DECLARATION

I Tracy declare that this dissertation entitled “THE COMPETENCE OF THE

INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTEMENT
DISPUTES” is my work and that it has not been previously submitted for an award of
any degree in any university or higher institution of learning. All the sources used have
been indicated and acknowledged accordingly.

I|Page
 CERTIFICATION

This is to certify that this dissertation entitled: “The Competence of the International
Centre for the Settlement of Investment Disputes” by Abeiya Tracy Enjungabou
meets the requirements and regulations governing the award of a master‘s degree in Law
at the University of Yaoundé II. It is approved for its contribution to knowledge.

Signature:……………………… Date: …………………………………

Pr. Fonja Julius Achu

Supervisor

Signature:………………………… Date: …………………………………...

Abeiya Tracy Enjungabou

Student

II | P a g e
 DEDICATION

To my parents.

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 ACKNOWLEDGEMENTS

The realization of this study greatly represents the help and contribution of certain people
whose time and commitment merits sincere recognition.

With utmost gratitude, I acknowledge my supervisor Pr. Fonja Julius Achu who took
time off his very busy schedule to read through this work and effecting necessary
corrections. Infact his timely response and guidance was the asset that helped me most to
complete this work.

I would also like to thank and extent my regards to all my lecturers for their efforts in
shaping me to what I am now. If not for their lectures and corrections, I would not have
had the knowledge or idea to achieve this goal.

Sincere thanks also go to my family. Listing names will be endless. I wish to show
sincere gratitude to all my family members most especially my parents and aunty Miss
Abeiya Judith.

Furthermore, I wish to thank and show my gratitude to Mr Simo Ulrich Romaric and Item
Amstrong Umbu who have helped me realise my dream

Lastly, I wish to appreciate all my friends Efon Clarisse,Esefor solange,fomunjong Akeh

and Ndum Yolande for their support and prayers through every stage of this work.

IV | P a g e
 ABSTRACT

The international centre for the settlement investment disputes (ICSID) has helped in the
last five decades since it was created to settle investment disputes through arbitration and
conciliation. Its establishment has contributed to the substantial rise in investment today.
However, the competence of this centre faces special legal problems. This work therefore
investigates the competence of the ICSID.

This research does so through a reading of records mainly from documentary and internet
search. Thus the data collected constitutes the sources from which the law is drawn,
stated and analysed in the light of the stated aim of the paper.

The results inter alia have proven that ICSID lacks an appellate mechanism and
transparency. This piece of work has also proven that the additional facility rule created
in 1978 has widened ICSID‘s competence beyond the intentions of the framers of the
ICSID convention.

The results are therefore significant as they expose the cracks in the convention creating
the ICSID and conclude with recommendations on where the law should go.

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 TABLE OF CONTENTS
DECLARATION ............................................................................................................................. I

CERTIFICATION.......................................................................................................................... II

DEDICATION .............................................................................................................................. III

ACKNOWLEDGEMENTS .......................................................................................................... IV

ABSTRACT ................................................................................................................................... V

LIST OF CASES ........................................................................................................................... IX

LIST OF LEGAL INSTRUMENTS ............................................................................................. XI

LIST OF ABBREVIATIONS ......................................................................................................XII

GENERAL INTRODUCTION ....................................................................................................... 1

A. Background to the Study ........................................................................... 1

B. Literature Review ...................................................................................... 7
C. Statement of the Problem ........................................................................ 10
D. Research Questions ................................................................................. 11
E. Objectives of the Study ........................................................................... 11
1. The General Objective ................................................................................................... 11
2. Specific Objectives ......................................................................................................... 11
F. Hypotheses .............................................................................................. 12
G. Research Methodology ............................................................................ 12
H. Scope of the Study ................................................................................... 12
I. Organisational Layout ................................................................................ 12
J. Definition of Key Terms ............................................................................ 13
CHAPTER ONE ........................................................................................................................... 23

THE TERRITORIAL AND MATERIAL COMPETENCE OF THE ICSID .............................. 23

1.1 Territorial Competence of the ICSID ......................................................... 23

1.1.1 The Material Competence of the ICSID .................................................................... 26
1.2 The Determinants of ICSID‘s Competence or Jurisdiction ........................ 28
1.2.1 Requirement of Ratione Materiae for ICSID Jurisdiction ....................... 29
1.2.2 Requirement of ratione personae for ICSID jurisdiction. ....................... 30

VI | P a g e
 1.2.3 Nationality of Legal Entities .................................................................... 33
1.3 The Procedure to seize the ICSID .............................................................. 36
1.3.1 The Procedure to Request for Conciliation .............................................................. 36
1.3.2 The Procedure to Request for Arbitration ................................................................ 39
1.4 The Manifestation of Excess Powers and Lack of Jurisdiction by the
Arbitral Tribunal ............................................................................................... 40
Conclusion ........................................................................................................ 44
CHAPTER TWO .......................................................................................................................... 45

METHODS AND RULES FOR THE SETTLEMENT OF INVESTMENT DISPUTES

IN ICSID ....................................................................................................................................... 45

2.1 Methods for the Settlement of Investment Disputes under ICSID ............. 46
2.1.1 Investment Disputes Resolution through Arbitration Method ................ 46
2.1.2 Alternative Methods of Disputes Resolution (ADR) ................................................. 49
2.1.3 Investment Dispute Resolution through Conciliation .............................................. 49
2.1.4 Investment Disputes Resolution through Direct Negotiation: ................................. 53
2.1.5 Investment Disputes Resolution through Mediation ............................................... 54
2.3 Other International Rules and Disputes Resolution Institutions
Referred to IIAS ................................................................................................ 58
2.3.1 The United Nation Commission on International Trade Law (UNCITRAL) Model Law
on International Commercial Conciliation of 2002 ........................................................... 59
2.3.2 The International Chamber of Commerce (ICC) ....................................................... 60
2.3.3 International Centre for Disputes Resolution (ICDR)................................................ 60
2.3.4 The World Intellectual Property Organization (WIPO) ............................................. 61
Conclusion ........................................................................................................ 62
CHAPTER THREE ....................................................................................................................... 63

THE STRENGTHS AND SUCCESSES OF THE INTERNATONAL CENTRE FOR

THE SETTLEMENT OF INVESTMENT DISPUTES ................................................................ 63

3.1 The Successes of the International Centre for the Settlement of

Investment Disputes .......................................................................................... 63
3.2. Strengths of Arbitration and ADR Mechanisms ........................................ 67
Conclusion ........................................................................................................ 70
CHAPTER FOUR ......................................................................................................................... 71

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CRITICISMS OF THE ICSID ...................................................................................................... 71

4.1 The ICSID and Cameroon: Impact on Investment and Domestic

Legislation......................................................................................................... 76
4.2 The Impact of the ICSID on Other Developing Countries ......................... 79
4.3 The Effect Of ICSID Denunciation ............................................................ 83
4.4 findings, conclusion and recommendation ................................................. 85
A. Findings ........................................................................................................ 85
B. Conclusion .................................................................................................... 86
C. Recommendations: Measures to Improve on the Competence of
ICSID. ............................................................................................................... 87
BIBLIOGRAPHY ......................................................................................................................... 90

VIII | P a g e
 LIST OF CASES

NATIONAL CASES Pages

1. Capital Financial Holdings Luxembourg S.A v. Republic of Cameroon, ICSID Case No.

ARB/15/18, July (2002) ……………………….…………………………………………67

2. Klöckner Industrie – Anlagen GmbH and others v. United Republic of Cameroon and

Société Camerounaise des Engrais, ICSID Case No. ARB/81/2,…… 33,42, 45, 65, 93

INTERNATIONAL CASES Pages

3. Agricultural Products Limited v. Republic of Sri Lanka, ICSID Case No. ARB/87/3,

(1991)……………………………………………………….........................................36

4. AGIP S.p.A. v. Congo, ICSID Case No. ARB/77/1, (1993)…………………..………36

5. AMCO Asia Corporation and others v. Indonesia, ICSID Case No. ARB/81/1, (1988)

…………………………………………………………………………………….…..33

6. Beijing Urban Construction Group Co. Vs. Republic of Yemen, Case No.

ARB/14/30,…………………………………………………………………..………..48

7. Capital Financial Holdings Luxembourg S.A v. Republic of Cameroon, ICSID Case No.

ARB/15/18, July (2002) ……………………….…………………………………67

8. Champion Trading Company and Ameritrade International, Inc. v. The Arab Republic of

Egypt, ICSID Case No.ARB/02/9,(2004)…………….………………………...38, 39

9. CSOB v. Slovak Republic, Case No.ARB97/472-76, on April,

(1997)…………………………………………………………………………....….…33

10. Fedax No.1 v. Venezuela, ICSID Case No.ARB/93/3, (1998) ……………….20, 27, 33

IX | P a g e
11. Klöckner Industrie – Anlagen GmbH and others v. United Republic of Cameroon and

Société Camerounaise des Engrais, ICSID Case No. ARB/81/2,

(1984)……………………..……………………………………………33,42, 45, 65, 93

12. Maritine International Nominees Establishment V. Republic of Guinea, December (1997)

……………...……………………………………………………………..…...38

13. Quiborax v. Bolivia, ICSID case No. ARB/O6/2, September, (2012)………..….27, 28

14. Salani et al v. Morocco ICSID case No. ARB/00/4, on July, (2003) ……………….21

15. Salini Construttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan,

ICSID Case No.ARB/02/13, (2005)………………………………………….……… 29

16. The Mavrommatis Palestine Concessions Judgement No.2, PCIJ., Series A, No.2,

(1924)……………………………………………………………………..……….21, 36

17. Tokios Tokelés v. Ukraine, ICSID Case No.ARB/02/18, (2005) …..………….…….….40

18. Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, (1997)

………………….……………………………………………………………..………43

19. Vivendi v. Argentine Republic, ICSID Case No. ARB/97/3, July (2002) …………...47

X|Page
 LIST OF LEGAL INSTRUMENTS

INTERNATIONAL INSTRUMENTS Pages

1. General agreements on tariff and trade, 1947………………………………………….4

2. Havana Charter, 1948……………………………….……………………..…………...4
3. Convention on the Recognition and Enforcement of foreign arbitral awards,
1958…………………………………….……….……………………………….....5, 77
4. Washington Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States, 1965 …...........… 1,18,19,31,33,34,35,36,38,47,56,63,65,66
5. The Vienna Convention on the Law of Treaties, 1969………………………....…28, 66
6. United Nations Declaration on the Establishment of a New International Economic Order
1974……………………………………………………...………………………5
7. UNCITRAL Model Law on International Commercial Conciliation of 2002…………6

NATIONAL INSTRUMENTS
1. The 1990 Cameroon Investment Code, instituting the Legal Framework for the
Regulation of Foreign Investment in Cameroon, Free Zone Regime, Ordinance No:
90/001 of 29 January 1990 ratified by law No: 90/023 of August (1990)…….…….. 36

XI | P a g e
 LIST OF ABBREVIATIONS

AAA American Arbitration Association

ADR Alternative Dispute Resolution

AFCTA African Continental Free Trade Area

BITs Bilateral Investment Treaties

CEMAC Monetary and Economic Union of Central Africa

ECOWAS Economic Community of West Africa States

FCNs Friendship Commerce and Navigation Treaties

FDI Foreign Direct Investment

GATT General Agreement on Trade and Tariffs

ICC International Chamber of Commerce

ICSID International Centre for the Settlement of Investment Dispute

ICDR International Centre for Dispute Resolution

ICJ International Court of Justice

IIAs International Investment Agreements

ITO International Trade Organization

IIMS International Investment Mediation Service

MST Minimum Standards of Treatments

NAFTA North American Free Trade Agreement

NIEO New International Economic Order

NST National Standards of Treatment

PCIJ The permanent Court of International Justice

REIAs Regional Economic Integration Agreements

TRIMS Trade Related Investment Measures

XII | P a g e
UDEAC Economic Union of Central Africa

UN United Nations

UNCITRAL United Nation Commission on International Trade Law

UNCTAD United Nations Conference on Trade and Development

US United States

WIPO The World Intellectual Property Organization

WTO World Trade Organization

WWII World War Two

XIII | P a g e
 GENERAL INTRODUCTION

A. Background to the Study

The historical evolution of the concept of arbitration and conciliation in investment

disputes have passed through several stages which include the colonial era, the post-
colonial era,1 and the rise of neo-liberalism.2

The age of Empire, that is during the eighteenth and nineteenth centuries, the imperial
powers furthered trade and investment principally by conquering small states which
served as markets. The size of foreign direct investment increased during this period,3
but the apparatus of colonialism meant that there was little protection for the
investments which flowed down to the colonies. The legal regime of the colonies was
integrated with that of the colonial powers. The colonial master carried out all
investment for their interest. Colonial masters entered into agreements on international
commercial undertakings on behalf of those colonized territories for their interest and
these agreements imposed certain responsibilities on those colonies. In those colonies,
the rich capital exporting countries used diplomacy and coercion to ensure that trade
and investments were not impeded through what is known as "gunboat diplomacy‖
which combined diplomacy with the use of force. As such more powerful states were
sure of all investment advantages to the disadvantage of the colonized states. With this
context of using diplomacy and force, dispute settlement mechanism became the norm
to protect foreign investment by powerful states.

Along with the gunboat diplomacy, the colonial era also witnessed legal frame works
of investment protections in the form of Friendship Commerce and Navigation
Treaties (FCNs).4 The history of these treaties dated as far back as 1778 when France
the and United States (US) signed the agreement to secure their reciprocal interest
abroad. FCNs promoted investment and the protection of investors‘ properties through
providing norms and standards of treatment which arguably derived from customary

1
Samarnaraja, M, (2010), The international law on foreign investment, Cambridge University press,
P19.
2
Andrew P L,(2009), Law and Practice of Investment Treaties: Standard of treatment .Walters Kluwer, p3.
3
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States -
Documents concerning the Origin and Formulation of the Convention (Convention History), Vol. II,
Washington, ICSID, (1968), P54.
4
From 1946 to 1966 the US entered into Twenty-One FCN treaties two of the treaties were subjected to
proceedings before the International Court of Justice: Military and Parliamentary Activities in and
Against (Nicaragua V. US ) 1984 ICJ (1896) ICJ Rep 14

1|Page
international law. Powerful states developed the idea of Minimum Standards of
Treatments (MST) they used this ideology to build the treaty protection mechanism.
The idea of minimum standards helped emphasized two propositions in the
development of International investment regime. First, that the treatment of foreign
investors should be dropped below certain minimum standards recognized by
international law, the standard must be met irrespective whether the treatment by the
host states of the domestic investor was lower, and Secondly that foreign investors
should be entitled to full compensation when those minimum standards were not met
by the host state. This standard provided for the payment of full, prompt, adequate and
effective compensation. The MST faced opposition by the Doctrine of National
Standards of Treatment (NST). This stressed on the equality of nationals and aliens in
the third world countries. As a consequence, this raised a barrier that foreign investors
resorting to this doctrine of diplomatic protection are subjected to jurisdiction of
domestic laws. This national standard formulated in Latin America by the diplomat
and jurist Carlos Calvo and is commonly referred to today as the Calvo doctrine. 5 It
provided that in case of an investment dispute between the foreign investor and a host
state; the investor may seek redress only before the local authorities of the host
countries. Predictably, this doctrine lacked support from the powerful states, Latin
American states incorporated the doctrine into their contracts with foreign investors, to
ensure that foreign investors would not be treated more favorably than domestic
investors and that they were not entitled to diplomatic protection.

As the colonial era began to draw to the end in the early twentieth Century, powerful
states adopted investment protection measures for their own trades and investments.
These lead to the establishments of several Organizations to guarantee and protect
investment. One of this was the International Trade Organization (ITO). The main
purpose of ITO was to draw up an investment and trade structure through which states
would be bound by fair trade and investment rules. ITO failed because the United State
excluded this Organization‘s Competence on investment rules and wanted the
organization to be limited only to trade rules.

5
Butler N. (2012), The state of international Investment arbitration: The possibility of establishing an
Appeal Mechanism, A Published PhD thesis submitted to the University of Leeds School of Law,
September p.16

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More so, the ITO faced a controversy on issues such as the standard of treatment, thus
because of this the March 24, 1948 Havana Charter for the Establishment of ITO never
came to force. As a result of its failure the states instead agreed to Unify through an
international framework in the form of General Agreement on Trade and Tariffs
(GATT)6 it also explicitly excluded from its ambit the regulation of foreign investment
and standard of protection. Another institution put in place to ensure the regulation of
foreign investment was the World Trade Organization (WTO).7 During the Uruguay
round of negotiation on multilateral trade, it led to the creation of Agreement on Trade
Related Investment Measures (TRIMS) which focuses on the trade related aspects of
foreign investment.8 After the Second World War they was the 1958 Convention on
the Recognition and Enforcement of foreign arbitral awards (NEW York Convention).
The belief of Equality in 1964 also led to the Formation of the United Nations
Conference on Trade and Development (UNCTAD).9 The United Nations (UN) also
instigated the Declaration on New International Economic Order (NIEO)10 and an
important item on the NIEO agenda was the reform of investment regulation.

Negotiating Bilateral and Multilateral International Investment Agreements (IIAs) was

seen by developing states like a good response to developed states neocolonialism
agenda, where powerful states regulated the promotion of investment and the
protection of their foreign investors.11

6
General agreements on tariff and trade, 1947
7
General Agreement on Trade in Services and the Agreement on Trade Related of intellectual property
were negotiated during the Uruguay round in 1986-1994 sign at Marrakesh ministerial meeting in
April 1994 and entered into Force in January (1965).
8
Correa C, et al, (2003), ―Protecting Foreign Investment: Implication of a WTO Regime and Policy
Options” (Zed press,. P.54
9
United Nations Conference on Trade and Development UNCTAD, Investors-State Dispute: prevention
and Alternative to Arbitration, New York and Geneva (2010) p6
10
UN Declaration on the Establishment of a New International Economic Order: Establish by UN
General Assembly Resolution, (1974) 3201, UN Doc.A/RES/S-6/3201 1, May (1974) Available
online at <http//www.Undocuments net/s6r33201.htm>accessed on the 14 December (2017).
11
Mahmaz Malik, Recent Developments in the Definition of investment in International Investment
Agreements, Second Annual Forum of Developing Country Investment Negotiators, 3-4 November,
(2008) 53-56

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The historical evolution of the concept of conciliation and arbitration is as old as man.
The International Centre for the Settlement of Investment Disputes has passed through
several models before the establishment of ICSID.12

The first of such was the ‗‗Toolbox Model‘‘ which consisted of setting up an Adhoc
mechanism for the settlement investment disputes. The Adhoc mechanism was aimed
at offering solutions to disputes through negotiations, facilitation, conciliation,
mediation, arbitration, litigation and judicial or quasi-judicial processes. This adhoc
mechanism also carried out monitoring of investment through inspection and self-
reporting. The experts were unsure during this model whether to include traditional
investor‘s state disputes settlement in this toolbox, but however they recognized the
dangers that arbitration will hijack the other tool in the box because it will be resorted
to more frequently than the other mechanism. There was therefore the need to promote
the use of other mechanisms available and to adopt the condition for initiating
investor‘s state dispute settlement to ensure it did not preempt the value of access to
justice for all affected stakeholders.

The second was Group 2 model: The International Investment Mediation Service
(IIMS). This was composed of mediators and conciliators13 based on the standing body
or adhoc panels and with a permanent secretariat. While this service was thought to be
accessible to all state investors, some experts suggested that this would raise the
problem of pre-screening: structure and the standard necessary to determine which
issues are the most appropriate for settlement by the IIMS. The experts also explored
the possibility of establishing consolidated national focal points for the services. This
was thought would allow communities to bring claims against corporations and to
encourage members to come forward and participate.

The rules of the IIMS would direct all stakeholders involved to treat all processes
confidentially. Then proponents recognized that the option for confidentiality has pros
and cons: because while it may enable the parties to reach an agreement, the lack of
transparency may harm the public interest. As is always the case with mediation, all

12
. Results of an IISD Expert Meeting, Investment-Related Dispute Settlement: Reflection on a New
Beginning, IISD Investment and Sustainable Development programme, Montreux Switzerland,
February, (2015), p.10
13
Conciliation is a relatively formal and structured process of facilitating Negotiation through
conciliators who are most often third parties, in a dispute between the investor and the host state. With
the aim of Dispute prevention and avoidance

4|Page
remedies were to be voluntarily agreed upon. The mechanism would have a single tier
but if no agreement is reached parties could still resort to arbitration.

In the late Nineteenth and Twentieth Century, as the world economy became
increasingly internationalized, the limits of the diplomatic protection models became
apparent especially as controversies arose between capital exporting and importing
states regarding the customary law minimum standards of treatment to be accorded to
foreign investors and investments. The aftermath of the Second World War (WWII)
which was the process of international economic integration gathered momentum
leading to the contemporary investment treaty framework.

The modern investment treaty assumes the equality of bargaining position of the host
state and foreign investor. As a result, the Executive Director of the World Bank
initiated the drafting of the ICSID Convention that was signed on March 18, 1965
establishing ICSID to act as a conciliation and arbitration Centre for investment
disputes between states and nationals of other contracting states, which entered into
force on October 14, 1966. The establishment of the Centre was motivated or
prompted by the desire to encourage larger flow of private international investment, to
maintain careful balance between the interest of the investor and those of the host
state.14 This is because before the establishment of ICSID, investment disputes
settlement was subject to the local laws of the host government, where if the investor
feels aggrieved by the decision of the host government, he may only invoke the
diplomatic protection of his state or he may ask his national state to espouse his case
and bring a claim before the international tribunal. The absence of adequate machinery
for international conciliation and arbitration often frustrated attempts to agree on an
appropriate mode of settlement of investment disputes. Other international tribunals set
up by the private organization such as the International Chamber of Commerce (ICC) 15
were frequently unacceptable to governments and the only public International arbitral
tribunal the permanent court of Arbitration, was not open to private claimant. As such
the nature of problems above suggested the solution along the following:

14
Rosendahl R W, (2004) ―Political, Economic and Cultural Obstacles to Effective Arbitration of
Foreign Investment Disputes” in Horn H, et al (eds), Arbitrating Foreign Investment Disputes Kluwer
Law International,.
15
ICC Guide to National Procedures for Recognition and Enforcement of Awards under the New York
York Convention, 2012.

5|Page
The recognition by states of the possibility of direct access by private individuals and
corporations to an international tribunal in the field of financial and economic disputes
with governments is necessary.

The recognition by states of the agreement made by them with private individuals and
corporations to submit any investment disputes to an international binding arbitration
will be of great importance to increase investment.

With respect to the above requirement in the investment climate, the Executive
Director General of the World Bank recalled in the Memorandum of the General
Council circulated on August 28, 1961(secM61-192), during his annual address at the
meeting in Vienna as follow; ‗‗I will like to explore this matter further with the
executive Director.16 The first question for discussion is whether it would be
appropriate and useful for the Bank to take an initiative in furthering the idea of
arbitration and reconciliation of the so called investment disputes? Because improved
method for the settlement of investment disputes would contribute to an improvement
in the investment climate and would thereby turn to promote the flow of private
foreign capital, which is an objective of special concern to the Bank. 17 Furthermore,
the Bank is considered as an impartial institution not motivated by political
consideration and with the understanding of capital exporting and capital importing
countries alike. This means that a recommendation or proposal emanating from the
Bank would receive wide attention and respect. Thus in respond to the above cries,
during the preliminary discussion in the meeting of the executive Directors on January
9, 1962 a number of questions were asked regarding every one‘s opinion on the
consideration made in the president Memorandum (R61-128) to establish the ICSID
and the implication of those proposal. Majority of the directors accepted and by March
18, 1965 the International Centre for the Settlement of Investment Disputes (ICSID)
was established. The drafting of the Convention was participated at by experts from 86
countries and entered into force only on October 14, 1966, after being ratified by 20
countries.18 The Conventions‘ main objective was the establishment of the Centre to

16
Ibrahim S, (1991)―The World Bank in a Changing World selected essay Kluwer Law International,
17
ISCID original 1968 publication, History of the ICSID Convention, Document concerning the Origin
and the formulation of the Convention on the Settlement of Investment Dispute Between States and
Nationals of Other
18
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States,
opened for signature Aug. 27, 1965, (entered into force Oct. 14, 1966), reprinted in 4 INT'L LEGAL
MATERAS (1965).

