UNIQUE ATTRIBUTES:
The Arbitration under the ICSID Convention has several unique attributes. It is deliberately structured to reflect a balancing of interests between the host States and the foreign investors as well as to provide a de-politicised and effective mechanism for dispute resolution. It is also a self-conditional system in that unlike ICC or UNCITRAL Rules arbitration, it is removed entirely from domestic courts, because ICSID Arbitration is conducted only in accordance with the international law provisions as well as the regulations and rules adopted pursuant to it. Arbitral awards pursuant to the Convention are binding on the parties and not subject to any appeal or to other remedy except those provided for within the Convention. National Courts have no power to review the awards in any way. On a presentation of a copy of the award certified by the ICSID's Secretary-General, the pecuniary obligations imposed by the award must be enforced as if it were a final judgment of the national courts. In fact, ICSID's self-contained nature is such that, the parties may not seek interim, provisional or conservatory measures from a national court unless they have expressly agreed in the instrument recording their consent to ICSID Arbitration.
GROWING POPULARITY
In the first 20 years of existence, the Centre registered a total of 20 cases; in the following 10 years another 18 cases and in the last 5 years up to 2002, a further 41 cases, 37 of which were by 2002 still pending.
ENERGY, OIL, GAS AND MINERAL SECTOR:
ICSID has particularly been very relevant to the energy, oil, gas and mineral sectors. Developments in these sectors are very critical to economic growth. Investments therein are sizable, complex, risky and often contracted with government or government parastal or bodies. Because of the security or strategic importance of these industries, disputes, if and when they come, are often politically charged. ICSID exists for this very type of dispute, and disputes involving the energy, oil, gas, and mineral sectors constitutes the very larger percentage of ICSID cases.
THE JURISDICTION OF THE CENTRE
The Jurisdiction of the Centre includes:
_ any legal dispute-
_ arising directly out of an investment-
_ between a contracting State or
_ any constituent sub-division or agency of a contracting State that has been designated to the Centre by that State-
_ a national of another Contracting State and
_ which the parties to the dispute consent in writing to submit to the Centre.
ANY LEGAL DISPUTE ARISING DIRECTLY OUT OF INVESTMENT:
The Report of the Executive Directors on the Convention, 1 ICSID Reports 28, shows that the drafting history of the Convention reflects:
"The expression "legal disputes" has been used to make clear that while conflicts of rights are within the jurisdiction of the Centre, more conflicts of interests are not. The dispute must concern the existence or scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation".
This is part of the travaux preparatoires, that is, minutes of conferences, and the like, relating to the conclusion of a treaty.
"Any legal dispute" refers to the fact that a claimant must present a concrete legal claim based on some legal right. An ICSID Tribunal cannot issue advisory opinion or facts finding reports. The dispute must "arise directly out of an investment" refers to the permissible subject matter of dispute. The term "investment" is not defined in the ICSID Convention. The ICSID Tribunals have defined it, as appropriate, on a case-by-case basis. That approach will make ICSID utility as an institution to stand the test of time. The term must be able to meet flexible concepts capable of meeting the needs of a changing global economy. The ICSID Convention, for instance, was not designed to deal with disputes arising from ordinary sale contracts.
A CONTRACTING STATE PARTY:
One of the parties to the dispute must be a Contracting State party to the ICSID Convention or a constituent sub-division or agency of a Contracting State that has been designated to the centre by the State. There are now about 130 State Parties. But certain notable states are not eligible because they are not party to the Convention. These include Brazil, Canada, Mexico, India, Iran, Iraq, Russia and Thailand.
However, the Centre may administer arbitration under the "Rules of its Additional Facility" for certain types of disputes that fall outside the scope of the ICSID Convention, including for example, investment disputes with non-Contracting States. The Arbitration Rules of ICSID's Additional Facility are derived from a combination of ICSID Arbitration Rules, the UNCITRAL Arbitration Rules and the Arbitration Rules of the ICC. The ICSID's Additional Facility was established in 1978.
