Abstract
The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) created ICSID, an international organization. Governments and international investors can arbitrate and mediate investment disputes through the ICSID forum. It is a depoliticized, impartial, and independent body that settles foreign investment disputes. ICSID’s consent-based, automatic enforcement and self-contained regime make it a dependable BIT tool. International Commercial Arbitration (ICA) is a method of resolving disputes arising in international commercial transactions. It operates within a legal framework, including national laws and international conventions. ICA’s notable features include party autonomy, enforceability, neutrality and flexibility, confidentiality, and incorporation of national and international laws. This investigation explores the subtle differences between, in the context of a Bilateral Investment Treaty (BIT), International Commercial Arbitration (ICA), and International Centre for Settlement of Investment Disputes (ICSID) Convention Arbitration. To facilitate comprehension of the options open to a claimant or investor, the emphasis is on clarifying the differences while recognizing any possible commonalities. A hypothetical Tollstoy case scenario establishes the scenario in which the investor has to choose between ICA and ICSID Convention Arbitration. In the subsequent section, the analysis takes the viewpoint of a third-party funder (TPF) entrusted with assessing Tollstoy’s chances of winning a lawsuit against Ruritania under the terms of the Ruritania-US BIT.
Qn 1: Explain the differences between ICA and ICSID Convention Arbitration
International Commercial Arbitration (ICA) and the International Centre for Settlement of Investment Disputes (ICSID) Convention Arbitration are unique dispute resolution processes suited to handle particular dispute types and function within various institutional and regulatory frameworks. The enforcement of arbitral awards is highly differentiated between ICA and ISCID methods. ICA receives substantial backing from the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards linked to over 160 countries. ISCID, on the other hand, enforces arbitral awards to member states
Another fundamental difference between ICSID and ICA arises from the nature of the dispute resolved. The primary purpose of ICA is to settle business conflicts resulting from agreements made between private companies. Bergolla et al. (2020) point out that these conflicts might result from commercial contracts, joint ventures, or agreements about international trade. Usually, several arbitration organizations, including the American Arbitration Association (AAA), the London Court of International Arbitration (LCIA), and the International Chamber of Commerce (ICC), oversee the procedure. Under the auspices of the United Nations Commission on International Trade Law (UNCITRAL) Model Law, other international arbitration accords, and national legislation, ICA functions under a system that prioritizes party autonomy and flexibility. However, the ICSID Convention Arbitration aims to arbitrate investment disputes between foreign governments and private investors. Under the direction of the International Centre for Settlement of Investment Disputes (ICSID), a division of the World Bank Group, this particular type of arbitration is conducted. The ICSID Convention, an international convention that creates a self-contained legal framework for resolving investment disputes, governs ICSID Convention Arbitration, in contrast to ICA, which is based on state and international arbitration rules. Notably, the enforcement procedure is streamlined for ICSID awards due to their automatic enforceability in convention member nations.
The institutional frameworks for ICSID and ICA present distinctive features among the two. The primary purpose of ICA is to settle business conflicts resulting from agreements made between private companies. These conflicts might result from commercial contracts, joint ventures, or agreements about international trade. Usually, several arbitration organizations, including the American Arbitration Association (AAA), the London Court of International Arbitration (LCIA), and the International Chamber of Commerce (ICC), oversee the procedure. Under the auspices of the United Nations Commission on International Trade Law (UNCITRAL) Model Law, other international arbitration accords, and national legislation, ICA functions under a system that prioritizes party autonomy and flexibility. However, the ICSID Convention Arbitration aims to arbitrate investment disputes between foreign governments and private investors. Under the direction of the International Centre for Settlement of Investment Disputes (ICSID), a division of the World Bank Group, this particular type of arbitration is conducted. The ICSID Convention, an international convention that creates a self-contained legal framework for resolving investment disputes, governs ICSID Convention Arbitration, in contrast to ICA, which is based on state and international arbitration rules. Notably, the enforcement procedure is streamlined for ICSID awards due to their automatic enforceability in convention member nations.