6|Page
promote and guarantee international investment and economic development, to provide
adequate and prompt settlement of investment disputes and to strengthen partnership
between contracting states.19 In addition to the above mentioned the Convention also
has as aim to guarantee mutual confidence in investment sphere and thus stimulate a
larger flow of private international capital into those countries that wish to attract it.
More so, unlike an ad hoc arbitration ICSID offers a considerable advantage as it
offers not only standard Claus and rules of procedure but also institutional support for
the conducts of proceedings and also provides for awards recognition. Generally,
ICSID has been instrumental in playing its leadership role as an international
arbitration Centre even though the Centre has some major setbacks to be discussed in
subsequent chapters of this thesis.

B. Literature Review

The subject of ICSID has evoked a considerable amount of comment in academic

literature since its inception. A good number of books have been written on the broad
subject of ICSID adopting various approaches using the historical, descriptive, or
analytical approach. In spite of this it is not easy to find literature that addresses the
precise issue of the competence of the ICSID.

Alex Grabowski asserted that ―the jurisdiction or competence of ICSID extends to

matters of International investment, but the organization charter never defined what
actually qualifies as investment.‖20 Arbitration panels struggled with the issue and
finally settled on the long standing Salani test. This test defined investment as having
four elements; (1) a contribution of money or asset, (2) a certain duration. (3) An
element of risk, (4) a contribution to the economic development of the host states.
Recently the panels have started questioning the merit of that test particularly the
validity of the fourth sprong. But rejecting the doctrine would have two negative
consequences, it would extend ICSID‘s Competence beyond what is granted by the
organization‘s founding documents and it would induce uncertainty into the realm of
international investment which could chill the flow of capital.

18
International Centre for Settlement of Investment Dispute, Fifteenth Annual Report (1981) Eighty-
five states have signed the Convention, but only 79 have ratified it. The six signatory states yet to
ratify include Australia, Barbados, Ethiopia, Israel, Paraguay, and the Solomon Islands.
20
A Graboswski, (2014) “The definition of Investment Under the ICSID Convention: A Defense of Salini”
Chicago Journal of International Law: Vol 15, No1, Article 13, p295.

7|Page
Samarnaraja21 focuses on the protection of foreign investment and the problem
associated with such protection. He took into account not only the vagueness of the
laws in this area, but also of the relevant literature in economics, political science, and
other associated disciplines.

On the other hand, the book written by Asouzu Amazu focuses on whether arbitration
and alternative investment dispute resolution methods, as opposed to litigation can
contribute to the aspiration of contracting member‘s states, while at the same time
satisfying the expectations of the investors and traders for profit, security, stability and
ensuring fairness and justice.

These findings of Sonarajah and Asouzu22, appeared to have been reflected in

Christoph Schreuer, in his Article titled ―International Centre for the settlement of
investment Disputes (ICSID)‖23 he stated that ICSID is an intergovernmental
institution established by the Washington Convention in 1965, it is closely linked to
the International Bank for Reconstruction and Development designed to promote the
settlement of investment disputes between Contracting members States and private
foreign investors. Its aim is to contribute to the promotion of economic development.
Schreuer emphasized on the fact that ICSID is not an International Court, but merely
provides an institutional framework that facilitates the Conciliation and arbitration and
that the actual settlement takes place through arbitral tribunal constituted on an ad hoc
basis for each dispute. Sergio Puig in his article titled ―Emergence and Dynamism in
International Organizations: ICSID Investment States Arbitration and International
Investment Law‖24 Puig held a similar view to Schreuer. He addressed ICSID‘s
evolutionary processes, and grouped the processes in four major faces its existence.
The First face was to increase membership of the Centre, from its creation in 1965,
during this stage ICSID succeeded in framing the Washington Convention (ICSID‘s
Convention) as lexfori for Investment disputes settlement. In the Second face, Puig
evaluated the unprecedented Crisis experienced by ICSID. He lamented on the fact
that many commentators were worried about the denunciation of the ICSID‘s

21
Samarnaraja, M. op cit, p.19.
22
Asouzu, A. A. (2001). International commercial arbitration and African states. Cambridge: Cambridge
University Press.
23
www.icsid.worldbank.org
24
Sergio P. (2013), Emergence and Dynamism in International Organization: ICSID, Investor-state
Arbitration, and International Investment law, Georgetown Journal of international Law, Vol. 44, No.
531

8|Page
Convention by Venezuela, Bolivia and Ecuador which may raise a problem of
legitimacy. He also examined the lack of payment of some adverse arbitral awards
against Argentina that may raise the problem of efficacy, and the defense of choices of
alternative disputes resolution to ICSID on the part of lawyers showed a problem of
confidence in the Centre.

According to Judge Charles N. Brower cited in Puig‘s article25, he stated that as a

result of Shihata‘s action there was an increase in Confidence in ICSID among users
but however also lamented on the fact that the uncertainties created by the first two
annulments did leave a negative mark on ICSID.

However, Puig’s findings appeared to have conflicted with Leon E. Trakman in his
publication titled ―The ICSID Under Siege‖ He wrote extensively asserting that in
2009 several Countries‘ withdrawal from ICSID was necessary for the liberation of our
Countries because ICSID signifies Colonialism, Slavery, with respect to transnationals,
with respect to the Washington, with respect to the World Bank. This public
presentation was followed by the president of Bolivia and Ecuador at a United Nation
Conference in June 2009 where they declared that ICSID should be disbanded.
Nevertheless, Trakman failed to take into consideration the aims, objectives and
overwhelming importance of ICSID in his publication. This has left the Competence
and aspiration of these noble Centre questionable and left investors helpless on the
reliability of ICSID as to leadership on the settlement of investment dispute.

Despite the elaborate literature on the general subject matter of ICSID, they exist just
little literature which focuses specifically on the issue of competence of ICSID. This
available literature focuses more on criticizing the ICSID conventions, the success and
failures of the Centre. As such a further research specifically on the Competence of the
Centre will help provide a goal and remove the problem of jurisdiction which is often
raised at the Centre.

This piece of work differs from the previous authors in that it makes a critical appraisal
of the role of the ICSID in the settlement of investment disputes. This work also
examines the area of competence of this Centre and the circumstances under which the
ICSID lacks Competence.

25
Sergio P. (2013) op. cit. Vol. 44, No. 531

9|Page
 C. Statement of the Problem

The International Centre for the Settlement of Investment Disputes has helped in the
last 52 years since it was created, to settle investment disputes through Arbitration and
Reconciliation, its establishment has contributed to the Substantial rise in investment
today.26 However, the competence of this Centre faces special legal problems.

The main problem is the Lack of Competence and Transparency in the Centre, which
makes the Centre Ineffective and in efficient. The Centre in some situations entertains
cases which are not within its power or jurisdiction. ICSID‘s proceedings take place in
private and ICSID will publishes its awards only with the prior consent of the both
parties.

This lack of Competence and transparency in the ICSID Jurisdiction accounts for the
non-respect of the Centre‘s award and its denunciation by its member states.

Other problems associated with this Centre include Uncertainty as to the Applicable
law put in place by the 1965 Washington Convention on the Settlement of Investment
Disputes between states and Nationals of other contracting States. The Convention
establishing the Centre does not contain any substantive rule; it merely offers the
procedure for the settlement of investment disputes.27 This principle may lead to
conflict of laws between the investor and host state laws, which the arbitrators may not
have knowledge on the interpretation of such rules, while in some cases; the provisions
of the Convention are simply vague and imprecise.

More so, it is held by many host states that the Centre is partial because it is receiving
and passing awards only in favour of investors to the detriment of the host states which
are mostly developing countries.28 To many scholars, this is done in breach of the very
purpose of its establishment.

26
None of the Latin American countries have ratified the convention." This is significant since a 1974
American State Department study showed that of the 143 foreign investment disputes registered
between July, 1971 and July, 1973, 69 per cent (84) were in Latin America.
27
International Bank for Reconstruction and Development, Report of the Executive Directors on the
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States
(1965) 1 ICSID Rep 25.
28
Anyango M, , (2006), The International Centre for the Settlement of Investment Disputes:
Jurisdiction and Relevance to Africa .published Research project submitted to the University of
Nairobi in partial fulfilment of the post Graduate Degree of a Master of Law. p7

10 | P a g e
Finally, the binding force and the non-enforcement of the Centre‘s awards is causing
member states to doubt ICSID awards. This is because the fact that most contracting
states fail to comply with ICSID‘s award due to the lack of award enforcement
mechanisms, constitutes a major problem to its competence, if only the Centre wish to
maintain its status and the confidence its contracting member states have about the
Centre.

D. Research Questions

The research will attempt to answer the following questions:

1.What is the Competence or jurisdiction of the ICSID?

2.Which methods are used for the settlement of investment disputes in the ICSID.

3.To what extent has ICSID achieved its objectives of ensuring Effectiveness and
transparency in the settlement of investment disputes?

4.What impact has ICSID had on Africa in general and Cameroon in particular?

E. Objectives of the Study

The Objectives of the study are divided into general objective and specific objectives:

1. The General Objective

To explore the competence and jurisdiction of ICSID as concerns the nature of
disputes that fall under the ICSIDs jurisdiction.

2. Specific Objectives
1. In addition, the researcher examines the mechanism provided for in the 1965
Washington convention, the work examines various Methods used for the
settlement of Investment Disputes.
2. To examine the role of ICSID in the settlement of investment disputes.
3. The next objective is to evaluate the Strengths, Successes and criticisms of the
Centre.
4. To evaluate the effect of the ICSID on Cameroon, Africa and the world.
5. This research proposes some recommendations that would help strengthen the
role of the ICSID.

11 | P a g e
 F. Hypotheses

In view of the potential problems raised by this work, the researcher‘s hypothesis is
that;

A reform of dispute settlement will increase the relevance of ICSID to its contracting
states and the world and will enable the centre to achieve its development objectives.

Again, an amendment of ICSID convention to define in clear terms what investment

dispute is, will help remove the problem of lack of competence and jurisdiction and
help instill confidence amongst contracting member states.

In addition to ensure the application of justice at the centre, hearing of proceedings

should be done in public and all ICSID awards should be published to provides states
with sufficient knowledge on the ICSID arbitration system

G. Research Methodology

This work is the product of extensive legal research in the field of international
investment law, more specifically on the international investment arbitration. The
Research adopts a purely doctrinal approach, using qualitative analysis of the literature
relating to the ICSD. Every endeavour has been made to ensure that the research
highlights all of the most recent and most relevant literature on the subject of the
international investment arbitration and the clear establishment of its competence as to
the nature of cases which the Centre can have locus to hear. The research is carried out
by consulting a variety of different sources of literature including: books, articles, the
decisions of the tribunal, Institutional reports and websites.

H. Scope of the Study

This research examines the Competence of the ICSID in the settlement of International
Investment Disputes. The work is limited to ICSID arbitration Centre and its
Contracting Member states all over the World. The research will also make use of
investment disputes settlement rules.

I. Organisational Layout

Considering that ICSID was created to settle disputes arising directly out of investment
and to create mutual confidence between investors and host countries, a world without
ICSID would simply imply a substantial drop in Foreign Direct Investment (FDI) and

12 | P a g e
the economic benefit it brings. This is because investors may fear to invest a huge
amount of capital on investment which in case of a dispute they will be no recourse.

This research would lead to efficient allocation of resources and balanced

Development. This is because the absence of ICSID will mean an underestimation to
the allocation, distribution of resources and wealth ant this may lead to inequality and
cost of resources in other areas in the World. This will cause inequality in development
as few states will continue developing faster while others continue remaining under
develop and may lead to a situation where resources are idling in one part of the globe
while other countries are in need.

This research would as well educate the public on the appropriate and reliable
competence of the international Centre for settlement of investment dispute.29

The study on the competence of the ICSID is important for Developing Countries
because, there is a greater need to attract Foreign Direct Investment (FDI) due to the
economic benefit it brings such as efficient resource allocation and equal wealth
distribution, as such to guarantee such investment, and there is need for an effective
investment settlement Centre.

This study will also help instil confidence, hope and trust in investors as to the
transparency and fairness of the ICSID, thus it will remove fear out of investors and
encourage investment, hoping on the Centre‘s capability to settle all investment
disputes that may arise in the future.

Furthermore, this piece of work would lay down certain recommendations which if
implemented by ICSID will help fill the lacunae or reduce the failures that would be
recorded by the Centre in the Centre, hence indirectly contributing to the increase in
the global investment climate.

J. Definition of Key Terms

1. Competence
Competence can be understood as the power of a particular forum to hear a case. The
Oxford Dictionary of Law defines competence as the power of a court to hear and

29
Bashmill H, (2016), “Foreign Investment Dispute Settlement Under ICSID and the Protection of
FDI” Journal of Internet Banking and Commerce, University of Leicester Uk, Jan P.4

13 | P a g e
decide a case or make certain orders-.30 While Black‘s Law Dictionary Defines
Competence to mean the following: (a) court‘s power to decide a case or issue a
decree.31 It should be noted that the concept of Jurisdiction and Competence are often
used interchangeably.32 However, it should be noted that article 41 of the Washington
Convention establishing this Centre gives ICSID the exclusive capacity to determine
the jurisdiction of the Centre and its own competence.

The power of this arbitral tribunal, constituted under the ICSID Convention to
determine its own jurisdiction and Competence over a case comes from treaty law.
According to Schreuer, the power of a judicial body to determine its own competence
is an accepted principle of international adjudication and is a common feature in
instruments governing international judicial procedure.33 According to article 41(1)
The Tribunal shall be the judge of its own competence, and its Competence should be
determined in accordance with Article 25 of the Washington Convention.

Any objection by a party to the dispute that the dispute is not within the jurisdiction of
the Centre, or for other reasons that the case is not within the competence of the
Tribunal shall be considered by the Tribunal. In this case the tribunal shall determinate
whether to deal with it as a preliminary question or to join it to the merits of the
disputes.

According to Professor Schreur the usual practice under modern international and
institutional rules of arbitration to decide upon its own Competence is sometimes
argued that it is to prevent a frustration of the arbitration proceedings through a
unilateral denial of the tribunal‘s competence by one of the parties. This article
excludes the possibility for example of one State resorting to its domestic courts or to
an Ad Hoc tribunal in order to deny an ICSID tribunal‘s jurisdiction. The fact that the
ICSID tribunal determines its lack of competence, does not mean that the arbitration
agreement was not valid and does not alter the validity of the constitution and actions
taken by such tribunal. Therefore, We have to agree with Schreuer to the fact that
article 41 gives the tribunal an independent legal basis which leaves all the member

30
Elizabeth A.(2003) Oxford Dictionary of Law. 5th edition Oxford University Press.
31
Bryan G. (2009) Black‟s Law Dictionary. 9th Edition. (Thomson Reuters: West Publishing Company).
27
Schreuer C. (2001) The ICSID Convention: A Commentary. (Cambridge: Cambridge University Press,
p 521.
33
ibid

14 | P a g e
states at the mercy of ICSID when it comes to determination of the Centre‘s34
Competence.

2. Investment
Despite the fact that the Convention establishing the Centre was put in place by one of
the World greatest legal mind, the Convention does not define the most important term
of the Convention known as investment. According to Juillard and Carreau, the
absence of a common legal definition is due to the fact that the meaning of the term
investment varies according to the object and purpose of the different investment
instrument which contain it.35 Therefore, a broad discretion has been given to the
parties in defining what will amount to investment. However, these definitions by the
parties must be in accordance with the need for international co‐operation for
economic development and the role of private international investment therein as
stated in the Preamble of the Convention.

According to the provisions of the ICSID Convention, contracting parties may define
investment either in an agreement between the Contracting State and the investor, or in
the national law of the Contracting State, or in a clause of a treaty accepted by the
investor.36

The signatories of ICSID Convention believed that such a structured method of dispute
resolution would foster international investment, and that such investment would lead
to economic development. But when determining the jurisdiction of such arbitration
Centre, the panel and signatories opted to leave investment undefined in the final
product of the Convention because they expected state‘s consent to define what
activity will amount to an investment. To this end, they provided a procedure for
countries to submit in writing the types of disputes they would or would not consider
presenting to the ICSID.37 However, arbitrators later quickly realized that consent
alone could not make something an investment, as such there had to also be an
objective definition of investment to avoid the proliferations of absurd definition by
member countries. Because without such a definition, countries could use BITs to

34
Ibid.
35
Philippe K. and Thomas W. (2007), The new aspects of International Investment Law, Leiden/Boston
Journal p 17-19
36
Christoph S.(2009), International investment law of 21s century, Oxford university press p. 80.
37
Graboswski, A, (2014) “The Defination of Investment under the ICSID Convention: A Defense of
Salani” Chicago Journal of International Law: Vol.15, No.1, Article 13. P.295.

15 | P a g e
submit any dispute they chose to ICSID arbitration regardless of the subject matter.38
This has given rise to a long-standing issue of arbitral panels attempting to develop a
workable test for whether something falls under the ambit of investment. The first few
tribunals to raise this question did so and came to the conclusion that the objective
definition of an investment was met. However, their analyses did not probe the matter
in any depth because neither of the parties in the cases had suggested that the issue was
of much importance.

The first rigorous analysis of the objective definition of the term investment occurred
in International Centre for the Settlement of Investment Disputes Convention, in
October 14, 1966, in the case of Fedax No: 1 V. The Republic of Venezuela39 that
case laid down elements that would eventually become a four-part test.

That test was finally formulated in 2001 by the case of Salini et al v. Morocco, 40 which
is currently the leading case on the subject. The Salini test defines an investment as
having four elements: (1) a contribution of money or assets; (2) a certain duration; (3)
an element of risk; and (4) a contribution to the economic development of the host
state. Since then, numerous cases have dealt with the same issue. Many accept the
Salini test, while other panels move in a variety of directions. Recently, a new case,
Quiborax v. Bolivia,41 attempted to advance one of the newer and divergent theories of
the definition of investment. The fundamental debate between Quiborax and Salini
hinges on whether something must contribute to the economic development of the host
state in order to qualify as an investment? Quiborax argues that, while the ICSID
Convention attempts to foster economic development via international investment,
such development is not a necessary element of investment. This argument is realistic
especially with the high rate of under development in most African and Latin
American Contracting states, which is caused by repatriation of investment profit by
investors. However, Quiborax's divergence from Salini is very misleading for two
main reasons, both of which are grounded in the Vienna Convention on the

38
BITs Refers to Bilateral Investment Treaties, usually entered into by two contracting, this agreement
document usually contains the definition of the type of investment and other terms of the agreement.
39
Fedax No:1 v. Venezuela, ICSID Case No.ARB/93/3, Decision on Objections to Jurisdiction, (1998)
37 ILM, p1381
40
Salani et al v. (2003), Morroco ICSID case No. ARB/00/4, Decision on jurisdiction, July 23 42 ILM
p.52
41
Quiborax v. Bolivia, ICSID case No. ARB/O6/2, Decision on the Jurisdiction, September 27, (2012)
p.220

16 | P a g e
Interpretation of Treaties.42 First, the Quiborax interpretation runs counter to the text of
the ICSID Convention and unnecessarily expands ICSID jurisdiction. Second,
overturning Salini would create uncertainty around investments over which the ICSID
has control. The Convention‘s provisions, clarifies that the ICSID exists in order to
facilitate international investment and thereby contribute to the economic development
of the host state. Quiborax misreads this as an ephemeral hope that investments will
contribute to economic development. Whereas Salini properly views it as a limitation
on the ICSID's arbitrational jurisdiction since it would be unusual to expand that
jurisdiction beyond the organization's stated purpose.

Quiborax disrupts the settled rule of Salini and introduces uncertainty, which chills
investment and thus harms the economic development of the states. This runs counter
to the reason ICSID existed in the first place. This view is also broadly against more
precedent in international law. Strong deference to precedent can be a way of ensuring
fair, consistent application of the laws, but it can also hinder the arbitrator's ability to
do justice in the individual case. Organizations like the ICSID which deal with well-
informed parties would do well to apply precedent more strictly because it can provide
a valuable certainty that will foster cross-border investment.

Most BITs, traditionally aimed at the protection of investment, have define

"investment" in a way that is both broad and open-ended, covering not only the capital
that has crossed the borders, but also practically all other kinds of assets invested by an
investor in the territory of the host country. A significant number of BITs have
included a standard definition of investment. However, It is argued that most
definitions of investment in this BIT are so disconnected from meaningful economic
activity as to be absurd,43 should be prohibited. As acknowledged by Professor
Hiscock, ―there is not and never has been a single authoritative legal definition of
investment44, as they vary according to the text and context where it is found‖. In Most
Bilateral Investment Treaties, investment is usually described as every kind of asset
and also contains a list of typical rights, for example property rights, participation in
companies, money claims and rights to performance, intellectual property rights and

42
See article 31 of Vienna Convention on the Law of treaties, May 23, (1969), U.N.T.S P. 331
43
Mortenson J. D., (2010) ―The Meaning of „Investment‟: ICSID‟s Travaux preparetoire and the
Domain of International Investment Law” Harvard International Law Journal, p. 261
44
Hiscock M.(2009), “The Emerging Legal Concept of Investment‖ Penn State International Law
Review, Vol. 27 p. 69,

17 | P a g e
concession or similar rights45 kind of asset owned or controlled by an investor of
another Party. This broad conceptualization of investment is typically complemented
by an illustrative list of assets that are included within the definition. Such lists
commonly include five categories of assets: movable and immovable property,
interests in companies including both portfolio and direct investment, contractual
rights, intellectual property and business concessions.46 Some typical definitions of
investment in BITs include: Czech Republic-United State BIT and the United State-
Argentina BIT. Article 1 provides that for the purposes of this Treaty, ―investment‖
means every kind of investment in the territory of one Party owned or controlled
directly or indirectly by nationals or companies of the other Party, such as equity, debt,
and service and investment contracts; and includes:47

tangible and intangible property, including movable and immovable property, as well
as rights, such as mortgages, liens and pledges;

a company or shares of stock or other interests in a company or interests in the assets

thereof;

a claim to money or a claim to performance having economic value, and associated

with an investment;

intellectual property which include, inter alia, rights relating to: literary and artistic
works, including sound recordings, inventions in all fields of human endeavour,
industrial designs, semi-conductor mask works, trade secrets, know-how, and
confidential business information, and trademarks, service marks, and trade names.

And the United Kingdom-South Africa BIT. Article 1 Stated that for the purpose of
this Agreement, Investment shall be defined as:48

45
see Article 1 (a) of the Agreement on promotion and protection of investments between the
Government of the Kingdom of Bahrain and the Government of the Kingdom of the Netherlands (5
February 2007). Available on the Internet at
http://www.mof.gov.bh/showdatafile.asp?rid=1722&ftype=file1. Assessed on 10 of Noverber 2019
46
Salini Construttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan, ICSID Case
No.ARB/02/13, Decision of the Tribunal on Jurisdiction, (2005) 20 ICSID Rev. – FILJ (ICSID Review
– Foreign Investment Law Journal)
47
See article 1 of the Washington, 22 October 1991-Entry into force: 19 December 1992 and
Washington 14 November 1991 – Entry into force 20 October 1994
48
See Article 1 of the United Kingdom-South Africa BIT, Cape Town 20 September 1994 – Entry into
force: 27 May (1998).

18 | P a g e
movable and immovable property and any other property rights such as mortgages,
liens or pledges;

shares in and stock and debentures of a company and any other form of participation in
a company;

claims to money or to any performance under contract having a financial value;

intellectual property rights, goodwill, technical processes and knowhow;

Business concessions conferred by law or under contract, including concessions to

search for, cultivate, extract or exploit natural resources.

A change in the form in which assets are invested does not affect their character as
investments and the term investment include all investments, whether made before or
after the date of entry into force of this Agreement.

According to the researcher therefore, the term ―investment‖ shall mean any kind of
asset invested in connection with business or economic activities by an investor of one
Contracting Party in the territory of the other Contracting Party in accordance with
the legislation of the latter with the main purpose of stimulating economic
development.