It is possible for a constituent sub-division of a State party or a government agency to be a party to an ICSID arbitration but it must have been designated to the Centre by the State and if the State has approved the sub-division or agency's expression of consent - that requirement, crafted into the Convention, of a double-layer of consent when dealing with a constituent sub-division or government agency suggests that particular attention is needed by both parties in those situations, to ensure that ICSID jurisdiction can be established in a particular case.
A NATIONAL OF ANOTHER CONTRACTING STATE
The fact that ownership of an entity does not destroy jurisdiction, provided the entity was not performing essentially governmental functions or acting as agent for the government in respect of the subject matter of the dispute, has been judicially affirmed in:
CESKOSLOVENSKA OBCHODNI BANKA, A.S. v. SLOVAK Republic, ICSID Case No. ARB/97/4, decision on jurisdiction, 24 May 1999, 14 ICSID Rev-FILJ 251 (1999).
The other party must be a national of another Contracting State. The nationals of those States that are not party to the ICSID Convention are not eligible to submit disputes to ICSID. In terms of natural persons, this means that dual nationals (including the nationality of the host state) are not eligible to submit a dispute with the host state to ICSID arbitration since ICSID was not established to permit a national to arbitrate with its own government. Because, however, many host States require that foreign investors conduct their operations through locally incorporated companies, the Convention provides that parties may agree that such a company, because of foreign control, should be treated as parties that may be treated as nationals of another contracting state for the purposes of the ICSID Convention - so that parties may agree to permit a locally incorporated project company to be a party to an ICSID arbitration. This provision, contained in Article 25 (2) (b) of the ICSID Convention has been the subject of several ICSID Tribunal decisions.
The requirement of foreign control exist in fact (controlled by nationals of another Contracting State party), must be an objective one that parties are not free to waive by agreement. Foreign control may be established by direct or indirect foreign ownership, that is, through several layers of corporate ownership. Foreign control does not necessarily mean foreign majority ownership - control may be established by other means depending on the particular facts and circumstances of the case. Where foreign control is established by means of foreign ownership, one must be attentive to the possibility that a transfer of such ownership, particularly after the conclusion of an agreement to submit disputes to ICSID, but before the filing of a claim, could destroy the entity's eligibility to submit dispute to ICSID.
I must make it clear that the ICSID Convention was not established to adjudicate disputes between two States. Those who drafted the Convention anticipated the possibility that the national of the other Contracting State could be a juridical entity owned by a foreign government. Dr. Aron Broches, the then General Counsel of the World Bank, observed on that point that:
"There are many companies which combine capital from private and governmental sources and corporations all of whose shares are owned by the government, but which are practically indistinguishable from the completely privately owned enterprise both in their legal characteristics and in their activities. It would seem, therefore, that for purposes of the Convention a mixed economy or government-owned corporation should not be disqualified as "national of another Contracting State", unless it is acting as an agent for the government or is discharging an essentially governmental function."
The parties to the disputes must have consented in writing to submit the dispute to ICSID:
_ The question of whether parties have adequately expressed their consent to ICSID within the meaning of the ICSID Convention is a question that is governed by international law and not by municipal (domestic) law.
_ An agreement to submit to ICSID arbitration must be read in good faith and not broadly or restively.
_ The parties' written consent need not be expressed in a single instrument.
_ Once the parties have given their consent neither party must withdraw that consent unilaterally.
_ A host State may "offer" to submit disputes to ICSID arbitration in investment promotion legislation or treaty.
SPECIAL PROBLEMS
Is it possible to have multiple parties in ICSID arbitration? The ICSID Convention defines the jurisdiction of the centre in singular terms e.g. as extending to dispute between:
"a Contracting State ... or agency of a Contracting State" and
"a national of another Contracting State".
