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( Source of the document: ICC Digital Library )
The advantages of ICSID over the ICC are well known - the main one being ICSID's enforcement regime. Unlike ICC awards, ICSID awards cannot be subject to annulment proceedings in the courts of the country where the arbitration has its seat. Nor can a party resist the enforcement of ICSID awards in the courts of any of the 151 countries that have ratified the ICSID Convention and where enforcement may be sought, as it might with ICC awards. The only way of challenging an ICSID award is before an ICSID annulment committee following the annulment procedure set out in Chapter VII of the ICSID Arbitration Rules and on the basis of one of the five grounds for annulment set out at Article 52 of the ICSID Convention. Save for this annulment procedure, each of the Contracting States has undertaken, per Article 54 of the ICSID Convention, to enforce the award as if it were a final judgment of its own courts. With rare exceptions,2 courts of states that have ratified the ICSID Convention do play by these ground rules. This is why, again for some exceptions,3 most ICSID awards are enforced by losing parties with little or no effort. One has to give credit in this regard to the Secretary-Generals of ICSID, who, when requested by the prevailing party, do not hesitate to write to the losing state to remind it of these ground rules, with World Bank agencies working with that state in copy. The fact that ICSID is an institution operating under the auspices of the World Bank further facilitates enforcement.
The foregoing explains why I have always resorted to ICSID as opposed to the ICC or other arbitral options when I have had the choice under the applicable bilateral investment treaty. It took me about twenty ICSID arbitrations as counsel and arbitrator to realize that the ICC did [Page146:] have certain important practical advantages of its own over ICSID. And not much has been written on the subject. This explains why this article will address the advantages of ICC over ICSID arbitrations.
The ICC has at least five advantages over ICSID, namely: (1) the requirement of an early response or answer from the state; (2) the possibility of interim or partial awards; (3) the scrutiny of awards; (4) collegiality as well as checks and balances for default nominations and challenges of arbitrators; and (5) ultimate review by national courts. Each of these advantages will be examined in turn below.
1. The answer
In an ICC arbitration, the claimant is entitled to an answer to its request for arbitration within the extendable 30-day deadline provided for under Article 5(1) of the ICC Rules of Arbitration. The respondent must thus set out its preliminary defences at the outset. This allows early demarcation of the dispute before any further submissions, saving the claimant from having to address certain matters pertaining to facts, jurisdiction, merits and damages that may not be disputed by the respondent. This is not the case at ICSID, where the claimant must file its request for arbitration, wait a couple of weeks for it to be registered, and then another few months for the tribunal to be constituted, hold its first session and establish the procedural calendar, pursuant to which it will again be for the claimant to file a submission - its memorial, equivalent to a statement of claim - setting out the essence of its position on facts, jurisdiction, merits (including applicable norms and standards) and damages.
2. Interim or partial awards
In ICSID arbitration, there can be only one award issued by the tribunal, namely the final award.4 There is no possibility for tribunals to issue interim or partial awards. Only recommendations or decisions are possible.5 The latter, namely recommendations or decisions, cannot be enforced unless the debtor complies therewith voluntarily. The ICC is accordingly better suited when the claimant is likely to need interim measures. Interim awards on costs are a case in point. There are states that do not pay their share of arbitration costs.6 For this reason, one [Page147:] should consider resorting to ICC arbitration as it has become common for claimants to obtain from ICC tribunals an interim award on costs when they have paid the other party's share of the advance on costs.7
Moreover, nowadays the trend in ICSID arbitration is for the party disappointed by the tribunal's decision, be it on jurisdiction or provisional measures, to seek to reopen the issue(s) so decided on the ground that the decision is not yet final and that the tribunal made an error which can be corrected by issuing a new decision.8 This causes unnecessary delays and costs, a pathology specific to ICSID and from which ICC practice is spared.
