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by Ugochi Nwosu

In this blog, Ugochi, an Early Career Researcher, sets out her reflections on the insights she obtained from her training at the Arbitration Academy in Paris.

Meet Ugochi Nwosu:

I am a doctoral candidate at the University of Reading. My thesis examines the Diversity Challenge in Arbitrator Appointments. I am also a member of the CLRNN Executive Committee, on which I serve as the CLRNN Administrator. I hold an LLM (with distinction) in International Commercial Law with International Dispute Resolution (Arbitration) from the University of Reading, a Bachelor of laws degree from Afe Babalola University and have been called to the Nigerian Bar.

My Journey to the Arbitration Academy 2021:

Following a call for expressions of interest, I applied for a place on the Academy in March 2021. At the same time, I applied for a scholarship to sponsor my attendance. My application was endorsed by my supervisor and University. In June 2021, I received an e-mail notifying me of my selection as a delegate and a further mail notifying me that I had been sponsored by leading firms in international arbitration Asafo and Co ,in collaboration with Clyde & Co. The sponsorship covered both my tuition and living expenses throughout my stay in Paris.

About the Arbitration Academy:

The Arbitration Academy provides training and teaches advanced courses to students and young practitioners interested in international arbitration. The annual training holds in Paris during the Summer. In 2021, it was held between 5th – 23rd July 2021.

During the training, we learnt about arbitration procedures in different institutions, arbitration practice in some jurisdictions and key issues in arbitration practice. One of the seminars  focused on Arbitration practice at the International Centre for the Settlement of Investment Dispute (ICSID). My first first reflection is on this seminar, which was facilitated by Francisco Abriani, a legal counsel at ICSID.

Arbitration Practice at ICSID:

Abriani began the session with a brief discussion on the different methods of resolving investor-State disputes. They include:

1. International diplomatic protection: This legal principle and mode of dispute resolution was first formulated by the Permanent Court of International Justice in the Mavrommatis case of 1924. It is an inter-State process between the investor’s home state and the host State. In this system, the investor’s home State brings a claim against another State. The mechanism is based on a legal fiction that an injury to the national of a State is an injury to the State itself. However, the ICSID Convention forbids the exercise of Diplomatic Protection during an on-going proceeding or from the moment an investor commences international arbitration at ICSID. This does not mean that  States cannot negotiate to take over the dispute, but in principle, diplomatic protection is ruled out.
2. Local Courts: The investor can bring the dispute before the courts of the host State.
3. International Arbitration: A foreign investor can bring the dispute before an International Tribunal, which will be constituted under the auspices of the ICSID convention.

Features of ICSID

Abriani describes ICSID as a neutral and impartial forum that considers the special characteristics of investment disputes. These special characteristics according to the Executive Directors are:

1. ICSID allows private individuals and legal persons to have direct recourse to arbitration against States.
2. The Convention maintains a balance between the interest of investors and that of host States.
3. It is an autonomous and self-contained system. Thus, it does not have elements such as seat of arbitration found in the New York Convention. Proceedings do not have to be held in Washington DC. Parties can choose any other venue, because the location does not have the same effect as the seat of arbitration would in Commercial Arbitration. This does not however apply to ICSID Additional Facility Disputes, discussed further below, which usually have a seat of arbitration.
4. It provides a specialised and simplified enforcement mechanism. ICSID records a high rate of voluntary compliance with ICSID awards.  All Member States must enforce ICSID judgments as they would treat the judgment of a local court.

Other features of ICSID highlighted by Abriani include that:

1. ICSID is a non-profit organization. Even though it receives payment from the parties, it has a cost-effective structure which puts a cap of USD3,000 a day on arbitrators’ fees and secretariat charges and an annual fee of USD42,000  for the administration of cases with no additional fees. The cost for filing of a request for arbitration is a non-refundable fee of USD25,000. The idea behind this cost is to prevent frivolous suits before the Court.
2. ICSID has a wide range of expertise as it the only institution that can administer investor-state proceedings under three main set of rules; ICSID Convention, ICSID Facility Rules and the UNCITRAL Rules.
3. ICSID has a full-time secretariat with experienced legal counsel and support team.