3. Dispute
A dispute according to Black‘s Law Dictionary is defined as any Conflict or
controversy of claims or rights on one side met by Contrary claims or allegations on
the other.49 There is this long standing requirement which is also used in determining
the jurisdiction of ICSID over any class or nature of dispute brought before the Centre.
According to Article 25(1) of the Washington Convention, the jurisdiction or
competence of the Centre extends only to legal dispute arising directly out of an
investment. This requirement of legal dispute was raised several times during the
drafting of the Convention, in particular to exclude purely political or commercial 50 or
purely theoretical disputes. No definition, however, was included in the Convention on
what kind of dispute would be said to be a legal investment dispute. As such the nature
of the dispute must be determined by tribunals only on a case by case basis.

49
Bryan G. (2009), Black’s Law Dictionary. 9th Ed. Thomson Reuters: West Publishing Company.
50
Washington Convention on the Settlement of Investment Disputes Between States and Nationals of
Other States - Documents concerning the Origin and Formulation of the Convention, Vol. II,
Washington, ICSID, (1968), pp. 54.

19 | P a g e
More concerns have even appeared to be that certain types of dispute are excluded
from the jurisdiction of the Centre, namely those related to activities of a State‘s
―sovereign prerogatives‖51 although no such limitations were included in the
Convention. Alternatively, the parties were given an opportunity to agree on the class
or classes of dispute to be submitted to the Centre in two forms.

First, according to Article 25 (4) notification to submit a certain class or classes of

disputes to the Centre may be given by any Contracting State. Notification may be
given at the time of ratification, acceptance or approval of the Convention or at any
time thereafter. To illustrate, the Republic of Guatemala does not accept submitting to
the Centre‘s jurisdiction any dispute which arises from a compensation claim against
the State for damages due to armed conflicts or civil disturbances. 52 In fact, only a
minority of Contracting States has not filed a notification under Article 25 (4).

Second, parties may include the definition of a legal dispute in their agreement. The
Centre has designed Model Clauses relating to the subject‐matter of the disputes and
the fourth clause stipulates that the consent to the jurisdiction of the Centre … shall
only not extend to disputes related to the following matter, for example; seizure of
premises, dissolution of companies, and those. which the tribunals have analyzed as
actions of the State and which could only fall under their sovereign prerogatives while
the political nature of the disputes has also been accented. The existence of political or
governmental elements in disputes, however, does not change the nature of the dispute
as long as the disputes concern legal rights and obligations or the consequences of their
breach.53 Thus the decisive criterion for tribunals has been only whether the disputes
was based on agreement between the parties to the disputes.

4. Settlement
The drafters of the ICSID Convention again did not define what settlement meant.
However, settlement could be define as an agreement between parties to a dispute. In

51
Amerasinghe C. F(1979), “The Jurisdiction of the International Centre for the Settlement of
Investment Disputes‖ Indian Journal of International Law, P. 19
52
Notifications concerning classes of disputes considered suitable or unsuitable for submission to the
Centre.
ICSID/8-D, p. 1. Available on the Internet at
http://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ShowDocume
nt&Measu res=True&language=English. Last visited on the 7/4/2019.
53
Československa obchodní banka (CSOB), a.s. v. Slovak Republic, ICSID Case No.ARB/97/4,
Decision on Objections to Jurisdiction, (1999) p.14

20 | P a g e
everyday parlance and in academic scholarship, settlement is however juxtaposed to
trial or some other method of dispute resolution in which a third-party fact finder
ultimately picks a winner and announces a score. However, viewing settlement solely
as a dispute-ending alternative to a costly trial leads to an anaemic understanding of
how dispute resolution should and often does work. According to Black‘s law
Dictionary,54 settlement is define as an agreement ending a dispute or a law suit.

5. Investment Disputes
The definition of investment Disputes appears superfluous at first sight. Because
almost everyone most e heard or been involved in one or more disputes and may turn
to give it an interpretation. In actual practice the existence of a dispute may in itself be
doubted or disputed. The Black‘s Law Dictionary define a dispute as any Conflict or
controversy of claims or rights on one side met by Contrary claims or allegations on
the other. The permanent Court of International Justice (PCIJ) in the case of
Mavrommatis Palestine Concession defined legal disputes as ―a disagreement on a
point of law or fact, a conflict of legal view or interests between parties‖. The Business
Law Dictionary define investment disputes as Disagreement over the existence of a
legal duty or right, where compensation may be claimed by the injured party55.

According to Article 25(1) of the Washington Convention, the jurisdiction or

competence of the Centre extends only to legal disputes arising directly out of an
investment and the Convention in particular exclude purely political or commercial56
or purely theoretical disputes. No authoritative definition, however, was included in
the Convention on what kind of disputes would be said to be of a legal investment
disputes. However, a dispute may refer to a situation in which the two parties to an
investment have held opposite views concerning the question of the performance or
non-performance of a treaty obligation. Whether other of definitions of dispute would
exist which are rather more complex than these definitions, would be far from being an
academic issue. The aim of defining a dispute is to enable Courts or tribunals
determine its Competence or Jurisdiction. It would also enable the arbitrators

54
Bryan G. op.cit , p.1377
55
Mavrommatis Palestine Concessions Judgement No.2, PCIJ., Series A, No.2, 1924, p.11
56 Washington Convention on the Settlement of Investment Disputes Between States and Nationals
of Other States - Documents concerning the Origin and Formulation of the Convention, Vol. II,
Washington, ICSID, (1968), pp. 54.

21 | P a g e
determine whether the disputes are on the point of law or fact or simply a conflict of
legal views or if it is political and hence a non-legal investment dispute.

6. Organizational layout
The work is divided into four chapters. It begins with an introduction which embodies
the Background of the study, the Statement of problem of the research, significance,
the research Methodology, the scope, the Definition of key terms and the review of
available Literature.

Chapter Two examines the Territorial and Material Competence of the ICSID.
Thereafter the chapter examines the requirement for the determination of ICSID
competence or jurisdiction such as the Rationae materiae, Rationae personae and the
Nationality of legal entities. These work Examines the Procedure to Cease the ICSID
in request for Conciliation and Arbitration. The chapter also examines the
manifestation of excess power and scenarios under which the Centre lacks competence
or jurisdiction to entertain an investment dispute.

Chapter Three analyses the Methods and Rules for The Settlement of Investment
Disputes under ICSID. The chapter analyses arbitration as the first and mostly used
methods of investment dispute settlement at the Centre. The chapter discusses on the
various alternative investment disputes resolution methods amongst which include
Conciliation, mediation, other available international rules and disputes resolution
institutions. This chapter examines the various reasons why despite the fact that
alternative disputes resolution method is swift, less costly and friendly, yet they remain
rarely used by investor in case any investment disputes. The chapter then examines the
choice of rules applicable in the international arbitration.

Chapter Four provide a critical appraisal of the current role of the Centre. The chapter
evaluates the success of the Centre and Strengths of Arbitration and Alternative
Disputes Resolution Mechanisms. After, the chapter examine Some Criticisms of the
Centre. The chapter evaluates ICSID‘s impact on Cameroon investment and domestic
Legislations. After the chapter examine the Centre‘s impact on other Less Developing
Countries and finally the chapter examines the effect of ICSID Denunciation.

Chapter Five finalizes this work with the Findings, Conclusion, and Recommendation.

22 | P a g e
 CHAPTER ONE

THE TERRITORIAL AND MATERIAL COMPETENCE OF THE

ICSID

This Chapter therefore explores the territorial and material competence of the
International Centre for the Settlement of investment disputes. The chapter discuses on
the main grounds or determinants for asserting the jurisdiction of ICSID, which
include; the requirement of Rationae materiae, Rationae personae and the Nationality
of legal entities. The rationae materiae principle requires that for ICSID to have
jurisdiction over any investment disputes, the dispute should arise directly out of
investment. While the Rationae personae principle on the other hand requires that all
the parties to the dispute must be members or Nationals of a contracting state to the
Washington Convention. The chapter also examines the laid down procedure to cease
the Centre for Conciliation or Arbitration when any investment disputes arises.

The chapter also examines scenarios under which the jurisdiction of the Centre may be
ousted or situations where the Centre lacks the ability, competence or jurisdiction to
entertain an investment dispute. This is because when the Centre acts above its powers
provided by the rules that governs the Centre or lacks the ability to decide on a
particular dispute brought before it, all this will mean the same thing, That the Centre
is acting above its jurisdiction.

1.1 Territorial Competence of the ICSID

According to article 70 of the 1965 Washington Convention it provides that the

Convention shall apply to all territories that are Contracting States party to the
Washington Convention,1 except those which are excluded by such State by written
notice to the depositary of this Convention either at the time of ratification, acceptance
or approval or subsequently. ICSID have territorial competence by virtue of article 25
of the ICSID Convention to hear all investment disputes from any state that have duly
signed and ratified this Convention creating ICSID.

According to Article 25 (1), only a dispute between a Contracting State and a national
of another Contracting State qualifies for jurisdiction of the Centre and several

11
see Article 70 of the Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (18 March 1965).

23 | P a g e
statements can be made from this wordings. First, as previously mentioned,2 the Centre
is not a forum for disputes between nationals or between States but exclusively
between a national and a State. Second, accordingly ―a national‖ must possess the
nationality of any Contracting State other than the party to the disputes; thus the
Convention precludes stateless persons and dual nationals3 having a nationality of the
host State from arbitration before the Centre. A national must be either a physical
person or a legal entity; thus the Convention also precludes fully state owned
companies from arbitration with other Contracting States. This is evidenced also from
the Preamble of the Convention, which states that the Contracting States in drafting the
Convention have taken into consideration ―the role of private international
investment‖.

The Convention states different criteria for natural and legal persons to qualify as
nationals of a Contracting State. As stated in Article 25 (2) (a), ―national of another
Contracting State‖ means any natural person who had the nationality of a Contracting
State other than the State party to the dispute on the date on which the parties
consented to submit such disputes to conciliation or arbitration as well as on the date
on which the request was registered pursuant to paragraph (3) of Article 28 or
paragraph (3) of Article 36, but does not include any person who on either date also
had the nationality of the Contracting State party to the dispute.

Individuals have appeared as parties to the dispute before the tribunal only in relatively
few cases, namely because private international investment in almost all cases is made
by legal entities. The Convention, as specified in Article 25, is exclusively designed
for mixed disputes or disputes between a State and an individual; thus it does not
provide a forum for disputes between States, or between individuals.

The Convention, as stated in Article 67, is open for signature on behalf of States
members of the International Bank for Reconstruction and Development (IBRD) and
parties to the Statute of the International Court of Justice, if the Administrative Council
of the Centre, by a vote of two‐thirds of its members, has invited the party to the
Statute to sign the Convention. Thus the Convention is open for signatures of 186
countries, and 144 countries have already become Contracting States of the

2
Amerasinghe C. F op.cit 55, p.25
3
Schreuer C, (2001), The ICSID Convention: A Commentary. Cambridge: Cambridge University Press
p 271.

24 | P a g e
Convention.4 Thus in the absence of the provision of the ICSID 1978 additional
facility, these 144 states that have ratified the convention constitute the territorial
competence of ICSID. The list of Contracting States of the Convention is regularly
updated and available on the Centre‘s website; therefore, identifying a Contracting
State causes no difficulties in the practice of the Centre.

The ICSID may have competence over an investment dispute only after the contracting
state parties to the dispute has ratified the Convention; thus ―ad hoc use of Convention
procedures by States that have not ratified the ICSID Convention is not possible‖.4
However, a State may agree to the jurisdiction of the Centre before it has signed the
Convention, if it becomes a Contracting State at the moment of institution of
proceedings.

Investment agreements are very often concluded by public companies or other public
bodies, but identifying these bodies and determining their legal capacity to enter into
an agreement is a more complex issue. The name and legal capacity of the public body
which the Contracting State designates to the Centre5 would depend on the national
law of the Contracting State, but the body should ―perform public functions on behalf
of the Contracting State or one of its constituent subdivisions‖.6

These bodies must be designated to the Centre, merely for purposes of legal certainty
and to assure the investor that disputes arising out of an agreement are in the Centre‘s
jurisdiction. Designation of an entity to the Centre would certainly preclude the
Contracting State from raising later objections on jurisdiction on the ground that that
entity is not to be considered as a constituent subdivision or agency of the Contracting
State. The status of an entity in any case is still an issue for the tribunal‘s exclusive
competence; hence only the tribunal itself may rule on its Competence.

4
From 155 signatory states, 144 states have also deposited their instruments of ratification, acceptance
or approval of the Convention and have become Contracting States. See Member States of the ICSID
Convention. Available on the Internet at http://icsid.worldbank.org/ICSID/ FrontServlet?r equest
Type=CasesRH&actionVal=ShowHome&pageName=Me mberStates_Home Last visited September
21, 2010. 41 Schreuer, supra note 6, p. 142.
5
E.g., Madagascar has designated Enterprise Nationale d‘Hydrocarbure. A list of designations is
available in Contracting States and Measures Taken by Them for the Purpose of the Convention.
Available on the Internet at http://icsid.worldbank.org/ICSID/Index.jsp. Last visited September 21,
2010.
6
Amerasinghe C. F‖, (1974/75), ―Jurisdiction Ratione Personae under the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States 47 BYIL (British
Year Book of International Law), p 151.

25 | P a g e
The tribunal found that it had no jurisdiction in Cable TV v. St. Kitts and Nevis 7,
where the signatories were an investor and the Nevis Island Administration (NIA). St.
Kitts and Nevis had not designed NIA as its agency or constituent subdivision; thus the
dispute was considered to be outside the Centre‘s jurisdiction.

However, identifying the State party in the Centre‘s practice has not caused many
difficulties as investment agreements with States or their constituent divisions or
agencies may contain an ICSID clause even before the State has ratified the
Convention or designated the entity to the Centre. Such an agreement on ICSID
arbitration will be valid if ratification or designation occurs before institution of
proceedings.8 The parties may not, however, bind the tribunal with any agreement
regarding the status of a State entity because the issue of the centre jurisdiction is the
tribunal‘s exclusive competence.

1.1.1 The Material Competence of the ICSID

According to Article 25(1) of the Washington Convention, the Material competence of
the Centre only extends to ―legal disputes arising directly out of an investment.‖ The
main requirements for the subject matter jurisdiction of the Centre can therefore be
summarized as the existence of a dispute of a legal nature which the parties to the
dispute consent in writing to submit to the Centre.9 Consent must be in writing and
may not be withdrawn unilaterally and Consent to submit any disputes to the Centre
may be expressed in various ways, such as through agreement, in legislation, or in
BITs. However, any Contracting State has the right to notify to the Centre of the class
or classes of disputes which it would or would not consider submitting to the
jurisdiction of then Centre, thus consent may be limited.10

As a first requirement for the Material Competence of the Centre, the dispute must be a
―legal dispute‖ between the parties, meaning that there must be a disagreement
regarding ―the existence or scope of a legal right or obligation, or the nature or extent
of the reparation to be made for breach of a legal obligation‖.11 The disputes needs to

7
Cable Television of Nevis, Ltd. and Cable Television of Nevis Holdings, Ltd. v. Federation of St.
Kitts and Nevis, ICSID Case No.ARB/95/2, Award, (1997) 13 ICSID Rev.—FILJ (ICSID Review –
Foreign Investment Law Journal), p. 328.
8
Schreuer C, op.cit p, 61, p.30.
9
Born G B, 2011, International Arbitration: Cases and Materials Kluwer Law International
10
E.g., relating to certain natural resources (Jamaica, Saudi Arabia).
11
. See Report of the Executive Directors, para. 26.

26 | P a g e
raise ―legal issues in relation with a concrete situation‖ rather than general grievances,
and the determination of these issues by the tribunal must have ―some practical and
concrete consequences‖.12 Tribunals have, however, interpreted the requirement in a
fairly broad manner, holding in particular that ‗the allegation of a breach is not a
constitutive element of the notion of a legal dispute‘.13

The other main requirement with regard to the subject matter of the Centre is the
existence of an investment. While the ICSID Convention does not define the notion of
―investment‖, it has long been argued on the basis of the Convention‘s negotiating
history that the term needs to be given an autonomous meaning. ICSID tribunals
therefore frequently assess the existence of certain criteria thought to be inherent to the
notion of ―investment‖ when examining their jurisdiction.14 According to Article 25
of the ICSID Convention, they are no limit to the amount of money involve in a
dispute for ICSID to have competence but the disputes simply needs to be of a legal
nature that is directly from an investment, irrespective of the amount to be claimed.

More so, not all disputes related investment constitutes the Material Competence of the
ICSID because according to the wording of Article 25, the disputes must arise directly
out of an investment and to clarify the issue the phrasing of the Article does not require
the investment to be made indirectly. The adjective ―directly‖ refers to the fact that the
disputes may arise but which is not ultimately caused by investment. Hence any
investment disputes that exist in a form that is not direct will not be admissible.15

12
. See AES Corp. v. Argentina, (ICSID Case No. ARB/02/17), Decision on Jurisdiction of 26 April
2005, para. 44. See also Maffezini v. Spain, (ICSID Case No. ARB/97/7), Decision on Objections to
Jurisdiction of 25 January 2000, para. 94; Tokios Tokele˙ s v. Ukraine, (ICSID Case No. ARB/02/18),
Decision on Jurisdiction of 29 April 2004, para. 106; Achmea v. Slovak Republic (UNCITRAL, PCA
Case No. 2013-12), Award on Jurisdiction and Admissibility of 20 May 2014, para. 168; Schreuer,
supra n. 48, Art. 25 para. 67.
13
. See Achmea v. Slovak Republic, para. 180.
14
. See Joy Mining v. Egypt, (ICSID Case No. ARB/03/11), Award on Jurisdiction of 6 August 2004,
para. 53; Mitchell v. Congo, (ICSID Case No. ARB/99/7), Decision on Annulment of 1 November
2006, para. 27; Bayindir v. Pakistan, para. 130; Jan de Nul v. Egypt, (ICSID Case No. ARB/04/13),
Decision on Jurisdiction of 16 June 2006, para. 91; Saipem v. Bangladesh, (ICSID Case No.
ARB/05/07), Decision on Jurisdiction and Recommendation on Provisional Measures of 21 March
2007, para. 99; Saba Fakes v. Turkey, (ICSID Case No. ARB/07/20), Award of 14 July 2010, para.
110; Global Trading v. Ukraine, (ICSID Case No. ARB/09/11), Award of 1 December 2010, para. 43;
KT Asia Investment Group v. Kazakhstan, (ICSID Case No. ARB/09/8), Award of 17 October 2013,
para. 173.
15
Fedax No1.V. v. Venezuela, ICSID Case No. ARB/93/3, Decision on Objections to Jurisdiction,
(1998) 37 ILM International Law Materials, in which the Tribunal concluded that ―jurisdiction can
exist even in respect of investments that are not direct, so long as the dispute arises directly from such
transaction‖ p. 1378.

27 | P a g e
The concept of directness of the disputes is a matter for objective determination, fully
for the tribunal‘s consideration and does not depend on agreement between the parties.
The argument of directness has been brought before tribunals several times but the
most important decision on this issue was the tribunal‘s reasoning in AMCO16, where
the tribunal was asked whether an obligation to avoid tax fraud had arisen directly out
of an investment?. After stating that every natural or legal person has rights and
obligations under State law and that rights and obligations of an investor are in
particular a consequence of the investment agreement, the tribunal then continued with
a conclusion that tax fraud is clearly a general obligation of law. Therefore, the
tribunal ruled that the dispute was not in the jurisdiction of the Centre, because it did
not meet the ratione materiae requirements of the Centre.

1.2 The Determinants of ICSID’s Competence or Jurisdiction

No definite definition of jurisdiction or Competence however is given in the

Convention. In relation to the Convention this term has been used to express the limits
within which the provisions of the Centre will be available for arbitration
proceedings.17 According to Article 41(1) of the Washington Convention, the tribunal
shall be the Judge of its own competence. The Competence shall be determined by
Article 25 of Washington Convention and Article 25 provides that the jurisdiction or
competence of the Centre extends to any legal dispute arising directly out of an
investment between a Contracting State and a national of another Contracting State
which the parties to the dispute consent in writing to submit to the Centre.18 Therefore,
Article 25 (1) of the ICSID Convention explicitly provides, that jurisdiction of the
Centre shall extend only to those legal disputes arising directly out of an investment,
between a Contracting State and a national of another Contracting State. Meaning that
the investor‘s status under ICSID proceedings is subject to a positive and a negative
nationality requirement. Is not enough that the investor has to be a national of a
contracting state, but also they must not be a national of the host country of the other
contracting party.

16
AMCO Asia Corporation and others v. Indonesia, ICSID Case No. ARB/81/1, Resubmitted case,
Decision on Jurisdiction, (1988) p.3 ICSID Rev. – FILJ (ICSID Review – Foreign Investment Law
Journal).
17
Reports of Cases Decided under the Convention on the Settlement of Investment Disputes between
States and Nationals of Other States, (1965), Rayfuse, R. (ed.), (1993) 1 ICSID Reports 172.
18
Convention on the settlement of Investment Dispute between States and Nationals of other States, 18
March 1965, available online at http// iscid worldbank.org/ICSID/StaticFiles/basicdoc
enarchieve/ICSID pdf. Assessed on 1 March (2018)

28 | P a g e
Furthermore, Article 25(2a) of the ICSID Convention provides that this nationality
requirement must be met at two different moments: first, on the date on which the
parties consented to submit the disputes to arbitration, and, second, on the date on
which the request for arbitration is registered at the Centre by the Secretary-General.
Consent must be in writing and once given it may not be withdrawn unilaterally.
Consent to submit disputes to the Centre may be expressed in various ways, for
example through agreement, in legislation, or in BITs. However, any Contracting State
has the right to notify to the Centre of the class or classes of disputes which it would or
would not consider submitting to the jurisdiction of the Centre, this is to say that
consent may be limited.

From the above analysis therefore it can be observed that they are three prerequisites
for determining the jurisdiction of the Centre: The disputes must be of a legal nature,
the dispute must arise directly out of an investment, and also the dispute must be
between a Contracting State and a national of another Contracting State. The
requirements for determining the jurisdiction include; rationae materiae and rationae
personae together with their elements and the legal nature of the disputes.19

1.2.1 Requirement of Ratione Materiae for ICSID Jurisdiction

The Ratione materiae deals exclusively with the subject matter that can be submitted to
ICSID to include only disputes arising directly out of investment between nationals or
contracting state parties. Even though the meaning of disputes has generated a serious
debate, the definition of a legal dispute was raised several times during the drafting of
the Convention, in particular and it excludes purely political or commercial 20 and
theoretical disputes. Though no authoritative definition of investment was established
in the ICSID Convention, its now a settled rule in the Centre that the nature of disputes
should be determined by tribunals on a case by case basis. It appeared certain types of
dispute have been excluded from the jurisdiction of the Centre, namely those related to
activities of a State‘s sovereign prerogatives,21 although no such limitations were
included in the Convention. Alternatively in the convention contracting parties were

19
United Nations Conference on Trade and Development, Investor-State Dispute Settlement and Impact
on Investment Rulemaking, Geneva September 2007, 110, PP22, ISSN 1814-2001,
20
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States -
Documents concerning the Origin and Formulation of the Convention (Convention History), Vol. II,
Washington, ICSID, 1968, pp. 54.
21
Amerasinghe C F, op. cit, 53 p.25.

29 | P a g e
given an opportunity to agree on the class or classes of disputes to be submitted to the
Centre in two forms, Article 25 (4) states that, notification to submit a certain class or
classes of disputes to the Centre may be given by any Contracting State at the time of
ratification and during acceptance or approval of the Convention or at any time
thereafter or in the national instrument as was the case with the 1990 Cameroon
investment code instituting the legal framework for the regulation of foreign
investment in Cameroon.22 The 1990 Cameroon investment code made provision for
the settlement of investment disputes to be done in accordance with the arbitration and
conciliation procedures derived from multi-lateral and bi-lateral agreements of the
International Centre for the settlement of investment disputes.

Under International law, the International Court of Justice (ICJ) in Mavrommatis

Palestine Concessions case in 1924, stated that, a dispute is a disagreement on a point
of law or fact, a conflict of legal views or of interests between two persons. 23 Mere
dissent on any issue or difference in opinions does not necessarily create a dispute. The
issue of the existence or non-existence of a dispute however has been raised in several
cases before the ICSID but most often it has been considered that disputes come into
existence if one party has submitted a claim or request to the other party which has
failed to react to this claim in a reasonable time or in the period prescribed in the BIT.