Already there have been cases involving multiple claimants and a few involving the States together with a government agency. Those suggest that as long as ICSID's particular jurisdiction requirement have been met, multiple parties are possible. ICSID Convention permits Contracting States parties to notify the Centre of classes of disputes they would not consider submitting to the jurisdiction of the Centre. Saudi Arabia has notified the Centre that the Kingdom:
"reserves the right of not submitting all questions pertaining to oil and pertaining to act of sovereignty" to the Centre.
PREPARING A CLAIM
To initiate an ICSID Arbitration requires a two-step process. The claimant must lodge a REQUEST for Arbitration with the Centre. But the Arbitration is not commenced until the Secretary-General registers the Request. The Secretary-General's obligation to register Request represents a "screening power" requiring the Secretary-General to conduct a prima facie jurisdictional review of the Claim submitted. Article 36 (2) of the ICSID Convention provides that the Secretary-General "shall register the request unless he finds. on the basis of the information contained in the REQUEST, that the dispute is manifestly outside the jurisdiction of the Centre". According to the Notes originally published annotating the ICSID Regulations and Rules, "manifest" in this context means "beyond reasonable doubt whatever evidence or argument might be produced subsequently". But questionable cases must be referred to a TRIBUNAL.
This mandatory preliminary review of jurisdiction was designed:
"with a view to avoiding the embarrassment to a party (particularly a State) which might result from the institution of proceedings against it in a dispute which it had not consented to submit to the Centre, as well as the possibility that the machinery of the Centre would be set in motion in cases which for other reasons were obviously outside the jurisdiction of the Centre ...":
Vide: ICSID Registrations and Rules, DOC ICSID 4/Rev 1 (May 1975) and Note C Rule 2 of the Institution Rules and paragraph 20 of the Report of the IBRD Executive Directors accompanying the ICSID Convention.
Therefore, it is advisable, that parties seeking to commence an ICSID Arbitration should be very careful to demonstrate that all the elements of jurisdiction are satisfied to ensure that the Request will be registered because the Secretary-General's decision on registration is not appealable. But nothing prevents a claimant from trying again.
Needless to say, preparing a claim for submission to ICSID Arbitration requires that all concerned or their advisers must be familiar with the applicable rules.
CONSTITUTION OF THE ARBITRAL TRIBUNAL
Before a party may appoint an Arbitrator, the parties must reach agreement on the number of Arbitrators and the method of their appointment. If the parties fail to reach agreement within 6 days following the registration of the Request, the usual default rule relating to a three-person tribunal could be invoked.
Once the number of arbitrators and method of their appointment are agreed, parties are free to appoint an arbitrator directly and not limited to the Panel of Arbitrators maintained by the centre.
Importantly, there are limitations as regards nationality. The ICSID Convention provides that unless all members of the Tribunal are appointed by agreement of the parties, the majority of the arbitrators must be nationals of States other than the Contracting State party to the dispute and the Contracting State whose national is a party to the dispute. As the ICSID Arbitration Rules make clear, a party may not appoint a co-national as an arbitrator. The ICSID arbitration was designed with a view toward the goal of creating a depoliticized means of dispute resolution.
If all the arbitrators are not appointed within 9 days following the registration of the request, either party may call upon the Chairman of the Administrative Council (that is, the President of the World Bank) to appoint the remaining arbitrators. The Chairman of the Administrative Council must make the appointment from the PANEL maintained by the Centre and he must consult with the parties "as far as possible" before making the appointments: Vide ICSID Convention, Art 38. Many Contracting States have not exercised their rights to name Arbitrators to the Panel and many of those who have done so have not given sufficient consideration, if at all, to the experience of the individuals selected.