ICSID and ICA are further differentiated by the confidentiality entailed. For ICA, confidentiality provisions vary indiscriminately based on the arbitration rules and parties’ agreement. Party engagements involving institutions like the International Court of Justice (ICC) will likely spark strict confidentiality rules. Unlike ICA, whose confidentiality varies depending on the corresponding parties, ICSID often maintains a higher level of privacy. Noteworthy is that confidentiality levels for ICSID and ICA generally shift depending on the rules and orders mentioned during the arbitration process (Szalay, 2017). Depending on the claims pressed before the arbitration ad hoc committee, a direction will be taken to advance or restrict the confidentiality levels.
Moreover, notable distinctions exist in the state’s role between ICA and ICSID. The state’s role in ICA is typically restricted to enforcing awards and offering a legal framework for arbitration. States do not participate in the arbitration as parties unless they have a designated function. On the other hand, states are direct parties in ICSID Convention Arbitration, and procedures can only be started with the approval of both the host state and the investor. This illustrates the unique harmony between upholding the host state’s regulatory interests and safeguarding investors’ rights.
Although both types of international arbitration, ICA and ICSID Convention Arbitration, have different functions and are regulated by separate legal systems. While ICSID Convention Arbitration is specially designed for investment disputes involving states and private investors, Investor-Commercial Arbitration (ICA) mainly deals with commercial disputes between private parties. The nature of the disagreement and the preferences of the persons involved will determine the best option.
Qn 2: Report (Tolstoy Case)
Jurisdiction and Admissibility
As a third-party funder (TPF), the jurisdiction and admissibility of the Tollstoy case under the Ruritania-US Bilateral Investment Treaty (BIT) are crucial factors. Reinisch (2017) states, “There remains an underlying uneasiness with the elusive concepts of jurisdiction and admissibility.” Contextually, this section explores the terms under which Tollstoy, the investor, may file a claim against Ruritania, as specified in the BIT. Furthermore, the existence of an investment covered by the treaty, Tollstoy’s eligibility as an investor under the BIT, and whether the dispute is within the treaty’s temporal scope are essential factors to consider.
While it is arguable that the dispute in Tolstoy vs. Ruritania is a matter not within the jurisdiction of the arbitral tribunal, it is subject to fair interpretation. Such a matter is justified by the toll-road concession contract where the Ministry of Transport and Geology Department affirmed a 15-year contract term. Therefore, the evidence cited by Tollstoy, to be treated as permissible, must show merit in interpreting the contract. As a result, Tollstoy must object that the fair interpretation of the contract and the duty to relocate the Scared Valley inhabitants was solely vested with the Ruritanian government.
Another ground for admissibility would be considering Tollstoy’s residence period in the host country. As accustomed to international laws, foreigners become important for consideration after staying in their country. Tollstoy’s stay in Ruritania demands that the law provide multiple local dispute remedies.
Substantive Theories of Recovery
For ICA arbitration, disputes often arise from contractual relationships, and investors may seek recovery based on a breach of contractual obligations (Bortner, 2020). For Tollstoy, considering the specific claims on performance, termination, and damages remains crucial. Given that Tolstoy suffered both direct and indirect losses leading to the stoppage of the 4-lane toll road construction, it can substantiate that the Ruritanian Ministry of Transportation breached the contract by becoming reluctant to relocate Scared Valley residents. Based on the initial term allowance contracting Tolstoy the right to own and operate the toll road for 15 years, the Ministry was bound to secure and convey the title route contemplated in the bid (Reinsich, 2017). On the same breadth, Tollstoy might invoke customary international law principles to assert claims. For the contracted period, international human rights law provides a legally fair operational ground for the investors in the host country. Such a matter appraises the need for fundamental human rights and freedoms of foreign investors. The claims violating national alcohol provisions against Tolltoys personnel would be deemed inappropriate.
Article IV in the International Cooperation Agreement (ICA) should be regarded as an important part of protecting national companies in a country of operation, as this is particularly the case when individuals in a host country claim self-determination rights and resort to actions that threaten the operations. This part stipulates the framework wherein such firms are to be given proper guarantees against interruptions or any intrusions on their operations from such situations. Concerning this provision, Tollstoy, being a national company that can operate within the Ruritania, can alternatively equate onto tort law principles to offset any damage that may come about by dint of actions by the Ruritarian government or agency resulting in a breach of due obligation owed to Tollstoy. In particular, Tollstoy stated that the Ruritarian government, through its Ministry of Transportation, had a definite and noticeable duty to entirely gauge and understand the topographical and geological features of the terrain before signing contractual agreements with investors like Tollstoy, which could be argued.
In light of Tollstoy’s accusations it is one of the cases when the Ruritarian government failed its duty by either overlooking or misinterpreting essential facts related to constructing a four-lane toll road between the two cities. The failure to clearly understand the intricacies of the terrain and the implications they present on the construction of the project can be considered a lapse on the part of the government concerning its duties as a state to Tolstoy as an investor in Ruritania. To claim that the state breached its duties under tort law principles, Tollstoy must prove several. Secondly, the following shall have to identify the established ground to hold the Ruritarian government responsible for Tollstoy in terms of requirements for meticulous due diligence and assessment of the project’s viability and potential risk becoming evident. Thirdly, Tollstoy must prove that the Ruritarian government violated this duty by not meeting its obligations, including ignoring or twisting important information about the project.
Furthermore, Tollstoy could contend that the failure to uphold the said task by the Ruritarian government ordered wrongs in any event, damage to the interests of the Ruritarian government, such as monetary makes some concessions on account of postpones, overrun cost, or whatever other antagonistic results that emanate from the poor plan and implementation of Finally, Tollstoy would be required to ascertain the causal link between the government’s breach of duty and the resulting damage that Tolstoy thus suffered, thereby allowing the judgment against the Ruritarian government for the failure or commission to act. In pursuing its claims under Article IV of the ICA and based on torts law principles, Tollstoy may seek a wide range of relief or remedies to compensate for the loss that has inevitably emanated from actions or omissions by the government. Monetary or equitable remedies include compensation for financial losses incurred and rectifying the adverse consequences of the government’s conduct by mandating corrective measures. This could also be a mandatory remedy if Tollstoy’s contractual rights are breached. In addition, Tollstoy can also take advantage of other legal avenues that are present under the ICA or such bastions of international law to increase its scope in the arbitration setting. This could include referring to other conditions of the ICA that grant guarantees from discriminatory treatment or unfair expropriation of investments or set activated rules of customary international law regarding a state’s liability for breaches of international obligations.
Alternatively, ICSID arbitration would spark expropriation as a substantive theory of recovery in the dispute. Tolstoy may claim compensation for direct or indirect expropriation of their investments by the host country without prompt, adequate, and effective compensation. The fact that the Ruritanian authority was aware of the revolts by Sacred Valley residents and failed to intervene in time implies “intent” to subvert crucial contractual elements. It is beyond doubt that it was the state’s obligation to provide complete protection and security throughout the 15 years, and failure thereof led to significant harm to the investor. Following the witness statement from a geologist, Tollstoy may allege a lack of political goodwill in facilitating the company’s activities in the project construction.
Based on the residual protection of customary international law, the investor is subject to national treatment and most-favoured-nation (MFN) treatment. The umbrella clause derived from Article VII of ICSID dictates that there must be no expropriation without compensation (Patil, 2017). Tollstoy’s operations in Ruritania were supposed to be smooth. Such a matter accentuates the need to ensure foreign investors experience a welcoming and serene environment to optimize their investments. In this context, Tollstoy was considered a favoured nation, thus expediting all the resources and policies relevant to meet a smooth stay. The failure to consider injured workers from the projectiles from sling-shots from Sacred Valley residents would be treated as a denial of justice. Investors and states in international investment disputes must comprehend these fundamental recovery conceptions. The facts of each case, the relevant treaty articles, and the legal framework controlling the selected dispute resolution mechanism—ICA or ICSID arbitration, for example—will determine the claim’s specifics (Slazay, 2017).
Defences
States frequently use a variety of defences in the context of international investment law and arbitration to refute the claims made by foreign investors. These defences are essential to the legal tactics used to refute the claims of treaty violations. The host state may contest the investor’s claims’ substantive validity and deny treaty violations. This could entail disputing the purported expropriation, disproving allegations of unjust and unequal treatment, or arguing over how treaty clauses should be interpreted.
International investment arbitration is a complex field that addresses disputes between an investor and the host state based on the principles of international law. In this sector, investor parties and host states resort to different strategies to support their allegations or – defences. A popular protection offered by host states is that the loss incurred by the investor was due to factors not directly linked to the state concerned. Such attribution could be to the actions of private firms, lower levels of government agencies, or any acts of natural disasters that were simply unavoidable. Through such a course, the host state strove to lower its responsibility for any purported violations of investment treaties or obligations. Under the principle of necessity, a host state may seek to resist claims. The jurisdiction of this defence is to claim that the objectives carried out by the state in the process, which he would otherwise have deemed illegal, were tactfully considered necessary to release grave and urgent threats to the public interest. Threats, such as the ones related to national security, the economic sphere, and so on, could occur. Through the necessity argument, the host state is trying to show that what he did is a matter of necessity to protect important interests. As such, any suggested investment contract inconsistency is mollified.
Further, the host states use legal concepts like “ set – leadership,” estoppel,” or “ waiver ” to prevent investors from questioning their claims. These doctrines are premised upon the idea that parties should not be granted the opportunity to re-litigate a matter already put to rest due to settled issues or waived via some prior settlements or actions. With these doctrines waived by host states, investors are denied an opportunity to raise claims that have been either waived or have been previously addressed, thereby capping their ability to claim damages in international arbitration.
Since investors intending to bring claims in international investment arbitration also need to overcome these defences, this knowledge is vital. This, in turn, necessitates a thorough knowledge of the legal principles and the treaty provisions applicable to the issue and the case law interpretation thereof. Investors, starting with the investors, must be ready to respond to host states arguments that aim to reject the allegations of violations, establishing that the tainted behaviour is indeed attributable to the acts of omission by the state itself.
Analogously, host governments should form strong defences to protect their interests and disprove the claims of foreign investors. This entails extensive preparation, such as collecting facts, drafting legal arguments, and making a conclusive presentation before the arbitral tribunal. Similarly, host states must also be aware of each case’s particular facts and circumstances, the relevant treaty provisions, and jurisprudence through which to counter investor claims. Outcomes of international investment arbitration proceedings are heavily reliant on various factors both during the proceedings and those arising out of the conduct of such proceedings, such as the legal arguments by the parties, the credibility of their provided evidence, and the impartiality of the input of the arbitral tribunal. Tuning in the element of advocacy and hours of planning go hand in hand with investors persuaded to have a hold on the process, which called for meticulous preparation and is perfect for hosting states to advance effectively through such a complicated and high-stakes procedure.
In a nutshell, the defences that host states practice in international investment arbitrations have a significant role in investigating the result of the conflict between them and an alien investor. Whether the argument invoked necessity, settlement, release, or estoppel, host states plead to reduce their responsibility for alleged treaty breaches and safeguard their sovereign prerogatives. On the contrary, investors must overcome these challenges and prove that the state is responsible for any breach of obligations towards their investments. Since this is a challenging area, effective advocacy can be supported by a deep understanding of international law and treaty provisions necessary for both parties to reach their goals.
Reference
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