 88% of all cases registered with the ICSID. Furthermore, 2% of the lot belonged to the convention conciliation cases. Whereas 9% were additional facility arbitration cases along with 1% additional facility conciliation cases.
These cases were not restricted to just one discipline. They were spread across oil, gas, and mining, which made up 25% of the registered cases. In addition, electricity and other types of energy made up 13% of the cases while other industries had 12% cases.
These statistics can be further elaborated to show that the transportation industry contributed 11%. The construction and financial industries are 7%, the information and communication industries, water and food protection are 6%. At the same time, agriculture, fishing, and forestry contributed 5% cases, and the services and trade and tourism industry added 4% cases to the lot.
The ICSID has shown remarkable performance since the time of its creation. As of June 30, 2012, the ICSID tribunals resolved nearly two-thirds or 62 percent of the cases. The other 38 percent of the cases were either discontinued or settled. They could sort out 246 out of the total 390 arbitration cases by July 27, 2012.
As more cases were registered with the ICSID tribunals after 2012, they could resolve and conclude more. By May 14, 2016, they completed 362 of the 574 cases registered with the ICSID. This shows a stupendous effort by the ICSID tribunals in resolving and concluding disputes. These statistics are only the surface of what this tribunal has achieved.
The ICSID also issued conciliation commission reports. The 67% of cases concluded had their conciliation commission reports issued. In comparison, the remaining 33% of the proceedings fell apart and could not be resolved and concluded.
Furthermore, the gist of these conciliation commission reports showed that in 75% of the cases, the parties involved failed to reach an agreement. However, in 25% of the conciliation cases, a mutual agreement was reached between both parties involved. This agreement was then eventually recorded by the ICSID in their conciliation commission report.
Not many countries had filed cases against investors by 2012. There were only two countries by that time that had filed ICSID cases. These countries were Gabon and Romania.
Countries that appeared as respondents in the cases were in descending order—starting with Argentina, which appeared the most significant number of times, 49. Venezuela 36, Ecuador 12, Egypt 17, Congo 12, Peru 11, and Ukraine 10 times, followed by Argentina. The legal cost of these cases between 2009 and 2012 was between US$1 and 7.6 million.
Furthermore, the maximum duration a case has lasted was 3.5 years. The latest statistics are from 2019. By 2019, the ICSID tribunal dealt with only 2% of conciliation cases. The remaining cases were arbitration.
The governing body of ICSID
There is an Administrative Council that is accountable for governing the ICSID. The council holds meetings each year. In these meetings, the members gather to elect the center’s secretary-general and deputy secretary-general.
In addition to this, the governing body carries out several tasks. These tasks include making new rules and regulations and approving them, conducting the proceedings of the cases of the center as well, and making and supporting the center’s budget and annual report.
The council is presided over by the President of the World Bank Group. However, the president may not vote. There is also one member from each of the center’s contracting member states working in the capacity of a representative.
The secretary-general of the ICSID has 40 employees under his leadership who make up the secretariat. This secretariat looks after the normal operations of the ICSID.
Moreover, the secretariat also helps the Administrative Council carry out the center’s proceedings. Along with this duty, the secretariat manages the center’s Panel of Conciliators and Panel of Arbitrators.
The contracting member states can appoint up to 4 members in each council. There is more responsibility for the secretary-general. He is also supposed to legally represent the ICSID and act as the registrar of its proceedings. Meg Kinnear was the secretary-general as of 2012.
The nature of ICSID’s work
Even though the ICSID’s work is to resolve and conclude disputes, it does not get directly involved with them. The ICSID does not deal with either conciliations or arbitration proceedings by itself. It offers support, which includes both procedural and institutional support to conciliation commissions, tribunals, and other committees that look into such issues.
The center usually applies two sets of rules that determine how the cases are supposed to be dealt with. These rules include the ICSID Convention, Regulations, and Rules and the ICSID Additional Facility Rules.
Under the ICSID Convention, a legal dispute has to be present among the center’s contracting member states as well as a national of another contracting member state. Moreover, the case also has to be of a legal nature as well as it should be directly linked to an investment.
However, suppose the case is to have proceeded under the ICSID Additional Facility Rules. In that case, it has to be between two parties who are either aren’t contracting member state or even a national of a contracting member state.
The ICSID has faced a bit of criticism for how they have conducted its business. One of the most notable ones was Jeffery Sachs. He claimed that the US$5.9 billion judgment against Pakistan regarding the rights occupied by Tethyan Copper Company added to a “flawed and corrupt investment arbitration process.”
Other than this, the ICSID has had an uncontroversial history altogether. They have been resolving disputes since 1966 and have done it with a robust set of rules.