POST AWARD REMEDIES UNDER THE ICSID CONVENTION:
As already stated, one of the unique features of arbitration under the ICSID Convention is that it is removed entirely from domestic legal systems. Therefore, it is not possible to resist recognition and enforcement of an ICSID Convention award in any national court or to seek to vacate, annul or set aside an ICSID Convention Award in a national court. But it must be mentioned that that is not the case for awards rendered under the Rules of ICSID's Additional Facility. Such awards, which now include the NAFTA Chapter 11 cases brought before the Centre are subject to enforcement under the provisions of New York Convention and the arbitral laws of the situs of the Arbitration.
INTERPRETATION OF THE AWARD
Article 50 of the Convention provides that if a dispute arises between the parties as to the meaning or scope of an award, either party may request an interpretation of the award. Where possible, such request should be re-submitted to the same Tribunal that rendered the award. The Secretary-General has no power to screen such request and there is no time limit. Where it is not possible to re-assemble the same Tribunal, a new Tribunal must be constituted.
REVISION
Under Article 51, the Convention permits either party to request for a revision of the award if new facts are discovered that decisively affects the awards; but the application must be made within 90 days of the original award.
ANNULMENT
Under Article 52 of the Convention, application by either party for annulment may be within 120 days of the issuance of the award, or if the ground is corruption, the request should be made not later than 120 days after discovery of the corruption, but any application for annulment must be made not later than three years post-award.
ENFORCEMENT AND EXECUTION OF AWARDS RENDERED UNDER THE ICSID CONVENTION
The Contracting State parties to the ICSID Convention, however, are bound by Article 54 of the Convention upon presentation of a copy of the award certified by the Secretary-General of ICSID Convention, whether or not the State is a party to the particular dispute at issue, is obliged by treaty to effect automatic enforcement of the pecuniary obligations contained in ICSID awards. Failure to comply will have negative effects on the investment climate or even to the possibility of proceedings against it before the ICJ on account of violation of its obligations under the ICSID Convention. Article 64 of the Convention confers compulsory jurisdiction on ICJ in disputes between Contracting States concerning the interpretation or application of the Convention.
UNITIZATION OR POOLING RULES IN OIL AND GAS
Unitization causes nightmares for those working in the upstream sector of Oil and Gas. I am essentially an Up-Stream lover, though I have affection for Down-Stream too. Equity redetermination process is particularly both contentious and ambiguous. Experts have defined Unitization as a contractual or legal consolidation of multiple areas of blocks in order to permit the field or a pool to be efficiently developed. This means that multiple reserves could be developed similarly in a unit, instead of using a cost sharing agreement to share the costs of the production facilities. What is the meaning of a "field" or a "pool?" The debate continues; particularly between the host governments and Oil and Gas Companies.
The United States of America was the first country to develop unitization or pool rules, then the United Kingdom and other North Sea Countries - then Indonesia. Nigeria has joined, particularly with (a) Equitorial Guinea and (b) Sao Tome and Principe. What actually hastened that of Nigeria was the Nigeria v. Cameroon dispute at The ICJ - at The Hague. The likelihood of reservoirs crossing boundary lines are becoming increasingly more common. Today's sophisticated geophysics allows the Oil and Gas industry to better understand the subsurface and to detect reservoir interrelationships. There is now mechanism to readjust the individual equity interests - that is called redetermination. Participating Interest is the equity ownership interest held pursuant to the host government contract with such interest governed in accordance with the terms of the Operating Agreement. As information is acquired and the subsurface is better understood, the equities or participating Interests of the parties are adjusted. But as the issues in redetermination usually involve significant value, such problems have precipitated costly arbitration and litigation. I think the easier, better and less costly way out is the ICSID arbitration, which Nigeria has accepted and should be used to solve problems arising out of Unitization.
_ This paper was first delivered as an in-house lecture last month for Shell at Warri, Delta State
Chief Richard Akinjide, SAN, FCIA is a practising member of the Bar of England and Wales as well as that of The Gambian Bar. He also handles appeals from the West Indies in the Judicial Committee of the Privy Council, London.Africa News:
