To print this article, simply register or connect to Mondaq.com.
The term jurisdiction has traditionally been defined as the power of an adjudicative body, such as a court or tribunal, to admit, hear and decide claims and to make orders regarding such claims. In investment arbitration proceedings, a court has jurisdiction only to the extent that the parties agree to submit to arbitration. There must be written consent to arbitrate. This eliminates any doubt that the parties intended to evade the national judicial system.
The ICSID Convention is an international treaty or agreement registered as such with the secretariat of the United Nations under Article 102 of the Charter of the United Nations. Its text was formulated by the executive directors of the International Bank for Reconstruction and Development – the IBRD or the World Bank, the latter name being a nickname that the institution finally officially adopted.
ICSID was created to provide conciliation and arbitration services for investment disputes between foreign investors and host country governments. It was designed to provide a neutral forum for the settlement of investment disputes with the desired consequences of creating a climate of mutual trust and thus simulating a greater flow of private international capital with countries wishing to attract. The emergence of ICSID is due to the dynamics of the global world, where global trade calls for the cooperation of states. And also, the need for the protection of investors and host states in a neutral forum.
The ICSID Convention on the Settlement of Disputes between States and Nationals of Other States was concluded in 1965 and initially adopted by 20 States. It entered into force on October 14, 1966.
It should be emphasized that, in investment treaty arbitration, the legal basis for the jurisdiction of the tribunal is essentially the consent of the parties.
Elements of jurisdiction under ICSID
The criteria for jurisdiction under ICSID are governed by Article 25 of the ICSID Convention. The jurisdiction requirement under Article 25 of the ICSID Convention is generally classified as follows:
- The first set of requirements concerns the consent of the parties to arbitrate at ICSID in accordance with the provisions of the ICSID Convention.
- The second set of requirements concerns the parties themselves (jurisdiction ratione personae or personal jurisdiction). Thus, one of the parties is a Contracting State of the Convention while the other is a national of another Contracting State of the Convention.
- The third set of requirements for giving consent relates to the nature of the dispute (jurisdiction ratione materiae or substantive jurisdiction). This is a legal dispute arising from foreign investments. It should be emphasized with insistence that during the preparation of the Convention, the representatives of certain developing countries insisted that the term “investment” be defined in the treaty which would exclude from the competence of the Center the categories of disputes which they considered. unfit for arbitration. However, other participants opposed defining the term because, after all, parties could always exclude unwanted matters by withholding consent to ICSID jurisdiction. This latter point of view prevailed. It reflects the often-cited statement in the Executive Directors’ Report on the Convention that no attempt has been made to define the term “investment” given the essential requirement of consent of the parties. The parties thus have a wide margin of appreciation in determining for themselves whether their transaction qualifies as an investment for the purposes of the Convention.
Consent under the ICSID Convention
Article 25 of the ICSID Convention determines the application of the ICSID Convention to a dispute and, therefore, the jurisdiction of the ICSID Courts for a dispute.
Said Article 25 of the ICSID Convention provides verbatim as following:
- The competence of the Center extends to any dispute arising directly from an investment, between a Contracting State (or any subdivision or constituent agency of a Contracting State designated to the Center by that State) and a national of another Contracting State, who the parties to the dispute agree in writing to submit to the Center. When the parties have given their consent, neither party can withdraw its consent unilaterally.
- “National of another Contracting State” means:
a) 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 that dispute to conciliation or arbitration and on the date on which which the application has been registered in accordance with 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; and
b) any legal person which 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 that dispute to conciliation or arbitration and any legal person which had the nationality of the Contracting State party to the dispute on that date and which, due to foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.
- The consent of a constituent subdivision or agency of a Contracting State requires the approval of that State, unless that State notifies the Center that such approval is not required.
- Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Center of the category or categories of dispute which it may or may not consider submitting to the court. of the Center. The Secretary General shall immediately transmit this notification to all Contracting States. This notification does not constitute the consent required by subsection (1) “.
As is clearly indicated, Article 25 of the ICSID Convention defines the jurisdictional obstacle to be overcome in attempting to invoke the jurisdiction of ICSID to hear and settle an investment dispute.
The provision of article 25 is supplemented by other provisions, such as articles 26 and 27, which deal with the exclusion of other remedies, exhaustion of local remedies and diplomatic protection.
Condition of consent under the ICSID Convention
For a dispute to come within the jurisdiction of the Center, the parties must have consented in writing to submit it to the Center. This is in accordance with any form of arbitration, which is based on the agreement of the party to arbitrate. Therefore, the consent of the host State and the investor to arbitrate is a prerequisite for the jurisdiction of the arbitral tribunal.
An important principle regarding the consent of parties is stated in the last sentence of Article 25 (1) of the ICSID Convention. This is the sentence providing that once both parties have consented to the jurisdiction of ICSID, neither party may unilaterally withdraw its consent.
Until now, the competence of the Center has to be assessed at the time when this competence is invoked, that is to say when the investor’s request for arbitration is registered by the Center. Moreover, once jurisdiction has crystallized, neither party can withdraw its consent unilaterally, as clearly stated in Article 25 (1) of the ICSID Convention.
Ways to give consent
Host State consent to ICSID arbitration and, more generally, investor-state arbitration may be given in one of three ways:
Way 1 – By direct agreement / concession agreement
The first and most apparent method of consent is entering into a direct agreement or concession between the host state and the investor. Such an agreement usually takes the form of a dispute settlement clause providing for investor-state arbitration in contracts between the state and foreign investors.
Track 2- Provision in the national law of a host State
A second method of consent is to include a provision in the domestic law of a host state that offers arbitration to foreign investors in general terms.
In this case, the consent of both parties being required for the arbitration, the mere existence of such a provision in national law is not sufficient. The investor must then accept the arbitration offer at any time while the law is in force. Unless the law provides otherwise, such acceptance may also be made by the simple initiation of arbitration proceedings. In this case, consent will be confirmed in the Request for Arbitration filed by the Claimant.
Way 3- By a treaty between the host state and the investor state
The third method of consent to arbitration is to enter into a treaty between the host state and the home state of the investor. Most BITs and IMTs contain clauses offering arbitration to nationals of a state party to the treaty against other states party to the treaty. In this case, as in the previous case, the offers of consent contained in the treaties must also be supplemented by an acceptance on the part of the investor.
This article has demonstrated that the establishment of written consent as provided for under Article 25 is important for the successful invocation of ICSID jurisdiction. Establishing consent is crucial for the initiation of arbitration proceedings under the ICSID Convention. This is a jurisdictional hurdle that parties must overcome in order to use the ICSID platform to resolve investment disputes.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.