1.2.2 Requirement of ratione personae for ICSID jurisdiction.

The requirement ratione personae which determines whether the parties have standing
before the Centre, is perhaps the most important and the most problematic
jurisdictional condition in the practice of the Centre. This requirement consists of two
elements; the first requirement provides that for any person or state to be a Contracting
party or any constituent subdivision or agency of a Contracting State designated to the
Centre by that State, they must be a national of another Contracting State and Secondly
they must not be nationals of both the investors and host state.

22
1990 Cameroon Investment Code instituting the Legal Framework for the Regulation of Foreign
Investment in Cameroon, Free Zone Regime, Ordinance No: 90/001 of 29 January 1990 ratified by
law No: 90/023 of August (1990).
23
Mavrommatis Palestine Concessions (Greece / United Kingdom), (30.08.1924.), Judgment (1924),
PCIJ, Ser. A, No.2, p. 12. See also Case Concerning East Timor (Portugal / Australia), (30.06.1995.),
1995 ICJ Reports, p. 99. Asian Agricultural Products Limited v. Republic of Sri Lanka, ICSID Case
No. ARB/87/3, (1991) 6 ICSID Rev. – FILJ (ICSID Review – Foreign Investment Law Journal), p.
529. See also AGIP S.p.A. v. Congo, ARB/ ICSID Case No. 77/1, (1993) 1 ICSID Rep. 306.

30 | P a g e
Although nationality forms the most important jurisdictional requirement, again no
definition of nationality is given in the Convention, which often forms a basis for
objections to jurisdiction for host States. The Convention in Article 25 (1) only states
that,the dispute must be between a Contracting State and a national of another
Contracting State. Article 25 (2) then continues with a description of the qualities of an
investor to include any person who implements an investment in the host State. To
qualify as an investor or national of another Contracting State Article 25 prescribes
two situations; the first is that both parties to the dispute most have a different
nationality other than that of the other state party to the dispute or except the parties
have agreed to treat the investor as a national of another Contracting State because of
foreign control. As evidenced in the Centre‘s practice, even if the nationality of an
investor is defined or included in BIT or not, is often a very complex issue for the
tribunal to solve. The concept of foreign control has caused more difficulties hence
leading the tribunals to apply this concept differently.

The parameter repeatedly used by arbitration tribunals to determine whether a person

is a national of a particular state has tended to be the law of the country whose
nationality is claimed for instance, in the case of Champion Trading v. Egypt 24
Concerning a case between US and Egypt. The tribunal was faced with the question of
determining whether the non-corporate complainants concerning three individuals who
had been born in the United States but were the sons of a father born in Egypt –
complied with the requirement in Article 25 (2) (a) of the ICSID Convention, that
provision reads as follows: National of another Contracting State means any natural
person who had the nationality of a Contracting State other than the State party to the
dispute on the date on which the parties consented to submit such dispute to
conciliation or arbitration, as well as on the date on which the request was registered
pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not
include any person who on either date also had the nationality of the other Contracting
State party to the dispute.

In the case of Champion Trading Company v. Egypt, it was held that a child born of an
Egyptian father, either in or outside Egypt, automatically acquires Egyptian nationality

24
Champion Trading Company and Ameritrade International, Inc. v. The Arab Republic of Egypt,
ICSID Case No.ARB/02/9, Decision on Jurisdiction, (2004) 19 ICSID Rev.—FILJ (ICSID Review –
Foreign Investment Law Journal).

31 | P a g e
at birth. Although the father of the claimants had become a citizen of the United States,
the Egyptian Government, which acted as defendant in this case, argued that the father
had also remained an Egyptian national, as he had never given up his Egyptian
nationality and, therefore, his three sons had automatically acquired Egyptian
nationality. Thus, Egypt argued that the claimants had dual nationality, one of them
being the Egyptian one, and thus could not be considered nationals of another
Contracting State for the purposes of Article 25 (2) (a) of the ICSID Convention.

The claimants argued that the Egyptian nationality of the three individual claimants did
not correspond to the prevailing definition of nationality in international law. They
argued that if they were to be considered Egyptians it was only because Egyptian law
conferred Egyptian nationality on them at birth. The claimants further submitted that,
in fact, they had never had any particular ties or relations with Egypt, and thus, such an
involuntary nationality should not be taken into account when interpreting the ICSID
Convention. Making reference to Nottebohm (9) and to the Iran–United States Claims
Tribunal, Case N° A/18, the claimants also submitted that under international law the
nationality of a person should be determined on the basis of the existence of a genuine
link with the country of asserted nationality.

Two general principles are commonly recognized in international law for acquisition
of nationality of individuals they include the principle jus sanguinis and jus soli.25 In
Champion Trading Co.26 dual nationals of the United States of America and Egypt
brought claims against Egypt on their behalf and on behalf of companies in which they
owned shares. The tribunal stated that generally the real and effective nationality was
indeed relevant unless an exception is clearly stated. Since Article 25 (2) (a) explicitly
excludes dual, the Centre had no competence to settle the dispute and the individuals
had no jus standi in this case due to their Egyptian nationality. Interestingly, the
tribunal ruled that claims brought by these individuals as shareholders were within the
jurisdiction of the Centre, which is contrary to the Centre‘s later decision in Tokios
Tokelés.27 Here it was argued by O.E. G. Bolívar that Tokios is a national investor

25
Brownlie I,(2008) Principles of Public International Law, 7th edition: Oxford, University Press, p.
477
26
Champion Trading Company and Ameritrade International, Inc. v. The Arab Republic of Egypt,
ICSID Case No.ARB/02/9, Decision on Jurisdiction, ICSID Review – Foreign Investment Law Jour
nal, (2004) Vol. 19
27
Tokios Tokelés v. Ukraine, ICSID Case No.ARB/02/18, Decision on Jurisdiction, (2005) 20 ICSID ,
Rev.— FILJ (ICSID Review – Foreign Investment Law Journal), pp. 245-258.

32 | P a g e
disguised as a foreigner, the Champion Tribunal would have used the argument of
unreasonable result and would have explored the purpose of the ICSID Convention in
depth to declare that it did not have jurisdiction over a dispute between a national and
its State.28

No evidence, however, supports the argument that if the individuals were nationals of
Egypt only this would have led to rejection of jurisdiction. In addition, Egypt did not
raise any objections concerning the fact that if the American nationality of the
individuals had been disregarded, the dispute in reality would have been between
Egypt and its own nationals. It should be noted that the nationality requirement is not
related to the concept of continuous nationality, known as a generally recognized
prerequisite for execution of diplomatic protection. The wording of the Convention,
however, does not require continuity of nationality for a certain period, but rather
relates to two distinct points in time. Therefore, hypothetically an individual may
acquire different nationalities between the time of consent to arbitration and
registration of the disputes.

1.2.3 Nationality of Legal Entities

Concerning the determination of the nationality of legal entities, the domestic laws of
the vast majority of States are silent29 on issues regarding nationality of legal entities;
thus the rules determining the nationality of legal entities have very much derived from
those regarding the nationality of individuals, which in turn developed because of
growing application of diplomatic protection. In essence, the nationality of a legal
entity serves the same purpose as that of individuals; this means that the entity should
also have a genuine connection as well as a real and effective link with a State,
especially for diplomatic protection purposes.

In 1919 E.M. Borchard pointed out that corporation may be attached to a territory by
three elements,30 which are place of foundation, Centre of administration, and place of
exploitation. He then acknowledges that the majority of European countries follow the

28
García-Bolívar O. E(2006)., “The Issue of a Foreign Company Wholly Owned by National
Shareholders in the Context of ICSID Arbitration” TDMJ (Transnational Dispute Management
Journal), Vol.2 Available online at http://works.bepress.com/cgi/viewcontent.cgi?article=1009
&context= omar_ garcia_bolivar. Accessed on 1/3/2018.
29
ibid
30
Borchard, E.M,(1919). The diplomatic protection of citizens abroad or the law of international
claims, Banks Law Publishing Co, New York, p. 617.

33 | P a g e
Centre of administration while the United States of America adheres to the principle of
the place of incorporation. The nationality of a legal entity was an issue of paramount
importance in Barcelona Traction, in which the ICJ formulated several criteria for
determining corporate nationality. The Court acknowledged that for purposes of
diplomatic protection generally recognized criteria are the place of incorporation and
the place of the registered office. It further held that, although no absolute test of the
genuine connection has found general acceptance, different links are required by States
to form an effective link with the State whose nationality is conferred. Thus, the
nationality of a legal entity may be determined by applying several tests, such as test of
incorporation, test of seat and test of control.

According to the incorporation test, a legal entity acquires nationality by way of

incorporation. This test obviously is the most applied and the simplest of all previously
mentioned, however it is very likely that for the purposes of diplomatic protection 31
this test would not create a genuine link with the State of incorporation, especially if
the State is chosen only for its tax regime. The incorporation test is also criticized for
being artificial and without practical significance. Therefore, in reality a company is
only a subject of national law.

The real seat test states that a legal entity possesses the nationality of its place of
principal administration. Under this theory, establishing an administrative office within
a State‘s territory is a condition of incorporation, which creates a more effective link
with the country of incorporation.32

Another method to identify the nationality of a legal entity is the control test, which
was developed to identify an effective link between a legal entity and a State.
According to this test a legal entity has the nationality of its controlling shareholders,
in other words, the control test is an instance of lifting the corporate veil. Thus, when
applying the control test, the nationality of the shareholders prevails over the
nationality of the company. This test is becoming more and more popular and may be
the most appropriate for determining the jurisdiction of legal entities.

31
Staker C. (1990), ―Diplomatic Protection of Private Business Companies: Determining Corporate
Personality for International Law Purposes‖ British Yearbook of International Law Vol.26 p.161.
32
Muchlinski, P,(2009). The Diplomatic Protection of Foreign Investors: A Tale of Judicial Caution,
Oxford, University Press, p. 349.

34 | P a g e
According to various ICISD tribunals, this tests would be met if the specific
circumstances of the case clearly indicate that this was the intention of the parties for
instance, in Klöckner Industrie-Anlagen GmbH and others v. Cameroon,33 the Centre
have considered that the mere existence of an ICSID clause in a contract with a local
company constitutes an agreement to treat that legal entity as a national of another
Contracting State. Also in Amco Asia Corporation and others v. Indonesia,34 the
tribunal found that the ICSID Convention does not require a formal agreement to treat
a local company as foreign because of foreign control.

Although ICSID jurisprudence has recognized the possibility of inferring the existence
of an agreement to treat a local company as foreign because of foreign control on the
basis of specific circumstances, ICSID tribunals have been more stringent regarding
the factual determination of the existence of foreign control over the local company in
order to deem the latter to be foreign. Determining actual control of legal entities is
not a simple matter ICSID tribunals have developed an increasing awareness of the
need to take a differentiated approach when dealing with this issue, because the
tribunals would have to asked whether foreigners own a majority of the shares of the
enterprise concerned or not. This parameter has been used in cases such as Klöckner v.
Cameroon case where the tribunal found that the local company SOCAME was under
the majority control of foreign interests because Klöckner and its European partners
had subscribed to 59 per cent of SOCAME‘s capital while SOCAME a Cameroon
fertilizer Company had contributed just 41 per cent. On the other hand, in Vacuum Salt
v. Ghana, In this case, the tribunal found that only 20 per cent of the shares of the
company incorporated in Ghana were in foreign hands, while nationals of Ghana
owned 80 per cent.35 in this case it was illustrate that for an ICSID tribunal to have
jurisdiction on the ground of ratione personae, the corporate claimant established in the
host country cannot be deemed to be a foreign investor unless it is effectively
controlled owning at least more than 51 per cent capital. Thus, ICSID tribunals would
not have jurisdiction if the company is controlled by foreigners who are not nationals

33
Klöckner Industrie – Anlagen GmbH and others v. United Republic of Cameroon and Société
Camerounaise des Engrais, ICSID Case No. ARB/81/2, (1984) 1 Journal of International Arbitration.
p. 145
34
AMCO Asia Corporation and others v. Indonesia, ICSID Case No.ARB/81/1, Resubmitted case,
Decision on Jurisdiction, (1988) 3 ICSID Rev. – FILJ (ICSID Review – Foreign Investment Law
Journal).
35
Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, (1997), 9 ICSID
Rev.—FILJ (ICSID Review – Foreign Investment Law Journal), p. 73.

35 | P a g e
of an ICSID Contracting State, or who are nationals of the host country of an
investment.

Application of the genuine link theory for the purposes of nationality of legal entities is
criticized by R. Sloane, who suggests that nationality should be determined in terms of
its functions.36 Another approach in determining the nationality of legal entities was
introduced by Linda A. Mabry, who created an economic commitment test, consisting
of such factors as the geographic location of assets, the nature of those assets, the legal
entity‘s organizational structure and whether the entity is controlled by a foreign
government.37 This test has been created to protect national interests in the global
economy and to recognize truly national companies mainly on economic terms. All of
these tests suggest that nationality should be determined according to economic
realities, not just on artificial bonds.

National of another contracting state party used in most treaties refers to natural person
recognized by that party‘s domestic law as a national or citizens of that country.
Nevertheless, the experience in the application of ICSID Convention over the last
53years of the Centre‘s existence has shown that the determination of whether a
particular natural person is a covered investor, and thus entitled to use the ICSID
provisions under the applicable treaty, is often not a straightforward matter.

1.3 The Procedure to seize the ICSID

On the occurrence of any investment dispute any contracting state or a member of

another contracting state may cease the ICSID in request for a recourse or an award to
be rendered. The Centre can either be ceased through a request for either arbitration or
Conciliation, the two procedures will be examined inter allia.

1.3.1 The Procedure to Request for Conciliation

According to Article 28 - 35 of the ICSID Convention, any Contracting State or any
national of another Contracting State wishing to institute conciliation proceedings shall

36
Sloane R, (2009) ―Breaking the Genuine Link: The Contemporary International Legal Regulation of
Nationality”, Harvard International Law Journal, Vol. 50 p. 1.
37
Mabry L. A. (1999), Multinational Corporations and U.S. Technology Policy: Rethinking the Concept
of Corporate Nationality” Georgetown Law Journal, Vol. 87 p. 593-594.

36 | P a g e
address a request to that effect in writing to the Secretary General who shall send a
copy of the request to the other party.38

The request shall contain information concerning the issues in dispute, the identity of
the parties and their consent to conciliation in accordance with the rules of procedure
for the institution of conciliation and arbitration proceedings.39

The Secretary-General shall register the request unless he finds, on the basis of the
information contained in the request that the dispute is manifestly outside the
jurisdiction of the Centre. He shall forthwith notify the parties of registration or refusal
to register.40

The Conciliation Commission (hereinafter called the Commission) shall be constituted

as soon as possible after registration of a request pursuant to Article 28. The
Commission shall consist of a sole conciliator or any uneven number of conciliators
appointed as the parties shall agree. Where the parties do not agree upon the number of
conciliators and the method of their appointment, the Commission shall consist of
three conciliators, one conciliator appointed by each party and the third, who shall be
the president of the Commission, appointed by agreement of the parties.

If the Commission shall not be constituted within 90 days after notice of registration of
the request has been dispatched by the Secretary-General in accordance with paragraph
(3) of Article 28, or such other period as the parties may agree, the Chairman shall, at
the request of either party and after consulting both parties as far as possible, appoint
the conciliator or conciliators not yet appointed.41

Conciliators may be appointed from outside the Panel of Conciliators, except in the
case of appointments by the Chairman pursuant to Article 30 which states that
Conciliators appointed from outside the Panel of Conciliators shall possess the
qualities stated in paragraph (1) of Article 14, which requires that ― The Persons
designated to serve on the Panels shall be persons of high moral character and

38
Washington Convention on the Settlement of Investment Disputes Between States and Nationals of
Other States, of March 18, (1965) p. 81 - 99
39
I.F.I Shihanta, (1985) The International Centre for the settlement of investment disputes, 1985 ICSID
Annual Report, p.6
40
Polasek M, , (2011). ‗The Threshold for Registration of a Request for Arbitration Under the ICSID
Convention‟ Disp Resol Intl Journal Vol. 5
41
Rules of procedure for the Institution of Conciliation and Arbitration proceedings, 1 ICSID Report
153, (1984), p. 82

37 | P a g e
recognized competence in the fields of law, commerce, industry or finance, who may
be relied upon to exercise independent judgment and should be Competent in the field
of law‖.

The Commission shall be the judge of its own competence because any objection by a
party to the dispute that the dispute is not within the jurisdiction of the Centre, or for
other reasons is not within the competence of the Commission, shall be considered by
the Commission which shall determine whether to deal with it as a preliminary
question or to join it to the merits of the dispute.42

Any conciliation proceeding shall be conducted in accordance with the provisions of

this Section and, except as the parties otherwise agree, in accordance with the
Conciliation Rules in effect on the date on which the parties consented to conciliation.
If any question of procedure arises which is not covered by this Section or the
Conciliation Rules or any rules agreed by the parties, the Commission shall decide the
question.43

It shall be the duty of the Commission to clarify the issues in disputes between the
parties and to endeavour to bring about agreement between them upon mutually
acceptable terms. To that end, the Commission may at any stage of the proceedings
and from time to time recommend terms of settlement to the parties. The parties shall
cooperate in good faith with the Commission in order to enable the Commission to
carry out its functions, and shall give their most serious consideration to its
recommendations. If the parties reach an agreement, the Commission shall draw up a
report noting the issues in dispute and recording that the parties have reached
agreement. If, at any stage of the proceedings, it appears to the Commission that there
is no likelihood of agreement between the parties, it shall close the proceedings and
shall draw up a report noting the submission of the disputes and recording the failure
of the parties to reach agreement.44 If one party fails to appear or participate in the
proceedings, the Commission shall close the proceedings and shall draw up a report
noting that party's failure to appear or participate.

42
Schreuer C, op cit, note.66, p.33
43
ibid
44
See the case of Beijing Urban Construction Group Co. Vs. Republic of Yemen, Case No. ARB/14/30,
Decision on Jurisdiction (2017) p.1

38 | P a g e
Except as the parties to the disputes shall otherwise agree, neither party to a
conciliation proceeding shall be entitled in any other proceeding, whether before
arbitrators or in a court of law or otherwise, to invoke or rely on any views expressed
or statements or admissions or offers of settlement made by the other party in the
conciliation proceedings.

1.3.2 The Procedure to Request for Arbitration

As provided for in Article 36 – 40 of the ICSID Convention, any Contracting State or
any national of a Contracting State wishing to institute arbitration proceedings shall
address a request to that effect in writing to the Secretary General who shall send a
copy of the request to the other party.45

The request shall contain information concerning the issues in disputes, the identity of
the parties and their consent to arbitration in accordance with the rules of procedure for
the institution of conciliation and arbitration proceedings. The Secretary-General shall
register the request unless he finds, on the basis of the information contained in the
request that the dispute is manifestly outside the jurisdiction of the Centre. He shall
forthwith notify the parties of registration or refusal to register.

The Arbitral Tribunal shall be constituted as soon as possible after registration of a

request and the Tribunal shall consist of a sole arbitrator or any uneven number of
arbitrators appointed as the parties shall agree but where the parties do not agree upon
the number of arbitrators and the method of their appointment, the Tribunal shall
consist of three arbitrators, one arbitrator appointed by each party and the third, who
shall be the president of the Tribunal, appointed by agreement of the parties.

If the Tribunal shall not be constituted within 90 days after notice of registration of the
request has been dispatched by the Secretary-General in accordance with paragraph (3)
of Article 36, or such other period as the parties may agree, the Chairman shall, at the
request of either party and after consulting both parties as far as possible, appoint the
arbitrator or arbitrators not yet appointed. Arbitrators appointed by the Chairman and
pursuant to this Article shall not be nationals of the Contracting State party to the
dispute or of the Contracting State whose national is a party to the dispute.

45
Berkeley J4 (1986),, “ICSID Rules of Procedure for Arbitration Proceeding”s, Berkeley Journal of
International law, Vol. p.387 - 389

39 | P a g e
The majority of the Arbitrators shall be nationals of the contracting States, provided
however that, the foregoing provisions of this Article shall not apply if the sole
arbitrator or each individual member of the Tribunal has been appointed by agreement
of the parties, then the arbitrators may be appointed from outside the Panel of
Arbitrators, except in the case of appointments by the Chairman pursuant to Article 38
and Arbitrators appointed from outside the Panel of Arbitrators shall possess the
qualities stated in paragraph (1) of Article 14.

1.4 The Manifestation of Excess Powers and Lack of Jurisdiction by the Arbitral
Tribunal

It has been noted repeatedly that in the ICSID system Jurisdiction is reviewed through
the ground of ―manifest excess of powers‖. While other scholars take the view that the
ground is an adequate ground for jurisdictional review,46 others consider that this
ground is inadequate because jurisdiction must be strictly reviewed. 47 Still others, for
their part, believe that the use of a single ground to review jurisdictional issues and
issues relating to the merits is unfortunate. This is because the degree of control would
be too strict for issues relating to the merits and too lax for jurisdictional issues.48

The history of the Convention appears inconclusive on the questions of the extent of
control of jurisdictional issues. In any event, we do not believe that, today, much can
be derived from the history of the Convention in general. These is because for about
some 52 years after ICSID went operational it is far preferable to focus on the
Convention itself, and to determine whether this instrument is flexible enough to
withstand current needs or perceptions, rather than focusing on the hypothetical and
often unclear intentions of the drafters.

The most difficult question which remains unanswered is thus to what extent the
review of jurisdictional issues is warranted by the ground of manifest excess of
powers? The common answer to this question is often that this ground allows the

46
Broches A, (1991) ―Observation on the finality of ICSID Awards‖ ICSID Law Review Vol.61 p. 358-
360.
47
Thompson, (1988) The Clockner v. Cameroon Appael: A note on Jurisdiction, Journal of international
arbitration, (1986) p. 93, Vol. 3 Cited in B Pirrwitz “Annulment of arbitral award under article 52 of
the Washington Convention on the Settlement of Investment Dispute Between States and National of
other States, Texas international law journal p.73 Vol. 23
48
.Gaillard E(2010),, ―C.I.R.D.I. Chronique des sentences arbitrales” Journal du Droit International
Vol.2 p.135,

40 | P a g e
adhoc committee full control over the findings of the arbitral tribunal. However, the
reasons for this conclusion can be summarized as follows.

The notion of manifest excess of powers carries a certain meaning. That the tribunal
must have exceeded its powers, and this excess must be manifested in violation to the
provisions of the Convention establishing it, this therefore implies that the degree with
which the tribunal exceeded its powers must be appreciated by the committee
reviewing its decision.

Establishing the existence of an excess of powers or assessing its degree may not be
easy, because according to the Oxford Dictionary (2nd Edition) manifest means
evident, obvious, Apparent, plain, readily perceived by the eye or understanding. On
the other hand, the Black Law dictionary (9th Edition) states that the term Manifest
means obvious to understanding, evident to the mind, that which is clear and self-
evident and requires no proof that they have been a manifestation of excess powers by
the arbitral tribunal as to the jurisdiction, it may also relate to degree in which the
tribunal exceeded its powers. This does not necessarily imply that the error of the
excess of powers must be detected easily because the framers of the Convention were
too loose in drafting the Convention and never bothered to critically define key terms
in the Convention.

Therefore, establishing the existence of an excess of powers may well require a careful
examination by the adhoc committee of complex legal and factual issues, and yet the
excess of powers may still be manifested. The approach taken by the adhoc Committee
in Klöckner I and Vivendi49 was rather inadequate, because the Committee found that
the arbitral Tribunal had exceeded its powers by assuming jurisdiction over a contract
that contained an ICC arbitration agreement. The ad hoc Committee, however, refused
to set aside the award because the findings of the arbitral Tribunal on jurisdiction were
―tenable‖ according to the ad hoc Committee. The obviousness required by the
Convention must go to the extent of the error committed, not to its existence. In short,
what should be reviewed under the ground of manifest excess of powers is the degree
of correctness of the decision rendered by the arbitral tribunal as far as jurisdiction and
competence are concerned.

49
Klöckner v. Cameroon, ICSID Case No. ARB/81/2, Decision of the first Ad Hoc Committee of 3 May
1985, 2 ICSID Rep. 95 (1994), p.52.

