Author: Danilo Ruggero Di Bella*
| Jurisdictions: International |
Topics: Investor-State Arbitration Procedural Rules |
An arbitration agreement to submit a dispute to the ICSID need satisfy no requirement other than recording in writing the consent of the parties to entrust the ICSID with the administration of their case. In investment arbitrations, parties’ consent is not usually recorded in the same document; rather, it is the product of an exchange of instruments through which the claimant accepts the host state’s public offer to arbitrate (unless, of course, it is a contract-based arbitration, in which case the contract contains already both parties’ consent). Given the minimal requirements to agree to an ICSID arbitration – essentially, the parties’ consent to arbitrate in writing – it is possible to appreciate a variety of formulae in which ICSID arbitration provisions have been drafted. This post will draw a distinction between provisions referring a dispute to arbitration by ICISD in accordance with the ICSID Convention and provisions referring a dispute to arbitration by ICSID without calling for the application of the ICSID Convention. Absent any express application of the ICISD Convention in the arbitration agreement, this post will question its automatic application to an arbitration administered by ICISD. This distinction may leave the requesting party, i.e., the claimant, room to request the application of procedural rules other than the ICSID Convention to an arbitration administered by ICSID.
Comparison between ICSID arbitration provisions: opting in and out of the ICSID Convention?
By way of illustration, Article 9 of the France-Mauritius BIT expressly states that the arbitration submitted to ICSID shall be conducted in accordance with the ICSID Convention (“conformément à la Convention sur le règlement des différends relatifs aux investissements entre Etats et ressortissants d’autres Etats”). Another example of an arbitration provision which clearly applies the ICISD Convention is Article 8 of the UK-Albania BIT. A variation of this type of provision is Article 8 of the Tanzania-Italy BIT, which does not make express reference to the ICSID Convention, however, it does call for the application of the rules of ICSID (“in accordance with the rules of the Centre (ICSID)”). Thus, these ICSID arbitration provisions directly determine the procedural framework of the arbitration. At times, the arbitration provision may not directly apply the ICSID Convention, however, the provision or the underlying treaty makes indirectly reference to the ICISD Convention (especially, to Article 25(2)(b) of the ICISD Convention thereby a company incorporated in the host country and under foreign control is to be treated as a foreign investor). In this instance, an indirect reference to the legal framework of ICISD Convention can also imply the application of the ICSID Convention to an investment dispute.
On the other hand, for example, Article 8 of the France-Morocco BIT does not specify the applicable procedural rules of the dispute that the Contracting Parties agreed to submit to arbitration by ICSID. The text mentions the ICSID Convention, but it does so only in relation to the Centre, i.e., the arbitral institute as well as international organization, which was established by that Convention in 1965 (the phrase “créé par la Convention” refers to the Centre). Such Convention is indeed the constitutive treaty of the ICSID which possesses its own international legal personality. Another example in this sense is Article 11 of the Spain-Morocco BIT, which provides for the possibility of submitting an investment dispute to the ICSID without expressly requiring the arbitration to be conducted under the ICSID Convention. In this case, the ICSID Convention is also mentioned only in relation to the establishment of the Centre and not relation to the applicable procedural framework. Therefore, these ICSID arbitration provisions are silent on the applicable procedural rules, which potentially remains to be determined in light of the available procedural frameworks.
Various procedural frameworks and their implementations
ICSID can administer arbitrations under different procedural frameworks. At least since 27 September 1978, the Secretariat of ICSID was indeed authorized by the ICISD Administrative Council to administer arbitrations between States and nationals of other States that fall outside the scope of the ICSID Convention (and where the ICSID Convention does not apply), thus expanding the jurisdiction of the Centre under the so-called ICSID Additional Facility Rules. And then again, since the late 1990’s, the Centre has begun administering arbitrations under the UNCITRAL Arbitration Rules.
Interestingly, in these UNCITRAL cases, ICSID has not done so on the basis of a decision adopted by the ICSID Administrative Council. Nor has ICSID adopted a special procedure to run UNCITRAL arbitrations with small amendments to such rules necessary to allow for the administration of these arbitral proceedings by an arbitration institute other than the PCA (as some arbitration institutes did, such as the SCC, CAM, DIS). Nor has ICSID incorporated the capability of administering UNCITRAL arbitrations directly in its institutional rules (as other arbitration institutes did to implement such rules, such as the OCC). Rather ICSID has begun administering UNCITRAL arbitrations by virtue of investment treaties that designates ICSID as the appointing authority under the UNICTRAL Arbitration Rules (e.g., the NAFTA) or by agreement of the disputing parties to have their disputes administered by ICSID under the UNCITRAL Arbitration Rules.
Further, the Centre may also administer arbitrations under ad hoc rules. These ad hoc rules are those sometimes found in BITs that delve into the appointing procedure of the tribunal and at times either outline a default procedure for the arbitration or let the tribunal determine its own procedure.
In sum, ICSID can administer and indeed has administered arbitrations under different procedural frameworks.
Comparison with Arbitration Institutions’ standard clauses on setting the procedural framework
It is possible to appreciate the importance of stating the applicable procedural rules by contrasting an arbitration agreement that refer disputes to arbitration by ICISD without regulating the applicable arbitration procedural framework on one hand, with standard arbitration clauses of other worldwide prominent arbitration institutions on the other.
The model arbitration clauses of the SIAC, the ICC, the SCC, the CAM expressly specify the applicable arbitration rules (e.g., “in accordance with the SIAC Rules,” “under the ICC Rules,” “in accordance with the SCC Rules,” “under the Rules of Investment Arbitration of the Vienna International Arbitral Centre (VIAC)” “under the LCIA Rules,” “under the CAM rules”), and at times they also include the indication of the administering arbitration institution (e.g., “administered by the SIAC”). In a way, it would appear that determining the applicable arbitration rules is preponderant over indicating the relevant administering arbitration institution.
And, indeed, also the model ICSID arbitration clause makes express reference to the application of the ICSID Convention (“by arbitration pursuant to the ICISD Convention”). The importance of clarifying the applicable procedural framework to an arbitration cannot be understated. After all, even the option of an ad hoc arbitration – that sometimes accompanies the option of an arbitration by the ICSID in international investment agreements (IIAs) – is expressly defined by its procedural framework, viz. the UNCITRAL Arbitration Rules.
Of course, it can be maintained that parties’ consent to submit their dispute to an arbitration by ICSID creates the presumption of the applicability of the ICSID Convention to that dispute, even if the application of the ICSID Convention is not expressly stated. And this has been the case in practice. However, this presumption is not insurmountable and could be overcome.
Admittedly, the importance of stating the applicable arbitration rules can be mitigated when the institutional rules of a given arbitration institute provide that cases referred to that arbitration institute shall be resolved in accordance with its own Arbitration Rules (e.g. Article 2(1) of the OCC Rules). Alternatively, stating the applicable procedural framework could appear superfluous where the arbitration rules of a given arbitration institute provide that by referring a dispute to that arbitration institute, the parties are deemed to have agreed to arbitration in accordance with the arbitration rules of that institute (such is the case of article 4(2) of the CIETAC Rules). However, in reality neither of these instances is the case with the ICSID Convention.
On the contrary, by looking closely at the three articles dealing with the jurisdiction of the ICSID Centre (art. 25, 26, 27), we can come to the opposite conclusion. While Article 25 only requires the disputing parties’ consent to submit their dispute to the Centre in writing, Article 26 requires – more accurately – the consent of the parties to arbitration under the ICSID Convention. Hence, if the parties’ consent to arbitration by the ICSID is not expressly for an arbitration under the ICISD Convention, then the ICSID Convention may not automatically apply to that arbitration run by ICSID.
Having said that, the choice of the applicable rules may not be a problem where the arbitration institute tasked with the administration of the proceedings uses only one set of procedural rules. In this case, there is no risk of possible confusion, obviously. However, when the arbitration institute can and does administer cases under different rules (as is the case with ICSID), not specifying which rules may apply could become a problem.
A pathological clause or a wider procedural framework where to choose from?
Obviously, ICSID arbitration provisions opting out of the ICSID Convention do not amount to a pathological clause. The latter is a clause whose defects may jeopardize its straightforward application which can be challenged by an uncooperative party. As mentioned above, in practice the submission of a dispute to an arbitration by ICSID has been interpreted implicitly as an arbitration under the ICSID Convention. Yet there might be certain opportunities for the requesting party of an arbitration administered by ICISD by virtue of an ICSID arbitration provision silent on the procedural framework.
Since such a provision does not specify the applicable arbitrations rules (it essentially provides that the arbitration shall be administered the ICSID) and since ICSID can administer arbitrations under different sets of arbitration rules (which may exclude the application of the ICISD Convention), the investor may request the Centre to administer a given dispute under one of these sets of procedural rules. For example, a dual-national investor could invoke an ICSID arbitration provision silent on its procedural framework to initiate an UNCITRAL arbitration administered by ICSID, thereby circumventing the prohibition for dual nationals under the ICSID Convention to sue one of their States of nationality. As long as the investor in question is requesting ICSID to administer that UNCITRAL arbitration, the investor would be in compliance with the terms of an arbitration provision which is referring the dispute to ICISD without expressly determining its procedural framework. Indeed, as long as the case is administered by ICSID, there is no change of the arbitral forum as agreed by the Contracting Parties. The investor’s request would simply be aimed at integrating a critical point – the one on the applicable procedural framework – for which the underlying BIT may have left more room to choose from.
BITs containing this type of provision do not seem to expressly exclude or limit an investor’s request in this sense. Reasonably, it appears that for the drafters of these BITs what was of the essence was to designate ICSID as the arbitration institution tasked with the administration of such international arbitrations – viz., as the as appointing and administrative authority – in light of its neutrality as a forum in administering such types of disputes, rather than choosing a specific procedural framework.
This view could be confirmed by the location of the ICSID arbitration provision, which often follows the ad hoc UNCITRAL arbitration option, thus signaling the Contracting Parties’ intent to give a choice between an ad hoc arbitration and an institutional one, rather than between two sets of procedural rules. In other words, the drafters of this type of BITs presumably agreed to submit investment arbitrations to a permanent arbitration institution such as ICSID, irrespective of the applicable procedural rules. Instead of reading ICSID arbitration provisions that are silent on their procedural framework as implicitly allowing for arbitrations under the ICSID Convention, it would be more correct to interpret such provisions as designating ICSID as the appointing and administrative authority of the arbitrations under such provisions. Indeed, these provisions in reality say nothing about the procedural framework of such arbitrations.
Much like the NAFTA expressly designated ICSID as the appointing authority for UNCITRAL arbitrations under that treaty, these provisions can be deemed to have implicitly designated the ICSID as the appointing and administrative authority of the arbitrations under the BITs where such provisions are contained. Importantly, this would not replicate the same mistake of overreading an ICSID arbitration provision silent on its procedural framework, since while the provision omits to state the applicable rules, it does state the arbitration institute to which the dispute can be referred
What rules to be apply to ICSID arbitrations silent on the applicable rules?
Where the applicable rules are not determined by an arbitration agreement, parties’ autonomy can configure the applicable rules. Failing an agreement of the disputing parties on this question, the arbitral tribunal can determine the procedural rules.
A claimant requesting to initiate an UNCITRAL arbitration administered by ICSID based on an ICSID arbitration provision silent on its procedural framework may find support in its request where the underlying BIT has an MFN clause. If the respondent state already agreed in another BIT to use the UNCITRAL Arbitration Rules in investment disputes, then it would be difficult for the respondent state to object to their application where the basic treaty does not define a procedural framework. In such an instance the claimant’s request would simply supplement a gap in the basic treaty by importing an applicable set of procedural rules which are compatible with the rest of the arbitration provision (since ICSID can administer UNCITRAL arbitrations). Therefore, the investor’s request for an UNCITRAL arbitration run by ICSID would not alter the original arbitral forum, given that ICSID would remain the actual forum entrusted with the administration of the dispute.
Conclusion
Some BITs contain ICSID arbitration provisions that expressly provide for the application of the ICSID Convention, while other BITs contain ICSID arbitration provisions that omit the application of the ICSID Convention (such provisions simply refer the dispute to ICSID). Importantly, ICSID can and has administered investment arbitrations under the ICSID Convention as well as under other procedural frameworks, such as the ICSID Additionally Facility Rules, the UNCITRAL Arbitration Rules, and even ad hoc rules. An overview of standard clauses of the most prominent arbitration institutes shows the importance of stating the applicable procedural rules to a dispute (rather than only identifying the arbitration institute entrusted with the administration of the dispute). Naming the arbitration institute only – without determining the applicable procedural rules – suffices where the arbitration institute administers cases only under one set of rules or its institutional rules expressly create the presumption that the parties implicitly agreed to its rules by having referred the dispute to that arbitration institute. However, this is not the case of ICSID. Further, Article 26 of ICSID Convention expressly requires both disputing parties’ consent to arbitration under that Convention. Consequently, if the consent of the parties to arbitration under the ICSID Convention is not given, the ICSID Convention should not be automatically applied. Consequently, an investor could invoke an ICSID arbitration provision silent on its procedural framework to request ICSID to administer an investment arbitration under the UNCITRAL arbitration rules. In filling in a lacuna that was left open by the underlying BIT, the investor’s request would be still within the consent of the respondent State that arguably designated ICSID only as the appointing and administrative authority.
* Danilo Ruggero Di Bella is an attorney-at-law, member of the Madrid Bar and principal at the boutique law firm Bottega Di Bella. Danilo focuses his practice on complex international commercial and investment arbitrations.