3. Scrutiny of awards
The ICC Rules provide for the scrutiny of awards by the ICC Court.9 This ensures a quality control in everyone's interest. The plenary session of the ICC Court is even involved when it comes to scrutinizing and approving awards involving states. The process is intended not only to ensure that requirements of form are observed but also that an award addressing all points, including causation, and responsive to the various arguments raised, is ultimately rendered. Substantive questions are in this way indirectly addressed during the scrutiny process. They are sometimes even directly raised for consideration by the tribunal and are necessarily useful. ICSID does not have this scrutiny process. It is true that in practice the secretary of the ICSID tribunal reviews the award and makes suggestions. Yet, there is no formal process in place, and no powers are vested in the ICSID secretary to carry out this task. Nor is it customary to encourage in any way the tribunal to take into consideration certain comments prior to the finalization and dispatch of the award. As a result, certain ICSID awards sometimes fall short of minimum standards in terms of form and substance, despite the fact that they involve high stakes and large amounts, which warrant greater quality control.
4. Default nominations
The choice of arbitrators is outcome determinative. One would expect the default mechanism for the appointment of arbitrators not to rest within the hands of one person, but rather a collegial body with sufficient checks and balances in place to ensure quality and fairness in the process. This is even more so in investor-state arbitration, again because of the stakes involved. Yet, this is not the case at ICSID.10 In the absence of agreement between the parties, the appointment of arbitrators rests in the hands of a single person.
That person is, on paper, the Chairman of the Administrative Council, but in practice the Secretary-General of ICSID, to whom these powers have de facto been delegated. This is not good, irrespective of the qualities of the person who exercises the function. Collegiality ensures greater debate, diversity and experience, while reducing the risk of arbitrariness, favoritism and exclusion. This is in fact why most reputable institutions have a collegial body in charge of default appointments.
This is the case at the ICC, where there are two avenues for default nominations. The first is through the consultation of ICC National Committees and Groups, which propose nominations for consideration and approval by the ICC Court. During John Beechey's presidency of the ICC Court, inefficient or malfunctioning National Committees were asked to get their acts together or were otherwise somewhat sidelined for purposes of nominations. In practice, recourse is made to National Committees and Groups that have an efficient and fair system for selecting candidates. In most cases, those resorted to are in fact collegial themselves. This is the case, for example, of the French National Committee. The second avenue, also implemented under John Beechey, is for the Secretariat itself - in practice, the counsel in charge of the case, in consultation with the Secretary General or Deputy Secretary General - to make nominations for confirmation by the ICC Court. Such a process of nomination, whether by the Secretariat or upon a proposal from a National Committee or Group, with subsequent confirmation by the ICC Court, ensures collegiality and provides the required checks and balances.
At ICSID, it is a one-person show, with the ICSID Secretariat calling all the shots. This is not good. The current Secretary-General is perceived as making nominations on the basis of her experience and professional circles and advice solicited from those circles, and disregarding certain [Page149:] regions such as the Middle East.11 It is true that a number of prominent Middle Eastern arbitrators appointed by States to the ICSID Panel of Arbitrators have not been contacted even once over the years to run a conflict check. Of course, there is Nassib Ziadé, appointed to the ICSID Panel by Kuwait, yet de facto blacklisted, some argue for his extensive criticism of ICSID practice since his departure from ICSID. He is, in any event, not an isolated case. There are other, highly prominent figures, including former Jordanian Prime Minister and ICJ Vice-President, Judge Awn Al-Khasawneh, and Lebanese arbitrator Dr Ghaleb Mahmassani, respectively appointed to the ICSID Panel by Jordan and Lebanon. They have never been approached to serve as arbitrator or ad hoc committee member. Instead, the Secretary-General goes outside the list to propose candidates from other regions, often with less experience, and failing agreement on these candidates, opts for other names on the list.12 More importantly, some arbitrators appointed to the ICSID Panel who have served on ad hoc committees have reported interference by the Secretariat in the decision-making process and, rightly or wrongly, believe that they have been sidelined by the Secretary-General for not having obeyed. There is also a perception that appointments made by the Secretary-General, at least to ad hoc committees, have been affected by considerations of whether or not the appointee was likely to annul the award.13
The problem is further aggravated by the fact that at ICSID, in the case of three-member panels, challenges of arbitrators and ad hoc committee members are brought before the two non-challenged arbitrators or ad hoc committee members, and before the Chairman of the Administrative Council (in practice the Secretary-General) if two of the arbitrators or ad hoc committee members have been challenged. Again, this is not good. It is difficult for two colleagues to send the third member back home, especially as they usually know one another and/or have in some cases been sitting together on the case for some [Page150:] time.14 As for the Secretary-General's rulings on challenges against two or more arbitrators or ad hoc committee members, it too suffers from a lack of collegiality - and even a degree of absurdity if the reasons underlying the challenges are already known to the Secretary-General as having been raised in vain by the challenging party when the same Secretary-General nominated the challenged arbitrators or ad hoc committee members.15
5. Ultimate review
An ICC award can be subject to annulment proceedings in the courts and under the relevant laws of the state where the arbitration was seated; and its enforcement can be resisted under the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards in any of the Convention's member states where the prevailing party may seek to enforce the award.
An ICSID award can be challenged only before an ad hoc committee.16 Absent such a challenge, or if it is dismissed, the award can and should be enforced in all 151 Contracting States as if it were a final judgment from the state's highest court.17 This was for some time the strongest advantage of ICSID arbitration as it protected awards from court intervention and delays in enforcement. In practice, however, the mechanism has run up against a number of obstacles, and is now subject to both legal and psychological barriers.
It all started with the controversial annulment of the ICSID award in Klöckner v. Cameroon in 1983.18 As a result, ICSID arbitration was perceived as a time-consuming and costly process, which moreover allowed a possible de facto appeal on the merits. This perception was eventually overcome but in 2010 the ICSID annulment decisions [Page151:] in Sempra19 and Enron20 reactivated concerns. This was in large part because the Secretariat of ICSID allowed itself to comment on these decisions and share its views on annulment. More alarming is the fact that the new Secretary-General is perceived as picking ad hoc committee members according to her perspective on annulment and the candidates' possible alignment with that perspective.21 The fact that the Secretary-General has been regularly appointing to ad hoc committees individuals who have had their awards annulled or whose awards are the subject of annulment proceedings is similarly of concern and an abnormality from which ICC arbitrations are preserved.
Consequently, the very word 'annulment' has become something of a curse at ICSID, for it has become virtually impossible to annul an award, however flawed it may be, save exceptional circumstances. I have myself conceded that I have as a result won certain annulment applications that I would otherwise have lost.22 Finality is good, but subject to basic safeguards and checks and balances, which ICSID no longer seems to offer. This is yet another factor to consider when opting between ICSID and the ICC.
For the foregoing reasons, ICSID is no longer the obvious choice to start an investment arbitration when other options are available to the investor. Even what were considered for a long time as ICSID advantages, such as its internal annulment mechanism free of court intervention, have now evolved into concerns. As for ICSID, it seems to turn a deaf ear to criticism, however constructive it may be. This is yet another issue, as prospects of timely reform are made less likely when the most suitable instrument to prompt the reform, namely the Secretary-General, is a cause of part of the need for reform. More time will in these circumstances be needed for ICSID to react and then for the nature and extent of any reform to be decided and implemented. Meanwhile, other institutions such as the ICC are positioning themselves to administer investment arbitrations and making it known, and rightly so, for, depending on the features of the case, they may constitute an alternative as good as or even better than ICSID.
Founding partner, Derains & Gharavi International, Paris; firstname.lastname@example.org.
See e.g. Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, award dated 14 July, 2010, where no enforcement order has yet been obtained after more than four years.
The Democratic Republic of the Congo, the Republic of Zimbabwe and at some point the Argentine Republic are the main examples.
Article 48 of the ICSID Convention; Rule 47 of the ICSID Arbitration Rules.
See notably ICSID Arbitration Rules 9 (Disqualification of Arbitrators), 16 (Decisions of the Tribunal), 28 (Cost of the Proceedings), 39 (Provisional Measures), 41 (Preliminary Objections), 49 (Supplementary Decisions and Rectification).
See e.g. Antoine Abou Lahoud and Leila Bounafeh-Abou Lahoud v. Democratic Republic of the Congo, ICSID Case No. ARB/10/4, award dated 7 Feb., 2014, where the Democratic Republic of the Congo did not pay its share of ICSID fees.
See e.g. X (Cyprus) v. Y (Luxembourg) and Z (Luxembourg), Interim Award, ICC Case No. 17050, 12 Nov. 2010, (2011) 29 ASA Bulletin 634; X. Company (Panama) v. Y. S.A. (Suisse), Partial Award, 27 Mar. 2001, (2001) 19 ASA Bulletin 285.