41 | P a g e
The difficulty is that the jurisdiction unlike the merits of a dispute in court is not
susceptible of giving rise to half-way decisions. There is only one answer to a given
jurisdictional objection and that answer is yes or no it cannot be perhaps said that the
Centre is half-competent to deal with this issue. Conversely, a jurisdictional decision
on a given objection can only be right or wrong. It cannot be half-right, or half-wrong.

Another way of looking at the same issue is to consider that the manifestation of
Excess powers by the tribunal requirement is also satisfied when a decision is wrong
on jurisdiction.

In Vivendi v. Argentine Republic50 it is quite clear that this situation always constitutes
a manifestation excess of powers. In this case, not only does the arbitral tribunal
exceed its powers, but it does not have any powers at all.51 It is not difficult, in this
case to discern that the error committed by an arbitral tribunal has wrongly affected its
jurisdiction.

The same applies where an arbitral Tribunal refuses to exercise jurisdiction over a
dispute that it possesses the powers to do so. In this case both parties may still even
have consented to arbitration for the disputes in question but their disputes are rejected
on the ground of jurisdiction. The expectation of the parties must be respected. In
other words, when consent to arbitration is found to exist there is no way out for the
arbitral tribunal to refuse to give effect to this consent. Because this will amount to
denying them what they wanted. Wrongly refusing to exercise jurisdiction when it
exists would necessarily entail committing a manifest excess of powers.

The most obvious instance of lack or excess powers would be a decision where there is
no competence or a decision that goes beyond an existing jurisdiction. Any decision
relating to the Jurisdiction or competence of the Centre that goes contrary to the
requirement contain in Article 25 of the Convention could form the basis for a
complaint of lack of jurisdiction. This would be the case for instance, if the claimant
did not fulfil the Convention nationality requirements,52 or it would also be the case if

50
Vivendi v. Argentine Republic, ICSID Case No. ARB/97/3, Decision of the Ad Hoc Committee of 3
July 2002, 41 ILM 1135 February (2002).
51
Christoph S.(2009), A Commentary on the International Centre for the settlement of Investment
Dispute, (Cambridge University press, 2n edition
52
Martine International Nominees Establishment V. Republic of Guinea, Decision partially annulling
the award, 4 ICSID REP. 79, 98, 22 Dec (1997)

42 | P a g e
they were no legal dispute arising directly out of an investment or if consent was
lacking.

It is the opinion of the researcher that the freedom given to the contracting parties to
define what qualifies as an investment, must meet what qualifies as investment in
International law, and must correspond to the intention of the Convention drafters to
foster economic development. The Centre‘s case‐law demonstrates that the
jurisdictional requirements prescribed in Article 25 of the Convention have shown that
it has not been a serious barrier to the acceptance of jurisdiction over disputes. An
excessive application of the principle of favorem jurisdiction in some cases has led to a
result which is incompatible with Convention aims which is to promote the economic
development of States and the role of private international investment of nationals of
other States therein.

More so, the Convention was drafted in the interests of both investors and States, as
such it should not be interpreted in a one‐sided manner and a more balanced approach
to accepting jurisdiction should be taken by tribunals dismissing the principle of most
flavoured nations. Nationality must be applied functionally and in a manner that meets
the fundamental goals of the Convention. The principal goal of the concept of
nationality for reasons of the Convention is to ensure that the disputes are of
international character. Although tribunals are not bound by the parties‘ agreement, the
jurisdiction of the Centre is embraced by provisions of the Convention and of the BIT.
However, the treaties cannot enlarge the scope of the Convention.

Globalization processes have intensely influenced investment arbitration; thus

obviously concepts of Investment disputes and nationality in investment law must be
reviewed so that they meet the economic realities of foreign investment. The Centre‘s
recent case‐law shows that the tribunal does not examine whether shareholders are
asserting their own rights or those of the company affected by the host State.

In their decisions on jurisdiction tribunals should draw a strict line between the
argument of the host State that investors may claim for measures affecting their shares
qua shares, and the argument of the investor that every measure taken by the host State
against a locally incorporated entity causes a loss in value of its investment. In cases
where a wrong has been done to the company, not directly against shares as such,
tribunals should particularly state reasons for accepting jurisdiction.

43 | P a g e
A too broad interpretation of investment, for example that a wrong done to company is
a violation of shareholders‘ rights under the BIT, has expanded the Centre‘s
jurisdiction far beyond the will of the Convention‘s drafters, who explicitly excluded
the possibility to grant shareholders the right to bring claims before the Centre on
behalf of entities in which they own shares. Acceptance of indirect claims creates a
risk of multiple claims and may result in double recovery for the same wrong.

Conclusion

Chapter 1 therefore makes us understand the material and territorial competence of the
ICSID that is, the determinant‘s of its jurisdiction which includes the rationae materae
which states that the dispute must arise directly from an investment and the rationae
personae which states that all parties to the dispute must be members or nationals of a
contracting state to the Washington convention.

This chapter also examines laid down procedures for conciliation or arbitration when
need arises and also talks about scenarios where the centre can lack jurisdiction. This
chapter can be said to have opened our eyes to the territorial and material competence
of ICSID.

44 | P a g e
 CHAPTER TWO

METHODS AND RULES FOR THE SETTLEMENT OF

INVESTMENT DISPUTES IN ICSID

Arbitration has been the most commonly used method for the settlement of
international investment disputes, the option to resolve disputes through a particular
international arbitration is contained in most provisions of Investor and host State
dispute settlement agreements and in some situations these clauses usually form only
an integral component of contemporary international investment agreements. As to the
choice of rules applicable in this international arbitration, it has been stated that the
tribunal shall decide its dispute in accordance with such rules of law as may be agreed
by the parties in their International Investment Agreements (IIAs). However, in the
absence of such agreement, the tribunal shall apply the law of the contracting state
party and such rules of international law as may be applicable. Though arbitration, is
often the most effective method of investment dispute settlement this method never the
less has its disadvantages for example it is often costly, time wasting, its outcome
usually makes the parties to a dispute life enemies and above all, it is echoed that the
rules applicable are often vague.1

This chapter examines the various methods and rules for the settlement of investment
disputes under ICSID. The chapter evaluates arbitration as the first and mostly used
methods of investment disputes settlement at the Centre. The chapter discusses on the
various alternative investment disputes resolution methods amongst which include
Conciliation, mediation, other available international rules and disputes resolution
institutions preferred by contrasting state parties in their IIAs. This chapter examines
the various reasons why despite the fact that alternative disputes resolution methods
are swift, less costly and friendly, yet they remain rarely used by investor in case any
disputes. The chapter shall also analyze the choice of rules applicable in the
international arbitration,

1
Ibid

45 | P a g e
2.1 Methods for the Settlement of Investment Disputes under ICSID

Beside Arbitration as the widely used method, this research presents alternative
approaches to the settlement of investment disputes. In general, investors and host
States are faced with a variety of different options to resolve the investment disputes
they face daily. At one end of the spectrum during the early 19th Century, was the use
of gun-boat strategy, even though in recent years there is a need to find ways of de-
politicizing the disputes and allowing cases to be heard in a neutral forum within a set
of framework of rules.

Although Trials in national courts at times could fulfil this function but they would not
entirely eliminate the suspicions on ICSIDs bias rules and mistrust on the side of
investors and their home country governments especially the aspect of being bias to
developing countries.

There two main methods of investment disputes settlement include Arbitration and the
Alternative method of dispute settlement. Arbitration is a formal and binding legal
process it is the most used method under the ICSID. While the Alternative Disputes
Resolution Methods (ADR) frequently involves the intervention of a third person to
assist disputants in negotiating a settlement of their conflict. The process of ADR is
normally initiated with the agreement of the disputants.

While they are not limited to these processes, typical methods of ADR in international
disputes involve Conciliation, Direct negotiation, and Mediation. These techniques are
not necessarily mutually exclusive in any particular conflict, quite often they are used
sequentially or in a customized combination with other adjudicative methods of
resolving disputes. Each of these methods shall be treated seriatim.

2.1.1 Investment Disputes Resolution through Arbitration Method

Today, direct Arbitration between the host state and foreign investor is preferred
option for the settlement of investment disputes. Arbitration is even referred to as a
formal method of investment disputes settlement through binding decisions made by
courts or arbitral tribunals. Arbitration remains the most used method of disputes
settlement and Parties, who agree to resolve their disputes using binding arbitration,
cannot appeal the arbitration ruling. This method offers the parties the opportunity to
select arbitrators who enjoys their confident and who have the necessary expertise in

46 | P a g e
the field of investment disputes settlement and this method is the primary method used
by ICSID for resolving investment disputes.

However, ICSID Convention does not contain any substantive rules for the settlement
of this disputes, but instead offers a procedure for the settlement of investment
disputes,2 according to Article 36 of the ICSID Convention, states that upon the
occurrence of any investment disputes, any contracting state to the convention should
submit a Request for Arbitration to the Secretary-General of ICSID, the request shall
describe the facts and issues of the particular case. The next procedure in the
convention, is selecting the arbitral tribunal, from the above article, sixty days after the
tribunal has been established an initial session is held to discuss preliminary questions
of procedure. The proceedings then comprise of a written procedure, followed by an
in-person oral hearing where the parties present their case. Subsequently, the tribunal
will deliberate and render an award.3

The Independent tribunals decide the international investment disputes under ICSID
arbitration proceedings. In most instances, the tribunals are comprised of one arbitrator
appointed by the investor and one arbitrator appointed by the host state and one
presiding arbitrator known as tribunal president who is appointed through the consent
of both parties.4 ICSID maintains a list of individuals who are named as arbitrators in
ICSID, known as the ICSID Panel of Conciliators and of Arbitrators.5

Each ICSID Member State may designate four arbitrators to the Panel and the
Chairman of the Administrative Council and the president of the World Bank, may
also designate ten arbitrators to the panel, while this list provides a useful source from
which parties may select arbitrators, the parties are not obligated to select an arbitrator
only from this list because the parties are free to appoint any person they deem suitable
who is of high moral character and recognized competence in the fields of law and
commerce who may be relied upon to exercise independent judgment to help facilitate

2
García-Bolívar O. E, (2004) “Comments on Some ICSID Decisions on Jurisdiction‖, International
Business Law Journal, Vol. 19, p. 171.
3
Article 36 of the Washington Convention on the Settlement of Investment Disputes Between States
and Nationals of Other States, opened for signature Aug. 27, 1965, (entered into force Oct. 14, 1966),
reprinted in 4 INT'L LEGAL MATERAS (1965).
4
American Arbitration Association(2007) (AAA), Mediation: An Informal and Effective Approach to
Settlement. Available online at http://www.adr.org/si.asp?id=4424. Assessed on the 27/5/2018
5
Kaufmann-Kohler G, (2009) ―When Arbitrators Facilitate Settlement: Towards a Transnational
Standard‖ Stanford J Intl L, Vol. 25, No. 25. p.56.

47 | P a g e
the resolution of the disputes. If the parties to a dispute fail to appoint conciliators or
arbitrators to a tribunal, the chairman of the administrative Council has the authority to
appoint conciliators, arbitrators or adhoc committee members for the ICSID
proceedings.6 Each of these arbitrators is required to attach a written statement of any
past or present relationships with the parties and any other circumstance that may
cause doubt as to that particular arbitrator‘s reliability for an independent judgment.7

The ICSID Rules specifically advocates for confidentiality with regards to the
proceedings as each arbitrator is required to sign a declaration that he will keep all
information regarding the arbitration proceedings and contents of any award
confidential. As such only the members of the Tribunal, the parties, and the parties‘
agents, counsel, witnesses and experts may be present at the hearings. However, in
2006, ICSID amended these rules of the Convention to permit third parties to attend
oral hearings upon consent by both parties.

The number of Cases registered by this Centre has increased dramatically since the
Centre went operational in 1996. Even though at the first half of ICSID life the
numbers of cases were few. This attitude was due to lack of knowledge about the
existence of this International Investment Arbitration by investors and contracting host
states. According to the ICSID 2018 Case-Load statistic, as of December 31, 2017,
ICSID had registered 650 cases under the convention and additional facility rule
because out of this 650 cases8 89.7 per cent were settled through arbitration, and only
1.2 per cent were settled through Conciliation, while 8.8 per cent was settled through
arbitration additional facility and the remaining 0.3 per cent were settled via special
conciliation additional facility rule. The practice at ICSID till date is strongly tilted
towards use of the arbitration rules. For example, out of the 53 cases registered at
ICSID in 2017, the ICSID report below shows that only 4 disputes were settled
through conciliation and 49 cases were settled through arbitration. 9.

6
UNCTAD, Series on International investment policies for development, United Nation publication,
sales No: E. 10.II.D.11. New York and Geneva (2010). P.10
7
United Nation Conference on Trade and Development, ICSID Dispute settlement: procedural Issues,
New York and Geneva (2003) p14
8
THE ICSID CASELOAD-STATIISTICS (ISSUE 2018-1)
9
ICSID annual Caseload Statistic, of all Cases registered and administered by ICSID (Issue No: 2018-
1), January 31 (2018) p7

48 | P a g e
2.1.2 Alternative Methods of Disputes Resolution (ADR)
ADR is an approach to the settlement of investment disputes by means other than
binding decisions made by courts or arbitral tribunals. In the specific context of
international investor-host state disputes settlement and ADR can be understood as an
international dispute resolution mechanism that is an alternative to so-called ―primary
methods‖ for resolving investment disputes. As observed above, such primary methods
are adjudication through investment arbitration.

2.1.3 Investment Dispute Resolution through Conciliation

Conciliation is the first wildly recognised alternative method in the settlement of
investment disputes, even though during the drafting of the ICSID Convention
conciliation was perceived by some negotiators as an effective method tool to settle a
large percentage of past, present, and future disputes since the intervention of a neutral,
impartial, conciliator whose opinion was unbiased, would be used tremendously to
persuade the parties to reach an amicable settlement without creating any enmity
between themselves, since they may intend to continue with their business
relationship.10 That explains why the conciliator‘s main objective is to encourage the
parties to settle their disputes amicably Perhaps, Conciliation may become the must
use method because it potentially has several advantages over arbitration. It is
generally less expensive, faster and less adversarial than arbitration.11 The role of the
conciliator is a neutral one and the degree of authority assumed by the conciliator may
also vary.12 Though there are differences from one dispute to another, conciliators
usually attempt to shape a more productive process of interaction between the parties
and try to improve communications between them while addressing the substantive
issues of a dispute through advisory work. In the 2018 Report above, it is clear that the
number of disputes settled through Conciliation as an alternative method of disputes
settlement is too small as compared to arbitration13

As provided for in Article 28 -35 of the ICSID Convention, Any Contracting State or
any national of a Contracting State wishing to institute conciliation proceedings shall

10
Dolzer, R. & Christoph, S.(2008),Principles of international investment law: methods of dispute
Resolution,Oxford University press, , p.133
11
Jack J. et al, , (2005) ―toward a complementary Use of conciliation in investors-state dispute-A
preliminary sketch‖ UC Davis Journal Law, Vol.12pp.22
12
ibid
13
ICSID annual Caseload Statistic, of all Cases registered and administered by ICSID (Issue No: 2018-
1), January, 31 (2018) p10

49 | P a g e
address a request to that effect in writing to the Secretary General who shall send a
copy of the request to the other party.14 The request shall contain information
concerning the issues in dispute, the identity of the parties and their consent to
conciliation in accordance with the rules of procedure for the institution of conciliation
and arbitration proceedings.

The Secretary-General shall register the request unless he finds, on the basis of the
information contained in the request, that the dispute is manifestly outside the
Competence of the Centre, then he shall forthwith notify the parties of registration or
refusal to register. The Conciliation Commission shall be constituted as soon as
possible after registration of a request and the Commission shall consist of a sole
conciliator or any uneven number of conciliators appointed as the parties shall agree. If
the Commission have not been constituted within 90 days after notice of registration of
the request has been dispatched by the Secretary-General in accordance with paragraph
(3) of Article 28, or such other period as the parties may agree, then the Chairman shall
at the request of either party and after consulting both parties as far as possible appoint
the conciliator or conciliators not yet appointed outside the Panel of Conciliators,
except in the case of appointments by the Chairman.

The Commission shall be the judge of its own competence when it concerns issues of
jurisdiction. The Conciliation usually follows formal rules and procedures and usually
terminates with a written agreement or at least written recommendations. However,
these written statements remain non-binding to the parties involved. Conciliators tend
to maintain substantial control over the process of conciliation to ensure that they
should remain very formally structured and result oriented. For example, conciliation
procedures specified by the International Centre for Settlement of Investment Disputes
(ICSID) have a degree of formality that leads to a decision which is nonbinding upon
the parties. The process of conciliation usually focuses strongly on working out a
concrete solution to a dispute rather than improving the relationship between the

14
Article 28-35 of the Convention on the settlement of Investment Dispute between States and
Nationals of other States, 18 March (1965), available online at http// iscid
worldbank.org/ICSID/StaticFiles/basicdoc enarchieve/ICSID pdf assessed on 1 March (2018)

50 | P a g e
disputants, hence, conciliation is often identified as a process of non-binding
arbitration.15

Although ADR are rarely mentioned explicitly in IIAs, it is worth considering that
IIAs also do not prohibit its use for example, in Belgium Luxembourg Economic
Union - Cameroon BIT in 1980, was one of the few disputes settled through
conciliation at the Centre. As observed in Capital Financial Holdings Luxembourg S.A
v. Republic of Cameroon, in 2009 a claim arose in the Commercial Bank of Cameroon
where Belgium Luxemburg a majority shareholder claimed from the government of
Cameroon for unlawful expropriation, when the bank was placed under state of the
Republic of Cameroon control, the State exercised executive powers and those of the
Board of Directors instead of the CEO and Directors who were all Belgians. The case
was finally held in favour of the Republic Cameroon and Belgium claimed only 112.00
Million USD in the year 2017.16

Moreover, since treaty provisions do not specify how these consultations and
negotiations are to be conducted, they also do not prevent the disputing parties from
seeking the assistance of third parties to help them resolve their quarrel, because on the
other hand, more specific terms encouraging or authorizing the use of ADR beyond
consultations and negotiations would be an additional signal to both parties that this
kind of ADR is a viable option worth much consideration. It is generally not clear to
what extent the failure to expressly provide for ADR in IIAs has inhibited a more
frequent usage of such techniques.

Similarly, Regional Economic Integration Agreements (REIAs) also provide for the
establishment of Committees to supervise and handle various matters relevant to the
agreement. For example, the North American Free Trade Agreement (NAFTA) of
1992 and 199417 provides for the establishment of the Free Trade Commission in its
article 2001 which, among other things, is responsible for supervising the
implementation of NAFTA, resolving disputes arising from the interpretation or
application of the agreement and considering other issues relevant to the operation of
15
Legum B, (2006) „The Difficulties of Conciliation in Investment Treaty Cases: A Comment on
Professor Jack C. Coe‟s „Toward a Complementary Use of Conciliation in Investor State Disputes -
A Preliminary Sketch‟ Mealey‘s Intl Rep 72.
16
Capital Financial Holdings Luxembourg S.A v. Republic of Cameroon, ICSID Case No. ARB/15/18
Decision of the Ad Hoc Committee of 3 July 2002, 41 ILM 1135 22 June 2017
17
North America Trade Agreement (NAFTA) 1994, North American Free Trade Agreement
Implementation Act, publication No. 103, (1993) p. 19

51 | P a g e
the agreement. This Commission meets at least once per year and it also supervises the
work of all subcommittees and working groups that are being implemented under the
NAFTA.18 The handling of matters related to investment disputes, or simply reviewing
or consulting on these issues, could potentially fall under the responsibility of such a
committee or one of the subcommittees within the NAFTA agreement or other similar
REIAs.

Another example of REIAs in Sub-Saharan Africa countries is the Custom and

Economic Union of Central Africa. (UDEAC)19 created in 1964, which later became
the Monetary and Economic Union of Central Africa (CEMAC)20 and the West
African Countries on their part in 1975 signed a treaty establishing the Economic
Community of West Africa States (ECOWAS). These REIAs stated clearly that except
in certain circumstances, the agreement provides that disputes between this community
Enterprise and the Community be settled through ICSID.21 The reservation ―Except or
in certain circumstances‖ appear to mean that this Economic groupings will likely
settle some issues amicably out of the Centre. The African Continental Free Trade
Area (AfCTA) established on the 21 March 2018 beginning with 44 signatories with a
market of 1.2billion people, is yet to establish a protocol on the settlement of disputes
between member states. However, observing from the strive for legal independence
throughout the world shows that this Economic Block may advocate for an alternative
settlement of its disputes, and Arbitrate at ICSID only under Certain circumstances. 22

After the first requirement for consultations with the goal of encouraging quick
solutions to a dispute, the Common Market Group has to review the admissibility of
the claim from a procedural point of view, before appointing a group of experts
comprised of individuals with expertise in the subject area of the disputes. This group
then decides on the admissibility of the subject matter before referring it to the State–

18
North America Free Trade Agreement: Regional Economic Integration Agreements 1992, provided
for the establishment of free trade and the resolving of disputes arising from such agreement. (1992)
19
The original members of UDEAC were Cameroon, Central Africa Republic, Chad, Congo, Equatorial
Guinea and Gabon. (1964)
20
The members of the Economic Community of Central African States include; Cameroon, Central
Africa Republic, Chad, Congo, Equatorial Guinea and Gabon Burundi, Rwanda, Sao Tome, Principe
and Zaire.
21
ECOWAS replaced the Economic Community of West Africa (ECWA). The Members of ECOWAS
are Benin, Burkina Faso, Cape Verde, Cote d‘ Ivoire, Gambia, Guinea, Guinea-Bissau, Liberia, Mali,
Mauritania, Niger, Nigeria, Senegal, Sierra Leon and Togo
22
The African Continental Free Trade Area, established on the 21 March (2018)

52 | P a g e
State arbitration procedure. What the above approaches have in common is that
problems are addressed upfront and attempts are made to solve them before the
investor goes to the ICSID procedure available under a treaty.

In practice, however, when a dispute is looming, the ambassador of the home State of
the investor will generally knock at the door of the authorities and request to have the
matter looked at in detail. The inclusion of specific wording in most IIA in order to
involve the home State of the investor into ICSID could be seen as a step back towards
politicizing disputes, depoliticizing disputes has been the guiding concern for all
parties in recent years.23 The issue could, however, be approached from the angle of
closer cooperation between the State parties, both of which share the concern that
possible disputes could arise for either of them with investors of the other State. Such
cooperation could prevent a conflict, avoid escalation into a dispute or settle a problem
at an early stage.

2.1.4 Investment Disputes Resolution through Direct Negotiation:

Direct negotiation is defined as direct discussion between two disputing parties for the
settlement of disputes between them through the various direct diplomatic channels.
Direct negotiations are negotiations between parties of a dispute by means of
immediate personal contact between the disputants in order to exchange interests and
proposals they do not involve the assistance or facilitation of third parties in the
negotiation process.24 Direct negotiations are considered one of the best and speediest
peaceful means for the settlement of International investment disputes; this is done
through convening treaties and achieving the interests of negotiating states without the
intervention of other parties.25

Negotiations are considered indirect if a third party interfered in them. In this regard,
Falcoa claims that cultural factors will help us to know the way in which the other
party thinks and communicates. Therefore, we have to be able to negotiate with the
other party and convince him more.26 The negotiators' intention is to change the

23
Bjorklund A K, (2010), „Sovereign Immunity as a Barrier to the Enforcement of Investor-State
Arbitral Awards: The Re-Politicization of International Investment Disputes‟ Am Rev Intl LJ, Vol.
21 p. 21
24
Suhail H. A. ( 2016), “Legal negotiations between the states networks through the social‖ American
Journal of Research Communication, P.54-. Available online at www.usa-journals.com. Accessed on
7 may 2018
25
Mohammad R.(1990), Interpretation of the Koran .The Egyptian Book Public Commission, p12
26
Horacio, F, (2010), ―The Value Negotiation” 1st Ed Pearson education.p.10.

