What is the International Centre for Settlement of Investment Disputes (ICSID)?
The World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) was established by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Convention) in 1966.
The reason it was established was to encourage international cooperation and economic development, and to incentivise foreign investment.
It is the only global institution dedicated to settling international investment disputes, and provides a neutral forum in which to do so. Its reputation in this area means that those states that have ratified the Convention are seen as a more friendly environment to foreign investors. Increasing numbers of states are signing the Convention, as it's seen as one of the ways that states can attract more international investment.
As it stood at the end of the last fiscal year from 1 July 2023 – 30 June 2024 (FY 2024), 166 states had signed the Convention, of which 158 had become contracting states.
Since its inception the ICSID has administered more than 900 cases. It appears to be growing in popularity and in FY 2024 alone, a total of 341 ICSID cases were administered, which is the second largest number of cases ever administered at ICSID in a single fiscal year.
Investor-state Disputes
The ICSID is used for settling disputes between foreign investors and host states. These types of disputes may also be referred to as investment treaty arbitration, or investor-state dispute resolution.
The majority of cases involve investments in the oil, gas & mining sector, with 28% of all disputes in FY 2024 falling into this category. The next largest category was transportation (19% of disputes), and then electrical power and other energy (17%)
The ICSID is not limited by sector specification though, and it hears cases in a range of other sectors including; construction, finance, information & communication, water, sanitisation & flood protection, agriculture, fishing & forestry, tourism & trade.
While the ICSID is the most popular institution for investor-state disputes, it is not the only one to hear these types of arbitrations. Other institutions such as the Stockholm Chamber of Commerce (SCC), the Permanent Court for Arbitration (PCA), and the International Chamber of Commerce (ICC) also act as arbitration institutions administrating investment arbitrations.
Bilateral Investment Treaties (BITs) and Investment Contracts
As is the case with any arbitration, the parties must agree in writing to submit their disputes to arbitration. The basis for most ICSID arbitrations arise under international investment agreements. In FY 2024, 54% of all arbitrations had the basis of consent to establish jurisdiction in a bilateral investment treaty.
These agreements provide for international arbitration as a mechanism for settling disputes between foreign investors and states.
However, consent to investment arbitration is also given by host states through Free Trade Agreements and multilateral agreements like the Energy Charter Treaty.
ICSID Arbitration Rules
The ICSID has its own rules, which are established by the Convention. The majority of treaty-based arbitration takes place under this regime.
However, the Centre also administers cases under other sets of procedural rules, such as those of the United Nations Commission on International Trade Law (UNCITRAL).
In some cases, investment arbitration agreements provide for an ‘ad hoc’ arbitration. Typically, these arbitrations defer to the UNCITRAL arbitration rules.
Unique Features of the ICSID
ICSID arbitrations are a neutral forum, which is free from any perceived bias of a host state. As such (and in contrast to commercial arbitration) ICSID proceedings are not normally subject to supervision by the courts at the seat of the arbitration.
However, if the parties have adopted UNCITRAL arbitration rules or ICC arbitration rules (which is entirely permissible), the seat of the arbitration will provide the supporting legal framework and supervisory role in the normal way.
The other unique feature of the ICSID is the depth and breadth of the knowledge of the Centre’s legal counsel in this particular area. The Centre’s legal counsel have exceptional experience in international investment law and procedure.
ICSID Arbitrators
By default, ICSID tribunals have three arbitrators. Each party appoints one arbitrator, who must not have the nationality of either party. The ‘chair’ is appointed by agreement of the parties.
There is a panel of ICSID arbitrators from which to select a chosen arbitrator, but parties do not have to choose an arbitrator from the panel (though many do).
Enforcement of Investment Arbitration Awards
The ICSID Convention provides rules about the enforcement of arbitration awards that the host states must respect. ICSID awards are therefore enforced under the Convention, and treated as final court judgments of the host state.
If the host State is not a party to the ICSID Convention, then enforcement of the award is carried out in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention).
State Immunity
Parties to the ICSID Convention are deemed to have submitted to the jurisdiction and cannot oppose the registration of ICSID awards against them on the grounds of state immunity.
How much does ICSID arbitration cost?
The sums involved in investor-state arbitrations tend to be very high. The average claim is for just under US $ 500 million, but the average award is $76 million. This discrepancy suggests that claims may be exaggerated, but in any event, it is clear that investor-state arbitration tends to be for significant sums.
Mirroring that, the costs of the arbitration are also high. When the request for arbitration is filed, the claimant must pay the non-refundable lodging fee of US $25,000. On top of that, there is an annual administrative charge of $42,000.
Arbitrators’ fees are $3,000 per day, and they charge for meetings and any other work performed.
The parties will also incur expenses including the cost of legal representation and expert fees.
Language
The languages of ICSID arbitrations are English, Spanish and French.
In FY 2024, 140 cases were conducted in English (51%), 24 were in Spanish (9%) and ten were conducted in French (4%). In addition, 100 proceedings were conducted simultaneously in two languages.
