BOOK REVIEW: The state of arbitration

Who better to write (and now update) the history of the World Bank’s investor-state dispute mechanism and institution (ICSID) than the man described as its ‘institutional memory’, who served as its deputy secretary-general from 1999-2005? In this second edition of Antonio Parra’s work, he has had the opportunity to update the law deriving from ICSID cases by five years, and he has taken into account trends which gathered pace at the centre in the period from 2000 to 2015 as the rate of referrals to ICSID increased exponentially.

It is salutary to recall that absent the provision of a reliable non-state court mechanism for the resolution of disputes between investors in (usually) developing nations and the host state governments, such disputes might have resulted in armed conflict between the parties (such as in the disputes between Cuba and the US which culminated in the missile crisis in 1962) rather than the more sedate and at least slightly less costly option of an arbitration process.

The approach of ICSID was intended not to mirror the conduct of a commercial arbitration, as the UN had in 1960 concluded that ‘a separate arbitral body not identified with a commercial approach might be more readily acceptable to the governments of some capital-receiving countries in matters involving the rights and assets of foreign investors’. The perception on the part of host states that a commercial institution might not offer them an ‘acceptable’ process vis-à-vis an investor echoes some of the critique which is today made of the investor-state dispute settlement process: an allegation that the decision-makers are predisposed to the interests of the investor. The book helpfully includes as appendices the original working papers and early drafts of the ICSID convention, to assist the reader in fully understanding the origins and purpose of each convention provision.

Parra draws from contemporaneous accounts of the negotiation meetings to highlight the areas which were most controversial in the establishment of the centre. He then turns to set the centre’s work in the period after 1967 in its social, political and economic context.

By the end of 1988, the centre had registered a total of 25 cases in its first 20 years of operation. The pace of referrals to ICSID quickened in line with the surge in the number of bilateral investment treaties (BITs) and foreign investment after 1989, particularly in the countries of the former USSR, Latin America and China, and has continued to rise. Between 2000 and 2010, the centre registered 262 cases – nearly four times as many as had been referred in the preceding three decades – and in 2011-2015 a further 194 cases were registered, cementing ICSID’s reputation as ‘the premier international investment arbitration facility in the world’.

Parra is able to draw on the greater volume of case law in later years to identify key features of ICSID cases and the centre’s approach to fundamental issues in investor-state cases. He charts tribunals’ approach to issues such as applicable law, and the proper function of an annulment committee, as well as the qualifying nationality of the claimant investor, the nature of a qualifying investment, and the true scope of provisions in BITs which extend protections in other BITs to cover investors claiming under a more restrictive set of intra-state undertakings, by reference to key cases in each decade.

In the last set of cases analysed (2011-2015), Parra identifies that in only three of 24 awards delivered did the claims succeed in whole or part. The other 21 cases were dismissed: 16 for jurisdictional reasons and the remaining six on their merits. This leads to a ‘bleak’ picture for claimants, in Parra’s view, and is a far cry from the 1990s when fewer than a third of ICSID awards declined claims on the basis of jurisdiction.

In the final (and new) chapter 12, Parra sets out some observations on ICSID’s status and readiness for the coming challenges. These include the EU’s proposed investment court – a potential rival to ICSID – which raises questions about potential inconsistency in approach between the two bodies in future. Parra also highlights pressure for transparency in investor-state disputes as a key area, along with the need adequately to deal with baseless claims without the need for a hearing on jurisdiction, improving compliance with awards (particularly of adverse costs) and finally the overall status of ICSID’s relationship with the World Bank.

Parra sees ICSID as more than capable of proceeding on a more independent basis and advocates this as a way of avoiding allegations or perceptions of conflict between the interests of the two bodies.

This history of ICSID encapsulates its place in the pantheon of dispute resolution forums, in a positive and comprehensive way, and is a very useful resource for those seeking to put such disputes in their institutional context.

Philippa Charles is head of international arbitration at Stewarts Law LLP