53 | P a g e
conditions and circumstances of their standing relations to a status which achieves the
interests of the two parties, and therefore, the negotiator should be aware enough and
not to become the prey of deviation. The negotiator should be read to make use of any
opportunity to achieve the required result, and this is considered a major principle in
negotiation.

sthe phenomenon of International negotiation is by nature one of the most complicated

phenomena. Because negotiations being a bargaining process between two or more
sparties, in most instances such interaction are highly implicated as they are done with
the purpose of reaching a joint decision among the concerned parties. This joint
decision process includes many possibilities; it could mean agreement or disagreement
and may involve making various arrangements for the present or for the future. The
theory of the International negotiation has developed according to many factors such
as the consequences of the Arab Spring and changes in the International system itself
and with the appearance of the United Nations International frames and development
of the different means of International communications, this revolution of information
technology and the differences in negotiations' environment has been instrumental in
facilitating negotiation with low cost.27

Information technology could facilitate communication quickly and secretly in

disputes settlement and could avoid elapse in the international relation and thus
prevent the intervention of third parties who may bring in their own personal interest.
Technology also makes negotiations among the leaders of countries easy and smooth
because in most cases countries may disagree on the place and time of direct
negotiations whereas negotiations through social media does not require specific times
and places since each one is a leader in his state and can make negotiations in such a
direct way.

2.1.5 Investment Disputes Resolution through Mediation

Mediation is a rather informal process of facilitated negotiation; it involves the
assistance of a third party known as the mediator. At the request of the disputing
parties and subject to terms and conditions specified by them, a mediator may

27
See the negotiations that were carried out in Baghdad between the five plus one and Iran on Iran
nuclear program, and no representatives from Iraq attended those negotiations. April (2012)

54 | P a g e
intervene in the disputes in order to assist in working out a viable solution.28 The role
of the mediator is to bring the parties of a dispute together and assist them in
compromising and reaching settlement.29 The involvement of the mediator may vary,
ranging from fostering dialogue between the parties to effectively proposing and
arranging a workable settlement to the disputes. Upon request by the parties, a
mediator may eventually give an opinion on the likely outcome of an adjudicated
proceeding and propose optimal solutions to the settlement of the disputes.

However, a mediator cannot impose a solution on the parties involved.30 While

mediators assume only some control over the process of settlement, they focus on
assisting the parties to find a settlement while maintaining a constructive relationship
between the investor and the host State. For this purpose, the mediator tends to go
beyond the substance of the issues, paying more attention to the nature of the
negotiation process and making sure that communication between the disputants is
effective thus the Mediators concentrate on identifying interests, reframing positions
and canvassing a range of possible solutions to move the parties towards an
agreement.31 Hence, mediation is often equated to a process of assisted negotiation.
Another reason that has been cited for the limited use of ICSID conciliation method is
that potential users are not aware of its existence.

Nevertheless, all the methods have contributed quite much to the effectiveness and
efficiency of the ICSID. However, it should be noted that all the methods have some
strengths as well as weaknesses.

2.2 The Applicable Rules for the Settlement of Investment Disputes under ICSID

There is no clear or straight forward rule to be used in the ICSID arbitration. However,
Article 42(1) Provides that the Tribunal shall decide a dispute in accordance with such
rules of law as may be agreed by the parties however in the absence of such agreement,
the Tribunal shall apply the law of the Contracting State party to the dispute (including

28
Buhring-Uhle C, et al, (2006), Arbitration and Mediation in International Business Kluwer Law
InternationalP. 30
29
Langley J, (1993) ―The Nature of the dispute and the effectiveness of International mediation Journal
of Conflict Resolution.‖ p.570.
30
Smith, J. M, (2009) “An analytical Framework for Dispute System Design‖ Journal of international
arbitration Vol. 4 p.28
31
Dixon. W, (1996) “third party technique for preventing conflict escalation and promoting peaceful
settlement” International Organization‖ International Organization Journal, Vol. 4 p.64.

55 | P a g e
its rules on the conflict of laws) and such rules of International law as may be
applicable.

One will be confused as to whether it is the rule of international law that will apply
first whenever they is a conflict with the national law or whether it will only apply
when the national laws are silent on a particular issue, Or can any rules be applied
whenever the arbitrator believe it is appropriate.?32 Article 42(1) of the convention
gives the parties considerable freedom to choose the rules of law as opposed to an
entire system of law that will govern their relationship, ―lex mercantoria‖. 33 In
practice, the application of the rules of international law may have a major impact on
the result of the arbitration.34 For example, as regard the issue of the quantification of
damages, if a host State is held liable for having breached its treaty obligation by
proceeding with the expropriation of a foreign investment, the appropriate
compensation under international law may include the award of compound interest
running from the date of the expropriation while the law of the host State may grant
simple interest.35

In addition, the primary applicability of the law of the host State is often perceived by
capital-importing States as a symbolic guarantee that their law which they assume to
be more favourable would be given maximum effect. However, it is by no means
obvious that in every case the application of the law of the host State as opposed to
international law is necessarily favourable to the host State and unfavourable to the
investor.36 Conversely, it is far from clear that the application of the rules of
international law is always in the investor‘s favour.

There is a perception that the law of the host State should be given priority, this view
has been widely accepted but had nevertheless been the basis for the convention. To
those who support this view, hold that the applicability of international law should be
restricted to cases where the choice of law of the host State contains gaps on particular
issues brought before the tribunal or where the law of the host State is inconsistent

32
Dolzer R, et al, (2008), Principles of International Investment Law (OUP, p.66
33
Gaillard E, Thirty Years of Lex Mercantoria: Toward The Selection of Transnational Rule. ICSID
REV. (1995) P.215
34
Arrow K, and Mnookin, R. et al, (1995). „Barriers to Conflict Resolution‟, (Stanford University, New
York: W.W.Norton and Company
35
UNCTAD, World Investment Report: FDI Policies for Development: National and International
Perspectives. United Nations publication. Sales No. E.03.II.D.8. New York and Geneva. (2003)
36
Gailard E, (2010), Applicable law in investment treaty arbitration Martinus Nijhoff Publishers, p. 223

56 | P a g e
with international law.37 A cursory look at the word "and" in the second sentence of
Article 42(1) ―and‖ is understood as meaning in case of lacunae or should the law of
the contracting states be inconsistent with international law.

The second theory also motivated by the desire to give maximum effect to the law of
the host State has even limited the role of international law to correction of only those
rules of domestic law which collide with fundamental norms of international law.
While there is however room for a third view of the role of international law in the
second sentence of Article 42(1), that of a truly independent body of substantive rules
which may be applied by itself and not through the filter of the law of the host State.
The proposition that international law has a dual role that is ―Complementary and
Corrective‖ role was formulated for the first time by the adhoc Committee in the
Klöckner v. United Republic of Cameroon38 case and has been reiterated by a number
of ICSID awards and decisions. However, having so decided the tribunal is faced with
an additional difficulty because as a result of Cameroons colonial heritage, both British
Common law and French Civil law continued to apply respectively in the Anglophone
and Francophone parts of the Country. The tribunal was therefore faced with the task
to determine which system that was to be applied? This is because inferring from
Article 42, the tribunal noted that it should apply the law of Cameroon, including its
rules on the conflict of laws. Never the less, considering that the Contract involved had
been executed in Yaoundé, with a plant located in the Eastern part of Cameroon where
SOCAME had its siege Social, the tribunal concluded in accordance with Cameroon
domestic Conflict rules that the French substantive law was applicable. 39 Under this
approach, international law has only a subsidiary role as compared to the law of the
host State in that it is viewed through the filter of and after an investigation into the
law of the host State.

This proposition however is not supported by the history of the Washington

Convention because the history of the Convention does not support the view that
international law could come into play only in cases of lacunae or inconsistency. The
main justification for the view that international law is limited to cases of lacunae or
37
Dolzers R, et al, (1995), Bilateral Investment Treaties: Concerning the reliance on a treaty containing
a clause on the applicable law. Kluwer Law International, p.575
38
Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société
Camerounaise des Engrais (ICSID Case No. ARB/81/2), Award, Oct. 21, (1983).
39
News from the International Centre for the Settlement of Investment Dispute, Vol. 1, No. 2 Summer
(1984) p.11

57 | P a g e
inconsistency is that it is presumed to reflect the intention of the drafters of the
Washington Convention, as evidenced in the travaux préparatoire of the Convention.
In particular, one excerpt of the history of the convention is often quoted regarding the
circumstance.

The reference to this quotation as an indication of the intention of the drafters of the
Convention regarding the meaning of "and such rules of international law as may be
applicable" under Article 42(1), second sentence, raises two issues. First, Article 42(1)
of the Washington Convention, which is a treaty provision, should be interpreted in
accordance with the rules of interpretation of international treaties. In this respect,
Article 31 (l) of the Vienna Convention of 1969 on the Law of Treaties provides that a
treaty shall be interpreted in good faith in accordance with the ordinary meaning to be
given to the terms of the treaty in their context and in the light of its object and
purpose. According to Gailared an attempt to find clear support in the history of the
Convention for the limitation of the role of international law not to only supplementing
or correcting the law of the host State appears to be unworkable. 40 As a solution the
term 'international law' can be understood only in the sense given to it by Article 38 of
the Statute of the International Court of Justice. This provides that the arbitral Tribunal
shall decide the disputes submitted to it in accordance with such rules of law, whether
national or international, as it shall determine to be applicable. The word which was
not intended to preclude the applicability of international law together with domestic
law,41 was later replaced by the word the Tribunal shall decide the disputes submitted
to it in accordance with such rules of national and international law as it shall
determine to be applicable.

2.3 Other International Rules and Disputes Resolution Institutions Referred to

IIAS

Similar to arbitration, it may be helpful to examine other rules that guide the parties
and neutral third party to be smoothly and effectively solve their investment disputes.
Such rules allow the initiating party to make an informed choice and to guarantee
predictability around the process. A defendant State may also rely on these rules to
make an informed decision on whether to go ahead with mediation or conciliation. The

40
Emmanuel Gailard,op.cit , p.51
41
Mann H.(2004). et al, Law and Practice of International Commercial Arbitration, London: Sweet &
Maxwell, pp.34

58 | P a g e
international investment framework includes at least three sets of rules that can be
referred to or used to conduct ADR. These are the rules set up under the ICSID
Convention, the united nation commission on international trade law conciliation rules
and the International chamber of commerce conciliation rules.42 The first part of this
section will look into these rules and assess their use in the settlement of investor–State
disputes. In addition to rules that deal with the ADR process itself, this section will
also look at the availability of an institutional framework that provides the necessary
support and services to investors and States willing to engage in ADR. Several
institutions offer services such as the proposition of a neutral third party for the
purpose of conciliation. In addition to the ICSID secretariat and the ICC and several
other arbitration institutions or centres, whether regional or national, have embarked
on providing such settlement to investment dispute as examine below.

2.3.1 The United Nation Commission on International Trade Law (UNCITRAL)

Model Law on International Commercial Conciliation of 2002
UNCITRAL Model Law on International Commercial Conciliation of 2002,43
UNCITRAL 2004, which together with the UNCITRAL Conciliation Rules of 1980.44
Provides a good example of a codified approach towards conciliation. The procedure
in brief is as follows:

A party to any disputes addresses a request for conciliation to the institution offering
conciliation services. If the institution concerned have competence and secures the
agreement of the other disputant, it will appoint a conciliator. While conciliators have
broad discretion to conduct the process, they will invite both sides to state their views
on the disputes, and will then make a proposal proposing a settlement and the parties
may accept or reject this proposal; in the latter case, either party may proceed to
arbitration. The disputing parties may also use the conciliator‘s proposal as the basis
for further negotiations between them. The conciliation process is confidential and
voluntary45 and either party may withdraw from conciliation at any time.

42
UNCITRAL, (2010) Report of the Working Group on Arbitration and Conciliation on the work of its
forty-fifth session, A/CN 9/614.
43
UNCITRAL, (2013) “A Guide to UNCITRAL: Basic Facts About the United Nations Commission on
International Trade Law”.
44
UNCITRAL(2004), Model Law on International Commercial Conciliation with Guide to Enactment
and Use, United Nations publication. Sales No. E.05. V.4. New York: United Nations.
45
UNCTAD. (2003), Disputes Settlement: State–State. United Nations publication. Sales No.
E.03.II.D.6. New York and Geneva.

59 | P a g e
2.3.2 The International Chamber of Commerce (ICC)
This chamber also provides a set of rules on ADR which are applicable to all business
disputes.46 However the extent to which these Rules can be applied to investor–State
disputes is unclear and still needs to be determined. The basic content of the ICC rules
is similar to the examples outlined above concerning the process on how disputing
party initiates the conciliation procedures and the selection of a neutral third-party as
well as the coverage of necessary fees and cost on ADR procedure, and the steps
necessary to conclude the procedures.47 In addition to its rules on ADR, the ICC also
supports the establishment of so-called ―disputes boards‖, which are set up at the time
when a medium-to-long-term contract between two parties is being concluded. These
disputes boards then remain in existence throughout the contract‘s duration and can be
approached by either party in case a conflict emerges. Disputes boards usually
comprise one to three people who are very familiar with the contract at hand. Their
mandate is to help the parties in resolving conflicts that emerge in the course of the
fulfilment of the contract, making recommendations or even advocating specific
decisions. As with rules on conciliation, the ICC has published a set of Dispute Board
Rules that specify how a dispute board has to function.48 The ICC also supports the
setting up of such disputes boards through its Disputes Board Centre.

2.3.3 International Centre for Disputes Resolution (ICDR)

Another leading institution in the area of ADR is that established under the American
Arbitration Association (AAA).49 Its International Disputes Resolution Procedures are
similar to the conciliation rules of the institutions outlined above and cover the same
kind of issues, such as initiation of mediation, appointment and duties of a mediator,
and coverage of expenses. These rules primarily refer to commercial disputes and their
applicability to ICSID needs to be explored (AAA).

46
International Chamber of Commerce, ADR Rules (Paris. 2001) Available online at
http://www.iccwbo.org/uploadedFiles/Court/Arbitration/other/ adr_rules.pdf. last visited on 2/5/2018
47
ICC Dispute Board Rules (Paris). (2004) ICC publication No. 829. Available online at
http://www.iccwbo.org/uploadedFiles/Court/Arbitration/other/db rules pdf. Accessed on 7/5/ 2018.
48
Report of the ICC Commission on Arbitration and ADR on Techniques for Controlling Time and
Costs in Arbitration, 2nd edn, 2012.
49
American Arbitration Association (AAA), Mediation: An Informal and Effective Approach to
Settlement. (2007) Available at http://www.adr.org/si.asp?id=4424. Assessed on the 12/5/2018

60 | P a g e
2.3.4 The World Intellectual Property Organization (WIPO)
This Organization also maintains rules on arbitration and mediation. Similar to the
previously introduced conciliation or mediation rules, the WIPO Mediation Rules
incorporate guidelines on the appointment and role of the mediator, the representation
and participation of the parties in the actual process of mediation, confidentiality on
financial issues and termination of the mediation process.50 The WIPO rules are
particularly relevant to commercial arbitration on issues related to intellectual property
at a cross-border level.

In addition to the provision of rules guiding the procedures for conciliation and
mediation, many institutions also provide the necessary facilities for the disputing
parties to utilize while engaging in the conciliation or mediation process, a wide range
of such institutions currently exist, such that no exhaustive list but only a few
examples can be mentioned here. Among the aforementioned institutions, ICSID, ICC,
AAA and WIPO all provide such facilities and support to parties involved in
conciliation or mediation.

Despite the existence of this rules and facilities dealing with conciliation and
mediation procedures, their application in context has till date been minimal, for
example even though the ICSID arbitration and conciliation rules were concluded
simultaneously, As of June 2013, ICSID had registered a total of 433 cases under the
ICSID Convention,51 and only thirty of this cases established in ICSID jurisdiction on
the basis of consent settled through ADR methods, and according to the 2018 report on
ICSID caseload statistics, as of December 31, 2017, ICSID had registered 650 cases
under the convention and additional facility rule. Out of these 650 cases 89.7 per cent
were settled through arbitration, and only 1.2 per cent was settled through
Conciliation, while 8.8 per cent was settled through arbitration additional facility and
the remaining 0.3 per cent conciliation additional facility.52 The practice at ICSID to
date is strongly tilted towards use of the arbitration rules. For example, out of the 53
cases registered at ICSID in 2017, the ICSID report above stipulates that only 4

50
World Intellectual Property Organization (WIPO), WIPO Arbitration, Mediation, and Expert
Determination Rules and Clauses. Geneva, Switzerland (2009)
51
ICSID, The ICSID Caseload – Statistics, Issue 2013–2, on the 23 June 30, (2013), Available online at.
https://icsid.worldbank.org/apps/ICSIDWEB/resources/Documents/20122%20%20-%20English.pdf
Lastly visited on the 15/5/2018
52
THE ICSID CASELOAD-STATIISTICS (ISSUE 2018-1)

61 | P a g e
disputes sere settled through conciliation and 49 cases were settled through arbitration.
53
None have been registered under the Additional Facility Rules.

Although the aim of conciliation is agreement, the nonbinding nature of the report
upon conclusion of proceedings has often been cited as one of the reasons why parties
have tended to shy away from ICSID conciliation in particular. The reason is that the
process could cost as much time and, possibly, involve similar costs as an arbitral
proceeding which would conclude with a binding award.54 It is felt that the conciliation
rules do not differ significantly from the arbitration rules and do not have the incentive
of being simple and swift as people would claim there are. 55 In addition, absence of
transparency and the confidentiality or privacy of a nonbinding process that can result
in the voluntary payment of huge amounts can also be seen as a deterrent.

Conclusion

In a nutshell, this chapter makes us to understand the role of ICSID in the settlement of
investment dispute.it also looks at the successes of the ICSID in settling investment
disputes, which could be observed in the dramatic rise in the number of cases brought
before this international tribunal and also the increase in the level of foreign
investment in the world today. With the above evidence in this chapter we can say that
ICSID has registered great success.

53
ICSID annual Caseload Statistic, of all Cases registered and administered by ICSID (Issue No: 2018-
1), January, 31 (2018) p7
54
Legum B. (2007) ―The difficulties of conciliation in investment treaty cases: A comment on Professor
Jack C. Coe‟s, „Toward a complementary use of conciliation in Investor-State disputes—A
preliminary sketch” TDM Journal.
55
Menkel-Meadow C. et al. (2006), Negotiation: Processes for Problem Solving: Aspen, Colorado:
Aspen Publishers, P. 123

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 CHAPTER THREE

THE STRENGTHS AND SUCCESSES OF THE INTERNATONAL

CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES

The ICSID in the past five decades has registered a great number of successes because
of strength inherent in Arbitration and alternative disputes resolution mechanism
method used by this Centre. Despite the great achievement recorded by this leading
investment arbitration, scholars argue that the Centre has as well become vulnerable to
a number of Criticisms because of the leading role played by this centre in the
settlement of investment disputes. The Centre has a number of both positive and
Negative impacts specifically to developing Countries. As a consequence of the role
played by ICSID in improving global investment, several Developing Countries have
denounced the Centre referring to the Centre as evil.

Chapter three provide a critical appraisal of the strength and weaknesses of ICSID. The
chapter also evaluate the success of the Centre and Strengths of Arbitration and
Alternative Dispute Resolution Mechanisms.

3.1 The Successes of the International Centre for the Settlement of Investment
Disputes

The role of ICSID is quite visible in the level of achievement or success recorded by
the Centre since 1965. The Centre has been wholly successful in the settlement of
investment disputes this could be observed in the dramatic rise in the number of cases
brought before this international Tribunal, and the contemporary increase in the level
foreign investment today in the World.

The ICSID had modest beginning because as observed above the convention entered
into force in 1966 but the first case was registered only 1972. The 1970s and 1980s
saw steady but only intermittent action as one or two cases per year were typical for
that period. Since the mid-1990s, there has been a dramatic increase in the number of
cases brought to the centre, on average about two more cases are registered each year,
according to ICSIDs reports by 1995 there were four cases pending before ICSID
arbitrations and by early 2007 the number increased to more than 100 cases. 1

1
Dolzer R. Upcit, 119, p.61

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Despite its fair start ICSID has become one of almost the most important forum for
international investment disputes settlement, as evidenced by its large membership,
having a considerable caseload of 650 cases by the year 2017 and 728 by the year 2019
which also recorded the highest number of cases climbing up to 56 cases, 2 with and by
the numerous references to its arbitration facilities in investment treaties and laws.
ICSID plays an important role in the field of international investment and economic
development, because today ICSID is considered to be the leading international
arbitration institution devoted to investor-State dispute settlement.3

ICSID has succeeded to put in place a relatively simple organizational structure,

consisting of an Administrative Council and its Secretariat. This Administrative
council forms ICSID‘s governing body and it is comprised of one representative from
each ICSID Convention member state; each representative has equal voting powers;
the President of the World Bank also acts as the Chairman of the Administrative
Council though he/she has no right to vote. The Council convenes annually during the
time the World Bank and International Monetary Fund meetings take place. The
Secretariat is comprised of the Secretary General, Deputy Secretary General and Staff.
The Secretary General is the head of the Secretariat while its legal representative acts
as the registrar. The Deputy Secretary General is responsible for the general day-to-day
running of the Secretariat, he performs a number of important functions such as
providing institutional support for the initiation and conduct of ICSID proceedings.
The Secretariat also provides support to the Administrative Council and ensures the
smooth functioning of ICSID.

The Secretariat also maintains the ICSID panels of conciliators and arbitrators each
member state may allocate four persons and the Chairman of the Administrative
Council may allocate ten people to the panels. The panels provide a pool of arbitrators
from which the parties to ICSID proceedings may select the conciliators and arbitrators
to act in an individual case. In the event where the Chairman of the Administrative
Council is asked to appoint conciliators or arbitrators in ICSID proceedings, the
appointees must be drawn from the panels. This structure has been responsible for the
efficiency and effectiveness of ICSID. Today, they are over 158 member states and the

2
ICSID annual Caseload Statistic, of all Cases registered and administered by ICSID (Issue No: 2019-
1), June 30 (2019]p7
3
Jackson, J. (2008.) Legal Problems of International Economic Relations, as cited in C Tietje et al,
„Once and forever? The legal effects of a denunciation of ICSID Stanford Law University press

64 | P a g e
many hundreds, if not thousands of bilateral and multilateral investment treaties that
have been registered by ICSID jurisdiction, with several states and aggrieved foreign
investors taken their dispute to the Centre for settlement.

Another Successes of ICSID could be seen in the implementation of the awards made
by the tribunals under the ICSID Convention which are fully binding, final and not
subject to review except in the limited conditions set out by Articles 49-52 of the
Convention itself where Parties seek review of a final award in a number of
circumstances. The limited situations in which awards have been reviewed, they were
centered around procedural issues such as: the tribunal being improperly constituted;
the tribunal manifestly exceeding its powers; one or more members of the tribunal was
corrupt; there was a serious departure from one or more fundamental rules of
procedure or that the award failed to state the reasons on which it is based.4 If an award
is reviewed, there are three possible outcomes; interpretation, revision and annulment.
Annulment falls short of appeal in a significant manner. If an award is annulled, it
simply nullifies the decision without replacing or substituting it for a new. If a party
refuses to comply with the award that has been rendered, it will be treated as a breach
of the Convention and lead to the revival of the right of diplomatic protection by the
investor‘s home state government.

Generally, ICSID provides an effective system of enforcement of awards, which are

binding in every state that is a party to the convention.5 ICSID arbitration proceedings
are fully self-contained and independent of all outside bodies, this means that domestic
courts do not have the power to intervene in proceedings review or set aside any
reward rendered.6

The Additional Facility Rules were created in 1978 by the Administrative Council in
order to open up ICSID arbitration to include cases that would normally fall outside of
its jurisdiction or competence. This means that ICSID may now be used to settle
disputes where only one disputing party is a member of the ICSID Convention, or a
national of a state party to the ICSID convention. The additional facility also enables
ICSID to hear cases that do not arise directly from an investment and also fact-finding

4
Reed L, et al, (2004) Guide to ICSID Arbitration .Kluwer Law Internationalp.97.
5
Schreur C.(2008), Principle of International Investment Law, (Oxford University press). p.266
6
P Hamilton.(2008), The Permanent Court of Arbitration: International Arbitration and Disputes
Resolution. Summaries of Awards, Settlement Agreements and Reports p12.