The Jurisdiction of ICSID

Abriani set out the jurisdiction of ICSID in great detail. He noted that the ICSID convention, which was signed in 1965 and came into force in 1966, sets the scope of its jurisdiction in arbitration and conciliation proceedings. On the other hand, the ICSID Administrative and Financial Regulations sets the rules for the financial administration of its disputes. It regulates the payment that the parties must make in advance and the financial regulations applicable to the institutions. ICSID also has its Institution Rules which governs the filing of a request for arbitration as contained in Article 36 of the ICSID Convention.

The jurisdiction of ICSID is limited to disputes involving its Member States. According to Article 25 of the ICSID Convention, before ICSID can exercise jurisdiction, the claim must:

1. Involve a Legal dispute- the convention fails to define what constitutes a legal dispute, but the scholars and practitioners have defined it as a dispute that concerns the scope of a legal right or obligation. In Abriani’s view, this definition implies that a mere conflict of interest does not pass as a legal dispute.
2. Arise out of an Investment- The Convention also fails to define an investment. This raises a question as to whether the Convention gives parties the freedom to determine any transaction as an investment or that any broad definition contained in a Bilateral Investment Treaty (BIT), a law or contract will qualify as an investment under the ICSID Convention. Two diverging theories have emerged from this: the objective and the subjective test.

The objective theorists opine that an investment must meet the following criteria: i) it must make a significant contribution of money/assets in the host country. ii) it must have a certain duration, iii) it must entail a certain business risk, and  iv) it must contribute to the economic development of the host state. Abriani stated that most times, when the objective test was adopted, the tribunal relied on criteria (i-iii) only and not necessarily the fourth.

On the other hand, the subjective approach assumes that since both parties must consent to arbitration, the parties ought to define what constitutes an investment and their agreement alone will give ICSID jurisdiction. For example, BITs contain a long list of what constitutes an investment, and this list may include claims for money or other things which may not necessarily qualify as an investment in the eyes of a tribunal or under the objective test. Subjective theorists suggests that the objective criteria implies that compliance with the treaty or contract that serves as a basis of consensus does not suffice for an ICSID dispute, but that some other inherent criteria exists in Article 25 which must also be complied with.

To Abriani, neither of the theories should be the norm but that the definition of an investment should be decided by the tribunal in each case

3.It must be between Member States; Disputing parties shall be a Member State and a national of another Member State. The parties shall be Member State on the day of the agreement to arbitrate and on the day of the registration of disputes. These two dates are important in determining jurisdiction. The investor shall not be of the same nationality as the host State, independent of whether the BIT allows the nationals of the host country to institute investment disputes. This does not mean that dual nationals cannot bring an action.

4.Consent in writing: This is the last requirement under Art 25; Although the ICSID Convention states that disputing parties must have ratified the convention and are Member States, mere ratification does not equate consent to arbitrate at ICSID. Consent to arbitrate would be given in a separate document. This could be in three kinds of instruments: contract which includes a clause in an agreement, A foreign investment contract, concession agreement, investment law; In SPP v. Egypt (the pyramid’s case), the tribunal accepted for the first time that consent can be given based on a foreign investment law. The most common is the consent given by States in a BIT or multilateral investment treaty. Consent to ICSID arbitration is irrevocable; parties cannot withdraw consent unliterally after they give consent.

Where one of the parties to the dispute is not a Member State, then the dispute shall not be governed by the ICSID Convention proceedings, but the Additional Facility Rules, which was created for disputes involving only one member State.  Under the Additional Facility Rules, parties can bring conciliation proceedings, arbitration proceedings or fact-finding proceedings. However, the fact-finding proceedings, have never been used. Abriani stated that ICSID is currently re-drafting the fact-finding rules, as well as drafting the mediation rules which would allow parties institute mediation proceedings in ICSID.

Concluding Reflections 

Abriani gave an insightful lecture on ICSID, its features and jurisdiction. He also discussed the controversial parts of the ICSID Convention. While Abriani does not recommend a modification of the Convention, he proposes that controversies over the meaning of a legal dispute should be resolved by the tribunals.

The Arbitration Academy lays a good foundation for young arbitrators hoping to build a career in international arbitration. The seminars provide insights on arbitration practice in both commercial and investment arbitration which would help young practitioners choose a path. It is also great for student and academics because its special lectures highlight the grey areas and introduces vast areas of research. Finally, the Academy offers a great avenue to interact with renowned arbitrators, as it holds interactive sessions and cocktails to meet and build personal networks.