See, most recently, Muhammet Çap & Sehil Insaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, in which, on 17 Apr. 2015, the respondent filed a request for the tribunal to reconsider its decision on jurisdiction of 13 Feb. 2015; see also Perenco Ecuador Ltd v. Republic of Ecuador, ICSID Case No. ARB/08/6, decision on Ecuador's reconsideration motion, 10 Apr. 2015; ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V., ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, decision on the respondent's request for reconsideration, 10 Mar. 2014; Electrabel S.A. v. Hungary, ICSID Case No. ARB 07/19, decision on jurisdiction, applicable law and liability, 30 Nov. 2012, § 10.1.
Article 33 of the ICC Rules of Arbitration.
H.G. Gharavi, 'ICSID and its Monarch' in N.G. Ziadé, ed., Festschrift Ahmed Sadek El-Kosheri: From the Arab World to the Globalization of International Law and Arbitration (Kluwer, 2015) 325; H.G. Gharavi, 'ICSID: the elephant in the room' (2015) 10:1 Global Arbitration Review; H.G. Gharavi, 'Le secrétaire général du CIRDI' in F. Horchani, ed., CIRDI, 45 ans après, Bilan d'un système (Pédone, 2011) 155.
See N.G. Ziadé, 'Is ICSID heading in the wrong direction?', Global Arbitration Review, 24 Feb. 2015; 'Survey: Arbitral Institutions Can Do More to Foster Legitimacy. True or False?' in A.J. van den Berg, ed., Legitimacy: Myths, Realities, Challenges, ICCA Congress Series, vol. 18 (Kluwer Law International, 2015) 667; N.G. Ziadé, 'The "Arab Spring" and Arab Approaches to International Arbitration' (2013) 30 Journal of International Arbitration 591 at 594. On the need for arbitration institutions to 'develop and publish internal codes of conduct applicable to their staffs and organizational practices', see also N.G. Ziadé, 'How Should Arbitral Institutions Address Issues of Conflicts of Interest?' in N.G. Ziadé, ed., Festschrift Ahmed Sadek El-Kosheri: From the Arab World to the Globalization of International Law and Arbitration (Kluwer, 2015) 211 at 220, 221.
Those who criticize the system, albeit constructively, appear to be blacklisted. As an appointee of Cambodia to the ICSID Panel, I was myself contacted by the Secretary-General for possible appointments, until I voiced in writing certain deficiencies affecting appointments in certain arbitrations, and then wrote a few articles constructively addressing these issues.
H.G. Gharavi, 'ICSID and its Monarch' in N.G. Ziadé, ed., Festschrift Ahmed Sadek El-Kosheri: From the Arab World to the Globalization of International Law and Arbitration (Kluwer, 2015) 325.
Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan, ICSID Case No. ARB/13/13, decision on the proposal for disqualification of Bruno Boesch, dated 20 Mar. 2014.
In Kiliç Insaat Ithalat Ihracat Sanayi ve Ticaret Anonim Sirketi v. Turkmenistan, ICSID Case No. ARB/10/1 (annulment proceedings), the applicant, which I represented, objected to the Secretary-General's suggestion of the appointment of two ad hoc committee members who had had annulment applications brought against awards they had rendered in other cases, Prof. Karl-Heinz Böckstiegel and Dr Andrés Rigo Sureda. The objection was dismissed and the ad hoc committee appointed. This left the applicant with no effective recourse. A challenge against one of the two ad hoc committee members would have had to be decided by another person in the same situation; a challenge to both would have in practice been decided by the Secretary-General, who made these appointments.
Articles 52 and 53 of the ICSID Convention.
Article 54 of the ICSID Convention.
Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, decision on annulment dated 3 May 1985.
Sempra Energy Int'l v. Argentine Republic, ICSID Case No. ARB/02/16.
Enron Corp. and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3.
H.G. Gharavi, 'ICSID and its Monarch' in N.G. Ziadé, ed., Festschrift Ahmed Sadek El-Kosheri: From the Arab World to the Globalization of International Law and Arbitration (Kluwer, 2015) 325.
H.G. Gharavi, 'ICSID: the elephant in the room' (2015) 10:1 Global Arbitration Review.