65 | P a g e
cases.7 Arbitration under the additional facility is not regulated by the ICSID
Convention, but rather by the additional facility Rules. The consequence of this is that
the ICSID Convention‘s provisions on the recognition and enforcement of arbitral
awards do not apply; instead the New York Convention8 governs these issues unlike
under the traditional ICSID Convention, the Additional Facility awards rendered are
not exempted from the scrutiny and setting aside by national court possessing the
relevant authority9

The Centre has also been successful in terms of membership. Following the enactment
of ICSID Convention in 1965, its membership of the Centre has increased rapidly to
over 158 member states on the other hand the caseload of the centre has also increased
rapidly. By 1972 ICSID registered just one case but according to the ICSID 2019
Case-Load statistic, as of June 30 201910, ICSID had registered 728 cases under the
convention and additional facility rule. Out of these 728 cases 89.5 per cent were
settled through arbitration, and only 1.4 per cent was settled through Conciliation8.8
through the ICSID additional facility arbitration method and 0.3 through the additional
facility conciliation method.11 If ICSID‘s caseload is considered to be a measure of its
achievement, then the centre would undoubtedly be deemed a roaring success.
Nevertheless, ICSID remains the leading international arbitration institution devoted to
investors-state dispute settlement.12 The Centre is also praised for its clear and
reasonable approach to the costs involved in arbitration unlike other major arbitral
institutions; ICSID provides a clearly defined transparent structure for calculating the
likely costs of arbitration. Uniquely though, the cost structure provides a fixed flat rate
fee to arbitrators this fee is around $2000 per day a figure which is quite low,
particularly when compared with the fees which other arbitration centers typically
charge.13

7
Permanent Court of Arbitration 106th Annual Report‘ (2006) p.90.
8
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York Convention,
(1958).
9
Rudolf D. et al.2008, Principle of International Investment Law, Oxford University press. p.266
10
THE ICSID CASELOAD-STATIISTICS (ISSUE 2019-2)
11
Onwuamaegbu, U.2010,. International dispute settlement mechanisms-choosing between
institutionally supported and ad hoc; and between institutions (Oxford University press, p.65
12
Jackson J. (2008) Legal Problems of International Economic Relations, as cited in C Tietje et al,
„Once and forever? The legal effects of a denunciation of ICSID Stanford University press,
13
Sauvant, K. (2009), et al, The Effect of Treaties on Foreign Direct Investment: Bilateral Investment
Treaties, Double Taxation Treaties and Investment Flows(Oxford University Press USA.

66 | P a g e
3.2. Strengths of Arbitration and ADR Mechanisms

One of the strength of arbitration as primary and the basic used methods of the
settlement of investment disputes is that it provides a rigid procedural framework and
process for the arbitral proceedings which has already been put to the test in prior
disputes. The institution is able to provide extensive supervision of the proceedings
and ensure that the administration is straight forward and efficient.14

Another great advantage of institutionalized arbitration is that this method is able to

impose tight deadlines and time limits, quite often at each stage of the proceedings
parties will be given deadlines for example, for the submission of documents and
required responses and if either of the parties defaults in this regard sanctions are
applied.

The next Strength of arbitration is that the parties have a large pool of potential experts
at their disposal. They continuously compile vast databases of experts who may be
appointed to settle disputes. The parties usually either select the arbitrators themselves
or they can ask the institution to appoint arbitrators to resolve the disputes on their
behalves. Thus, arbitration may be advantageous as those experts may have greater
experience and be more knowledgeable in this regard.

Another important Strength of institutional arbitration is that it does provide the

physical facilities which are required for arbitration; this means that an appropriate
venue and associated facilities are readily available for the arbitration. Even though the
availability of these facilities may sometimes be underestimated.

Another advantage of arbitration is neutrality, because there is a perception that arbitral

institutions provide more of a neutral dispute settlement mechanism than other means
of disputes settlement might for example make use of a state‘s national courts which
might lead to a bias decision towards the interests of the other state whereas an arbitral
institution has no interest in the disputes and is thus able to provide a completely
neutral forum.

14
G Blanke, (2008) “Institutional versus ad hoc arbitration: A European perspective‖ International
Law Journal pp.241, Available online at <http://62.128.128.68/Contents/Publications/pdf/ 140/
Institutional%20versus%20Ad%0
Hoc%20Arbitration_A%20European%20Perspective.pdf>.

67 | P a g e
On the other hand, alternative methods of investment dispute settlement are effective
in that they do not impose direct applications for law in relation to disputes but rather
they respect dispute circumstances, the parties‘ circumstances, and its effect on
international peace and security. Conciliation at the same time is a legal and political
tool thus its importance is illustrated when considering conciliation as a peaceful
means to settle disputes. The substitute of the peaceful means in settling international
disputes is using force to resolve dispute with its non-human effects suffered by
international society in wars that erupted between countries in different regions. The
legal importance of conciliation is that it is a peaceful means subject to the rules of
international law in settling international disputes. Conciliation as an ADR method
respects the circumstances of each party of the disputes and its effect on parties and
international community and Conciliation does not force the parties to accept its results
or impose them on the parties. The parties are free to accept or refuse its
recommendations, meaning conciliation engages them to adopt it with no fear of
getting involved in an international legal obligation. This is because if they are not
satisfied with its results, they have the right to refuse it and not to comply with it.15

More so, Conciliation as an ADR method has two meanings: the first is the broad
meaning which indicates a process of settling disputes peacefully through a third
party's intervention who conducts this settlement between the disputants attempting to
approximate their points of view, which are followed by reconciliation. The second
meaning is the narrow one; it concerns referring the disputes to a committee which
gives its suggestions on how to settle the disputes; these suggestions are binding to
both parties only if they accept them. Conciliation in the narrow meaning is subject to
the settled rule of international law.16

ADR methods are mostly peaceful means to settle disputes arising between the parties
and they remove the problems that prevent the execution and completion of their
relationships. ADR Methods are not considered a legal or judicial means adopted to
resolve disputes arising between parties rather they are the most feasible mechanism
by which decision is made through the parties‘ agreement and consent. Since

15
Mohamed H. L, (1997), Legal Protection Execution and Disputes Settlement According to The Trade
Aspects Agreement in Relation to Intellectual Property Rights.IOIP Publications, , P. 8.
16
Helmy, N.(199, International Conciliation, International Journal of Multidisciplinary Research
Review, P.123, Vol. 1, Issue 5, P.123

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conciliation and Mediation aims at settling an existing dispute, it makes the disputes
not subject to the judiciary control as a whole.8

ADR Methods are optional Means to settle investment disputes because they basically
depend on the parties' desire, even if accepting this means will lead to waiving some
rights hoping to reach a solution which meets the parties' desires. When a disputes
arises selecting conciliation springs from the parties' pure desire for peaceful
settlement of the disputes, hence it should not be imposed upon the parties concern.
Resorting to conciliation largely depends on accepting it and the parties' tendency to
it.17

In addition, ADR Methods does not take a long time consequently their success is an
alternative of resorting to other means which are characterized by being slow,
complicated, costly and which poses difficulty and even prevent some members from
seeking recourse at the centre in the event of any disputes occurrence.

The element of the intervention of a third party either to approximate different points
of view, giving help or exchanging information and documents to make parties reach a
meeting point in which their different demands are achieved or to extend its function to
be able to provide the parties with some solutions.18 Since the decisions or
recommendations issued by the conciliator do not represent an arbitral or judicial
decision or even have a binding decision, the conciliation system cannot make use of
the judiciary authority

The conciliation committees' role is limited to issuing decisions and recommendations

by which the disputants may abide if they find this settlement a meeting point they all
agree on. This is for the purpose of not resorting to the legal means which remove
peacefulness from the settlement way. The third party doing the conciliation is often a
neutral person whose job is limited to lead the parties to a medial settlement without
extending to issuing a decision or sentence on any of the parties. Thus, a conciliator

17
Mabrouk, A. (2002), Towards an Attempt of Conciliation between the Opponents, Comparative
Analytical Study (Cairo, Dar Al Nahda Al Arabia, , p.12.
18
Salama, A. K,(2014) ―National and International Arbitration Law, Comparative Theorization”
International Journal of Multidisciplinary Research Review Vol. 2, pp.46,

69 | P a g e
does not do any judicial work, as such the recommendations or decisions issued by
him do not reach the level of binding rules or decisions19.

Conclusion

This chapter makes us understand the role of ICSID in the settlement of investment
disputes. It also looks at the successes of the ICSID in settling investment disputes
which could be observed in the dramatic rise in the number of cases brough before this
international tribunal, and also the increase in the level of foreign investment today in
the world. With the above evidence in this chapter, we can conclude that ICSID
registered great success.

19
Mostafa E. A. (2004), Arbitration in Private Relationships, as cited in Khaled, H., The Beginnings of
the International Commercial Arbitration, (Alexandria, University Thought House, p.155.

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 CHAPTER FOUR

CRITICISMS OF THE ICSID

Although the Centre has a number of achievements that makes the centre successful
and extremely popular, it may be sad to know that the centre has certainly not escaped
criticisms because many experts argue that as ICSID booms cracks have surfaced.1
One of the most serious criticisms is the lack of Publication of its awards which is
contrary to the thorny issue with transparency. It may be reconciled with the concept
of confidentiality,2 because in the ICSID they still exist a huge number of disputes and
proceedings which are never disclosed to the general public. In practice, access to
documents and hearings is usually dependent on the consent of the both parties to the
dispute and the notion that the arbitrators decide a purely commercial disputes behind
closed doors does offend fundamental principles of justice,3 and is incompatible with
the investment treaty which could be more problematic. Many scholars argued that
investment arbitral awards may have a significant impact on the State‘s future conduct,
the national budget and the welfare of the people. Therefore, the public interest in
investment disputes is indispensable. This will Increase transparency contribute to
enhancing effectiveness and continued acceptance of the system of ICSID investment
arbitration. Current arbitration procedures provide for varied degrees of transparency,
that explains why the principle of public hearings in judicial proceedings is embodied
in national laws as well as most international arbitration so as to guarantee justice but
the closed doors approach of ICSID investment arbitration on issues of public interest
including the non-publication of awards in many cases, has given rise to pressure from
the public and interest groups to allow them access not only to the final arbitral award,
but also to allow the hearing to the general public similar to those which they have in
national adjudication. This is because the non-public access to proceedings is a
fundamental violation to the principle of fair trial and could be a weakness in the role
of the ICSID. 4

1
Waibel M. et al, (2010), The Backlash Against Investment Arbitration: perceptions and Reality
Kluwer Law International, p.520
2
Penusliski I, (2008) ―A dispute systems design diagnosis of ICSID” Chicago International
Law Journal Vol. 6, p.523-524.
3
Nigel B, (2002), Public Interest and Investment Treaty Arbitration, Investment Treaties and
Arbitration, ASA Swiss Arbitration Association, Conference in Zurich on January 25,
4
ibid

71 | P a g e
A number of critics have complained that the biased arbitrators decide investor-state
disputes, they justify their claim on the fact that the tribunal is made up of small clique
arbitrators, they complain that among the hundreds of people who serve as investment
arbitrators at the Centre, there exists a group of fifteen arbitrators who have been
involved in the majority of investor-state arbitration and this elite group of arbitrators
has the heaviest caseload as arbitrators in investment-treaty disputes settlement and has
handled the majority of the biggest cases in terms of award amount being claimed.5
The arbitrators most frequently selected to decide cases are men from developed
countries and over Eighty-three per cent of all cases held at ICSID involve arbitrators
from Western Europe and North America and only four per cent of arbitrators are
women. Therefore, the concentration of cases handled by this elite group inevitably
inhibit career interest for many who wish to became arbitrators and the reoccurring use
of the same arbitrators limits the possibility of diverse viewpoints and perspective as
well as the problem of gender inequality.6

In addition, several critics are of view that these specialists serving as arbitrators also
act as advocates in other disputes, they argue that the possibility of serving multiple
roles creates a risk of conflict of interest in procedure and the applicable laws and also
raises doubts about the arbitrator‘s independence and impartiality. This is because for
example, an arbitrator may be asked to render a decision on an issue he has previously
acted as an advocate for in a prior case, in these situations an arbitrator‘s integrity
might be compromised as it is difficult for a lawyer to remain neutral when deciding
an issue in which he has previously argued in support of one side.7 Thus the Centre has
made it mandatory that before the arbitration proceedings begin, all arbitrators has a
duty to disclose their relationship with the parties or any other circumstance that might
cast doubt as to his ability to remain impartial. However, these vague disclosure
obligations and the duty of confidentiality of all legal professionals permit the
arbitrators to act with considerable discretion.

More so other critics are in favour of the argument that most Arbitrators lack
impartiality as a result of the significant financial interest in the existence of
5
Penusliski I. (2010), A dispute systems design diagnosis of ICSID in M Waibel et al, The Backlash
Against Investment Arbitration: perceptions and Reality ( OUP) p.53
6
UNCTAD. (2010), Investors-State Disputes: Prevention and Alternatives to Arbitration. Sales
No.E.10.II.D.11, United Nations New York and Geneva, , p.13
7
Catherine A, 2005 ―Regulating international Arbitrators: A Functional Approach to Developing
Standards of Conduct” STAN J. INT‘L, Vol. 41, , p.46

72 | P a g e
investment arbitration,8 because unlike judges, arbitrators do not earn a flat salary and
therefore have a financial stake in the arbitration system. For example, arbitrators‘ fees
often range anywhere between $375 to $700 per hour, hence on average an arbitrator
earns $350,000 per case. Such earnings could be far greater depending on where the
arbitration takes place and the case‘s complexity.9 This makes Arbitrators have a
strong incentive to expand the interpretation of investment rules so as to increase the
number of cases falling under ICSID jurisdiction for their personal gains. Furthermore,
it is also alleged that arbitrators favour investors to promote investment, this is because
the majority of this small clique arbitrators who handle majority of cases at ICSID
often comes from developed countries and it is likely that they will have a biased
viewpoint towards the corporate world thus favouring the protection of investors‘
profits.

In addition, critics have highlighted the main problem associated with international
investment law arbitration to also include inconsistency and incoherence in the case
law. Although its existence has been contested by some the jurisprudence speaks for
itself and there are clear and obvious examples of inconsistent decision making in this
international investment arbitration. This inconsistency is a direct result of the lack of a
permanent arbitral body; the hundreds of arbitral tribunals settling investment disputes
can and often do reach opposing decisions. The lack of a system of binding precedent
in international investment arbitration serves to compound the problem. The problem
is evident; what is less clear though is how it may be solved. In this regard a number of
different solutions have been proposed and one of the most hotly debated of these
solutions is the possible creation of an investment appellate mechanism. In recent
years there has been much debate about the desirability and feasibility of the
introduction of an appellate mechanism in international investment law and numerous
academicians have declared their support for the creation of an appeal mechanism. For
example, Dimsey was of the opinion that an appeal mechanism could be beneficial she
examines the full range of legal review mechanisms already in operation and comes to
the conclusion that the existence of the various and diverse review mechanisms
available under domestic legal systems certainly give reason to examine the viability

8
Pia E. et al, (2012) ―profiting from Injustice: How Law Firms, Arbitrators and Financiers Are Fueling
an Investment Arbitration Boo” Stanford University Libraries P.7
9
ibid

73 | P a g e
of a central appellate mechanism in investment disputes resolution.10 She also
believes that an abridged and much more concise version of the current review
possibilities in state courts could be the development of an appellate body specifically
intended to deal with investment arbitration appeals. To her this would certainly do
much to prevent the inconsistencies in decision-making and avoid the haphazard
domestic frameworks that currently come into play in investment arbitration practice.
She then went on to consider the approaches of two organizations that have already
successfully established appellate mechanisms; the London Commodities Associations
and the WTO. She proposes that elements of each of the two appeal mechanisms could
be imported into the proposed international investment law appeal mechanism.

The ICSID Arbitration system is suffering from inadequate Arbitrators qualification

requirements, because under the current rules any person is qualified to be an arbitrator
if they possess a high moral character and recognized competence in the fields of law,
commerce, industry or finance, which may be relied upon to exercise independent
judgment, to be qualified as an arbitrator. Thus critics argue that these inadequate
arbitrators‘ requirements can cause even any person who is not knowledgeable to be
registered as an arbitrator to become one.11 Another weakness of ICSID is the lacks
legitimacy; one author has suggested that ICSID‘s lack of legitimacy is manifested in
three ways; through lack of legal security due to inconsistencies in jurisprudence,
opacity of the process, and lack of a mechanism to mediate conflicts of interests
between arbitrators. Other authors have reached the same conclusion12. The accusation
that ICSID proceedings are too opaque, especially when public matters are at stake
also contributes to the alleged lack of legitimacy. Meetings are often held in secret,
with members being unknown, and awards are not necessarily always fully disclosed.
Furthermore, ICSID‘s legitimacy may be impaired by the lack of available
mechanisms to tackle conflicts of interests amongst arbitrators.193 The ability of the
parties to select the arbitrators may allow for the selection of biased arbitrators.13

10
Dimsey M, (2008) ―The Resolution of International Investment Disputes, International Commerce
and Arbitration”, ICSID Review-Foreign Investment LJ Vol. 21,
11
Ibironke T. O, (2007) “The Antinomies of the (Continued) Relevance of ICSID to The Third World‖
San Diego Int‘l L.J. Vol. 8. P.34.
12
ibid
13
Waibe, M. et al, p. 86

74 | P a g e
Other experts have also criticised ICSID‘s cost structure and the length of proceedings
because to them although the costs are clearly defined before the arbitration even
begins this commentator believe that the costs are too high. This is particularly a
problematic issue for developing nations who have just limited resources at their
disposal to fund legal defence if an investor wishes to take a disputes to arbitration.
This is a particularly worrying given that statistically most investment arbitration cases
are brought against developing states.14 Moreover, the average length of time the
centre takes for a disputes to be completely resolved from start to finish is at least three
or more years, this time is too long for investor who are business people and may need
this awards to make quick turn over. In fact, the process is not as quick and easy as
member states may have been led to believe.

More so, a survey completed in 2004 found that many of ICSID clients are dissatisfied
with the quality of ICSID‘s arbitral awards. In fact, recently, a number of states have
completely withdrawn or seriously limited their ICSID Convention membership this
states include Bolivia that fully withdrew its membership in 200715 asserting that
ICSID had become a mechanism for foreign investors to threaten arbitration when
faced with policy decisions and legislation from host state governments that adversely
affected them. Bolivia stated that within ICSID there is a bias view point in favour of
investors and their corporations against the host developing states. Bolivia also cited
the lack of an appeal mechanism and confidentiality of ICSID proceedings as further
justification for its denunciation.16 Ecuador followed Bolivia‘s footsteps and withdraw
from the ICSID Convention in 2009 citing similar reasons for the departure as Bolivia
did in 2007, namely an alleged bias within ICSID towards the protection of investors
at the expense of the host state.17 Even though in almost all international arbitration at
least some degree of privacy and confidentiality is observed, in ICSID all submissions
are confidential, and oral hearings take place in private unlike in other international
arbitration, ICSID maintains public registers of dispute resolution proceedings and

14
Gottwald E, (2007) ―Levelling the playing field: is it time for a legal assistance Centre for developing
nations in investment treaty arbitration?‖ American International Law Review, Vol. 22 Issue 3 p. 254,
15
Supnik, K, 2009 „making amends: amending the ICSID Convention to reconcile competing interests
in international investment law‘ Duke Law Journal Vol.12, p.59
16
Tietje, C et al, (2017) ‗Once and forever? The legal effects of a denunciation of ICSID‟ University of
Pennsylvania,
17
Grossman N,(2010),„Legitimacy and international adjudicative bodies‟ George Washington
International Law Review,Vol.41 Available online at <http://docs.law.gwu.edu/stdg/gwilr/PDFs/41-
1/41-1-grossman.pdf> accessed on the 26/6/2018.

75 | P a g e
frequently publishes awards with only with the parties‘ consent as such many parties
advocate for ICSID to publish awards unilaterally. This means that in practice, almost
all ICSID awards are not published and easily accessible to the public. This relatively
high level of in transparency has a lot of negative side effects.

ICSID‘s settlement and enforcement rates may indicate a great advantage over other
forms of international arbitration. What has been termed by some experts as ‗the world
bank factor‘ may have contributed to this since there is a perception that failure to
settle or respect the ICSID award may have indirectly negative political consequences
such as lack of credibility in the Centre. In reality, this may or may not be the case
even though it is that the ICSID being a product of the World Bank, the Centre would
have used its god-father to actively encourage respect for the award.

4.1 The ICSID and Cameroon: Impact on Investment and Domestic Legislation

Cameroon‘s legal system is particularly slow in adjudicating investment disputes;

litigants regularly express dismay at the pace at which it handles disputes. The judicial
system in Cameroon is extremely unreliable, filled with corruption, and notoriously
slow. The judiciary arguably lacks independence as all magistrates and judges are
appointed by the President of the Republic, the chief executive. Hearings can be
delayed multiple times by the failure of one party to appear and the court often takes
no action to end disputes stretching then out for years. Plaintiffs in frivolous lawsuits
can use these delay tactics as a method of harassment and can cause their opponent to
incur significant legal fees by delaying hearings dozens of time for years on end.
Another common tactic involves bringing frivolous criminal charges against an
opponent in a commercial dispute.

Therefore, this type of judicial system appeared to have been disliked by foreign
investors and at the same time discourages the flow of foreign investment, economic
growth and development. However, to create a conducive investment climate that will
attract foreign investors, the government of Cameroon signed several international,
regional and bilateral treaties and is a member of several international organizations
aimed at developing its economy and guaranteeing foreign investors of recourse in the
case any disputes occurs. Cameroon was a signatory to the Washington Convention
from its inception on September 23, 1965. They deposited their ratification on January
3, 1967 and the Convention creating ICSID entered into force in Cameroon on

76 | P a g e
February 2, 1967.18 The Convention had as an objective to encourage investment by
providing prompt and adequate settlement of investment disputes, Ensure economic
growth between contracting states and members of other Contraction states. The
Centre as a matter of fact has affected Cameroon positively, even though thought it has
as well had little negative impact on the Republic of Cameroon.

The ICSID has several effects on Cameroon national laws; the Cameroon investment
Code and Charter because before the ICSID Convention went operational in Cameroon
in 1967, Cameroon already had the 1960 first investment code however in 1984, the
1960 investment code was repealed and replaced by the 1984 investment code and the
major shortcoming of this code was that it also made no reference for the settlement of
investment disputes to ICSID Arbitration. Many scholars argue that the it should have
been however expected that following the case of Klockner v. United Republic of
Cameroon that occurred few years before the amendment of the 1984 investment code,
it would have served as an eye opener for Cameroon to have legislated making
provision for the settlement of investment disputes to the Centre in this code because at
the time of formulating the 1984 investment code, ICSID was just from receiving the
first case to which Cameroon was a party as mentioned above. The case would have
therefore served as eye opener to the legislators persuading them to include the
settlement of investment disputes at ICSID. This explains why just 6 years after its
entry into force it was deemed obsolete and was in turn replaced and repealed by the
1990 investment code. Drawing inspiration from the ICSID convention and other
investment treaties, the 1990 investment code was saluted both by academics and
economic operators in Cameroon because this code laid down extensive and general
guarantees that deal with many important issues in International law governing foreign
investment, such as guarantees for repatriation of capital and profit. This 1990 code in
its article 3(1), made provision for the settlement of investment disputes to be done in
accordance with the Arbitration and Conciliation procedure laid down by the ICSID,
as well as Article 11(2) of the 2002 Investment Charter in Cameroon by law No:
2002/004 of 2002.

Pursuant to Article 41(1) and Article 25 (1) of the 1965 Washington Convention and
article 3(1) of the 1990 investment code and Article 119(2) of the 2002 Cameroon

18
International Centre for the Settlement of Investment Disputes, (2017) Annual Report, Washington
DC, June 30, (2017)

77 | P a g e
investment charter, ICSID has competence to hear any case concerning Cameroon that
is directly related to investment between contracting states. So far ICSID has influence
the Promotion of greater transparency between the contracting parties like Cameroon
in the process of domestic rule-making for example through the obligation of the
contracting parties to publish their investment laws, this has given Cameroon not only
rights but also obligations vis-à-vis the investor countries.19 This new method
conceives transparency beyond the traditional notion of publication of laws and
regulations rather it also focuses on the process of rulemaking, attempting to use it as
an instrument to promote the principle of due process and in addition it has enabled
investors to know and understand the applicable rules and disciplines in Cameroon that
are affecting their investments.

The Centre has also been helpful in determining the nature of Cameroon‘s law that will
apply on the occurrence of any investment disputes concerning Cameroon and any
other contracting state party to the ICSID Convention because the precedence laid
down in the landmark case of Klöckner v. United Republic of Cameroon, 20. Where it
was discovered by the tribunal that Cameroon was a bijural country with two legal
systems where; the French Civil law and the English Common law applying
simultaneously; it was noted that applying Article 42 of the ICSID Convention will
further lead to more confusion as to the applicable law Because the tribunal noted that
the pure interpretation of this article will mean that ICSID should apply the law of
Cameroon. To help solve this worry, the Centre applied the real seat test which
provides that a legal entity possesses the nationality of its place of principal
administration, meaning that the law of the place of the head office will apply. Thus,
considering that SOCAME‘s head office was located in Yaoundé with a plant located
in the Eastern part of Cameroon where it had its headquarters. The tribunal concluded
in accordance with Cameroon domestic Conflict rules that the French substantive law
was applicable.21

The Centre has been responsible for the alarming increase in Cameroon‘s Foreign
Direct investment, this is because the mere fact that Cameroon is a signatory to the
19
UNCTAD, Investor-State Dispute Settlement and Impact on Investment Rulemaking, New York and
Geneva, (2007) P.84 ISBN 978-92-1-112720-1
20
Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société
Camerounaise des Engrais ICSID Case No. ARB/81/2, Award, Oct. 21, 1983.
21
News from the International Centre for the Settlement of Investment Dispute, No. 2 Summer (1984)
Vol. 1,

78 | P a g e
ICSID Convention, gives the contracting states confidence as to the availability of a
recourse in the case or occurrence of any disputes.

However, this Centre also has a negative impact on Cameroon for instance, the
Centre‘s practice of none publication of its awards and other practices has a negative
effect on Cameroon because Cameroon as a contracting state is emulating this practice
and this is one of the main reason why it is becoming difficult to find reported court
cases in Cameroon.

4.2 The Impact of the ICSID on Other Developing Countries

There is an on-going debate about International Investment Agreements (IIAs) and

investor-state arbitration ICSID in particular between those who maintain the opinion
that the ICSID encourages investment in developing countries by providing the
mechanism to ensure the enforceability of rights and protections for investors, and
those who suspect that these new rights and protections have a great effect on
regulation for public and environmental welfare and actually hinder development in
developing Countries. These opinions of investor-state arbitration differ substantially
because several scholars criticize investor-state arbitration,22 while others think it is
indispensable for attracting investment.

For several years both camps have drawn evidence and observations to support their
views, as no systematic or comprehensive study of empirical data on investment
arbitrations had been undertaken. To fill this lacunae created by these legal pundits,
Susan Franck has evaluated the impact of investment arbitration based on empirical
studies.23 These efforts produced helpful data and initiated a productive discussion of
these issues. However, the results and conclusions that can be drawn from Franck‘s
work are more limited and warrant more nuance than Franck and others so far have
taken into account because Franck‘s work is now widely used to support the notion
that the ICSID, is of no help to developing Countries.24

22
Ibironke T. O, (2007). ―The Antinomies of the Continued Relevance of ICSID to the Third World”
SAN DIEGO INT'L L.J. Vol.8. P.345.
23
Franck, S. D, (2009), ―Development and Outcomes of Investment Treaty Arbitration‖ Harvard,
International Law Journal, Vol.13 p. 435-489.
24
Kevin P. Gallagher et al, (2001) Investment Treaty Arbitration and Developing
Countries: A Re-Appraisal, Global Development and Environment Institute,
Working paper No: 11-01 May p.3

79 | P a g e
It is clear from the existing literature that developing countries are subject to more
claims than are developed countries and they are more argumenst in support of this
fact that the less developing countries are vulnerable to many claims than the
developed countries.

Beginning from 2005 Bolivia passed hydrocarbons laws that led to the nationalization
of the hydrocarbons industry (natural gas and oil fields).25 After taking office in 2006
President Morales took over the oil and gas mining and telecoms businesses under the
Morales administration, the nationalization of companies in politically sensitive
industries had become almost a ritual.26 Morales complained against ICSID claiming
that the governments of Latin America and other developing countries never win their
cases, he insisted that this bias practice was deeply rooted in this Centre while instead
multinationals companies mostly from Developed Countries always win. The lack of
transparency in arbitration hearings in matters that involve the public interest was one
reason Bolivia gave for denouncing ICSID.27 This developing Country also alleged
that ICSID is bias in favour of Developed Countries and also the lack of an appeal
mechanism, and other vague ideological reasons.28

In 2006, Ecuador passed a new hydrocarbons law known as ―Law 42," that unilaterally
modified the terms of oil production sharing contracts and in 2007, President Correa
changed the law again to increase the government's share of revenues29 because the
law imposed a ninety-nine per cent (99%) tax on "extraordinary income" of oil
companies. Foreign investors have on-going disputes with Ecuador concerning this
law. This is because Ecuador has averaged a new constitution every ten years since
1830, and adopted a new constitution in 2008 under President Rafael Correa30 and

25
Gaillard E, (2007), The Denunciation of the ICSID Convention, N.Y.L.J, P.334
26
Another Bolivian Nationalization: Power Grab, ECONOMIST May 6, (2010).
http://www.economist.com/
node/ 16064027. Accessed on 25/6/2018
27
Fernando Cabrera Diaz, Bolivia Expounds On Reasons for Withdrawing from ICSID Arbitration
System, Investment Treaty News May 27, (2007)
28
Morales has said, (We) emphatically reject the legal, media and diplomatic pressure of some
multinationals that. resist the sovereign rulings of countries, making threats and initiating suits in
international arbitration." Latin Leftists Mull Quitting World Bank Arbitrator, REUTERS Apr. 29,
(2007), Available online at http://www.reuters.com/article/2007/04/29/bolivia-venezuela-
nationalizations-idUSN2936448520070429. Accessed on 27 June 2018
29
U.S. DEP'T STATE, 2009 Investment Climate Statement Ecuador Feb. (2009) Available online at
http://www.state.gov/e/eb/rls/ 0thr/icsid/2009/117668.htm. Accessed on 28 June 2018.
30
Ecuador's Constitution: Going Nowhere, ECONOMIST May 10, (2008)p.48, Available at http://
www.economist.com/node/11332947. Accessed on 27 /6/ 2018.

80 | P a g e
Article 42 of the new Constitution directly impacts foreign investments. 31 This article
forbids Ecuador from entering into any agreement or treaty that would require Ecuador
to subject its investment disputes to ICSID international arbitral tribunal. Ecuador
makes an exception for regional international arbitration in which only Latin American
states are signatories and parties.32 However, no such arbitration forum exists because
the plain language of Ecuador's constitution prohibits future agreements. Ecuador also
tried taking action against agreements already concluded but has claimed for a number
of years that it will denounce ICSID for example in 2007, Ecuador signalled Centre
that it might not renew its BIT that referred to ICSID arbitration and in 2009 Ecuador's
national assembly considered terminating most of its BITs, 33 this was because Correa
administration asked the national assembly to terminate thirteen bilateral investment
treaties, including that with the United States. However, up to date the termination of
most BITS has not been approved and Ecuador has maintained its BITs with major
capital exporting states but Ecuador's hostile attitude toward foreign investment and
the relatively large amount that Ecuador owe to foreign investors are worrisome.

Venezuela's nationalization of the Cerro Negro oil project in 2007 gave rise to multiple
actions against it including a claim by Exxon Mobile that was recently concluded in
the International Chamber of Commerce with an award ordering Venezuela to pay
$908 million34 Venezuela is also a defendant in many other law suits as a result of the
nationalization of several industries under President Hugo Chavez, including another
multi-billion-dollar claim by Exon Mobile. Chavez has seized assets in the
telecommunications, mining and hydrocarbons sectors and during a six-hour long talk
show on January 8, 2012, against the backdrop of a state owned oil facility in
Venezuela,President Hugo Chavez announced to the world that "We have to leave
ICSID and I say it right away we will not recognize ICSID decisions.Chavez was
referring to the International Centre for Settlement of Investment Disputes (ICSID)
where Venezuela was facing more than a dozen arbitration cases brought by foreign
companies claiming compensation for inter alia expropriation. As a result, Venezuela

31
Joshua Briones & Ana Tagvoryan,(2010). , ―Is International Arbitration in Latin America in Danger?‖
32
Gillman E, (2008),The End of Investor-State Arbitration in Ecuador? An Analysis of Article 422 of
the Constitution of 2008, P.280-284
33
U.S. DEP'T STATE, 2010 Investment Climate Statement Ecuador March (2010), Available online at
http://www.state.gov/e/ eeb/rls/othr/ics/2010/138060.htm. Accessed on 29 /6/ 2018.
34
Venezuela Vows to Reject Arbitration in Exxon Case, N.Y. Times Jan. 8, (2012), Available online at
http://www.nytimes.com/
Last visited on the 30/6/2018

81 | P a g e
did indeed withdraw from ICSID after giving notification on January 24, 2012 making
it the third Latin American country to do so, after Ecuador and Bolivia. According to
Professor Sornarajah.35 These paradigms are deeply rooted in conflicts between the
United States and Latin American because they historically developed in the context of
the disputes between the United States and Latin American states.

Some scholars believe that the business goals of foreign investors and the development
goals of capital-importing countries are not reconcilable, this may be so, but it is hard
to advocate this view since some criticisms of ICSID are ideological. The actions of
Bolivia for denouncing several BITs and the ICSID and nationalizing or expropriating
foreign assets have an ideological explanation. There is a perception in some of Latin
America states that the current international investment regime is a modern version of
"gunboat diplomacy against national sovereignty" that favours multinational
corporations and ignores labour and environmental regulations.

Some criticisms of ICSID investor-state arbitration apply equally to other types of

investor state arbitration such as encroachment on state sovereignty and interference
with a state's regulatory function. Investor-state arbitration encroaches on state
sovereignty in that it limits a state's ability to regulate or exercise sovereignty by
entering into investment treaties with other states but also relinquish some sovereignty
by agreeing to investor-state arbitration as a dispute settlement mechanism. It is
beyond dispute that the current Contracting state diminishes sovereign authority which
national law otherwise grants complete dominion to the ICSID arbitration. This
criticism should not be directed towards ICSID however because interference with
state sovereignty arises from investment treaties and not from arbitration forums. This
position is supported by Diana Marie Wick36 who argued that the criticism that ICSID
encroaches on state sovereignty more than other arbitral forums is unwarranted.

Some innovations in investment treaties have developed to address such criticism since
the ICSID Arbitration is reluctant and that explains why Regional Economic
Integration Agreements have resorted to the establishment of Committees such as
North American Free Trade Agreement (NAFTA), Economic Community of West

35
Samarnaraja M.(2010),The international law on foreign investment,Cambridge University press,
Revised edition
36
Wick, Diana Marie (2012) “The Counter Productivity of ICSID Denunciation and Proposals for
Change,” Journal Of International Business And Law”. Vol 11: Iss. 2, Article 2.

82 | P a g e
African States (ECOWAS), Monetary and Economic Union of Central Africa
(CEMAC) and others to supervise and handle various matters relevant to the
agreement, so as to help in resolving disputes arising from the interpretation or
application of the agreement and considering other issues relevant to the operation of
the agreement as seen in Chapter 3 of this work.

4.3 The Effect Of ICSID Denunciation

Venezuela gave notification of its denunciation of the ICSID convention on January

24, 2012, the notification became effective on July 25, 2012. However, Bolivia was the
first state to withdraw from ICSID because Bolivia gave notice of its denunciation of
ICSID in 2005 which became effective in 2006.37

In July 6, 2009, Ecuador gave notification of its denunciation of ICSID and the World
Bank received Ecuador's notice of denunciation of the ICSID Convention and the
ICSID website announced under Article 71 of the ICSID Convention that the Ecuador
denunciation would take effect on January 7, 2010. Scholars have differing opinions
as to what should happen if investors attempt to initiate arbitration against Bolivia or
Ecuador through ICSID. Now Venezuela is in the same situation which has led to its
boycott of the international centre for the settlement of investment disputes. Since
Ecuador, Bolivia, and Venezuela have denounced ICSID there has been some debate
as to whether certain disputes are arbitrable under the ICSID? Their denunciations
have also sparked debate about whether the system of investor-state arbitration in Latin
America will collapse. Consequently, investors may not be able to initiate arbitration
against Bolivia or Ecuador under ICSID but in some cases they can still initiate
arbitration under other mechanisms such as the UNCITRAL Rules or the International
Chamber of Commerce. Despite these denunciations most BITs still contain
alternatives to ICSID for disputes settlement mechanisms for example the U.S.-
Ecuador BIT provides for disputes settlement through ICSID and the Additional
Facility. Thus those investors from other contracting member states that still have BITs
in force which refer to ICSID as a settlement mechanism can still initiate non-ICSID
investor-state arbitration. Most BITs have survival clauses that provide that the
substance and protection of the BIT will remain in effect for at least ten years after the

37
Schreuer C, (2010), Denunciation of the ICSID Convention and Consent to Arbitration‟ in Waibel M,
et al (eds), The Backlash Against Investment Arbitration: Perceptions and Reality Kluwer Law
International,.

83 | P a g e
BIT is denounced and even if a country denounces the BIT the investor will still be
able to invoke the disputes settlement mechanisms for many more years.

The issue of ICSID denunciation is important and worth discussing because if it is not
well handled many more states may withdraw from ICSID for example Venezuela
threatened to denounce ICSID for several years and now has finally done so, now
Nicaragua is another state which may denounce ICSID if care is not taken because
even Argentina at one time seemed ready to withdraw from the investor-state
arbitration system after investors brought many claims against it as a result of
measures the Centre imposed on them in 2002 in response to its financial crisis,38 in
fact they was speculation that Argentina would withdraw from the ICSID even "though
it has not yet made official statements indicating such a drastic move to denounce the
centre.

In addition, the situation in Peru should be monitored because Peru's newly elected
president, Ollanta Humala and he wishes to impose a windfall tax on mining and there
have been conflicts related to foreign investment in the mining and hydrocarbon
sectors. President Humala indicated that he would seek to impose a windfall tax on the
key mining sector to help raise revenue for social spending which may be similar to
Ecuador's action and reason that led to its denunciation of the centre.39

It is debatable whether the denunciation of ICSID benefits those states that are concern
because investors will still be able to initiate non-ICSID arbitration against such states
and these states do not have a greater chance of prevailing in non-ICSID arbitration.40
Bolivia and Ecuador do not gain much of an advantage if they were any by forcing
investors to initiate ad hoc arbitration under the UNCITRAL Rules instead of using
ICSID. In fact, there are also many disadvantages in non-ICSID arbitration for
example the lack of transparency in investor-state arbitration is one often cited
criticism of the system41 and there is even less transparency in other adhoc arbitration

38
Kasenetz E. D.(2012), „ Desperate Times Call for Desperate Measures: The Aftermath of Argentina 's
State of Necessity and the Current Fight in the ICSID‟ Duke Journal of Comparative International
Law Vol. 23.P.149
39
Jane Monahan, Ecuador Oil Policy Upsets Private Firms, BBC News, Oct. 3, (2006) available at
http:// news.bbc.co.uW2/hi/business/5359458.stm. Accessed 3/7/2018
40
Susan F.(2011), ―The ICSID Effect? Considering Potential Variations in Arbitration Awards”
Virginia International Law Journal
41
Investment, Arbitration & Secrecy: Behind Closed Doors, ECONOMIST, Apr. 25, (2009).

84 | P a g e
than ICSID therefore Bolivia, Ecuador, and now Venezuela may suffer from their
denunciation of ICSID because of the numerous alleged disadvantages to non-ICSID
arbitration.

4.4 findings, conclusion and recommendation

A. Findings

The main problems associated with international investment law arbitration that
hampers its competence include;

1. The International Centre for the settlement of investment disputes lack an

appellate Mechanism.
Thus all awards and decisions of the Centre are final and not subject to any review. In
recent years there has been much debate about the desirability and feasibility of the
introduction of an appellate mechanism in ICSID.

2. The ICSID convention is obsolete with modern investment rules and requires
another Amendment.
Since the arbitration rules were adopted on January 25, 1967, the Washington
Convention has subsequently been amended three times on September 26, 1984, 1n,
January 2003 and April 10, 2006 despite this triple amendment of the 1965
Washington some very important terms relating to ICSID have still remain undefined.

3. The Additional Facility Rules which were created in 1978 has widen ICSID’s
competence beyond intention of the framers of the ICSID Convention.
The 1978 additional facility rule initiated by ICSID Administrative Council in order
to open up ICSID arbitration to include cases that would normally fall outside of its
competence such as entertaining cases that one state is not a contracting state to the
convention and enables ICSID to hear cases that do not arise directly from an
investment has unnecessarily widen the competence of the Centre this is causing
ICSID to interfere in the national sovereignty of other states by determining the
arbitration where their cases should be heard and again arbitration under the additional
facility is now not regulated by the ICSID Convention, but rather New York
Convention.
4. ICSID lacks transparency
They are no Publication of its awards because they still exist a huge number of
disputes and proceedings which are never disclosed to the general public. In practice,
access to documents and hearings is usually dependent on the consent of the both

85 | P a g e
parties to the dispute and the notion that the arbitrators decide a purely commercial
dispute behind closed doors does offend fundamental principles of justice,

5. ICSID is bias as Developing countries are subject to more claims than

developed countries
There is an on-going debate ICSID in particular between those who maintain the
opinion that the ICSID encourages investment in developing countries by providing
the mechanism to ensure the enforceability of rights and protections for investors, and
those who suspect that ICSID actually hinder development in developing Countries.
Susan frank work an support of the notion that ICSID, is of no help to developing
Countries.

B. Conclusion

The Competence of the International Centre for the Settlement of Investment Dispute
is regarded by investors as the central pillar before entertaining and settling any
investment Dispute in the ICSID and according to the ICSID Convention the tribunal
has the power to determine its own competence in a particular dispute, this power is
expressly provided by article 41 of the ICSID Convention. In that regard, it appears
like a usual practice in institutional arbitration to provide a tribunal with the
competence to decide upon its own competence in express terms. According to Article
25(1) of the Washington Convention, the jurisdiction or competence of the Centre
extends only to legal dispute arising directly out of an investment this Convention
exclude purely political, commercial and theoretical disputes. In addition, certain type
of disputes are also excluded from the jurisdiction of this Centre namely those related
to activities of a State‘s sovereign prerogatives. Although no such limitations were
included in the Convention alternatively the parties were given an opportunity to agree
on the class or classes of dispute to be submitted to the Centre in two forms.

First, according to Article 25 (4) Consent should be given through notification on the
certain class or classes of dispute to be submitted to the Centre and this notification
may be given at the time of ratification, acceptance or approval of the Convention or at
any time thereafter. Second, parties may also include the definition of a legal dispute in
their agreement. The Centre has designed Model Clauses relating to the subject‐matter
of the dispute and the fourth clause stipulates that the consent to the jurisdiction of the
Centre shall only not extend to disputes related to the following matter; seizure of

86 | P a g e
premises, dissolution of companies and those which the tribunals have analyzed as
actions of the State and which could only fall under their sovereign prerogatives while
the political nature of the dispute has also been accented, the existence of political or
governmental elements in disputes however does not change the nature of the dispute
as long as the disputes concern legal rights and obligations or the consequences of their
breach. Thus the decisive criterion for tribunals has been whether the dispute was
based on agreement between the parties to the dispute. The ICSID for over five
decades now have achieved tremendous successes in the settlement of investment
dispute however the Centre is overshadowed by weakness.

The most important features of ICSID arbitration regarding its Competence is the fact
that an ICSID tribunal is decision on jurisdiction or competence shall be binding on the
parties and the only remedies available are those specified in the Washington
Convention. There is no room here to the application to local courts or any other fora.
However, because of the inability for the alternative dispute settlement mechanisms,
already in existence to ensure Consistency and guarantee competence in ICSID, this
work advocate for the creation of an appeal mechanism. Several scholars see an appeal
mechanism as a response to such inconsistency. The most often cited advantage of the
introduction of an appeal mechanism is that it will ensure greater consistency,
coherence, a more sustainable system, reduce the flexibility of the system, the re-
politicization of damage the principle of finality which often led to problem of lack of
Jurisdiction and lack of competence of the ICSID.

This work has consumed all its research question and to a limited extent achieved its
objectives as earlier articulated.

C. Recommendations: Measures to Improve on the Competence of ICSID.

To further strengthen the competence of the ICSID, this work suggests the following
recommendations; the establishment of an Appeal Mechanism, the Amending the
Convention Creating ICSID, the Need for Greater Transparency. Each of these
recommendations will be treated in turn.

1. Establishment of an Appeal Mechanism

This research wishes to propose in this regard the possible creation of an investment
appellate mechanism. In recent years there has been much debate about the desirability
and feasibility of the introduction of an appellate mechanism in international

87 | P a g e
investment law and a number of academics have declared their support for the creation
of an appeal mechanism. This is because the existence of the various and diverse
review mechanisms available under domestic legal systems, certainly give reason to
examine the viability of a central appellate mechanism in investment dispute
resolution. This would certainly do much to prevent the inconsistencies in decision-
making and identify issues relating to the lack of competence that often occurs in the
investment arbitration practice.

This can be seen from the approaches of two organisations that have already
successfully established appellate mechanisms; the London Commodities Associations
and the WTO. The elements of each of the two appeal mechanisms could be imported
into the proposed international investment law appeal mechanism because an appeal
mechanism would help harmonise interpretations of investment treaty provisions,
therefore reducing the scope for inconsistent decisions to arise and would bring about
more cohesion and more legal certainty to this body of law. An appellate mechanism
should be hastily established; instead time should be taken to ensure that the eventual
facility is the best.

2. Amending the Convention Creating ICSID

The Convention Creating ICSID need to be amended to reflect Modern investment
trend. Article 44 of the ICSID convention provides that arbitration and Conciliation
will be conducted in accordance with the Arbitration rules on the date on which the
parties consented to arbitration except as the parties otherwise agree. Since the
arbitration rules were adopted on January 25, 1967, the Washington Convention has
subsequently been amended three times the first amendment was approved on
September 26, 1984 (ICSID arbitration rule 1984). The Second amendment was
approved on September 29, 2002 and was effective on 1, January 2003 (ICSID
arbitration rule 2003). And the last amendment was approved by written votes of the
administrative Council on April 10, 2006 (ICSD arbitration rule 2006). Despite this
triple amendment of the 1965 Washington some very important terms relating to
ICSID have still remain undefined. Therefore, this work suggests other change to the
ICSID rules and regulation because only such an amendment would enable important
concepts such as Investment, Legal Dispute, settlement, just to name a few to be
clearly defined and if this rule is amended, it will help provide arbitrators with a single
authoritative legal definition and thus remove those that are absurd and disconnected

88 | P a g e
from meaningfully economic activity and thus avoid the discretion of allowing
important concepts to the mercy of ICSID administrators and its Contracting member
states. This will as well help mitigate the continuous problem of jurisdiction and
competence of the ICSID.

3. The Need for Greater Transparency

ICSID need to ensure greater Transparency because one of the most controversial
aspects of ICSID is the confidential protection afforded to parties before ICSID. ICSID
arbitration is a matter of contract between the parties involved in the dispute; therefore,
it is arguably reasonable for the parties involved in the proceedings to assume that the
public should be excluded from the proceedings. Accordingly, the ICSID Arbitration
Rules create a presumption in favour of confidentiality even though they are some
arguments to support the concept of confidentiality in arbitration proceedings because
one of the primary reasons parties‘ claim they elect to settle their dispute through
arbitration is the confidentiality protection. However, while confidentiality does
provide some benefits to investor-state dispute resolutions, there are also several
arguments for transparency in investment arbitration proceedings; First, confidentiality
protects the arbitrators by concealing the proceedings and award from public scrutiny
and this lack of historical information about each arbitrator hinders the parties from
selecting the most appropriate and qualified arbitrator for the particular dispute in
question. Also, without access to prior awards information and precedent thereby make
it difficult for the parties to predict the outcome of their dispute. When awards are not
published, it is difficult to analyse how the law is applied and International arbitrators
may be applying the law inconsistently thus creating an uncertainty in international
business transactions.

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